ML20207B410

Correction to SECY-99-107, Potential Mod of Doe/Nrc MOU Due to Changes in Hanford Tank Waste Remediation Sys Privatization

ML20207B410
Person / Time
Issue date:	04/16/1999
From:	NRC OFFICE OF THE SECRETARY (SECY)
To:
References
SECY-99-107-ERR, SECY-99-107-R, NUDOCS 9906010008
Download: ML20207B410 (201)

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April 16,1999 CORRECTlON NOTlCE TO ALL HOLDERS OF SECY-99-107 - POTENTIAL MODIFICATION OF THE DOE /NRC MOU DUE TO CHANGES IN THE HANFORD TANK WASTE REMEDIATION SYSTEM PRIVATIZATION 1

PLEASE REPLACE ALL OF SECY-99-107 WITH THE ATTACHED REPLACEMENT. IN THE I i

ORIGINAL PRINTING, NUMEROUS PAGES WERE MISSING AND SEVERAL PAGES WERE l OUT OF ORDER.

ATTACHMENT:

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s POLICY ISSUE (Notation Vote)

April 8.1999 SECY-99-107 FOR: The Commissioners FROM: William D. Travers Executive Director for Operations

SUBJECT:

POTENYlAL MODIFICATION OF THE DOE /NRC MOU DUE TO CHANGES IN THE HANFORD TANK WASTE REMEDIATION SYSTEM PRIVATIZATION PURPOSE:

To inform the Commission of changes in the U.S. Department of Energy (DOE) program for  !

I Hanford Tank Waste Remediation System Privatization (TWRS-P), and obtain approval for negotiating potential modifications to the " Memorandum of Understanding Between the Nuclear Regulatory Commission (NRC) and the Department of Energy: Cooperation and Support for Demonstration Phase (Phase 1) of DOE Hanford Tank Waste Remediation Privatization Activities," January 15,1997, 62 EB 12861 (MOU, attached).

SUMMARY

NRC and DOE negotiated the original MOU based upon a two phase approach for the TVERS-P. Phase I was to involve the design, construction, and operation of relatively small, pilot plant facilities to demonstrate technologies and treat a small percentage of the tank wastes (6-13%), with completion and deactivation within 10-15 years. The potential transition to NRC regulation would occur sometime prior to the start of final design and construction of full-scale facilities for Phase ll. During Phase I, the DOE was to acquire the capability to implement a CONTACT: Robert Pierson, NMSS/FCSS (301) 415-7192 l l

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The Commissioners , program of nuclear safety and safeguards regulation consistent with NRC's regulatory approach. During Phase I, NRC was to acquire sufficient knowledge and understanding of the physical and operational situation at the Hanford waste tanks and the processes, technology, and hazards involved in the Phase I activities, and to enable NRC to (a) assist DOE in performing reviews in a manner consistent with NRC's regulatory approach and (b) be prepared to develop an effective and efficient regulatory program for the licensing of DOE contractor-owned and contractor-operated facilities that will process waste at Hanford during Phase ll.

However, after the conclusion of the preliminary conceptual design efforts in Phase I, DOE evaluated submittals from two contractors, and selected one contractor to proceed further with design activities leading to the eventual construction and operation of TWRS-P facilities. In addition, DOE decided on a larger, Phase i facility that would be reused and expanded during Phase ll, with a design life of at least 30 years, thus reducing the distinction between the two Phases. Such a facility, if not initially designed and constructed to meet NRC requirements and regulations, might require additional efforts and costs to meet those requirements and regulations if they are imposed at a later date. This changes NRC's role and the potential timing of regulatory transition, if any.

Both the NRC and DOE staffs agree on the need to reevaluate NRC's role in light of the changes in the TWRS privatization approach. The NRC staff believes that this reevaluation should occur in the near term and identify appropriate roles for the NRC, and include potential recommendations for revisions to the 1997 MOU to the Commission and to DOE management.

As noted in Attachment 2, DOE's Richland Operations Office would like to continue the current collaboration, perhaps with more NRC assistance (including closer ties) to the DOE, at least through FY 2001 when the review of the Contractor's construction Authorization Request is expected to occur. The NRC staff believes that a revised MOU should include a definitive, mutually agreeable commitment and schedule regarding seeking transition of regulatory authority to NRC, or a commitment of NRC providing technical support to DOE without an assumption that the resulting facility would meet NRC licensing requirements. The latter approach may facilitate less-independent NRC involvement (e.g., participation on DOE inspection and review teams, or other activities), while continued NRC maintenance of independence from DOE activities appears appropriate under the former approach.

Attachment 1 is an issue Paper which discusses these points in more detail, and recommends evaluating and negotiating changes to the MOU. A draft of this issue Paper has been discussed with DOE, and no formal comments have been received. Attachment 2 is a letter from DOE, indicating that the collaboration with NRC has been very productive, and that DOE believes its interests are best served by maintaining the status quo, at least through FY 2001. Attachment 3 is a copy of the NRC/ DOE MOU. Attachment 4 is a copy of the DOE report to Congress on the TWRS-P Phase i Project.

RESOURCE IMPLICATIONS:

A general-fund line-item has been included in NRC's annue budget requests, specifically for NRC staff TWRS activities and technical support from the Center for Nuclear Waste Regulatory Analysis. The development of revisions to the MOU has no near term NRC resource implications (i.e., no additional effort or funds beyond those currently available would be required), because activities such as defining NRC's role and regulatory approach are within the scope of the current Phase I activities and MOU relationship with DOE.

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' Th3 Commission:rs - Current resource needs were formulated based upon the assumption of near term regulatory transition and the current MOU's NRC-DOE relationship. SECY-98-029 provides details on the staff's estimated and actual costs of NRC involvement in TWRS under the MOU. DOE's revised contractual approach and any associated MOU revisions are likely to impact NRC resources and resource planning, insofar as NRC's . roles and responsibilities and the timing of transition may be redefined. The staff will provide to the Commission the staff's evaluation of possible effects on NRC resources along with the options for NRC roles and responsibilities when the staff seeks Commission endorsement of a revised MOU with DOE.

RECOMMENDATION:

The staff recommends that the Commission:

1 (1) authorize NRC staff to negotiate, with DOE, draft modifications of the MOU that l will address the changes in the program and include exploring the pros and cons of proposing legislation to clarify NRC's roles and responsibilities; and (2) direct NRC staff to provide for Commission approval, options for future NRC  ;

roles and responsibilities regarding TWRS along with associated, draft revisions '

to the MOU and any resource implications.

COORDINATION:

The Office of General Counsel has reviewed this paper and has no legal objection to its l contents. i The Office of the Chief Financial Officer has reviewed this Commission paper for resource l implications and has no objections.

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William D. Travers Executive Director for Operations Attachments: _

1. The issue Paper l

2. DOE letter, dated December 23,1998

3. MOU between NRC and DOE on TWRS-P

4. DOE Report to Congress on Comissioners' completed vote sheets / comments should be provided directly to the Office of the Secretary by COB Monday, April 26, 1999.

2 Commission Staff Office comments, if any, should be submitted to the Commissioners NLT April 19, 1999, with an information copy to the Office of the Secretary. If 1 the paper is of such a nature that it requires additional review and comment, the Commissioners and the Secretariat should be apprised of when comments may be expected.

DISTRIBUTION Commissioners OIG CIO REGIONS OGC OPA CFO. SECY OCAA OCA EDO

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. ISSUE PAPER FEBRUARY 4,1999 IMPORTANT CHANGES TO THE U.S. DEPARTMENT OF -

ENERGY'S HANFORD TANK WASTE REMEDIATION SYSTEM F'WATIZATION PURPOSE:

An issue Paper may be used to solicit views of the U.S. Nuclear Regulatory Commission (NRC) staff or to consider the views of other Federal departments or agencies and coordinate these, to the extent possible, in order to develop a staff-recommended position.

This issue paper will describe and discuss: (1) the background and original working relationship between the NRC and DOE; (2) recent, major revisions to the U.S. Department of Energy's (DOE's) Hanford Tank Waste Remediation System (TWRS) privatization approach; (3) the possible impacts of these revisions on NRC involvement and role under the January 29,1997, NRC-DOE Memorandum of Understanding (MOU) for cooperation and mutual support for the demonstration phase (Phasa 1) of the TWRS project; and (4) the staff's belief that a reevaluation of NRC's role and participation may be necessary and appropriate as a result of these revisions, including potentially_ revising the MOU.

1. BACKGROUND. ,

l Under its original approach (i.e., before August 1998) to privatization of the Hanford tank  !

remediation, DOE would have regulated the contractor-owned and -operated, pilot-sized, demonstration TWRS facilities during Phase I, and DOE proposed that NRC regulate the ,

design, construction, and operations of contractor-financed, -owned, and -operated production i facilities (Phase 11). When the original approach was conceived, Phase I construction was expected to begin in December 1999, with operations beginning in June 2002. Phase ll design and construction were expected to occur in parallel, with Phase ll operations starting around 2004.

The original, two-phased approach had several advantages in that it accommodated: (1) DOE's scheduling interests, specifically those related to the Hanford Federal Facility Agreement and

- Consent Order, also known as the Tri-Party Agreement (TPA), between DOE, the U.S.

Environmental Protection Agency, and the Washington State Department of Ecology; (2) DOE's interest in privatizing certain DOE activities; (3) contractor interests regarding the difficulty of formulating fixed-price proposals for privately financed full-scale facilities, given uncertainties in the waste material and treatment technologies; (4) time to identify and seek needed legislative clarifications before possible regulation by NRC; and (5) NRC's ability to prepare and develop an effective'and efficient regulatory program before transition.

NRC committed, through the January 29,1997, NRC-DOE MOU', to support DOE, during Phase I, to help facilitate the potential regulatory transition to NRC at the start of Phase 11. DOE Attachment 1 8 > Memorandum of Understanding Between the Nuclear Regulatory Commission and the Depa:tment of Energy ' Cooperation and Support for Demonstration Phase (Phase 1) of DOE Hanford Tank Waste Remediation System Privatization Activities," January 15,1997,62fR 12861.

. established the Regulatory Unit (RU) to regulate the TWRS Phase I privatized contractor a::tivities in a manner that assures adequate radiological, nuclear, and process safety by

. application of regulatory concepts and principles consistent with those of NRC. . Under the MOU the staff has been developing the necessary NRC regulatory program and staff expertise in anticipation of possible NRC regulation; assisting DOE's RU in developing a DOE Phase I regulatory program that is consistent with NRC's rege story approach; and advising the RU on technicalissues and reviews of the contractors'submittals. In so doing, the staff has been attentive to the need to maintain an appropriate level of independence from the DOE TWRS Regulatory Unit, in keeping with the NRC's objectives of avoiding any potential appearance of ,

conflict of interest that the public may perceive as the NRC works with DOE to regulate these facilities and by establishing credibility as a clearly independent peer reviewer.

From September 1996 to May 1998, British Nuclear Fuels Limited, Inc. (BNFL) and Lockheed l Martin Advanced Environmental Systems (LMAES) were competing contractors under separate contracts for Phase I of the TWRS project. In the TWRS privatization approach, Phase I had two parts: Phase lA was a 20-month development period ending May 25,1998; and Phase IB '

was a multi-year follow-on, proof-of-concept, and commercial demonstration-scale effort. In January 1998, under terms of the Phase lA contract, each contractor submitted its proposal to DOE for design, construction, and operation of the treatment and immobilization facilities for Phase IB. In May 1998, DOE terminated the Phase lA contract and Phase IB negotiations with LMAES because of programmatic and technical concerns. On July 21,1998, DOE submitted a report to Congress8 on the proposed follow-on contract with BNFL, and on August 24,1998, DOE signed a new contract with BNFL.

2. RECENT. MAJOR REVISIONS IN THE DOE APPROACH:

in its report to Congress, DOE characterizes the new BNFL contract as reflecting an evolution of the original TWRS privatization approach Differing from the original approach, during the first 2 years, Phase IB design will gx;;d to about a 30 percent design level with DOE funding; then a decision will be made on whether to proceed with Phase IB construction and operations. This approach allows design work to proceed without delay, but defers (for 2 years) a firal decision to proceed with construction and operation of the project. The deferral permits further .afinement of the design, technical approach, regulatory requirements, contractor financing and investment arrangements, and the contract and fee structure, before DOE and BNFL enter into an estimated $6.9-billion contract.

The new agreement differs in key respects from the original plan, with increased cost and different contractual arrangements, including a longer, cost-reimbursable portion. DOE exercised an attemative route in the TPA that defers LAW solidification (a several year delay in startup of low-activity waste vitrification operations, a TPA milestone) in exchange for more expedient HLW retrieval from the tank farms and processing in TWRS-P (a several year acceleration in a HLW TPA milestone). This TPA milestone exchange provides DOE and its contractor with additional time to design, negotiate, construct, and operate the TWRS-P facility.

More notably, from NRC's perspective, the BNFL facilities will have a 30-year design life and will accommodate expansion (i.e., installation of additional processing lines), instead of the originally planned approach of shorter design life (5- to 9-year) Phase i demonstration facilities, if expanded, the BNFL facility is estimated to be capable of processing 55 to 65 percent (by mass) l- of the tank waste by 2028, including approximately 95 percent of the long-lived radionuclides.

I (The TPA date for DOE completion of all tank waste immobilization is 2028.) The DOE's report 2 Report to Congress. Treatment and Immobilization of Hanford Radioactive Tank Waste," U.S. Department of Energy, July 1998.

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. to Congress estimates that a parallel, similar-capacity facility would be required around 2016, to .

complete the TWRS cleanup mission by 2028. l DOE now defines Phase I as the current 24-month design phase, followed by a construction and  !

operations phase of the 30-year design-life facility, to process about 6-13 percent of the waste  ;

volume and 20 to 25 percent of the activity. DOE cur ently forecasts that Phase I waste  !

treatment will begin around 2005 or 2006 and continue for about 10 years. Presumably, the  !

expansions to the Phase I facility and the possible parallel facility would be Phase ll activities. l

3. IMPACTS UPON NRC INVOLVEMENT:

Although DOE originally approached NRC to license the TWRS facility from the very outset (i.e.,  !

NRC regulation of both Phase I and Phase ll activities), neither the new contract Wr the report l to Congress directly addresses DOE's plans for the transition to NRC regulatic,n or the BNFL facilities, nor does either one address the imoacts of the new approach on the timing of the possible transition. However, the report does indicate that NRC's participation during Phase I would remain ". . .primarily of a cooperative nature for the purposes of information transfer and assisting DOE in establishing a regulatory program that is consistent with the NRC's regulatory approach." The report also indicates that DOE is maintaining eventual NRC regulation for  ;

Phase ll as a possible outcome, by stating, ". . .the lead time for Phase il will allow the NRC to  !

have the necessary legislative and regulatory framework to assume regulatory oversight." It  ;

also indicates that DOE will initiate planning for Phase 11 during the initial 2-year design period. l Based on these statements and discussions with DOE, the eventual transition to NRC of l regulatory authority for the TWRS privatization may still occur; however, potential, transition to  !

NRC of regulatory authority may be delayed significantly, possibly until about 2015.

The staff believes that a reevaluation of NRC's role and participation is needed because of the changes in DOE's TWRS approach. A major factor in reevaluating NRC's Phase I role concems the timing for transition to NRC regulation. DOE's report to Congress indicates that the Phase 11  :

request-for-proposals and procurement process would begin around 2010. If NRC regulation

, begins several years after that (around 2015), then this is a significant change from DOE's  !

originally envisioned two-phased approach, in which NRC regulation of Phase 11 was planned to l begin around 2004, about the same time as the original Phase 11 design efforts, and consistent - l with the NRC's licensing process. Under the original approach, there was little likelihood that  ;

Phase I design decisions would affect NRC licensing, because of the short design life of the Phase I facility and the fact that the Phase I demonstration facilities were to remain under DOE  !

regulatory oversight. However, DOE's new approach (i.e., with significant and accelerated design of the full scale facility [e.g., the portions of the facility common to both phases and originally intended for possible NRC regulation in Phase 11] already initiated) may result in the '

design and construction of a facility that NRC may not be able to license on regulatory transition without either increased costs and delays, due to the need for possible retrofits, the need to consider exemptions, or to seek legislative authority and implementing rulemaking to allow for certifying what would become an existing facility constructed outside of the normal NRC approach.

NRC has undertaken a number of actions to facilitate the eventual regulatory transition since NRC was first informed of DOE's intentions for regulation of the TWRS-Privatization facility.

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I l These actions include forming a dedicated organization within the Office of Nuclear Material

! Safety and Safeguards (NMSS) to support TWRS activities, and establishing contractual l arrangements for independent technical assistance support from the Center for Nuclear Waste Regulatory Analyses (CNWRA). NMSS TWRS staff has participated in the pending revision of 10 CFR Part 70 to ensure its applicability to TWRS activities; has developed a TWRS-specific draf t Standard Review Plan; and, with CNWRA technical assistance, has supported the RU in the development of review guidance for contractor submittals and reviews of those submittals.

l NMSS now possesses experienced and competent professional staff who understand the potential hazards posed by a TWRS facility, and has been effectively using that knowledge in developing a regulatory framework applicable to the TWRS privatization. During this period, by establishing credibility as a peer review organization that is separate and independent of DOE, the staff has managed to maintain a level of independence from DOE, in keeping with the NRC's objectives of avoiding the appearance of any potential conflict of interest that the public may perceive as the NRC works with DOE. DOE has found the existing collaboration with the NRC to be very productive, as stated in their letter of December 23,1998.

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4. REEVALUATION OF NRC'S ROLE Both the NRC and DOE staffs agree on the need to reevaluate NRC's role in light of the changes in the TWRS privatization approach. The staff feels that this reevaluation should occur in the near term and identify appropriate roles for the NRC, and include potential

! recommendations for revisions in the 1997 MOU to the Commission and to DOE management.

DOE would like to continue the current collaboration, perhaps with more NRC assistance (including closer ties) to the DOE, at least through FY 2001 when the review of the Contractor's l Construction Authorization Request is expected to occur. The staff believes that a revised 1

MOU should include a definitive, mutually agreeable commitment and schedule regarding

! seeking transition of regulatory authority to NRC, or a commitment of NRC providing technical support to DOE without an assumption that the resulting facility would meet NRC licensing requirements. The latter approach may facilitate less-independent NRC involvement (e.g.,

l participation on DOE inspection and review teams, or other activities), while continued NRC maintenance of independence from DOE activities appears appropriate under the former approach.

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L . . :.u Department of Energy L Richland Operations Office L

' P.O. Box 550 Richland, Washington 99352 (EC 2 T 998 99-RU-0104 Dr. Carl J. Paperiello, Director Office ofNuclear Material Safety and Safeguards l Nuclear Regulatory Commission Washington,DC 20555

Dear Dr. Paperiello:

COLLABORATION ON THE TANK WASTE REMEDIATION SYSTEM PRIVATIZATION (TWRS-P) PROJECT j Over the past two years, the U.S. Department of Energy (DOE), Richland Operations Office (RL) and the U..S. Nuclear Regulatory Commission (NRC) have collaborated on DOE's regulation ofRL's TWRS-P Contractors. The essence of the collaboration has been for the parties to provide cooperation and mutual support to one another in the implementation of a program of nuclear safety regulation that is consistent with NRC's regulatory approach for the pmposed Hanford tank waste treatment facilities. The collaboration was formalized in a .

Memorandum of Understanding (MOU) that was executed by both parties on January 29,1997. ^

i The RL has found the existing collaboration with NRC to be very productive. As you know, the RL Office of Radiological, Nuclear, a9d Pmcess Safety Regulation (Regulatory Unit) has fashioned a regulatory scheme that re flects many proven features of NRC regulation. The l Regulatory Unit (RU) has adopted the NRC's Principles of Good Regulation, NRC procedures have been used and adapted to the RU situation, and several former NRC personnel have been hired into the RU The NRC has placed a site representative in the RU who is free to participate in all RU activities and frequently offers advice and information. There are weekly telephone exchanges between the RU and the NRC's Special Projects Branch (SPB), and periodic meetings between the two groups. The SPB personnel participate in all significant interactions with the l Contractor 4 These, as well as other features of the collaboration have all contributed to the RU, L which is performing an effective regulatory function.

We believe that RL's interests would be best served by continuing the existing collaboration in l its current form, at least through FY 2001 when review of he Contractor's Construction Authorization Request is expected to occur. At that time, the Contractor is also required to have developed its financing proposal as well as proposed costs. Based on these and other inputs, DOE will decide whether and how to proceed into construction and operation.

In the meeting between you, various members of your staff, and Dr. D. Clark Gibbs, RL, on November 13,1998, there occurred a discussion of a list that had been earlier provided by the ATTACHMENT 2.

CarlJ. Paperi:lla, NRC DEC 2 31998 99-RU-0104 RU of possible avenues for refinement of the existing NRC role. This list was aimed at improving the benests that RL receives from the collal oration. The list is intended to be a starting point for the process of fine tuning a relationsbp, which has already proven to be beneficial. It may also be input to revising the MOU if doing so would be ofinterest to you. We would be pleased to receive your response on this matter and look forward to continuing our ,

productive interaction.

Please be advised that this letter is not intended to be a response to the Issue Paper that you transmitted to us in your letter dated December 3,1998. If you have any questions, contact me or your staff may call Dr. Gibbs on (509) 376-9936.

Sincerely, i

John D. Wagoner RNP:DCG Manager cc, R C.Pierson,NRC E. Q. Ten Eyck, NRC J. E. Fitzgerald, DOE O. O. Thompson, DOE '..

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l MEMORANDUM OF UNDERSTANDING BETWEEN THE NUCLEAR REGULATORY COMMISSION AND THE DEPARTMENT OF ENERGY l

COOPERATION AND SUPPORT FOR DEMONSTRATION PIIASE (PHASE I) OF DOE HANFORD TANK WASTE REMEDIATION SYSTEM PRIVAT!ZATION ACTIVITIES January 29.1997 ATTACHMENT 3 l

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1 MEMORANDUM OF UNDERSTANDING BETWEEN j THE NUCLEAR REGULATORY COMMISSION AND THE DEPARTMENT OF ENERGY l i

COOPERATION AND SUPPORT FOR DEMONSTRATION PHASE (PHASE D OF DOE liANTORD TANK WASTE REMEDIATION SYSTEM PRIVATIZATION ACTIVITIES i

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{ /! tww ddn Date (Wrd Carl Pa'perielfb, Director W-Date

, dhn Wagoner [ anager Of5cc of Nuclear Materials 1/Department Richland Ope

. ons Of6ce of Energy Safety and Safeguards U.S. Nuclear Regulatory Commission J

O e January 20,1007 MEMORANDUM OF UNDERSTANDING BETWEEN THE NUCLEAR REGULATORY COMMISSION AND THE DEPARTMENT OF ENERGY COOPERATION AND SUPPORT FOR DEMONSTRATION PHASE (PHASE D OF DOE HANFORD TANK WASTE REMEDIATION SYSTEM PRIVATIZATION ACTIVITIES i

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1. PURPOSE l The purpose of this Memorandum of Understanding (MOU) between the Nuclear Regulatory Commission (NRC) and the Department of Energy (DOE) is to establish the basis for cooperation and mutual support during the demonstration phase (de6ned as Phase I) of j DOE's Tank Waste Remediation System (TWRS) Privatization activities. An objective of this DOE /NRC interaction is the development and execution of a comprehensive regulatory program by DOE that is consistent with NRC's regulatory approach for protecting workers, the general public, and the environment. DOE's regulatory program is to be structured to facilitate the possible transition of regulatory responsibilities from DOE to NRC at the start of the full-scale operations phase (defined as Phase 11). During Phase I, DOE is responsible for implementing the TWRS Privatization regulatory program. This MOU provides for l cooperation and mutual support in an integrated effort that provides for:

1. DOE to acquire capability to implement a program of nuclear safety and safeguards regulation consistent with NRC's regulatory approach.

2. NRC to acquire suf6cient knowledge and understanding of the physical and operational situation at the Hanford waste tanks and the p'rocesses, technology and hazards involved in Phase I activities, to enable NRC (a) to assist DOE in performing reviews in a manner consistent with NRC's regulatory approach and (b) to be prepared to develop an effective and efficient regulatory program for the licensing of DOE contractor-owned and contractor-operated facilities that will process waste at Hanford during Phase II.

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January 29. 1997 H. INTRODUCTION .

A. Background During 1991, the Department of Energy (DOE) established the TWRS Program at the Hanford Site to manage, retrieve, treat, immobilize, and dispose of certain radioactive waste in a safe, envitunmentally-sound, and cost-effective manner. The requirement.s and commitments for the TWRS cleanup activities are documented in the Hanford Federal Facilities Agreement and Consent Order, also known as the Tri-Party Agreement (TPA).

Under the TPA, DOE, the U.S. Environmental Proiection Agency (EPA), and the Washirigton State Department of Ecology have agreed to a timetable for cleanup of the

' Hanford Site.

DOE, through the 'IWRS Program, is making a fundamental change in its contracting app.oach at Hanford, utilizing privately-owned facilities on the Hanford Site for processing waste which contains special nuclear material. This change in contracting approach also necessitates a fundamental change in DOE *s approach to regulation and oversight.

To accomplish the TWRS requirements, DOE plans to privatize treatment operations for the Hanford tank wastes. The TWRS Privatization is divided into two phases, a demonstration phase (defined as Phase I) and a full-scale operations phase (detined as Phase II). During both phases, DOE will purchase waste treatment services from a DOE contractor-owned, contractor-operated facility under a fixed-price type of contract: DOE will provide the feedstock to be processed. The DOE TWRS Privatization Contractor must finance the

. projectdi ; es gn the equipment and facility; apply for and receive required permits and licenses; construct the facility and bring it on line; operate the facility to treat waste; and deactivate the facility.

DOE will undertake nuclear safety and safeguards regulatory responsibility associated with the TWRS Privatization activities during Phase 1. The EPA and the State of Washington

. have responsibility to regulate environmental issues and the Occupational Safety and Health Administration has responsibility to regulate occupational safety. NRC's participation during Phase I will primarily be of a cooperative nature for the purposes of information transfer and assisting DOE in the establishment of a regulatory program that is consistent with NRC's regulatory approach for protecting workers, the general public, and the environment.

This MOU describes the relationship between NRC and DOE for activities conducted during Phase I only. The relationship between NRC, DOE, and the DOE TWRS Privatization Contractors during Phase II remains to be claritied by legislation and/or regulatory requirements.

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Phase Descriptions .

Phase I l

Phase I is a proof-of-concept / commercial demonstration-scale effort. The objectives of Phase I are to: (a) demonstrate the technical and business viability of using privatized facilities to treat Hanford tank waste;(b) define and maintain required levels of safety and safeguards; (c)

. maintain ' environmental protection and compliance; and (d) substantially reduce life-cycle costs and time required to treat Hanford tank waste.

Phase H Phase II will be the full-scale production phase, in which the facilities are to be configured so that all the remaining tank waste can be processed. The objectives of Phase II are to (a) implement the lessons luarned from Phase I, and (b) process all tank waste into forms suitable for final disposal. The current DOE proposal is to have NRC assume full regulatory responsibility (consistent with the manner in wi.ich NRC regulates its licensees) for Phase II, although certain operational, statutory, and regulatory issues must be clarified before the proposed Phase II regulation by NRC can be implemented. Current estimates are that DOE procurement documents and NRC regulatory requirements for Phase !! would be needed by the year 2004.

This MOU does not apply to Phase 11 activities.

IH. AUTHORITY

-A. De===*==nt of F=gv Sections 31,91 and 161 of the Atomic Energy Act of 1954, as amended; Section 104 of the Energy Reorganization Act of 1974; and, Section 301 of the DOE Organization Act authorize DOE to provide for the safe storage, processing, transportation and disposal of hazardous waste, including radioactive waste, resulting from nuclear materials production and weapons production. -In addition, with regard to activities under DOE's jurisdiction, Section 161.i.(3)  ;

of the Atomic Energy Act 'of 1954, as amended, permits DOE to prescribe such regulations  !

or orders as it may deem necessary to govern DOE activities authorized by the Atomic Energy Act of 1954, as amended, including standards and restrictions governing the design, location, and operation of facilities used in the conduct of such activity, in order to protec't health and to mirimize danger to life or property.  !

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0 0 January 29. 1997 B. Nuclear Rerulatory Commission Sections 53,57,62,63, 81,103,104, and 161b, of the Atomic Energy Act of 1954, as amended, and Section 201(f) of the Energy Reorganization Act of 1974 authorize NRC to license and establish by rule, regulation, or order, standards and instructions to govern the possession and use of special nuclear material, source material, or byproduct material to protect health or to minimize danger to life or property, or to promote the common defense and security. This agreement is entered into pursuant to these and other applicable authorities, including the Economy Act of 1932, as amended.

IV. FOUNDATION UNDERSTANDINGS

1. This MOU applies to Phase I only.

2. DOE will regulate the DOE TWRS Privatization Contractors during Phase I under the terms and conditions agreed upon by DOE and the DOE TWRS Privatization Contractors, and will be responsible fo" the regulatory oversight of all design, construction, operational, and event-response activities. NRC will have no regulatory authority over the DOE TWRS Privat ization Contractors during Phase I,

3. No regulatory action, process, or practice established by DOE during Phase I will be binding on NRC during any possible NRC regulatory oversight of DOE TWRS Privatization Contractors during Phase 11,

4. NRC's regulatory approach is based (a) on reviewing the applicant's systematic and integrated identification of potential accidents and interactions resulting from radiological and related process chemical and fire hazards, and (b) on ensuring adequate protection against those hazards which could impact on the safety of the worker, the general public and the protection of the environment.

V. AGREEMENTS BETWEEN PARTIES A. Responsibilities Department of Energy The Manager, Richland Operations Office, will be responsible for implementing the terms of this agreement. The TWRS Regulatory Official, who reports to the Manager, Richland Operations Office, will be the DOE point of contact for all communications relating to carrying out the pro' visions of this agreement.

4 ot' 9

i January 29,1997

~ Nuclear Regulatory Commission The Director of Nuclear Materials Safety and Safeguards (NMSS) will be responsible'for-

. implementing the terms of this agreement. . The Chief of the responsible Branch within

, NMSS will be the NRC point of contact for all communications related to carrying out the provisions of this agreement.

B. General Provisions

1. At the foundation of the DOE privatization approach is a predictability and reliability feature embedded in DOE's contracts with the TWRS Privatization Contractors -

namely contractual commitments for DOE regulatory actions within specific time periods. Essential to timely and orderly DOE regulatory actions is the awareness by NRC of these contractual commitments and the need for timely interaction between DOE and NRC at all levels.

2. If an issue arises in the implementation of this MOU which cannot be resolved at the agency point-of-contact level, the NRC and DOE agree to refer the matter within 30 days to the Director, NMSS, and the Manager, Richland Operations Office, for appropriate action.

3. It is the intent of both parties to conduct the TWRS' Regulatory Program in an open, public, and professional manner. NRC and DOE recognize the importance of providing timely and accurate information to the public regarding regulatory matters that may affect the protection of workers, the general public, and the environment.

Meetings between NRC and DOE staff in connection with this MOU will be governed by NRC policy on open meetings (59 FR48340: September 20,1994). NRC will participate with DOE in public meetings and other public interactions, as appropriate.

All transmittals between DOE and NRC regarding TWRS Privatization activities will be made publicly available, consistent with NRC and DOE policies and requirements, at an established local public document room.

4.- Each agency recognizes that it is responsible for the protection, control, and accounting of classified, proprietary, and procurement sensitive information; Safeguards Information (SGI); and Unclassified Controlled Nuclear information (UCNI).

5. Each ' agency will be responsible for processing, under its established program (s),

allegations -- declarations or statements or assertions of impropriety or inadequacy whose validity has not been established-- associated with the regulated TWRS Privatization activities covered by this Memorandum of Understanding. Each agency will keep the other agency informed, as appropriate, of such allegations, the 5 of 9

January 29. 1997 allegations' status, and the allegations' resolution. Each agency will assure that allegations are promptly referred to the agency or entity that h.s jurisdiction over the allegation.

6. In suppon of the DOE TWRS Privatization activities. DOE will provide private office space and equipment, if needed, for NRC in the vicinity of the TWRS Regulatory Unit in the Richland, Washington area. DOE will provide the NRC with ready access to current TWRS regulatory information; access to key individuals in tiie Regulatory Unit for consistency discussions; access to TWRS general information, tank farm status and operational issues, and safety perspectives; and access to Hanford Site safety perspectives.

C. Reeutatory Interaction Activities

1. Site Familiarization NRC will need to acquire knowledge of the physical and operational situation for the Hanford waste tanks and of the processes, technologies. and hazards involved in processing the tank wastes. The following activities will be performed to provide this familiarization:

a. NRC will visit the Hanford Site, as necessary to examine the conditions of the tank farms as they may relate to TWRS Privatization. As part of NRC's orientation, DOE will provide NRC information on:

e the physical conditions and operational requirements necessary for safe storage, retrieval, transfer, and processing of the tank waste, e evaluations of the criticality potential for TWRS Privatization activities, e radiation levels of the waste and chemical forms of the waste, e contamination levels in the areas of the planned TWRS Privatization facilities and tanks, e hydrogen generation / flammable gas situation of tanks, e organic complexant/ nitrate oxidizer situation of tanks, e other possible hazards associated with the waste, e available or planned waste movement systems, and a the Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response. Compensation, and Liability Act (CERCLA),

and Atomic Energy Act of 1954 for the TWRS.

b. DOE will provide NRC access to the tank farms, tank farm records and documentation, and other information concerning operational conditions and events that NRC may desire in order to understand the TWRS Privatization project and associated hazards processes, and conditions.

6 of 9

January 29, 1997

c. Upon request by NRC, DOE will brief or ho!' liscussions with NRC on issues related to the TWRS Privatization effort. The locations, timing, and content of these meetings will be agreed upon by the points of contact for each agency.

d. NRC may occasionally conduct reviews and special audits or inspections at DOE's request to provide objective perspective on selected regulatory issues.

2. Regulatory Familiarization To assist the DOE in establishing the capability to regulate consistent with NRC concepts and principles, the NRC will provide detailed brie 6ngs, guidance documents, and support in developing important administrative and technical program elements of a regulatory program.

NRC will provide DOE access to regulatory training provided by NRC to its staff on a space available basis and, with specific agreement, will provide DOE opportunity to observe NRC's regulatory activities.

3. Development of DOE TWRS Regulatory Procram DOE guidance specific to the regulation of DOE TWRS Privatization Contractors will be prepared and issued by DOE. The guidance is for use by the DOE's TWRS Regulatory Unit in its execution of the regulatory reviews and resulting regulatory actions and is provided as information to the DOE TWRS Privatization Contractors for their preparation of regulatory submittals. The guidance will cover those submittals required of the Contractors by DOE such as the Quality Assurance (QA) program, essential set of safety standards and requirements (including the site-specific design basis), integrated safety management plan, safety assessment, construction authorization request, operating authorization request, operational reports and assessments, and deactivation authorization. DOE will be responsible for issuing this guidance in its final form.

The following activities will be performed by NRC and DOE to develop the guidance:

a. NRC will provide DOE with established and evolving NRC guidance and position documents as input for DOE to consider in the development and updating of its.

guidance for the DOE regulatory review. NRC will assist DOE in developing a DOE inspection program that will be applied during design, fabrication, construction (e.g. acceptable codes and standards for concrete, electrical, welding, etc.), installation, and qualification testing.

b. DOE will develop guidance for the review of Contractor submittals and DOE reviews of TWRS Privatization activities. NRC will review and provide a basis 1 of 9

January 29. 1997 for its comments on DOE's draft guidance to identify areas Ba* may not be consistent with NRC's regulatory approach.

c. NRC will participate, as appropriate, with DOE in the joint development of guidance, based on industry standards, e.g., ANS/ ANSI, for issuance by DOE as guidance for the DOE TWRS Privatization Program.

4. Regulatory Procram Imolementation Specific DOE regulatory activities are planned: these include design basis review, QA program evaluation, standards approval, initial safety evaluation, construction authorization and inspection, operating authorization oversight, and deactivation authorization. These actions will begin in FY 1997 and continue throughout Phase I. The following activities will be performed by DOE and NRC in fulfillment of their respective responsibilities under this MOU:

a. DOE will be responsible for safety (e.g. design basis) and safeguards reviews and determining acceptability of DOE TWRS Privatization Contractors' submittals against the DOE TWRS guidance. DOE will have final decision authority for regulatory implementation during Phase I and for all interactions with the DOE TWRS Privatization Contractors.

b. NRC will review and provide a basis for its comments on DOE TWRS Privatization Contractors' submittals to identify any areas that are not consistent with NRC's regulatory approach. These submittals will include all documents which address the technical and quality basis for the TWRS facilities and which could affect nuclear and process safety and safeguards in design, construction and operation.

NRC will assist DOE in evaluating submittals and in verifying effective implementation of:

e design - design basis, design veri 6 cation, level of design detail and documentation, design specifications, calculations and drawings, and procurement specifications e quality assurance - for design, procurement, construction, pre-operational testing and operation e operator training and quali6 cation 8 of 9

7 I

. l January 29.1997 o - human factors e emergency response.

1 VI.

OTHER PROVISIONS

1. Nothing in this MOU will limit the authority of either agency to independently exercise its authority with regard to matters that are the subject of this MOU.

2. Nothing in this MOU will be deemed to establish any right nor provide a basis for any action, either legal or equitable, by any person or class of persons challenging a government action or a failure to act.

3. 'Ihis MOU will be effective upon signature and upon satisfaction of conditions in Section VI.4 and will remain in effect until the end of Phase !. This agreement may also be terminated by mutual agreement or by written notice of either party submitted six months in advance of termination. Amendments or modifications to this agreement may be made upon written agreement of the parties.

4 This MOU will become effective, and remain in effect during such time periods when Congress authorizes, and provides appropriate funding (or when there is another acceptable form of reimbursement) for NRC's participation in this project.

J

5. Activities within the scope of this MOU and within the scope of appropriated resources are mutually agreed to be without reimbursement of cost for either )

organization. Special activities such as described in Sections V.C.!.d and V.C.2 l may be negotiated for cost reimbursement as needed, l I

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TWRS Phase 1 Project A uthoritation-to-Proceed EXECUTIVE

SUMMARY

Summary This nport to Congress on the Tank Waste Remediation System (1TRS) Phase 1privatizationproject i

describes the U.S. Department ofEnergy's (DOE's)planfor taking the next steps to assure treatment of 1

! Hanfordtank waste. The report alsofulfIls the nottfcation nquirements ofSection 3132 ofthe National Defense Authoraation Actfor Fiscal Year 1998, initiating the 30-day waitingperiodfor the Secretary to enter into a defense environmental management,huikation contract.

DOE has decidedto authorize one contractor team led by BNFL, Inc. toproceed to the nextphne ofthe TWRSprtvataationpwject. The nextphase is a 24-month designperiodthat willresult in ss@fcient engmeering andfnancial matwiry to establishfaed-unitprices and tofnalizeprojectfmancing terms.

At the conclusion ofthe designphne, DOE will make a decision whether topwceed with BNFL into a construct on andoperattonsphase. Ifauthorised toproceed to the constructson and operationsphase, BNFL wouldpwvide both high-lent andlow activity waste treatment and immobilisation services.

Dwmg the 10-year minimum-order-questityperiod the BNFLfacility is expectedtoprocess appmximately 10% ofthe Hanfordtank waste by mass and20% to 25% by radioactivity.

The Challenge Approximately $4 million gallons ofhighly radioactive wastes are stored in 177 & w -- d tanks, including 149 older single-shell teks, at the HanfordSite in Washington State. That waste, which was derivedfomproductum ofplutonhanfor the nation 's nuclear defenseprogram, has been -- :-- ' :---g at Hanfordsince 1944. The wasteposes a serious safety concern to thepublic ad to the environment Since most ofthe single-shell taks have exceeded their design life, that risk is growing. Saty-sewn of the single-shell tanks are known to how leaked and senrol addstional tanks are being innstigatedfor potentialleaks. Nearly a million gallons ofthe tank waste has spilledinto the soil ofthe vadose zone below the tanks since thefrst leak occurred. Recent information has indscated that tak waste

l. radionuclides have mond tirough the vadose zone andnow have reached the groundwater thatjows sader the HanfordSite ad connects with the Columbia Rinr.

DOE is taking actin measwas to reduce the chance ofadditional tank leaks. However, it is notpossible to perdict when the next tank willleak, and withpassage oftime, even the newer, safer double-shell tanks l are appmaching the end oftheir design lins. Removal ofthe wastefrom the tanks, treatment, and immobilitation as an inert wasteform will constitute a lasting solution to theproblem. DOE, Aaport to Cosqgress iii i

I

WRS Phase i ProJoc2 A uthorization-to-Proceed the U.S. EnvironmentalProtection Agency, andthe Washington State Department ofEcology have enteredinto an enforceable compliance agreement settingforth milestonesfcr cleanup ofthe tank waste. DOE, State regulatory agencies, andstakeholders view the tank waste clemup as one oftheir toppriorines.

Tank Weste Remediation System Program in view ofthe importance ofthe Hanford tank waste issue, DOE established the TWRSprogram in 1992 to enswe that the tak weies would be stored treated and immobilised in a sqfe, envimnmentally saami andcost-efectw manner. In 1994, DOE embarked on af,uuua: ion demonstration strategy to purchase wasteprocesshsg servscespom best-in-class compames instead ofbuildmg its om faci'HIrs.

One goal ofthat demonstration strategy was to make greater use ofthe technologies, demonstrated ejfciencies, andmanagement discipline ofprsvate industry toprovide efective solutions to the tank waste challenge. However, at tlw :wne time, it was determined that severalmajor IWRSfunctions (e.g., waste retrseval, andwaste chaacternation) wne not appropriatefor)ked-price cm ,wmg. Msefunction are being caried out by the Management andIntegrating contractor)br the HanfordSite, which is cm, pFluorDanielHm)brd in September 1996, DOE enaeredinto contracts with two contractor teams-one led by BNFI, Inc.

(BNFL) and mother led by LockheedMartin AdnuscedEnvironmental Systems (LMAES)-for Phee 1 of the TWRSprisatisationproject. At the time ofcontract award the contractsfor ZwRSPhase Iwere stmetured inno twoparts, a 20-month Part A, endag in mid-1998 and a optional Pat B, plannedfor qppmzinsately 10 to 14> wars &papase ofPat A was to evaluate the sechnical operational, regulatory, baainess, andfmancial elements requaed byprivatisedfacilities that wosddprovide treannent andimmobilisation services on afand-unit-pruce basis. Under the original 1WRSPhase 1 contracts, Part B was aperiod ic.w-4 o begm t in'mid-1998, in which the authorssed contractor (s) wouldfully fmance, design, construct, operate, anddeactivate waste treatmentplants on afhad-price basis.

Based on a detailed review ofthe workp axts prepared by both contractors (as regaared by Pat A ofthe contract), DOE has decidedto restmetwe Pat B ofthe contract and to awhorize only one contractor, BNFL, toproceed to the designphase ofPhase L DOE has concluded that the BNFL proposal contameda viable conceptualfacility design with robact tecimologies that have been efectively demonstratedat other sites. DOE concluded that BNFL wouldbe able to meet contractual regaarements for deskps, construction, and operations in the balance ofPhase L Report to Congress iv

TWRS Phase i Project Authori:ation-to-Proceed in comparison, DOE determined that the Part A workproducts provided by IMAES setforth an approach with an sasacceptably high technical risk in attabsing DOE's cleanup goals. The IMAES conceptual facility design was deemed to be unrealistic without additional development, and its proposed technologies, while novel in rome cases, were legely sorprown. The LMAESproposal did not provide DOE with evidence to conclude with a suffcient level ofconfsdence that IMAES would be able to meet the conanct requirementspr the balance ofPhase 1. As a result, DOE decidednot to authorize LMAES toproceedto the designphase.

In light ofthe importance and s=nsitivity ofthe authorszation-to-proceeddecisionsfor BNFL andLMAES, DOE seed newly 100 independent experts toparticipate in the decisim-makingprocess in advisory, ca , butor, andreview capacities. DOE expects to contmue to use as independent reviewprocess to assist in program decisions as Part B ofthe commactprogresses.

Scope and Structure ofthe BNFL Contract The contract with BNFL reflects an evolselon ofthe original TWRSprivatuation approach. 1he wiginal Apyroach envtsioned that the Department would make afaal, multi-billion dollar decision whether to proceed with the IWRS Pl zse Iproject at the end ofthe 20-month Part A denlopmentalperiod with completion ofconceptual design. 11ae revised qproach will allow DOE to mowforwed on design without delay, but defers afaal decision antil theproject isfather refmed with respect to its design ad technicalqproach, ug .;wy requirements, andjinancialandincentive saucture. This approach incorpormes the changes necessaryfor the downselect to a singleperformer and the dtvision ofPart B of the conwact into twoparts. SpecyIc contractprovisions er hecluded to: 1) denlop the necessary technical, operatsonal, regulatory, and business elements to reduce sacertamties andprovide performance asswance, and2) refme the contract managementprocesses requiredfor the hfe ofthe conaact early dwing the designphase.

Dwing the design phase, BNFL will take its carent enhanced conceptual design to one in which)tnal design Approaches have been selectedfor all s.qforprocess andfacility systems (approximately 30% design). This more detailed design and ingproud sederstanding ofregulatory regaarements are expectedto enable BNFL to obtamprojectfmancing andtoproposefand-sesitpricesfor waste processing services. Basedon the cwrent scope ofwork the estimated cost ofthe designphase woeddbe $330 million.

u Report to Congress v

TWRS Phase 1 Project Authori:ation-to Proceed The cwrent BNFL targetpricefor the 10-year minimwn-order quantity oftreated waste under the catract is $6.9 billion (FY1997 dollars). Thisprice is signficantly higher than the originalDOE estimatesfor Phace L This is, kspart, became the hasardspresented by the operations to beperformed under the contract necessitated more robatfacilitiesforprocessing and confmement ofthe waste. These facilities will have a 30-year desip life rather than the original concept ofa 5- to 9-year demonstration facility. As a by-product ofthe longer desip life, theplant has thepotential to treat wastefor a much longerperiod, can treat waste with a broader range ofcomposition, andcouldtreat more than halfofthe tank waste (by naass) and qpyraximately 95% ofthe long-livedradionuclides with a limitedaddstsonal havestment Althoegh the contract developedrapresents apoeitive business .- --4---- =for the Department, there are key ingplementation steps which met be taken bs the early stages ofthe contract to assareproject success. DOE willreview theproject throaghout the desipphase to enssar that domuwardpressare is maatamed on the targetprices and that necessaryprogress is maatamed by BNFL in developbrg its technical madsafety design, and in secarmg necessary)hnancbsg medpermits. This will include as inqportant review after six months to reach agreement with BNFL m the terms med methodology daar will l

be usedto establish theftxed-sesitprices submitted at the endofthe desipphase.

l

\

' At the endofthe 24-month desipphase, DOEwilldecide whether toproceedwith the & =*

constructiet and operationsportion ofPhase Ior topersue one ofseveral other approaches to conqplete Phase 1. BNFL 's authorisation toproceed will depend as DOE receiving acceptablefixed-aesitprsces,

&mfor review oftheir designfor nuclear and chemicalprocess stfety, a substantial ersdty ,

comnutment byBNFI, andothersip)Ecant)tnancbsg amagedbyBNFL A key element ofthis jinmacing will be BNFL equity, which represents BNFL's brvestneent in the success oftheproject.

In combination with BNFL 's activines durmg the dssip phase, DOE will be c ,,t; out a manber of other activsnes to ensare that as optmann conanct resadts at the end ofthatphase. 1hase activities will l include valse engineering studnes to re) hee tecinsicalspecyscatunnsfor the naast cost-efectrue waste processing w oach,c anddefinbsg the optimannfhaancing ,, c, c.l, with BNFL to be med bs the constructum andoperationsphase.

4 i

TWRS Phase 1 Project Authori:ation-to-Proceed IfBNFL is authorized to proceed beyond the design phase, it will moveforward to the completion ofthe design, construction, startup, testing, and operation ofthefacility toprovide waste treatment services at thefixed-mitprices establishedat the end ofthe designphase. Under the contract negotiated with BNFL, DOE carentlyforecasts that waste treatment will begin in 2005 to 2006 and will continuefor at least 10 years. Dwing thatperiod DOE expects the contractor to immobilite approximately 10% of Hanford's waste by mass. That wasteprocessing willinclude both high-level andlow-activity waste treatment and immobilisation. The waste processed dwing operations will be retrievedfrom 11 tanks and willfree sy valuable double-shelltank space to enable trasfer of wastefrom high-risk single-shell tanks & waste to beprocessed conststures between 20% and 25% ofthe totalrkkity in the Hm)brd tanks and includes some ofthe highest safety-risk tanks at the site. BNFL 'sfacility design providesfor the ability to expand the capacity ofthe plant at a later date. This could allow a signifcant amount ofthe waste curnntlyplannedfor TWRSPhase Ilto be processed in the *~~A-2 facility. I DOE also recognizes that the successful execution ofthe IWRSPhase Iprojectic.r iia ef(scrive management by the Department The qproach to managing this contract invoins a less directive role than DOE normally has in a cost-reimbwsement contmct to take advestage ofthe incentens and ejfciencies ofprtvate aduroy. To cary out this role efectinly, the DOE has denloped, or is denloping, a number ofinportant meugement tools, includag a detasledproject management and i

integratum system. Work also is mderway to asswe that stging needs are met in a timely manner by a dedunted specialised team. & meugementplan includes extensive inputfom externalreviewers, including 9.eicip 4 with broadexperience inf4-;cc cm i;,,g with otherfederalpgencies, and theplan takes bsto accosat key lessons learnedduringPart A ofTWRS, as well as signifwant lessons pom other recentprojects in the DOE complex.

Report to Congress vii

MM Phase 1 Project Authorization-to Proceed Table of Contents 1 Introduction.............................................................................................................................1 1.1 Purpose of the Report ...... ................................................................................................ I 1.2 ca_ n. tante and Organi= tion of the Report ......................................................................... 2 13 Mapping ofReport to Congressional Reporting Requirements....................................... 2 2 Background-The Importance of Tank Waste Treatment ........................................... ........... 5 2.1 Description of the Pmblem.......... .. .............................................................................. 7 2.2 Compliance Agraama=** .................. ........ .... .......... ..... ....................................... 9 23 Regulatory Context..... ............. ..... . ........................ ................................................. 9 23.1 External P a=d eion .................. .. ....... ..................................................... ..... 10 23.2 Regulation by DOE ......... .......... ..... .... ... ..... .................. ....... ...... ....... 10 2.4 TWRS Environmental Impact Statement ..................................... .................. .... .... 12 3 PrivatizationC rat for Hanford Tank Waste Treatment and Immobilization.... ....... .....13 3.1 Selection of Privatization for TWRS..................................... ............................... .... 13 3.2 Evolution of the TWRS Privatization Amwech-Part A Contracts.............................16 33 Evolution of the Privatization Amvech--Part B Proposals and Implications ..... ..18 3.4 Development of an Optimal C{-+eg Amoech for TWRS Phase I ................ ...... 19 3.4.1 Risk AUocation .. .................. . ................. ....... ............................ ... .... . 19 3.4.2 Benefits of a Mix of Private and Public Financing in the TWRS Case...... . . . 20 3.43 Decision Points forProject Op: L-6on . .... ....... ...... .. ...... _... . .... 23 4 The Decision to Proceed .... ... ...... . . .. .............. ...... .... .... .... . .... ......... .. 25 4.1 Description of Contractor Amveches ........... .. ............... . ... ..... ...... . .. . . 26 4.1.1 LMAES' Approach . .. ...... . .................................. .. ...... .. ..... ....... . . 26 4.1.2 BNFL's Approach. .. . ........ ......... .. .. .......... ...... ......... ......... . 26 4.2 Evaluation of the Contractors' Approaches .... . ....... . .............. .......... .... . 30 5 Dn ::::aa of the BNFL Contract. ... . ......... .. ............ ......... ... ...................... 33 5.1 Structme of Part B . ..... . ... . ................. ... ...... . ... . ... ......... ...... . 33 5.2 Design Phase .............. ... ......... ... . .. ....................... .... ............... .................. . . 3 5 5.2.1 C+- ; Mon of Project Financing Amvech ........ .......................... ..... .... 38 l

5.2.2 G,.2: : don of the Technical Amvech...... . ... .. .. .............................. . . 41 5.23 Rag' deary Activities During the Design Phase .................. .. .................... .. 42 53 Constmetion and Operations Phase..... .. .................... ..... ......... ........... ....... .... 44 l

53.1 Project Interfaces .... ......... ...... ....................... .... ............................... . 46 5 3.2 Waste Feed Specifications .' ..... ........................... .... ......... ................ .... . 46 53 3 Waste Product Sp-i&* ions .. .............. ................ .................................. . 49 5.4 Phase I Schedule ....... .. .. .. ..... .. ........... ...... ......... ... . ......................... ...... .. 50 5.5 Allocation of Project Risks and Obligations .... ........ ...... ...... ............... ....... .... 51 5.5.1 Allocation of Project Risks ........ ........ .. ......... . . ..... ............... .... ....... 52 5.5.2 Project Obligations of BNFL and DOE..................... . ..... .......... ............ . 55 5.6 Project Costs and Cost Savings . . .. .................. . ......... ...... ................. .... ... . 57 5.6.1 Project Costs ......... ...... . .. ... ........ . ............. ......... .... .... .......... 57 5.6.2 Potential for Cost Savings. ......... ...................... .... ..................... ........ . . 61 5.63 C+5=-h with other DOE Vitrification Pmjects. ......................... ....... ...... 64 5.7 Phase I Funding Regs- A ..... ..... ........... ....... .. ... .............................. .... . 65 r .

[, .-

i TWRS Phase IProject Authorization-to-Procecd i

' 5.7.1 TWRS Phase I Fnnding Requirements ................................................................ 65 5.7.2 Hanford M&I Contractor Funding Requirements for Support of Privatization .. 68 5.8 Pl ana i a.= for Phase II ...... ............................. ............ .......... .......... .. ..................... 69 6 M ==.- "- st of the TWRS Phase I Proj*ect ............................................................................ 71 6.1 Overview of DOE's Management Approach ............................. .................................. 71 6.2 Special Elements for Management......................... ...................................................... 72 6 3 Estabh.

. s h TWRS Phase I as a Separate Proj.ect..........................................72 6.4 TWRS Phase I Project Management ......... ................................................................... 73 l 6.5 Project Management System .................................................................................... .... 74 l 6.6 Management Elements for Maintaining Financial Accountability and Reporting Cost Variances..................................................................................................................75 6.7 BNFL and Hanford M&I C+- Mr Manaymaat Approaches.................. ................ 77 .

6.8 Management of Interfaces ............................ .......... ........................ ... ..................... 77 I 6.9 Issue Identification and Resolution Pww.w........... ........... ........................ ............... 78 l 2

7 Conclusions ..... ... ...... .......... ............. .... ..... . .... .............. ............. ................. .. . ..... 81 i i

8 References......................................................................................................................83 i 1

1 1

i Appendices l l

nn Arr-iiv A-TWRS Phase I Authorization-To-Proceed Decision and Decision Methodology ............................................ .... . ......... ..................... ....... .. . .. A- 1 Ap,a-iiv B - Expert and Non 'avy--- -- Reviews ... ........ .. ..... .. .......... .....................B-1 A,n,a-iiv C - TWRS Phase I Construction Proj'ect Data Sheet .. .. ..... ..................... .... ....C-1 I

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Raport so Congress ix i

f L

TWRS Phase 1 Proftet Authorkation-to-Proceed List of Tables Table 1-1. Congressional Reporting Requirements Mapping........................................................ 3 Table 4-1. Major Applications of Treatment Technology Proposed by BNFL and LMAES...... 28 Table 5-1. Major Project Milestones ........................................................................................ . 50 Table 5-2. BNFL Target Price Summary..................................................................................... 59 Table 5-3. Summary of Potential Cost Savings from the Phase I Contract................................. 62 Table 5-4. Potential Budget Authority / Budget Outlay Profiles for 90% Confidence Schedules for Phase I, Part B Waste PrWag Services ........................................................... 66 Table 5-5. Estimated Budget Profile for M&I Contractor Costs To Support Privatiintion ........ 68 Table 6-1. Special Elemente of DOE Management Ayrvach .................................. ................ 72 List of Figures Figure 2-1. Current Hanford Tank Waste Volume ......................................... ............................. 5 Figure 2-2. Delay ofTank Waste Disposal Poses Risk ofTank Failures........ ............... ...... . 6 Figure 2-3. Tank Waste as a Source ofVadose Zone and Groundwater Contamination.. .......... 8 Figure 3-1. Division of C+ se RWbilities for Tank Waste Remediation System..... 15 Figure 3-2. Risks in Envk- :J M-= ==-* Proj ects ........................... ............................ 21 Figure 3-3. Risk Sharing Leads to OptimE Couh4 Approach........................ ......... . .. . 22 Figure 5-1. Part B Project Structure... ...... .. ..... ............................. ..... ........ ................ 34 Figure 5-2. Design Phase Strategy........ ............ ............ ................ ....... ........................ ... 36 Figure 5-3. Financing Strategy for TWRS Project ........ ....... ............................................... . 39 Figure 5-4. TWRS Phase I Project Interfaces... .. ....... . ............. ... ............................... . 47 Figure 5-5. C+-r=h of Tri-Party Agreement and BNFL Milestones......................... ......... 52 Figure 5-6. Risk Allocation................................. ............. ........................................53 Report to Congrat x

4 4 TR2tS Phase I Project A uthorization-to-Proceed List of Acronyms and Abbreviations ATP Authorization to proceed BA Budget authority Bechtel BechtelNational,Inc.

BNFL BNFL Inc., a United States subsidiary of British Nuclear Fuels plc l BO Budget outlay 3

CFR Code ofFederalRegulations '

DoD U.S. Department of Defense DOE U.S. Department ofEnergy DOE-RL DOE Richland Operations OfBee i DST Double-shell tank l

Ecology Wa=hington State Depiuuuent of Ecology EIS Environmentalimpact statement i EPA U.S. Environmental Protection Agency FY Fiscal year

.HLW high-level waste LAW Low-activity waste I LMAES Lockheed Martin Advanced Environmental Systems ,

M&I Management and integration M&O Management and operating i MOU Memorandum ofUnder<tanding l

NRC U.S. Nuclear Regulatory Comminion NTP Notice to Proceed OSHA Occupational Safety and Health Admini*ation RCRA Resource Conservation andRecovery Act Regulatory Unit DOE OfEce of Radiological, Nuclear, and Process Safety for TWRS Privatization J RFP Request forproposal RTP Readiness to proceed SAIC Science Applications International Corporation SST single-shelltank TPA Tri-Party Agreement (Hanford Federal Facility Agreement and Consent Order)

TWRS Tank Waste Famadiation System Report to Congress xi

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Report to Congrest xii

TWRSPhaseiProject Authorization-to-Proceed 1 Introduction The Hanford Site Tank Waste Remediation System (TWRS) program is at a criticaljuncture.

Two contracts were awarded in September 1996 for Phase I of a "privatiration" initiative for I waste treatment services. The contracts were awarded to teams led by BNFL Inc. (BNFL), a United States subsidiary of British Nuclear Fuels plc, and lockheed Martin Advanced  !

Environmental Systems (LMAES). At the time of the Phase I awards, the contracts were -

structured into two parts: a 20-month Part A, scheduled to end in mid-1998; and an optional Part B, planned for approximately 14 years. The purpose ofPart A was to establish the technical, operational, regulatory, business, and financial elements required by privatized facilities for provision of tank waste tramtment and immobilization services on a fixed-unit-price basis. If antharird o tywceed to Part B, contractor (s) would then design, build, permit, operate, and deactivate privately fin =ad low-activity waste (LAW) and (optionally) high-level waste (HLW) treatment plants. They would be paid for treated waste when it was delivered back to the <

U.S. Department of Energy (DOE) for storage and disposal. Of the 20-month Part A period, 16 months were provided for the comenctors to complete deliverables for submittal to DOE, and 4 months were provided for DOE to review and evaluate the deliverables and decide whether to authorize initiation of Part B by zero, one, or both contractors.

TWRS Phase I was designed to treat and immobilize between 6% and 13% of Hanford's tank waste and serve as a demanention of the elemente that would be required in continuing this new ev=L-eting -yymech with the production-scale Phase II. In Phase II, DOE envisioned that the halmace of the tank waste would be pr~ *==M the immobilized HLW sent to a geologic repository, the tanks closed, and the processing facilities dacantaminatM and decommissioned.

The two contractors submitted their Phase I, Part A deliverables as achaduled on January 26,1998. DOE has evaluated those deliverables and completed its authorization-to-proceed decision process. This report describes DOE's decision and provides information to support that decision.

1.1 Purpose of the Report This report describes DOE's first major decision on the privatiration of the waste treatment and immobiliration services under the Hanford Site TWRS Project Phase I. The report is also intended to satisfy the Congressional requirement for a 30-day notification period for privatization contract actions contained in Section 3132 of the NationalDefense Authorization Actfor Fiscal Year 1998.

DOE has carrieil out a detailed analysis to arrive at the Phase I, Part B decision described in this report. Moreover, in view of the i ywi ce of this Part B decision, DOE has involved more ,

than 100 experts from outside the Department in the review of the decision process and the  !

decision itself. As a result, DOE believes that the Part B decision is sound, my.-i. good i value and a flexible path forward, and will ultimately result in significant progress toward DOE's  ;

cleanup mission. . ]

l i

j i

Aaport so Congress 1 i

i

TRRS Phase I Project A uthori:ation-to-Proceed 1.2 Contents and Organization of the Report His report is intended to provide the reader with a clear picture of the urgency and the technical challenges associated with initiating tank waste treatment at the Hanford Site. The report describes in detail the couhrdog approach that DOE has selected for TWRS Phase I as the l solution for these challenges, and the reasons for selecting that approach compared to other options. The report is viphai along the lines of the following key questions:

• What is the W h nie=1 nature of the tank waste problem? (Section 2) e Why did DOE select privatization for TWRS7 How has the contracting approach evolved overtime? (Section 3) e What was the basis of DOE's authorization-to-pd decisions with respect to BNFL and LMAES7 (Section4) e What are the contract stmeture and technical and financial features that DOE negotiated with BNFL for Part B7 (Section 5) e How will DOE manage the project? (Section 6)

Appendices A and B are included to provide the reader with additional information on the TWRS Phase I decision process and extemal review of the decision. De current Construction Project Data Sheet for the project is set forth in Appandiv C.

1.3 Mapping of Report to Congressional Reporting Requirements DOE has compiled pertinent information in this report to clearly present the decision and its justification to the Congress. DOE has addressed the matters required in the NationalDefense Authorization Actfor Fiscal Year 1998. Table 1-1 maps these issues to wiis=;+-Aing sections of the report. .

Jtaportto Congress 2

TWRS Phase i Project Authortation-to-Proceed Table 1-1. Congressional Reporting Requirements Mapping 3 y Reporting t _ : :" A"M Section(s) 2A The antapeted costs and fees of the Department under the 5.6 and 5.7 contract, includhig the anbcipated maximum amount of sudi costs and fees 28 Any performance specificebons in the contract 5.2 and 5.3 2C The antapeted detes of commencement and complebon of the 5.4 provision of goods or eerwoes under the contract 2D The allocahon between the Department and the contractor of any 5.2 and 5.5 financial, regulatory or emnronmental obinebens under the contract 2E Any amtvibes planned or antapeted to be requwed with respect to 5.8 the protect aAer w.r: :-, of the contract 2F The site eennons or other support to be provided the contractor by 5.5 the Decertment underthe contract 2G The goods or services to be prouded by the Department or 5.5 contractor under the contract, induding any addibonel obhgebons to be bome by the Department or contractorwith respect to such noods or eennoes 2H If the contrad prowdes for Snencmg of the proJoct by an entity or 5.6 entibes other then the United States, a detailed comparison of the costs of Anoncmg the proped through such entity or entibes with the costs of Snencmo the croiect tmr the United States 21 The edieduto forthe contred 5.4 2J The costs the Department would otherwise have incurred in 5.6 obtaining tie goods or sonnoss covered by the contract if the Departnant had not proposed to oblem the goods or senaces under this sedan 2K An ashmete and )% of the cost eewngs,if any, to be 5.6 reekaed through the conbact,includmg the assumptons undertyng theentmete 2L The eSect of tie contract on any ancibery schedules apphcable to 5.4 the fedky concemed, including milestones in she comphence aeroements 2M The piens for maintoming Snenclot and programmebe accountabigty 6 foracevaies underthe contract 3B in Sie case of a contract under =% (a) at the Hanford N/A reservation, sie suport under paragraph (1) shed set foM the metters specited in paragraph (2); and (B) ll the contract contempletes two pilot viertRcetion plante-(i) an analysm of the beeis for the soledian of each of the plants in Bou of a single pilot vitrificeben plent; and (ii) e deteBed comparison eitie costs to the -

United States of two pilot plants with the costs to tie United States of a smale pilot olent

• Secton 3132(b) of the Natonef Doisnee Authonzason AdibrFiscar Year 1998.

Raportto coveras, 3

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4 4

Reportto congras 4

a .

TWRS Phase i Project Authorhation-to-Proceed 2 Background-The Importance of Tank Waste Treatment The Hanford Site in the southeastern part of the state of Washington is the location of one of the greatest concentrations of radioactive waste in the world. That waste is the legacy of nearly 50 years of chemical processing to produce plutonium for nuclear weapons, which began with the Manhattan Project in the 1940s and continued through most of the Cold War. The 54 million

gallons of tank waste at Hanford exist in three forms-sludge, salt cake, and liquid supernatant--

and are stored in 177 underground, steel-lined, concrete tanks (see Figure 2-1), most with capacity of a half-million to a million gallons.

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• 340 Milbon Cunes orRadionuclides Figure 2-1. Current Hanford Tank Waste Volume Of the 177 tanks,149 are older, single-shell tanks (SSTs), the last one being placed in service in 1964. Figure 2-2 illustrates that all of the SSTs have exceeded their 20-year design life.

Sixty-seven of these SSTs are known to have leaked high-level radioactive waste into the ground. DOE is currently investigating several additional tanks to assess the liquid levels and determine the' potential for leaks. DOE operates an ongoing process of pumping liquids out of SSTs to mmmuze chances of additionalleaks.

The remainder of the waste is contained in 28 newer double-shell tanks (DSTs), which were placed in service from 1971 to 1986. Although none of these DSTs has leaked, a number will reach the end of their design life prior to waste being retrieved and treated, as shown also in Figure 2-2.

Repon to Congress 5

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TWRS Phase iProject Authorization-to-Proc:ed Cleanup of the Hanford tank waste is of major importance for Hanford regulatory agencies l

and regional stakeholders. The Hanford Advisory Board, representing a cross section of

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stakehniders, has made tank cleanup, and specifically the privatization project, one ofits top priorities.

2.1 Description of the Problem Hanford's tank wastes present a serious safety concern to the environment, specifically the Columbia River, and, at the same time, to public and worker health and safety. These concems exist W- the tanks were intended for interim storage when they were constructed and were not da=igaad to be y-- disposal facilities for the waste. To date, tank leaks already have resulted in nearly a million gallons of HLW entering the soil at the Hanford Site, and there is a constant threat ofnewleaks.

The W:;h'apw State Dey -t ofEcology (Ecology) and other stakeholders have euph==%d the need to address the threat to the environment caused by contamination of the

' groundwater and the need to protect the Columbia River. In November 1997, DOE confirmed that cantaminante from past tank leaks have moved further into the vadose zone toward the ,

groundwater than previously believed and have undoubtedly r ched the groundwater. The vadose zone is the soil and rock that lies ber;;a the Hanford tank farms and the groundwater.

The vadose zone itselfis heavily cantaminated by previous disposal oflow-level radioactive and hazardous liquid chemie=1= from plutonium processing, which were diet...ed into cribs, ditches, and ponds, as well as the leaks from SSTs. This contamination is illustrated in Figure 2-3.

The leaking of these SSTs and the aging of all of the tanks ..yra problems that w-t--- i with time until actions are carried out to eliminate the source of the problems. Even though no DSTs are known to have leaked as yet, they also will be soon ex*ing their design life. DSTs

..y..at the last available safe storage location for Hanford's tank waste, particularly for the liquid supematant. Under current regulatory milestones, all waste, solid and liquid, is scheduled to be transferred from SSTs to DSTs by 2018. To achieve this schedule, some waste in the DSTs must be praca M to provide space for SST waste. If DSTs begin to develop leaks, the urgency and magnitude of Hanford's tank waste management problem increase dramatically.

To prevent further releases to the soil, Hanford is m . aly carrying out a ymcess of removing pumpable liquids from the SSTs. To date,119 of 149 SSTs have had the pumpable liquids removed and transferred to safer DSTs. However, this pumping does not remove all of the liquid waste from the tanks, nor does it remove the waste solids from the SSTs. It will take several more years to pump the remaining 30 tanks, at which time all will be several decades beyond their designlives.

Raport to Congrm 7

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r TWRS Phase ! Project Authorization-to-Proceed The highly radioactive tank waste is viewed regionally as a long-term threat that requires near-term actions to be initiated to provide a permanae solution. The preferred solution is to remove the source of the problem by retrieving and immobilizing the waste, as currently planned in TWRS Phase L Phase I has been designed to retrieve, treat, and immobilize approximately 10% by mass (and as much as 25% by radioactivity) of the tank waste, which will free up valuable tank space to transfer SST waste to DSTs.

2.2 Compliance Agreements With regard to environmental and public safety issues, there are specific legal requimments that DOE must satisfy, as well as compliance agreements that DOE has signed, concerning the Hanford tanks. DOE, the U.S. Environmental Protection Agency (EPA), and Ecology have entered into the Hanford Federal Facility Agreement and Consent Order (also called the Tri-Party Agreement [TPA]). This agraement is intended to ensure compliance with the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Emironmental  :

Response, Compensation, andLiability Act, as amended Tbe TPA sets forth certain \

requirements and milestones for cleanup activities at the Hanford Site, including cleanup of i

- the tank waste. The major project milestones and their respective completion dates will be l

discussed in Section 5.4. '

In providing waste tinstment and immobilization services in Phase I, the contractors also are )

required to assure that treated HLW meets Nuclear Faste Policy Act requirements for deep l geologic disposal. Additional requirements for LAW require that the treated LAW meets RCRA l reqse... ..:e for near surface land disposal. Treannant facilities also must meet state and federal requirements for public and worker health and safety.

23 Regniatory Context l The regulatory framework for the TWRS Phase I project requires compliance with existing laws and regulations and relies on, to the extent possible, established extemal rt.gulatory authorities.

The regulatory framework for execution of Phase I addresses a variety of objectives, including the following: l

. Compliance with the TPA; j e The need for regulatory stability and *== =^= y; and

. l e The need to achieve improved effectiveness and efficiency in execution of reld-y requirements.

Except where regulatory authority is specifically reserved for DOE, or where regulatory compliance responsibility is **=Widwd for DOE, DOE will not serve as the rega1*= or enforce regaie-y compliance requirements. Where an external regulator assigns joint responsibility for regulatory compliance to DOE and the contractor, the contractor has primary responsibility and acconn*=Wiity to the external regulator. Wherejoint responsibility does not exist, the contractor has full responsibility and accountability to the external regulator. Based on the scope of work Rvan tocawras 9

F t . .

TWR5 Phase IProject Authorkation-to-Proceed and the applicable regulatory authorities, the planned regulators for this project include Ecology, the.Wa=hington State Dep-huent of Health, and the U.S. Dep-Locat of Timsp01i.iion, the EPA, as well as DOE. Continued participation by the U.S. Nuclear Regulatory Commission (NRC) is planned, and involvement of the U.S. Department of Labor's Osup tional Safety and Health Administration (OSHA) is currently being addressed. The regulatory owmik is outlined below.

23.1 External Regulation For environmental svEtion, federal and state agencies will regulate the contractor in a manner similar to other facilities on the Hanford Site.

The external regulatory agencies and their specific roles are described below.

• EPA and Ecology will regulate and administer all permits for treatment and storage cperations under the RCRA and the State of Washington Hasardous Faste Management Act.

. EPA, Ecology, and the Wa=hiantaa State Department of Health will regulate radioactive and non-radioactive air emissions.

• Ecology, the W hiontuu State Department of Health, and/or local health agencies will regulate liquid efBuents. Most contractor liquid effluents will receive final treatment at other, p .'=+i Hanford Site facilities.

• Ecology and the U.S. Department of T. -speci.iion will regulate offsite u.-speit of radioactive and non-radioactive dangerous wastes.

The OSHA, or DOE under its authority, will be responsible for reWag non-radiological safety and health concerns. If OSHA does not assume regulatory authority (per letter of May 13,1998 from the OSHA Ad=iai*stor to DOE), oversight of the contractor's non-radiological safety and health will be provided by DOE.

23.2 Regulation by DOE DOE will regulate the radiological, nuclear, and evwss safety of the TWRS Phase I facilities through the DOE OfEce of Radiological, Nuclear, and Process Safety for TWRS Privatization (Regulatory Unit). This is a DOE organization that reports directly to the DOE Richland Operations' Office (DOE-RL) manager with DOE He4 ders oversight. As such, the Regulatory Unit is indanand-at of the TWRS program and is essentially autonomous within its range of regulatory authwaiij.

Pursuant to the Atomic Energy Act, either DOE or the NRC serves as reguistor for all radiological and nuclear safety regulation in the United States. External regulation by the NRC was desired by prospective Phase I private contractors and stakeholders as it was viewed as capable of providing more w.i.iuty and more predictable regulation than the traditional DOE order-based .yrwech to safety. However, discussions with NRC c+hed that the Canmi== ion Report so congras 10

TWRS Phee 1 Profsct Authorization-to-Proceed could not provide in6 pendent regulation as quickly as needed under the DOE privatization planaiag. Fure a'=are, it appeared that NRC regulation required legislative action to confirm NRC authority to regulate the Hanford tank waste treatment, To allow the project to proceed under a stable regulatory regime for nuclear and sucess safety, DOE established the Regulatory Unit; a staff of 17 full-time federal employees at Hanford.

Additional support for the Unit is provided by DOE Headquarters and, in an advisory role, the Nuclear Regulatory Commimmion (NRC). 'Ihis support is formalimi by Memoranda of Agreement and Understanding berces the cognizant DOE and NRC officers, specifically, the DOE Assistant Secretaries for Enyk =e. Safety and Health; and Environmental Management; and the Director ofNuclear Materials Safety and Safeguards of the NRC.

Pursuant to the Memormadam of Understanding (MOU) between DOE and NRC (62 FR 12861),

the NRC's participation during Phase I is primarily of a coep. .iive nature for the purposes of information transfer and assisting DOE in establishing a regulatory program that is consistent with the NRC's regulatory approach for prat ~+iag the workers, the general public, and the environment. To further this goal, NRC has formally assigned staff to coordinate with the Rega1*ary Unit ofTWRS.

Acevadisgly, DOE arrived at a radiological, nuclear, and process safety oversight program to ensure maximum NRC involvement in accordance with the cited MOU. Under this approach:

. DOE will regulate radiological, nuclear, and process safety through a dedicated, indapaadant Rega1*ary Unit whose sole focus and .uihuaiiy is the regulation of the design, construction, and operational safety regulation of the privatized TWRS contractor; e Regulation will be consistent with the NRC's Principles ofGood Regulation (NRC 1991); -

e Reg =1* ion will not rely on the DOE order-based system unless specifically invoked through the contracts; e Oversight ofprocess safety will be conducted in a manner consistent with OFii ad crities; e Regulation will be consistent with DOE nuclear safety rules; and e Regulation will apply the cW of"tailonng" of controls to the work to be performed and associated hazards consistent with established stadeds.

To facilitate the regulatory transition to Phase II, the Memorandum of U=da ~-adiag between

- NRC and DOE for Phase I calls for prompt identification and elevation ofissues that could  :

impact the design, construction, or operation of the Phase II plants. In addition, during this period, NRC is er=~*M to issue its new draft 10 CFR 70 Rule, that would ultimately apply to the TWRS facilities, ifNRC assumed regulatory oversight. DOE and its contractors will comment on this draft rule. The comment resolution process is ava~*d to settle many areas  !

i of pc ::=1 disagreement. 'Ibe lead time for Phase II will allow the NRC to have the necessary legislative and regulatory f..-c9,i to assume regulatory oversight.

R, ort so caqrras 11 4

. e TWRS Phase i Project A uthorkation-to-Procoed Other DOE regulation will be for the protection of government assets (including waste to be pic-m=d) from theft or sabotage, and for the protection of classi6ed information. Oversight of the contractor's safeguards and security program will be provided by the DOE-RL Safeguards and Security Division. The scope of the safeguards and security program includes physical protection, nuclear material control and accountability, information and gr3vouel security, and government pupdy protection.

2.4 TWRS EnvironmentalImpact Statement DOE issued an Envhe = 2 1 Impact Statement (EIS) (DOE 1996a) for the TWRS program and a subsequent Record of Decision (62 FR 8693) under the National Environmental Policy Act.

In view of the complexity and rammining uncertainties of the TWRS program as a whole, DOE decided on a path of" phased implementation," whereby forward movement on the program would be in well-defined phases. This incremental approach allows for learning in each increment and for development of new information and new technologies. It also allows for idolog program plans as new information is imyvi.ted.

'Ibe phased .yyivsch being used to define the TWRS Phase I project, as well as subsequent work on TWRS, is consistent with the TWRS EIS and Record of Decision. Details on the implamantatian of this .yrwech are provided in Section 5.

4 Report so coryss, 12

4

• TWRS Phase ! Project At horization-to-Procoed 3 Privatization Concept fo r Hanford Tank Waste Treatment and Immobilization In 1992, DOE formally established the TWRS program to ensure that highly radioactive tank wastes at Hanford would be stored, treated, and immobilized in a safe, environmentally sound, and cost-effective manner. Beginning in 1994, DOE embarked on a strategy to procure the services of private companies to treat and immobilize these tank wastes.

The contracts signed in Septemhar 1996 for TWRS Phase I with BNFL and LMAES reN+M a DOE contracting strategy to purchase tank waste processing services at fixed-unit prices from contractor-owned and contractor-operated facilities at the Hanford Site on a demonstration basis.

Under this privatization .yrv.ch, DOE sought to achieve greater =re==t.hli ity and risk-sharing with the cos-;ur(s) than under traditional DOE cost-reimbursement contracts. DOE also a-c'M to achieve improved performance and fewer delays with this approach and to realize savings for American taxpayers over the life cycle of the TWRS Phase I project. .

DOE's cuoi..Gog .ypv.ch on TWRS Phase I has evolved with time in order to adjust the realities of the vendor and financial markets, ir.;v,ym.e lessons learned on other projects, and consider feedback from stakeholders. A review of these ch=agae in DOE's approach and the underlying reasons is " ywi.oi for the reader to understand the context of DOE's Part B ,

decision. This section tracks the evolution of the approach.

]

3.1 Selection of Privatization for TWRS The privatization w- : T g strategy for TWRS Phast i began as a cr(- es in 1994 for a more efficient way to carry out the Hanford tank waste remadiation mission. The idea was to make greater use of the technologies, damanserated efBciencies, and management discipline of private industry to provide solutions to the Hanford tank waste cleanup challenge. Fimdamantally, this approach sought to identify a portion of the total TWRS work scope (i.e., Phase I) that could be defined with sufficient certainty to enable fixed-price contracts to be signed and attract best-in-class contractors to bid F-- ;WGvely for that fixed-price work. This .yrwech w d a new way of doing bnaine== for DOE, which had relied for decades on management contractors to - ,

ce=dae+ broad scopes of work under cost-reimbursement contracts. However, privatization in one form or another had been used successfully in otiser federal agencies, in state and local governments, and in other countries. l l

An analysis of TWRS, documentaa in A Systematic Look at Tank Waste Remediation System Privatzzation (Holbrook et al.1996), was carried out in 1994 to 1995 to ernmine the feasibility of privatizing a portion of the TWRS work scope. That analysis en===+ad that a number of features would be adv.oi.geous in the contracting strategy. Among these features were:

• Phasing of the work- rw=ing only that portion of work for which a clear statamant of work and input and output specifications could be written, and for which there were reasonably mature technologies to carry out the work; R9errto Congren 13

TWRS Phase 1 Project Authoritation-to-Promed e Competition to help ensure fair prices; and

• Well-defined iniof.ces with the site contractor.

A scope for Phase I was identified and approved by the Secretary of Energy in September 1995.

That scope consisted of the TWRS functions of pret:tatment, LAW immnbi1 Man, and HLW immobilization for a specified portion of the TWRS waste that was well-characterized and retrievable. DOE planned that two contractors would operate treatment plants in the proof-of-cowgi " demonstration" Phase I in order to preserve competition and provide additional eyywhmities for learning, which would be beneficial in Phase II. Phase II was left largely =5+%ed, but was understood to be the " production" phase, which would benefit by learning in Phase I, and again would have c+ ;J g plants, which would be sized to complete the TWRS mission within TPA milestones.

The TWRS programmatic functions chosen for privatization in Phase I are shown in Figure 3-1.

That figure also illustrates that several TWRS functions are not privatized, and those functions interface directly with the privatimi scope. These non-privatized function: M farm operations, waste characterization, safety issue mitigation and resolution, waste retrieval, and waste product storage and disposal were deemed'not feasible for privati= tion, at least during Phase I, for reasons described in the TWRS feasibility report (Holbrook et al.1996). These functions will be carried out by the Hanford Management and Integration (M&I) Cee- ter during Phase I. Fluor Daniel Hanford is currently the Hanford M&I Contractor.

DOE's goal was to issue a draft request for proposal (RFP) for comment by late in 1995, issue a final RFP carly in 1996, and award contract (s) by the end of fiscal year (FY) 1996. During this time, DOE was refining its c+==;e for privatization, and in particular TWRS privatization, and establishing principles on which it would base the TWRS Phase I RFP. These principles -

• ==adad on the ideas identified in the earlier TWRS feasibility study and became an annentini checklist as the TWRS privatization contracting strategy was further developed. These principles indicated that the solution should:

• FulfillTPA requirement =;

• Shift significant responsibility, accountability, and liability to private ev=Lwor(s);

• Make the private couMar(s) responsible and accountable for cost and technical performance;

• Provide for contractor-owned, contractor-sW plant; e Assign responsibility for envae- --- =1 protection and compliance to the ev=Lror(s);

• Ensure worker and general public safety and health protection; Reporr to contras 14

WRS Phase IProject Authori:.ation-to-Proceed

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Figure 3-1. Division of Contractor Responsibilities for Tank Waste Remediation System Report to Cngress 15

TWRS Phase i Projxt A uthori:ation-to-Proceed e Ensure government-purchased products and services meet perfonnance specifications; e Acquire products and services under fixed-price contract (s) after initial development period; e Establish competitive framework for cost control; e Reduce life cycle costs compared to traditional contracting approaches;

• Initiate phased leaming and continuous improvements starting with demonstration plants; and

. Ensure contractor (s) possess sufficient technology to carry out work, while DOE focuses on high-risk, high-payoff technology development.

These principles are still embodied, in whole or in part, in the TWRS contracting approach.

DOE is not treating these principles as a rigid framework, but is using them as a guide in adjusting for lessons leamed, and to tailor the contracting approach to arrive at the best contract vehicle for TWRS Phase I.

3.2 Evolution of the TWRS Privatization Approach-Part A Contracts The TWRS Phase I draft RFP was issued in November 1995 (DOE 1995), and DOE actively solicited comments in writing and at vendor and public meetings on that draft. In addition, DOE made extensive use ofprivate sector financial advisors during this time frame. Some of that input and feedback resulted in significant refinements in DOE's contracting approach. Among these refinements were the following changes.

• Clarification by DOE ofthe regulatory environment in which theprivate contractors would function. This led to the formation of the TWRS Regulatory Unit, a separate DOE-Richland Operations Office (DOE-RL) organization independent of TWRS, to regulate the Phase I contractors for radiological, nuclear, and process safety (see Section 2.3). The Regulatory Unit has sought to adopt applicable NRC concepts and principles and have NRC staff assigned to coordmate with the Regulatory Unit pursuant to an MOU between DOE and NRC.

• Introduction ofthe concept ofwastefeed envelopes. This approach provided the contractor increased assurance that the waste feeds they would be required to treat and immobilize would fall within predetermined and agreed-upon compositional and radionuclide limits.

This approach also gave DOE enhanced flexibility in how it might choose to deliver waste to the contractors. Prior to the proposals for Phase I, DOE defined three LAW feed envelopes (Envelopes A, B, and C) of supernatant waste that would demonstrate different waste processing capabilities of the contractors' facilities, and the Department developed one high-level waste feed envelope (Envelope D) to demonstrate vitrincation of a slurry feed. These were refined during Part A contract negotiations.

Report to Congrm 16

TWRS kse ! Project A uthori:ation-to-Proceed Increased emphasis on defining clearly the interfaces that the private contractor would have with DOE or with the HanfordM&1 Contractor. This led to the development ofInterface Control Documents, which defined the roles and responsibilities of all parties at interface points (see Section 5.3).

. Managing without meddling. Feedback from the vendor marketplace indicated that DOE would have to modify its traditional management approach to reap the benefits of a privatization strategy. It became clear that DOE would have to play a less directive role than it normally used in cost-reimbursement-type, DOE An==M projects (e.g., Management and Operating [M&O] contracts) to take advantage ofthe incentives and efHeiencies ofprivate industry. An additional concem would be that performance risks would be shifted in part -

back to DOE. To achieve the =MM balance in this area, DOE borrowed the concept of Integrated Product /Procws Teams from the defense and aerospace industry to provide for non-intrusive monitoring of progress by DOE and a mechanism for contractors to obtain needed information from the Department.

• Split ofTWRSPhase Iinto twoparts, Part A andPart B. Feedback from potential bidders to the draft RFP ==h*M hat tit would not be possible to establish fixed-unit prices or to seeme private Gamacing until at least after a design phase. A 20-month Part A period was developed in response to this feedback. Each contractor would be paid a fixed price of

$27 million for submittal of wwyi.ble Part A deliverables. Contractors would be evaluated to determine whether they should be authorized to proceed to Part B based on viability and best-value mene==mente performed by DOE upon receipt of the contractors' Part A deliverables. (See Appaadh A for additional detail on these mene==mente )

The final RFP for TWRS Phase I, which included these and numerous other changes in response to commente on a draft version, was issued in February 1996 (DOE 1996b). DOE had intendM to select two or more contractor teams for Part A and down-select to zero, one, or two .

l contractors to proceed to Part B. Two bids were received from teams led by BNFL and LMAES in May 1996. Contracts with both contractor teams were signed in hp+-h~ 1996. i i

Key lessons learned from the bids and negotiations on the Part A contracts are listed below.

• Needfor an equitable risk allocation. In the early stages of developing the Phase I cvouwdog .yymsh, DOE recognized that privatization is effective in ehiaiae significant performance risk to the contractor, but some risks would have to remain with DOE. For example, DOE recognized that the private sector would not accept the risk of potential l fluctuations'in yearly budget appropriations. In addition, DOE recognized the need to absorb

- the risks associated with its own performance in areas such as waste characterization and preexisting conditions.

• Nuclear waste processingplants are not likely to be t.,,.yarmyplants. Another major lesson that DOE learned in negotiating the Part A contracts is that safety and Ga== ring considerations limited the possibility of having contractors build %=yerary" plants (those with useful lives consistent with the Phase I schedule, approximately 10 years) to process high-level tank waste. Based on the need for a conservative, seismic-resistant design, and Aaportso Congrm 17

TWRS Phase 1 Project Authori:ation-to. Proceed with input from the Enancial communities, both Part A contractors proposed more robust,

)

capital-intensive facility designs than originally envisioned by DOE, with plants having a  !

useful life ofnominally 30 years. This required a change in philosophy from the original

" throw-away" demonstration nature of the plants. The capital funding requirements for these plants increased substantially as a result of this change (see Section 5.6).

3.3 Evolution of the Privatization Appreaeb-Part B Proposals and Implications The Part A contracts authorized the contractors to propose " enhancements"in technical, business and Enance approaches to benefit the contractors as well as the government. The Part A deliverables, which included the proposed anh=eaments for Part B, were received in January 1998, and provided DOE with additional insight on the type of agreement that the i

govemment could expect to negotiate with private industry for.TWRS Phase L Overall, the January 1998 proposals for Part B indicated that the private sector was not yet in a position to gu- + -w fixed-unit prices for Part B services. Both contractors maintained that better definition and quantification of project risks were required before they could make the cosysiote commitments necessary to put their nnancial resources at risk and attract third-party Enancing. Issues Wag clarification by one or both contractors fell into the following four areas:

• The need to delay the establishment of fixed-unit prices and corporate financial commitment <

until a later point in the design process;

• The need to minimiva concurrent design and construction;

• The need for a combination of public and private E=adag; and

• The vyyvituulty for Phase I expansion.

Both contractors contended that the regulatory f.- . work for radiological, nuclear, and pavce.ss safety, j-uJtGug r@ - and project design needed additional develaamant to reduce project uncertainties. Although the original concept of TWRS privativation assumed that fixed prices and private 6==adag could be secured at the end of the cer-x d design phase (Phase I, Part A), this =-- , Gon proved incorrect. Neither contractor was willing to commit to firm fixed prices at the end ofPart A without adding significant c+ 0 gei-Ty to their prices. Both contractors recommended subdividing the next phase of the project (Part B) into two or more parts, and one contractor indicated that the division of Part B into two p-i (1) a continuation of the design phase lasting 24 months and (2) a construction and operations ph -could substantially reduce the risk premiums and contin = andes required to commit to fixed-unit prices.

This approach was also viewed as anh=adag the contractor's ability to secure private nnancing.

DOE determineA that this two-phase .yy,vech to Part B would strengthen the feasibility and economics of the TWRS project.

Report to congras 18

TWRS Phase I Project A uthori:ation-to-Proceed Both contractors indicated that concurrent design and construction needed to be minimi7M_ so that Phase I plants could be GnanceA and built. Accordingly, both contractors proposed less aggressive schedules than originally requested.

The contractors indicated that the feasibility of the project's financing and the overall economics of the transaction would be improved by establi=hing an .yymydate mixture of private and public financing instead of the original concept of100% private Gnancing. For example, the govemment could effect a decrease in the interest rate charged by project leaders or could favorably influence the prospects for project Enancing by the private sector, by providing a credit enhancement in the form of a backstop or support for the debt portion of the project's financing.

One pmposal also sugaa=*~i that the 30-year facilities could be ernand~i for a limited additional investment to process a significantly greater portion of the Hanford waste than originally l anticipated in Phase I of TWRS. The expansion capabilities and additional processing l capabilities of the Phase I facilities offer potential new opportunities for achievement of the total l TWRS mission.

3.4 Developanent of an Opthm al Contracting Approach for TWRS Phase I j DOE's .grM for TWRS privatization, both technically and contractually, has evolved considerably to accammadate information gained during and after the first two years of the i project. 'Ibese modifications in -yre have been made in coordination with DOE's Contract Reform and Privatization Project OfEce, which is using the experience on TWRS to refine its overall .yrd to privati>=rion ofcleanup projects.

In da i-ning and implementing the path forward for TWRS, DOE is establishing a contract structure that provides stmng incentives to achieve project schedule, cost, and performance goals while minimizing total project cost to the government. 'Ihus, DOE is a M g to structure an optimal s.m.--> g approach for TWRS Phase I that will:

• Allocate risks to the party best able and motivated to manage them; e Obtain the best mix ofprivate and public financing; and

• Maintain .yympiate decision points to adjust project direction in response to new information and to bring c+ pdeve pressure to bear on project costs and approaches.

Each of these principles is discussed below. Together, these principles have guided DOE's

=aga*i=+ian for TWRS privatization services and will continue to guide refinements as that strategy is implamar*aA 3.4.1 Risk ABocation l

Privatization contracts differ significantly from traditional cost-reimbursement contracts in their I allocation ofrisks Mtw the govemment and the contractor. Under privatization, the Raport so congrear 19 ]

l

1 TWRS Phase IProject A uthorization-to-Proceed contractor assumes a far greater share of risks, particularly those under the contractor's control such as technology performance and og.uug efHeiency. Under the TWRS contract, DOE has sought to allocate specific risks to the party that is most able to manage the risk.

DOE has evaluated a broad spectrum of risks that are potentially relevant to risk allocation

. decisions in privatization contracts. These risks are depicted in Figure 3-2. In general, any specinc risk will be aionaA ot a party or it will be shared.

The allocation of risks has a direct bearing on the incentives the contractor faces and ultimately on the total cost of the project. The assignment of all risks to the government (a cost-reimbur=amant approach) leads to a very high total cost to DOE hae== ofineffective performance incentives for the contractor. This is in part hae== the scope and schedule are not defined in adequate detail when the project is planned In addition, in this type of arrangement, the contractor has little intentive to control costs and schedule. As a result, substantial cost growth has occurred in past projects of this type as documented in GAO (1997) and a draft Pacific Northwest National Ikmeciy repont, DOE Cost Savingsfrom Private Contracting?

However, a complete assignment ofrisks to the private contractor would lead to very high total cost to DOE because of the risk premium that the contractor would charge for taking on risks that it was not equipped to control. At this extreme, the allocation of risk would lead to an  !

infeasible solution where private n a== ring could not be obtained. A middle ground willlead to savings in total cost to DOE. This w-:-:+g is illustrated in Figure 3-3.

~ 3.4.2 Benefits of a Mix of Private and Public Financing in the TWRS Case Based on contractor responses and other market indicators in the past two years, DOE determined that full private financing of Phase I, Part B may be difHeult to achieve at affordable levels and began an analysis ofoptions for mixing private namncing with government Enmacing.

This section ernmines the tradeoffs associated with the government assuming a greater role in n acing and describes the intent of the 6===eing c,2:; i ::on process planned in the project's ==

the next phase of the TWRS contract. The n'*eine Ga= acing .yymech embodied in the proposed BNFL contract is discussed in Section 5.2.1 The TWRS privatization .yywech was spurred by the concern that DOE's traditional cost-reimbursement contracting .yymech would likely result in cost ovemms and schedule slippage.

Since the source of Ma= acing is a critical ingredient to making privatization effective, DOE is exploring a number of options that the government can take to mitigate the risks of the project and effect savings in the financing costs. In its analysis, DOE has recognized that even though the government's interest rate is signi6cantly lower than the cost of raising capital in the private sector, the potential for cost growth and achadula delays (as demonstrated by past DOE projects) in the government's traditional 6=== ring of cout-reimbursement contracts outweighs the private sector's higher cost of capital. On the other hand, the risks associated with 100% private Enancing may increase the Anancing costs so much as to make the project unaffordable or infeasible. Between these two Enancing extremes may be a kalane* of risks such that the project is both affordable and Gnancially feasible.

l Reportto Corwras 20

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TWRS Phase ! Project Authorization to-Proceed

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DOE takes all Reasonable Risk Contractor takes all the risk Sharing the risk Figure 3-3. Risk Sharing Leads to Optimal Contracting Approach j i

In determining the appropriate allocation of public and private financing, it niust be recognized that focusing on interest rate comparisons of government debt versus private debt oversimplifies  !

I the process of allocating risks and responsibilities between the government and its contractor.

Since the source of financing is an integral part of the overall project risk allocation, the allocation process needs to preserve the key benefits associated with private financing, including the inherent performance incentives and the requirements of third-party lending sources. These benefits are discussed below.

1

• Incentives Associated with Private Financing. Under traditional government cost-reimbursement contractmg approaches, the government assumes a significant degree of the risks of project completion and performance. Proponents of private financing point to the built-in incentives associated with having a contractor's money at risk. In these structures, the team members' participation, as equity providers, is a critical toolin allocating risk becausevif the project were to fail, the team wouki lose its equity investment. This factor is a strong incentive for the team to bring the project to completion on time and under budget in accordance with performance specifications.

• Requirements of Third-Party Financing Sources: The presace af third-party financing imposes added structure into the project's planning, construction and operations, thereby ensuring a higher probability of success wnhin budget. Lenders often require very specific terms and conditions in contract documents and introduce additional project oversight. For Repon to Congress 21

, o TRS Phase 1 Project Authoritation-to-Proceed example, lenders monitor project performance closely, ensuring that, among other things, construction is praa> ding on time and within budget speci6 cations.

Participation by the government in a project's financing has a direct bearing on the nature and impact of the bene 6ts described above. Full public financing using traditional cost reimburnament shiAs the risks for project perfonnance to the government and results in relatively weak performance incentives. Acamting for these risks complicates the direct comparison of public and private Gaaae%g options. The true cost of government E===eia:is not reflected in the government's interest rate and budget authorization estimate = and often will not show up at all in economic analyses of the project. However,just as an insurance company experiences claims on risks it covers, the government will experience the cost of absorbing the contingent liabilities associated with project cost overruns and achMnle delays. As noted above, traditional government financing approaches lack many of the built-in incentives and controls of the privste nnmacing .yrved, increasing the likelihood of problems.

Government Anancini participation can occur in many ways besides direct financing. As a general rule, the method and magnitude of this participation should depend on the unique requirements of the project and should serve to enhance the project's ability to raise private i Ma=ariag. A range of options exists for government involvement between the extremes of totally private or totally government na==eing as described in the Pacific Northwest National Laboratory draft report,7v. :: *n= Financing Alternarrves: Blemiing Prhete Cqpital & 1 Public Resourcesfor a Successful Project.

Some options can build government participation on commercially available f H=g to improve the project's attractiveness to private landers. In some cases, incorporating one or I more of these alternatives is necessary simply to make the privatiratian project feasible.

3.4.3 Decision Points for Projeet Optindzation lhe TWRS privatization project is novel and complex and still has uncertainties to resolve.

DOE firmly believes that the best approach is to proceed with the project but move forward using discrete steps and explicit decision points. The intent of this appmach is to:

I e n Make iterative re nemante in project requirements and directions to accommodate new )

information (both technical and Anancial); and j e Maintain competitive pressure on the privatization co.u. der (s) to ensure peak performance and reasonable prices.

The TWRS EIS and Record of Decision idantinM the need to proceed with a phased .yroes.

The Record of Decision made speci6c commitments to conduct formal evaluations of new data and information under DOE NEPA regulations at three key points during the course of Phase I,

- with an appropriate level of public involvement, and aAer a#: g the advice ofiadaaaadaat l

experts from the Enancini and scientific community. 'Ihese evaluations will occur prior to-

• Praeaading to Phase I, Part B;  ;

Jt,orrto cogrresr 23

TWRS Phase IPro) ret Authorization-to-Proc:ed e Start of hot operations in Phase I, Part B; and e Fit-: Wing to Phase IL DOE also concluded that the level of uncertainty with respect to design, financing, and regulation at the cod of Part A was such that fixing prices would %ee an excessive price to c+" ; ==:= for the risk faced by the contractor. Thus, a design phase (referred to as Part B-1 in the contract and introduced in Section 5 of this report) was defined to reduce this uncertainty and to provide DOE with various reviews and decision points prior to pr-Ming with constmetion and operations. The design phase will allow time to verify technnlogy perfonnance on Hanford-WAc wastes and to ap*hai= debt and equity arrang..-...:- and technical requirements.

Uncertainties about permits and the ragd=*ary environment also would be greatly reduced.

Jhport so Congrar 24

O e TRRS Phase iProject Authori:ation-to-Proceed 4 The Decision to Proceed ,

DOE's review of the contractor deliverables for Part A led to the following decisions. i l

The LMAES proposal wasjudged to be non-viable because the technical approach had an i unacceptably high technical risk in attaining DOE's cleanup goals. DOE did not extend the LMAES contract, which expired on May 25,1998. '

e BNFL's proposal was judged viable because the technical approach was sound and the regulatory approach was reasonable. The business and financial terms were not acceptable as originally proposed and were addressed in subsequent negotiations.

• DOE negotiated with BNFL to seek services for both LAW and HLW immobilintion. The technical scope of work was generally consistent with an " enhanced proposal" offered by

.BNFL.

This section summarizes the distinct decisions that support DOE's authorization to pwceed with Part B of the TWRS Phase I project. First, the contractors' January 1998 proposals are enmmarized along with the changes in the original 1996 contracts that were proposed and selected for further evaluation. Next, the evaluation and selection of the BNFL proposal is described. Then, the decision to include HLW services as well as LAW services is addressed.

l The details of the final negotiated agreement with BNFL are provided in Section 5.  !

To ensure that the path forward for treatment and immobilintion of tank waste was the best l

possible, DOE developed and implemented a systematic decision ymcess to evaluate contractor deliverables. (See Appendix A for a detailed description of the decision process.) This process focused on the three criteria defined in the original RFP:

• Meet Phase I, Part B contract requirements;

• Perform Part B services for a reasonable price; and

. Provide 'oest value to the govemment.

In addition, the decision process included a determination of the readiness-to-proceed of key supporting organintions (i.e., DOE-RL, the TWRS DOE Regulatory Unit, and the Hanford M&I Contractor) and whether the impact of the contractor approaches remained bounded by the TWRS EIS under the National EnvironmentalPolicy Act. Review teams, includmg numerous experts from private industry, =c=damia, national laboratories, and DOE contractors, also reviewed the ba' sis for the decision and the decision itself(see Appendix B). Individuals with specific expertise in nuclear waste management, nuclear anginaaring, nuclear safety, project finance, cost estimating, complex construction management, privatization contracting, glass and vitrification technology, chemical and pmcess angi = L g; radiochemical process design, decision modeling, economics and public policy, and systems management were included on the review teams. These reviews examined the decision at multiple levels of detail (e.g., fmm overall decision to specific details of readiness-to ymceed assessments and specific financial modeling).

RePortto congras 25

TWRS Phase 1 Project Authorbation-to-Proceed 4.1 Description of Contractor Approaches '

The following sections describe the contractors' proposals containad in their January 1998 Part A deliverables. In preparing the Part A submittals, the contractors were encouraged to propose enhancemente to the contract that they believed would provide a better overall value to the government BNFL proposed a series of anh==="= as an alternate proposal, as described below in Section 4.1.2. LMAES did not propose technical enhancements to the contract.

Instead, LMAES pve cd an "altemative pricing approach" that would use a cost-reimbursement contract for much of the proposed work. I 4.1.1 LMAES' Approach LMAES proposed an approach with several innovative, but untested technologies. 'Ihose technologies and their previous applications are shown in Table 4-1. The LMAES technical

.grvech proposed to use a liquid-fed, high%-==, ceramic melter for LAW immobilization; cold crucible metter for HLW immobili= tion; and ion-exchange, ozonation, and elw-t=ical processing for radiannelide removal. LMAES also proposed use of a contact maintenanne approach for its LAW vitrification process. Contact maintenance can reduce facility costs W-- ofreduced shielding requirement <), but would require additional separation processes to limit radiation exposure to workers. The additional separation processes proposed by LMAES were .g==~=lly unproven for application with Hanford waste.

The LMAES business approach included numerous companies providing basic services to a Limited I ial=lity C=i-  :'re No member, including the Project Manager, LMAES, would have a controlling vote. The Project Manager would not be liable for the actions of first-tier subcontractors. The Limited r.iahility Corporation would have an executive management council co-rLe of Lockheed Martin Corporation (chair), Fluor Daniel Inc., COGEMA, and AEA Technology. LMAES proposed to provide the project management and systems integration elemente as a subcontractor to the Limited liability Carpar=*iaa-LMAES divided the work into 13 job lots and roycd to conduct work on a fixed-price basis for only three of those job lots. 'Ibe remaining work would be performed on a cost-reimbursement basis. For example, under the LMAES proposal, fixed-unit prices for treated J waste would not be set until at least one year after the hot start of the facility. LMAES proposed to recover project costs for design, construction, and startup whether or not their facility mce=411y pr* waste.

4.1.2 BNFL's Approach BNFL proposed mature technologies for treatment and vitrification of the wastes, including use of a liquid-fed, low 'w : m, ceramic melter based on the same technology used for HLW vitrification at the West Valley Demonstration Project in New York and the Defense Waste Pic-:+=L5 Facility at the Savannah River Site in South Carolina. The proposed re ;..=.t technologies, including ion --ah==e, r=i--;: f-x, and isotopic dilution, also have been applied at other facilities in the United Finadam Belgium, France, and Japan. Table 4-1 shows BNFL'S proposed technologies for key tratment functions and their previous applications.

Report to conqrren 26

TWM Phase 1Projzct A uthorization-to-Proczed he BNFL team, as described in its Part A deliverables, is composed of BNFL Inc., BNFL Faaia-ing Ltd., Bechtel National Inc. (Bechtel), GTS Duratek, and Science Applications International Cuiyvi.ilon (SAIC). BNFL will be the prime contractor and majority owner of the special purpose evivo..iion proposed for Part B. In addition, BNFL will be responsible for project management and integration, regulatory and nuclear safety management, and operations management.

BNFL submitted a proposal inc yv1.iing fixed-unit prices and also prepared a series of enhancamente as an alternate proposal. De separate elements ofBNFL's alternate proposal along with a smnmary of their merits are described below.

. Design Phase. BNFL indicated that a design phase was needed to achieve an adequate basis for setting reasonable fixed prices. Establishing fixed prices earlier would result in substantially higher prices hac==e of the risk involved. The design phase was needed to obtain private financing and BNFL equity commitment. This phase does not represent a delay in the project; rather it delays the point at which fixed-unit prices are set until the end of the design phase. DOE determined that waiting to set fixed prices until completion of the design phase would substantially lower prices.

. Capacity EapanslovExtension. BNFL proposed several festmes in its design that would support future Wiy expansion and/or extension of operations. Those festmes would pc*an+inHy allow the facility to process a large percentage of the Hanford waste over the useful life of the facility. BNFL's pretr==+'=aa' facilities were sized to accommodate a capacity increase of 100% at little, if any, additional cost. The HLW vitrification facility was daiM with anciant space for two melters. Only one metter was required for the minian=n crder qGif pfad in the BNFL contract. A =a~=d larger melter could be added to increase the initial Phase I capacity (by greater than a factor of four). The LAW vitrification facility was designed with the connections and flexibility in common support systems to add a second LAW facility with capacity similar to that of the Phase I facility.

BNFL enrimaten that those capacity expansions would cost an additional $800 million in construction funds (in FY1997 values) and start expansion of the facility around 2011 to be completed in time for extended processing. Ifimplamaa'ad, BNFL contends the ava==daA facility could enable : ... *J13dae the. waste in the 85 highest risk tanks by 2028. The waste in those tanks would account for 55% to 65% (by mass) of the total tank waste and approximately 95% of the long-lived radionuclides that would be mobile in the soil in case of a leak.

Jesper ao cay., 27

TWRS Phase i Project A uthortation-to Proceed Table 4-1. M4)or Applications of Treatment Technology Proposed by BNFL and LMAES BNFL LARAES Tm Function h Application History h Applicahon History LAW Evaporebon Evaporebon of akahne No Evaporaton Not sprer**

Concentration supemalent at Hanford Proposed since the 1950s and at Savannah River since the 1960s Sohd/Lgmi Ultrallitration/ UltrafiltratorVaross-flow Conhilupe, High Centrifuges used for gross Separation Cross-Flow Sitraton used at Sheer Rotary separation at Hanford's Filtrabon Enhanced Actrude Filter AR Vault facility and in Removal Plant at France for uranium Sellolleid United Kingdom processing No known applicebons of high sheer rotary fliter used in nudeer production industry Cesium Elutable non Elutetde ion exchange Elulatdo non Elutable ion exchangem Removal Exchange used at Hanfortrs B Plant Exchange usedin nudeerweste SL 644 in 1970s procesang Non elutableion Exchange Eiedroion eschengein anchange used at initialdevelopment stage for Hanfortrs B Plantin the h lon ,,,,y, ,,,,,,i 1970s and West Veneyin Exhongs the 199090s on No h appiscotons of snembraneion anchange chemscoby mmilar westos used in nuclearweets processing Stronnum/ Stronbum- Used h Henlanfs B Plant Ozonsbon Osoration tooted on Transuranc Nitrate lootopse to enhance recovery of radioactwo laboratory-ocale Removal DHulen otrontum-90 Som at Henford fororgone removed Henford tank de complesabon, but westos inescent iron Nitrate Used at Enhanced High Sheer No known e of Pe Actinale RemovalPlant for Rotary Fiber high shear rotory 91ter used (Feme Floc teneuranic recovery from in nucienr production Pr W ) liquidwestes. SemBer industry physical process at Hanford and Sevennah Riverforthe setthng of transurane h eBeBne PlutonsunWranium Extrechen FacAty westes Technebum Elutable ion 30,000 geBons of Henlord Electro. Technology tested on Removal Eschenge tankweets testedin Reduchon for rednectwolaboratory-scale SL-630 1980. Contmund resserch Techn e se,- -* uncieer

. on use of anion suchenge Recovery to recovertechnebum from Henford westos M: _'r,-2 for technshum sureEcahon i

Report to Corgres, 28

TWRS Phase 1 Project A uthorization-to-Proceed Table 41. Major Applications of Treatment Technology Proposed by BNFL and LMAES (continued i Treatment SNFL. LMAES l Funo6on Technology Application History Technology Applicabon History

• Pmoosed ErsE-:::f Cobalt and Not Needed Not applicebte Not identifled Limited studies for westes Europiurn sirnilar to tank westes, but Removal unknown if relevant to LMAES techW LAW LJguNi-Fed Technology used for HLW Liquid-Fed Transportable vitriflambon Vitnficebon Cerarme vitrificebon atWest Valley Cerarme Molter- system with small-scale Meher-Low Demonstraton Project High melterirspr,,eq some Temperature, and Defense Weste Temperature, desegn features of proposed 1,100 to Pic---- 's FacWty. Also 1,250 to 1,350 *C melter has been tested at 1,200 *C demonstrated at Pamele Ook Ruige Nabonel FacWty in Moi, Belgium; Laboratory. Some P% Liquus-Fed innovative foetures are Cereme Meller at undemonstrated Hanford;and a demonstrabon molterin l Tokai Reprocoesing Plant, Japan Some LAW processing I has been completed by Duratek at Sevennah Rher, M-Aree LAW Remote used atWest Valley Contact Not used in radioetsve l Memtenance Opershons DemonoDaten Pmject, Memtenance apphoshons wNh highly l Approeim Using Delanes Waste volems pmcesses '

Manipuistors Processing Fadity, Unhed Kingdom,and France  !

HLW Cross-Flow Cross Sow Seaton used Centrifuge Centrifu;pos used forgmes  ;

Concentraton Filterfor at Enhanced Actinide esperation at Hanford a i Supemstant Removal Plant at AR Vault fadily andin Separaton SelleGald, United 10ngdom France for uraruum orocessinn Feed Blondingt Process similar% that Acidthcaton/ AVH Calomer usedin Sie Properaten Evaporshon usedin the West Valley Blonding French R-7 and T-7 and Defense Waste vertacaban plants,wth Processing Fadity acidited feeds; some Propees forfeed simuiston work on Hanford conoontrabon twee westes HLW Uguid-Fed Technology used for HLW Cold Crucible 70% scale menertests vitnficebon Cwame Mener versacebon atWest Vasey Meher performed wah simuisted Demonstra6on Prctect HLW. Smalbecale cold and the Dolense Weste cruolble mehwusedin LAW Processing FacWty. Also viert6cebon in Russia demoneDated at Pamels Fadily in Mol, Belgium, P% UquickFed Casmic Menerat Hanford; and a demonstrabon meherin Tokal Reprocessing Plant, 1-s Reportto Congren 29

mtS Phase 1 Project Authordation-to. Proceed

• Treatment ofEntrained Solids. BNFL proposed to process entrained solids (along with separated strontium and transuranic waste) rather than retum them to DOE, on a case-by-case basis. DOE benefits from this enha-amant by not having to receive and store this intermadi=** waste product in a separate DST, thus keeping that DST available for other storage needs. DOE retains the option to receive the entrained solids ifit determines it does not want to pay additional costs.

• Sludge Fash in Pretreatment. BNFL proposed to use an ultrafiltration system (part ofits base facility design) to separate ==aand A solids from HLW feed streams. This step would elimia=*a the need for DOE to provide a less efficient in-tank sludge washing step. The primary benefits to DOE are: (1) elimia=* ion of the .pye : ealy 924,000 gallons of LAW volume that would be produced by in-tank sludge washing and the need to store this waste (approximately equivalent to the capacity ofone DST); (2) reduction of the cost of the Hanford M&I Contractor performing in-tank sludge washing, aei=*d to be up to approximately $6 milliaa; (3) reduced risk to DOE of meeting feed specifications for certain waste streams; and (4) availability of sludge washing capability for treatment beyond the l current contract term.

• Phased Construction and Startup. BNFL indicated that by phasing the construction and startup of pietra==aa* HLW vitrification, and LAW vitrification, earlier hot start can be achieved, compared to its base proposal. C+c-i- ed to BNFL's base proposal, this anhancement proposed early dates for hot start of pw.u..- ..* hot start for IH,W vitrification, and hot start for LAW vitrification. The primary benefits of this enhancement to DOE are: (1) earlier pretramtment reduces DST storage requirements for the initial years of operation; (2) earlier payment reduces private contractor Aa=~ia costs and prices to DOE; and (3) secpuntial testing and startup reduce technical risk.

• ExtendedBase OperatingPeriod BNFL alsoevyed anincreased minimum-order qu Giy that would extend the base operating period from 5 years to 10 years. BNFL indicated that this change would lower tramtment costs by reducing performance risk (i.e.,

a longer base ci- Jug period would provide more recovery time if problems occur in the first few years ofprocessing).

BNFL's altemate proposal was evaluated to be superior to its base proposal. Based on the above results, all elamante of BNFL's altemate proposal were red for comparison with other possible svy-......4.c -yymeches and as a basis for negotiations.

4.2 Evaluation of the Contraeters' Approaches To support its decision to proceed with Part B, DOE cerA-7ei a systematic review of all deliverables from Part A. The evaluation of those products led to an initial determination of the viability of each contractor to meet Part B @..-.a and identHied issues to be addressed during negotiations. The review also identified areas of concem for both teams. Therefore, in naa idMag the viability of the two couu.ciurs, consideration was given to the features of the peyed .pyweches that could be refined through negotiations.

Jt g arrse c mqrren 30

TWRS Phme i Projtet A uthori:ation-to-Proceed ne technical viability meneannant considered whether proposed technologies are likely to work. l The primary consideration in assessing technical viability was the demonstrated maturity of the technologies, process flowsheets, and facility designs. The finding = from this review are enmma'iZed below.

LMAES wasjudged to not be viable because the technical approach had an unacceptably high technical risk in attaining the DOE's cleanup goals. He LMAES contract deliverables did not provide sufHeient evidence that the contractor could, with a high degree of con 6dence, successfully treat Hanford tank waste using the proposed technical approach in a timely manner.

The LMAES .yrwech uses numerous technologies that are rese.id and development in nature.

The eyrvech wasjudged by DOE (and a group of external experts who assisted DOE with its review of the proposed waste tramtmant technology of both contractors) to be too risky and require substantial, additional develaamad work. In DOE'sjudmnant, the LMAES facility l configuration and technical .grvech would likely undergo enl*=*i=1 change prior to the time that a waste tramtment facility would be operational.

)

His determination by DOE was subjected to two outside reviews: one chartered by DOE-RL, and the second chartered by DOE Headquarters. (De review process and expertise of these reviewers are described in Appandiv B.) nose reviews, while finding minor differences with  !

the DOE determination, agreed on the central issue that the LMAES .prvech had an l na==pe=hly high technical risk.

BNFL wasjudged viable because the technical approach was sound and the regulatory approach was reasonable. De business andfmancial terms were not acceptable asproposed andwere ad&essedin subsequent negoriations. In gmeral, the technologies choeca by BNFL ,

for treatmant and immobili=tian are mature, robust, and reliable and have resulted in a l

conservative pmcess approach. In addi'iaa. the development requirements for the selected  !

technologies were understood and id-*iflad and a development program addressing those risks l was clearly a,rmart '

The iPt review (see Appaadir B) led to some refinamente in the amea==mant of BNFL technologies and concurred with the determination that BNFL is viable for Part B.  :

ne indapaadaat review expressed some concern with the technology for technetium separation and suggested DOE should undertake a development program in parallel to that of BNFL.

DOE entered into negotiations with BNFLfor both LA WandHLW treatment services. The Part A contracts provided for DOE to decide to contract for only LAW treatment services or for both LAW and HLW treatment services. DOE evaluated the alternative ofincluding only LAW processing services during Phase I. His evaluation showed that prwing with combined HLW and LAW processing services was preferred for several reasons.

. High-level services do not substantially raise the total project cost and do not impose significant additional requirements on the Hanford Site infrastructure.

l

. HLW processing treats some of the highest risk tanks and therefore provides earlier benefit and fasterprogress.

Asparrso coepar 31

7 TRRS Phase iProject Authorization-to ProcGed

+

• Including HLW treatment and immobilization in Phase I will provide a valuable demonstration of the capability needed during Phase II to complete the entire TWRS waste-praessing mimmion.

• The HLW plant will immobilize the waste products from the giur unent and LAW immobilization process, which manne that DOE will avoid additional h=adling and cost amaaciat-I with intemodiste waste products.

• SufHeient technical basis exists for the HLW processing.

The decision to proceed with BNFL matisfies the fundamental principles originally established for the ev==.4=g ofprivatized TWRS waste processing services.

• Matwe andDemonstrated Technology, Process Flowsheets, andFacility Designs. BNFL has proposed a robust facility design based on mature and demonstrated technologies.

• Significant Equity Commitment. BNFL will seek to maximize its equity commitment such that it falls within a range of $200 million to $500 million.

• Contractor Responsible andAccosatablefor Cost and TechnicalPerformance. BNFL is responsible for proper management of the project and the associated business entity.

• . Private Fimaciq. Construction and operaticos will have signi6 cant private 8=eg with the WAe approach to be datanninad during the design phase.

• Responsibility}ir E ;,w::"=' Protection and Compliance Assignedto the Contractor. '

BNFL is responsible for meeting all associated regulatory and environmental requirements of

' the contract.

• Protection of Worker and General Public Safety / Health A dedicated nuclear, regulatory, and process safety organization is responsible for oversight of BNFL. 1

• Government-PurchasedProducts andServices Meet Performance Specifications. BNFL must meet detailed product =pa iGMons in order to be paid for the product.

• FixedPrices. The fixed prices will be finalimi at the end of a design phase.

l

• Cost Control. DOE will apply requiremants for receipt of certified cost and pricing data.

• Life Cycle Cost Reduced Compared to Traditional Contracting Approach Analyses p fow-ed by DOE suggest that there are reduced life cycle costs in pursuing privatization.

Jtsport to congrar 32

TWRS Phase 1 Project A uthorisation-to-Proceed 5 Description of the BNFL Contract DOE has negotiated a contract with BNFL for Phase I of TWRS that builds on BNFL's very promising technical .yrvech and includes future options for expanding facility capacity to complete most or all of the TWRS mission. The contract places strong incentives on BNFL's performance and provides for only limited payment to BNFL until waste is successfully pr-M DOE's path forward includes a series of explicit decision points that will allow optimivation of the .yrvech and will maintain a level of competitive pressure on BNFL by allowing DOE to consider alternative approaches at each decision point. The contract provides for the first major decision point after a 24-month period during which the design, permitting, and Gnancing approach will be taken to a point where fixed-unit prices will be established. ' Ibis contract places DOE on a firm path toward beginning treatment of Hanford's highly radioactive tank waste.

This section describes the key features of this contract. Section 5.1 provides an overview of the structure (i.e., phases and decision points) of the negotiated BNFL contract. Section 5.2 describes the design phase, including its scope ofwork, the products that are required to be completed, and the approach to securing projecthadag. Section 5.3 describes DOE's current Wons re L.g the construction and operations phase (referred to as Part B-2 in the l

contract). S+-a-at sections describe the =4=dule for Phase I (5.4), the allocation of project j risks bers the government and the contractor (Section 5.5), eva~*M project costs (Section 5.6), funding requir==== (Section 5.7), and planning for completion of the TWRS l mission (i.e., Phase II) (Section 5.8). i 5.1 Streetere of Part B Figure 5-1 shows the overall project structure with its two parts: a design phase and a construction and operations phase. Key decision points are depicted for moving forward with Phase I and initiating Phase II. The BNFL contract includes two distinct parts that together will complete PhaseI.

• Design Phase. During this period (projected to be 24 months), DOE and BNFL will refine the technicaliQ- 1, further clarify the regulatory require ==*, and finativa the

' project's financini and incentive structure. BNFL will further develop its project design and technical .yy.oech, secure project hadag; establish firm fixed-unit prices for Phase I waste treatment services, and aab=are its -yrvech to rag % compliance by submitting necessary permit applications. DOE will review the project ti-voghout this phase to ensure that necessary progress is ==iatainaA At the end of the design phase, DOE will decide whether to pavd with the subsequent construction and operations portion of Phase I or to pursue one of several other .yyy ch: to complete Phase I. Details of the design phase are provided in Section 5.2.

Report to cosysw 33

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• Construction and Operations Phase. This part of Phase I will include the completion of I design, construction, startup, testing, and operation of the facility to provide waste treatment services at the fixed-unit prices established at the end of the design phase. DOE currently forecasts that waste treatment will begin in 2005 to 2006 and will continue for about 10 years. During that period, the contractor will immobilize approximately 10% of l Hanford's tank waste volume and 20% to 25% of the inventory of radioactivity. Details of the construction and operations phase are provided in Section 5.3.

As shown in Figure 5-1, DOE will maintain a series of decision points throughout Phase 1.

l These decision points will enable DOE to further optimire the project and realize potential cost savings based on lessons leamed and new infonnation. Also, these decision points provide opportunities for DOE to move to attemative approaches and exert competitive pressure on l BNFL, particularly with the decision at the end of the design phase.

5.2 Design Phase DOE's approach to TWRS has been to use an iterative strategy with explicit decision points so l that the approach is anhanced as newinformation becomes available. The current decision on l how to proceed with Part B continues this strategy with the specification of the design phase. At l the end of this phase, DOE eraaes that BNFL's fixed-unit prices will be set, private financing l will be secured, and a decision will be made about proceeding with the construction of the BNFL - l facility. I=d-aaad-a* reviewers ofDOE's .yrusch strongly supported this strategy (see  !

Appendix B), particularly the use of a period of approximately two years to ..y::o im the j approach. The key building blocks of DOE's overall strategy are shown in Figure 5-2. '

~ The design phase constitutes the first 24 months of Part B and will allow BNFL to:

• Advance the design from the c7-:+p =! design stage to approximately the 30% level, which l is required for start of construction and to obtain private financing;

• Ensure that testing and demonstration (i.e., scale-up) of the proposed waste melter '

technology yield mys.ble results; i

• Conduct rocess testing on radiological and non-radiological materials and submit plans and l

qualification reports for waste products to be wieued to DOE during the construction and operations phase; e ' Complete regulatory permitting applications;

.. Finalize project financing by committing BNFL's corporate equity and securing private,

> third-partyfinancing; Report to coreraus 35-L

TWRS Phase iProject Ashorhadon-to-Proceed

• Provide fixed prices for treatment services during the constructions and operations phase; and

• Complete a revised standards approval package based on a more mature hazards analysis, a Limited Construction Authorization Request, and a complete Construction Authorization Request including a Prelimmary Safety Analysis Report.

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no,,,,,. j Figure 5 2. Design Phase Strategy The design phase also will include efforts by DOE and BNFL to optimize the technical <

specifications and financing approach. These efforts will reduce uncertainty about the costs of waste treatment. By the end of this phase, BNFL and DOE should have a higher level of (

confidence in the basis of the prices, which should yield lower fixed-unit prices than the targets set at the end of Part A because of the optinuzation efforts and reductions in contingency costs.

The fixed-unit price after the design phase will be based on certified cost and pricing data provided by'BNFL. At the end of the design phase, BNFL and its joint venture partners will invest equity in the construction of the facility. At financial closing, BNFL also will obtain commitments from private lenders to finance project construction costs.

Reportto Congress 36

TWRS Phase i Profset htharkation-to-Proceed

' As shown in Figure 5-1, DOE will review BNFL's progress throughout the design phase. DOE has the right to terminate the contract for convenience at any time, with an option to obtain technical data and intellectual property needed to continue with another contractor or a different acquisition strategy. DOE's review of the contractor's progress during the design phase will:

e. Assess the method that BNFL will use to establish final fixed-unit prices; e Confinn that BNFL is still viable for the construction and operations phase based on the quality and timeliness of work products and a refined technical approach; and e Damine whether the final fixed price at the end of the design phase is likely to be significantly different (i.e., greater than ~10%) from the current target price.

'Ibe design phase will conclude with a DOE decision =*Wi=* ion to proceed with the subsequent construction and cp . dens phase. This decision has the following two parts.

• Evaluation ofDesign Phase Deliverables andPayment Determination. By the end of this phase, BNFL will complete a series of technical, regulatory, and Gnancial deliverables, and will commit its own equity to the project, which will be =ag'aaa'ad with additional financial WMag to pay for facility construction. The negotiated contract provides .an incentive fee to be paid for =ena==6't completion of these steps and for Wag project construction and operating costs.

• Proceed with Construction and Operations. At the end of the 24-month design phase, DOE will decide whether to proceed with the subsequent construction and operations portion of Phase I or to pursue one of several other approaches to complete Phase L BNFL's -

authorization to proceed will depend on DOE receiving =~=rahle fixed-unit prices, a _

substantial eq sity commitment by BNFL, other sip =^ financing arranged by BNFL, and

=e jemaec for review of their design for nuclear and cheniemi process safety. A key element of this An=~iag will be BNFL equity, which ..y.s BNFL's investment in the success of the project. If DOE decides not to proceed with BNFL, other approaches to consider include:

(1) obtaining the tramment services under another contracting process or (2) pre-ading with l a modified work scope that would be developed through cp: :- ::an efforts during the design phase.

During the design phase, DOE will continue to use indepaadant reviews by outside experts.

'Ibese reviews will bring iadaaaada=* perspectives to str=agtbn the .yy.oech taken and will ensure that a decision by DOE to proceed is the best possible .yy.omch.

'Ibe following sections summarize the approach to Ga=13dag the project's 6==aring structure, (Section 5.2.1), the (phi. ;:on efforts that will seek to improve the cost-effectiveness of Phase I (Section 5.2.2), and the era ~*d ady- -w;+ in the prcject's regulatory .yyivach (Section 5.2.3). ,

1 Report to convers ' 37 s

o TWRS Phase iProfect Authorkation-to-Proceed 5.2.1 Completion of Pmject Financing Approach During the contract negotiations with BNFL, DOE's objective was to assign substantial levels of technical, performance, and financing risk to BNFL to retain strong performance incentives.

At the same time, DOE sought an .yyivrhte balance berew the allocation of risks to the contractor and the ultimate cost of the project to the government as discussed in Section 3.4.

The negotiated contract with BNFL contains a fi. mark for the private financing structure.

During the 24-month design period following the contract authorization to proceed, DOE and BNFL plan to naaliza that G===dag structure and establish final fixed-unit prices that are I commensurate with the risks faced by each party. The Gnancing stmeture is organized around the two separate parts of Phase I, Part B: 6===d=g for the design phase and G===dag for the construction and operations phase. Figure 5-3 ru an overview of these clamante.

Financingfor the Design Phase. Based on the current scope of work, the estimated cost for the design phase is approri==taly $350 million.3 BNFL will finance this work with its working capital. No government involvement in A=andag project costs is co=*-=F~~i during this 24-month period.

With =cea==ful completion of the design phase, the contractor has the opportunity to receive immadista payment of $50 million of the aerimatad $350 million. ' Ibis payment involves a base fee payment of appumimately $20 million and an incentive fee payment of up to $30 millian Both fee payments are M* upon BNFL ra=ahing Anancial closure. In addition, the amount of the incentive fee is W on BNFL's success in r= '=hg the project's construction and operations costs. BNFL's costs during the design phase are not paid by DOE at nnancial closing and will be carried into the constmetion and operations phase. 'Ibey will be paid out as treated waste is delivered to DOE. In effect, the majority of BNFL's invaarmant during the 24 month period would not be recovered until waste is successfully ps".

BNFL's working capital is at sisk during the design phase in the event that DOE terminnen the contract for default. If DOE terminates the contract for convenience, then DOE would ce==aa -- BNFL for its =T*ia'~i settlement costs.

Financingfor the Construction and Operations Phase. If authorized by DOE, the construction and operations phase of the project will begin immadiataly after BNFL secures adequate project snancing and provides ac y ble fixed-unit prices. In addition to equity fi= dias the financing structure for this contract phase may involve two other sources of funds:

• Non-Recourse Debt; and

• Recourse Debt.

l I Unless otherwise a sted, all dollar amomms in nonunal dollars. Nominal dollars are actual year outisys, e.g., -

I escalated forexpectedinflanan Report to Congteser 38

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TWRS Phase 1 Project A uthorization-to-Proceed The definition and the use of each of these types of funds are described below.

• Eguity. Equity represents BNFL's direct corporate investment in the success of the project. BNFL's equity investment would be at risk if the project should fail M-> of '

its inadequate performance. This money would be placed at risk by BNFL and is in a "first-loss position," i.e., if the project generates lower than erpend revenues, BNFL may not recover its equity or cam a return on that equity. Therefore, this project financing requires a commensurate financial return. The return BNFL actually realizes will danand directly on the contractor's ability to design, construct, and operate the facility in an efficient, cost-effective manner.

Increasing the equity commitment by BNFL will strengthen the incentive to perform, but will lead to higher fixed-unit prices. DOE and BNFL will seek an .m eydate balance between equity commitment and fixed prices. If the equity commitment is insignificant, it will provide limited motivation to the contractor for =?7'61 project completion because the contractor has little to lose as a result of non-performance. However, if DOE requires an inordinately high level of equity commitment, thisna aring approach i-arily increases the price of the project. This occurs har= nee the contractor return rQw for equity financing are much higher than debt interest rates. BNFL equity can be supplied by the BNFL parent company, other contractor team members (hh*al GTS Duratek), and third-party investors.

The BNFL equity would include direct bdias of project costs and " firm and irrevocable undertakings" (e.g., letters of credit) to pay project costs and fund company obligations, such as >Je ;== warranty payments.

• Non-Recome, Debt. Non-recourse debt is lent to a project by banks and other laadia institutions. Payment of this debt is secured solely by the revenues of the project, liquidated d===. contingency reserves, process warranties, and other funds. 'Ibe payment is non-recourse to BNFL as a corporation and receives no support under the contract in the event of non-payment be= nae of contractor fault. That is, lenders will focus solely on the cash flows of the project and the project's ability to meet debt service j requirements. I mdes of this type of debt are first to receive project cash flows but do not have additional assurances for repayment of principal and interest (see Recourse Debt below). This debt is in a "second-loss" position be==e, to the extent that revenues do not cover costs, its principal and interest will not be paid.

Non-recourse debt cammande a higher interest rate in the market than recourse debt birt is substantially less expensive than the equity funds. Prior to taading funds, the non-recourse lender would conduct ndapandant i oversight of the project for construction and operations of the facility. This indapaadaat third-party review will give DOE additional assurances that the team and technology selected have a high probability of success in the construction and operations phase of the contract. DOE recognizes that lenders perceive

" nuclear" waste ranadiatian projects as having a high-risk profile. Accordingly, DOE is working with non-recourse lenders to help pa***i=11cnders understand the technical Raport so Congress 40

e;,

TWRS Phase 1 Profxt A uthorkation-to-Procced risks. This will increase the likelihood of ot* mining non-resource financing and help to achieve an acceptable M1==e* ofrisk.

• - Recorse Debt. As with non-recourse debt, recoune debt is lent to a project by banks and other lending institutions. Also, as with non-recourse debt, in the event the contractor has performance problems that increase the internal project costs, available sources of project funds (not money from the lender or DOE) would be accessed to fund

=~~~y modifications to the project. Those sources normally would include liquidated da==ga* equipment and process warranties, contingency, and the contractor's standby equity. However, recourse debt relies, in part, on the government's commitment to i support and/or take over ownership of the project after all contractor resources have been depleted. If DOE d-;- - :=== that the contract should be ta=iaM_, the termination i settlement would include, as an allowable cost for the contractor, the amount of the outstanding recourse debt. h provision of recourse debt will substantially reduce the j interest costs associated with the project, and without this provision, the contractor is unlikely to be able to arrange project Aa-aiag with any private lender. ,

l The anticipated structure places significant levels of private equity and debt at risk prior to DOE being adversely i=aae*ad By placing the equity and non-recourse debt commitmei* in "first-loss" and "second-loss" positions, respectively, then==aring package ensures that the contractor is motivated to successfully complete the project.

The design phase of the contract will be used to structure a 8===aia pad p; that h=1=n= the I

use of equity, non-recourse debt, and recourse debt. The contract establishes a .J"7.- - level of l equity that BNFL will invest in the project, and BNFL must use its best efforts to attract l non-recourse debt. In addition, DOE will evaluate the tradeoffs between government and private

! debt to' determine the best overall mix of equity, non-recourse, and recourse debt, as well as the amount of any other government participation.

l 5.2.2 Opthnization of the Technical Approach During the first six months of the design phase, DOE and BNFL will address selected technical

, specifications to seek improvements in cost and technical performanne, and BNFL will submit I their design safety approach. A value engineering process will be used to assess the impacts of engineering changes on cost. This process also will determine tradeoffs among the ek=gan and will find lowest-cost solutions. DOE and BNFL will work E-/ = to identify beneficial j changes, and selected despi, will be implementeA carly in the design process to minimite the

j. impacts on project schedule.

BNFL's Part A deliverables provided some ;==W a re s &ug the :w*ami=1 cost impacts of some project specifications. For example, project aaarinedions led to a LAW treatment service that was more expensive than estimated previously, and both DOE and i='=r='== reviewers Reportso congren 41 l

TWRS Phase 1 Proftet A uthoritation-to-Proceed concluded that opportunities to lower costs without reducing quality should be sought. Detailed analysis of BNFL costs indicated two areas of cost savings that will be a particular focus of attantion are:

e U FContainer Specifcations. The contract specifications require BNFL to produce an inunobilized LAW that fits in a metal box suitable for handling and storage. This specification was established in response to public concerns over uncertainties in final waste fonn performance and the desire to ensure that wastes could be retrieved in the future.

Retrievability is not a legal or regulatory requirement and is not applied at other DOE sites.

Based on BNFL's Part A cost estimates, iadapaadaat reviewers determinad that this si+M--=:on may be a significant driver on overall LAW treatment costs and should be assessed during the designphase, e ImmobilizedM FProduct Specifcations: The BNFL approach produces a glass monolith within the na=*=iner. Other waste forme-either non-monolithic glass or non-glass-could be acceptable if they can be damanstrated to meet performance 16q66-. . Also, prior studies at Hanford have indicated that the total cost ofimmobilization with glass would not be significantly different from the cost for alternative waste forms. Cost information from the BNFL Part A delivar=h. however, suggests that this issue should be re-==iaad Optimineian is planned to cantinne beyond the design phase and will include additional technology devela====t by DOE in preparation for future Phase H requirements. Such technology development can provide upgrades (e.g., more cost-effective technology than the current technology plannad for use by BNFL). In addition, technology development will help to

=mintain cosapetitive pressure on BNFL because the technology will be available to ocupetitors.

DOE will pursue using technology i.wi--- funds (possibly cost-sharing with private campania=) for further development of current technologies or to further damanatrate high-paaa=*i=1 but still unproven, technologies. This approach will benefit future DOE national needs (iad=dia Phase H of TWRS waste traatmaat) by making a broader range of technical solutions available for bidders.

5.2.3 Regulatory Activities During the Design Phase During Part A and subsequent negotiatiana, the approach to regulatory compliance has been defined and agreed upon by DOE and BNFL. However, w L-y mnnina in the details, and the design phase will further refine the approach.

During this design phase, BNFL will submit a number of deliverables and draft compliance documents for DOE review and/or concurrence where joint responsibility exists for environmental compliance. "Ibese deliverables are a vehicle for BNFL to propose the details of its yy-is to meet the environment =1 1 .pL under the Phase I contract and will, after DOE review and/or concurrence, provide assigmnent of the BNFL and DOE responsibilities for the ach'evement of these key en66 =- 1, safety, and health accomplishments. These deliverables and draft compliance docmnante include those listed below. j I

l Jesportse congres 42

TWRS Phase i Project Authortation-to-Proceed e RevisedEnvironmentalPlan. This plan identifies BNFL's approach for environmental protection, compliance, and permitting, including: (1) all planned environmental permitting and compliance activities for Part B, (2) a detailed permitting and compliance schedule, and (3) environmental monitoring and reporting requiremants.

• - RCRA Permitting. BNFL will prepare a RCRA permit application for its facility and will also prepare a permit modification for its operation of the DST provided as a feed tank.

BNFL's permit conditions will be inc.oryvieed into the Hanford Site's overall RCRA permit (Ecology 1994), which will then be co-signed by BNFL.

• RiskAssessment WorkProduct. The Risk Ana== ment Work Product will be the document developed as a result of BNFL's negotiated agraement with the regulators to demonstrate that the treatmant facility will meet required enGo-1 performance standards for a thermal treatmant facility under RCRA.

• ApproachforImmobilisedRLFDelisting. BNFL will document for DOE review and concurrence an appmach to obtain an exclusion and/or exemption (delistag) for the removal i of the immobilized HLW product from RCRA and Hazardous Faste Management Act l regulation.

• Approach to LandDisposal Restriction Compliancefor ImmobilisedLA W: BNFL will develop and document the approach for d==aa*=dag compliance with the RCRA land ,

disposal restrictions for LAW and collect characterization and damanarration-scale treated l wasteevic data to support the compliance demanseration.

During the design phase, BNFL also must submit several nuclear-safety-related deliverables to  !

the Ra*~y Unit as part of a comprehensive regulatory process. These deliverables must  !

demanarrate that BNFL will achieve adequate radiological, nuclear, and process safety through i requirements that are properly dannad, i= AIM and maintainad Therequired deliverables  !

include the following.

'* RevisedStandards ApprovalPackage. This submittal willinclude BNFL's revised set of rarammandad radiological, nuclear, and process safety standards and requirements. It also will describe BNFL's approach to standards-based integrated safety management.

Regulatory approval of this submittal will provide assurance to BNFL that its safety basis (safety technical approach and safety management practices) for the halmar* of design and for projected construction, operation, and deactivation activities is adequate and r=**hle.

• Construction Authorisation Request. BNFL will formally request maharization to commence construction activities. The Regulatmy Unit will issue a construction authonzation upon detenninstion that .

- BNFL's safety-related activities and design are being conducted in accordance with its approved Standards Approval Package; Jtqportso coeyens 43

MS &se 1 Project A uthorization-to-Proceed BNFL's design properly accounts for the natural and man-made external events associated with the designated site; BNFL is qualified, by reason of experience and training, to perform the proposed construction; BNFL's construction procedures are adequate to ensure that the construction-related aspects of safety standards and requirements will be properly implemented; BNFL's quality assurance plan is adequate and has been implemented such that the intandad quality will be assured in the safety-related portions of the design, construction, and pre-operational testing and that the quality assurance records will attest thereto; ne radiological, nuclear, and process hazards asse e :iated with facility operation, including those from postulated aaAdaat< have been adequately by ======ad, sufficiently controlled or miti==+ad, and =d=-F--ly documented in a formally controlled PreMm;wy Safety Analysis Report submitted by BNFL and formally approved by the Rardwary Unit, to establish a basis for safe operation and an unambiguous definition of the safe-operating envelope; De deactivation plan is myi.ble; De drafts of plans and programs to be finalind as elemants of the operating authorization request and i=alama dad during operation are adequate and acceptable; and BNFL has made a commitment to comply with the conditions of the authorization agreement associated with the construction authorization.

As part of the overall Construction Authorization Request, BNFL intends to submit a Limited Construction Authorization Request for site preparation and excavation. Approval of this -

request by the Regulatory Unit will permit early construction activities with little or no pa*='i=1 to impact adversely the radiological, nuclear, or process safety aspects of the facility. BNFL must provide sufficient detail for the Rerdea y Unit to review the request and reach an approval decision.

ne fimanmental regulatory requirements were establinhad in the initial contract for Phase L During the. design phase, the design will be developed consistent with standards c==i++ad to by the contractor during Phase 1. As the design develops, the contract calls for technical exchanges bsw DOE and the contractor regarding the implementation of the requirements. This will help avoid situations where the contractor's design or facility fail to be adopted by DOE be==

of failure to communicate regulatory requirements.

5.3 Construction and Operations Phase This part of Phase I will include the completion of detailed design, construction, startup, testing, and operation of the facility to provide waste treatment services at the fixed-unit prices Jtsporrso Congress 44

, o )

TWRS Phae i Projed Awhortation-to-Proceed established at the end of the design phase DOE will provide tank waste and will order at least a minimum quantity of waste treatment services from BNFL during construction and operations.

As an option, DOE may order additional treatment services if feed is available and BNFL has the processing capability.

The negotiated contract sets a minimum-order quantity of 6,000 " units" of LAW feed proomad, and 600 (4.5-meter-long) canisters ofimmobilized HLW. Units of LAW are defined as I unit per metric ton of sodium for Envelope A,2.5 units per metric ton of sodium for Envelope B, and 1.15 units per metric ton of sodium for Envelope C. The difference among feed envelopes reflects the difference in difHeulty of processing because of the feed composition. The HLW canisters will contain apei==ny loaded, immobilized waste, where the optimal loading is defined in the contract based on the limiting constituents of the specific feed batch. These minimum order quantities are approximately equivalent to those -r.. sed previously for two contractors l in the 1996 contracts in metric tons of sodium pt-m=' for LAW and metric tons of oxides for i HLW.' '

During construction and operations, BNFL will initiate an HLW vitrification service that will be capable of treating the minimum-order quantity (i.e., pd=h: 600 canisters of optimally loaded, immobilized HLW) during Phase L BNFL also will include LAW vitrification services I

_ capable ofimmabilizing a minimum of 6,000 units of LAW during Phase L BNFL will operate DST AP-106 as a waste feed receipt tank. This minimum-order quantity will treat approximately 10% of the Hanfoni tank waste and 20% to 25% of the radioactivity.

The Phase I waste processing will immobilize some of the most dangerous wastes stored at the Hanford Site and will significantly reduce risks ===acistad with tank waste storage. The c=adid=** wastes for the Phase I service are hJy stored in 9 DSTs and 2 SSTs. Raeanne of waste transfers among tanks, processing of those wastes wiU free up valuable DST space to enable transfer of waste from high-risk SSTs. The 11 tanks are detailed below.

• Two tanks (AZ-101 and AZ-102) contain 12% of the radioactivity in the Hanford tanks (40% of the radioactivity in the DSTs).

. Two tanks (AN-102 and AN-107) have high levels of complexed strontium-90, plutonium, and americium. Should these tanks leak, these complexed radionuclides are believed to be mobile in the vadose zone.

• Four tanks (AN-103, AN-104, AN-105, and AW-101) are among the six DSTs that generate flammahle gases and are on the Hanford Tank Watch List.

• One SST (C-106) contains a relatively large fraction ofinsoluble solids. This tank is the only high-heat tank on the Hanford Tank Watch L 4

• One SST (C-104) contains a relatively large fraction ofinsoluble solids.

• _ One DST (AY-102) will accept the waste retrieved from tanks C-106 and C-104. The liquid from tanks AY-102 will be used for sluicing tanks C-106 and C-104 to assist in retrieval.

I Reportto Convens 45 l

o .

TWRS Phase 1 Project Authorization-to Proceed If DOE exercises the option for additinial waste treatment and immobilization beyond the stated minimum-order quantities, BNFL will provide waste treatment services at fixed-unit prices to be negotiated. LAW and HLW feed envelopes, the quantity to be prm=~1, and the price for treatmeat will be defined and agreed upon at the time the optien is exercised.

53.1 ProjectInterfaces The Phase I project identihA all interfaces between BNFL and DOE, as shown in Figure 5-4.

The details of these interfaces are specified in Interface Control De- - a (BNFL 1998a),

which are contractual documents that describe the BNFL and DOE requirements at each interface. The ICDS specify all physical interfaces (i.e., what item is transferred, who is responsible for each action, and where the item is transfened), interface schedule (i.e., when a speciSc item is transferred), and administrative interface (i.e., procedural details of how items are transfened).

Figure 5-4 shows that DOE is responsible for providing utilities, services, facilities, equipment, land, and roads at no cost to BNFL. BNFL will pMuce the immobilized rMurs, which will be provided to the DOE. DOE also is responsible for taking certain wastes (e.g., radioactive solid waste), while BNFL remaine responsible for some of the ir waste (e.g., liquid sanitary waste).

The Interface Contml Docinnants have been developed over the course of Part A and have been reviewed by DOE, BNFL, and the Hanford M&I Contractor in meetings of the Integrated Product /Pmcess Teams. Section 6 contains additional detail on the Integrated Product / Process Teams. The h*ay-*M Product / Process Teams interactions have been extremely valuable in d-nai== the details ofintegration that must occur if the waste is to be retrieved, had i==ahili-i, and stored successfully. Section 5.5 dimen==a= specific obligations incuned by the DOE for these interfaces, 53.2 Waste Feed 0: S d :s A critical success factor for Phase I waste tramtmant and immobilization will be DOE's ability to reliably deliver waste feed to BNFL with a well +==-M chemical and radiological cew-:+ Mon. The waste feed characteristics have a direct impact on the facility design and in particular the waste separations steps that are required. DOE's strategy for tank waste feed specification has been to define waste feed envelopes, rather than to specify actual tank cantante These envelopes define the maximum chemical and radionuclide concentrations to be sent to BNFL for three LAW envelopes and one HLW envelope.

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TWR5 Phase 1 Project A uthorization-to-Proceed DOE has defined feed characteristics that it can meet with high assurance, yet are specific enough to enable cost-effective facility design and operation. DOE used available characterization data and has focused additional characterization activities on the specific needs for Phase I waste processing. Waste feed conforming to the defined waste feed envelopes will undergo the following specific treatment prior to immobilization in BNFL's facility. l I

e Envelope A (LAW) feed requires the removal of radioactive cesium-137 and technetium-99. I e Envelope B (LAW) feed requires the removal of radioactive cesium-137, technetium-99, and may contain constituents, such as sulfate, that limit the quantity of waste that can be immobilized in a fixed quantity of glass.

• Envelope C (LAW) feed requires the removal of radioactive cesium-137, technetium-99, strontium-90, and transuranic elements. I e Envelope D (HLW) feed requires removal of soluble components.

The specifications for the waste envelopes were developed for the 1996 RFP and are based on existing charactais.iion data and estimatM waste posss limits. To re6ne these waste envelopes during Part A, both contractors provided input to DOE's waste characterization objectives. Subsequent ch.ectait.iion efforts have sought to pmvide better information on those waste constituents that have the greatest impact on waste processing limits (both re.i-ent and vitrification). Since the waste envelopes were first established, several changes have been made to apti=i= them in an effort to increase DOE's ability to deliver feed and to reduce project cost.

Based on projections and historical data, DOE expects that approximately 90% of the total TWRS waste inventory will fall within the waste envelopes. For waste that does not fall within the specified envelopes during Phase I, DOE can reserve that waste for Phne II, blend it with other wastes to bring it within specification, orsvass it at a negotiated price with BNFL, provided that BNFL's facility is capable of treating the out-of-specification waste.

DOE will retrieve Phase I LAW feed from several DSTs. The identified tanks contain 50% more feed than the contract requires, which provides DOE with additional assurance that sufficient j Phase I feed can be provided. The candidate HLW feed is currently located in a small number of DSTs and SSTs. All candidate source tanks for LAW and HLW feed have been placed under configuration control to ensure that the compositions are not unknowingly altered.

All waste in candidate source tanks was characterized for chemical composition and radionuclide content prior to the definition of waste feed envelopes. More than half of the tanks with LAW feed have been recharacterized since that time and were found to be within the waste feed envelope specifications. DOE also has recharacterized one of the potential HLW source SSTs, and this tank waste also was found to be within specifications. The remaining source tanks for both LAW and HLW will be fully characterized early in the design phase.

I i

Report to Congress 48

m_

i 4 TWRS Phase 1 Project A uthorkation-to-Proceed Small quantity waste feed samples &om all four envelopes were supplied to both BNFL and LMAES during Pact A. The analysb of all of those samples india =*ed that the compositions fell within the uste feed envelopes. DOS will supply BNFL with additional samples during the' design phase, which will provide further confidence in the feed characterization.

During operation of BNFL's Phase I facility, DOE will certify that the waste is within speci6 cations, and BNFL will concur with this certification prior to receiving the feed. Prior to transfening the feed to BNFL, DOE will provide the contractor with samples to M.J.w the analysis. Characterization for processing will occur within BNFL's facility to ensure that each unit operation is functionirig properly anc' that the final product will meet requirements.

DOE recognizes that robust feed delivery systems and procedures are keys to the success of the TWRS Phase I project. The Hanford M&I Co .ctor's plans for feed delivery were subjected to extensive review during the readina==-to roceed anna ==mant (see Appendix B). DOE already has begun to establish lauding and financially significant performance agreements with the Hanford M&I Cn='=a'ar to help ensure that DOE meets its commitments for timely delivery of feed meeting required =parif** ions.

5.3.3 Waste Prednet Spaeffle= tions The1%4-.--.m for the immobilized waste products are described below.

• ImmobilfsedIAF. Under currunt specifications, BNFL will produce an immobilized LAW glass encased in a stainla== steel box. The requirements of the immobilized LAW are based on nationally recognized standards (10 CFR Part 61, i.e., " Licensing Requirements for Land Disposal ofRadioactive Waste") for LAW and g+-1 requiramante for the disposal of LAW at the Hanford Site as developed with reg =1*= and stakeholders over several years.

• ImmobilizedIEF: Under current =paaifadions, BNFL will produce an immobilized HLW fw hviosilicate glass encased in a ==iala== steel canicar. 'Ibe waste form requiresnan4 are defined by the OfHce of Civilian Radioactive Waste Management for acceptance of treated HLW at the proposed national rapa=i'a y. The requiramante are very similar to those required of the Defense Waste Prc-:=% Facility at the Savannah River Site and the West Wiley Demonstration Project in New York State for their immobilized HLW.

Changesinthe rudoct g+-t'- M;ons could result from c-/:- L ;;on work in the design phase and/or changes in external i%aw (e.g., r y-:=% waste =c-:=g---T criteria). Such chi.r would be implamentad through contract modification.

DOE will make payment after BNFL demonstrates that products and secondary wastes resulting from waste processing meet specifications. The basis for payment is the defined units for the LAW and the number of HLW canisters puduced. BNFL is not w.+;= ^--i for the secondary waste eudeced in pucess operations, but will have incentives for waste minimiration.

Jtaportso Cosgras '49

TWRS Phase 1 Project Authoritation-to-Proceed 5.4 PhaseI Schedule Table 5-1 shows the current schedule for the BNFL contract, including the major project milestones. ' Ibis schedule may be refined as a result of work. in the design phase. As shown in Figure 5-5, BNFL has provided two sets ofmilestone dates that differ dapanAng on BNFL's estanate of their likelihaod of achievement (i.e., either 50% confidence or 90% confidence). For consideration of potential impacts on 1PA milestones, the 90% confidence dates, which are set forth as targets in the c+ - M, are assumed.

The Phase I contract, with fixed-unit pricing and private n amacing, provides a strong incentive for the contractor to improve upon the schedule estimate = shown in Table 5-1. BNFL has a strong Enmacial motivation to successfully and efficiently gocess waste. The longer it takes to process waste, the greater the finance costs, which will then erode BNFL's return on its investment BNFL's profit also will be at risk if there are echadule delays.

Table 51. Makr Project Milestones eBisseene sesco :_ u ones ses e_ r u outs Aulhortanton to proceed - July 1906 DOE prosed review-4 montis - January 1900 DOE receive Anal deoen shese -! _ --- - March 2000 Complete deoen shoes - July 2000 BNFL start a _ _-^ ;u--

• construmon May2001 July 2001 ShFL start HLW P 9 h construcean Mov 2001 July 2001 ShFL stort LAW vlulAceton ten 8 r consrumon November 2001 January 2002 ShFL complete _ E^- ; fed tv construegon July 2003 March 2006 BNFL complete HLWwielteston < ^ constunden March 2006 January 2006 SNFL complete LAWwierlBastion* construction Fetwuery2006 November 2006 BNFL complete - z^n- ^ coicl start June 2006 February 2006 BNFL complete HLW W cold start December 2006 November 2006 BNFL complete LAW M cold start January 2007 Fetwuary 2006 8NFL stort ;_ _ _^ Er; het start Aucubt 2006 Aars 2006 SNFL start HLW vlWIAcellon het stort Fetruary 2006 Fetzuery 2007 BNFL start LAW witilhoshon hot start January 2007 January 2006 8NFL complete Phase 1. Part 8. HLW processine Fetruary 2017 Fetruary 2018 SNFL compete Phase 1. Part 8. LAW procussine Fetwuary 2017 February 2018 BNFL Phase I

• W February 2018 Fetwuery 2019

'Ibe achadule shows that the BNFL HLW facility can be brought on-line earlier than the LAW facility. This is largely because of HLW experience gained at the Defense Waste Pic+=hg Facility at Savannah River, South Carolina, and the West Valley Deman=tration Project at West Valley, New York. HLW vitrification has been ongoing for several years now, and the operations and design requirements are better understood. With LAW vitrina-daa the meher size needs to be sipar.cantly larger than for HLW (approximately a factor of 10 times the size).

This larger metter requires a pilot metter darnanarration to establish snetter design prior to 6==lidag the facility design and results in a longer design period for LAW vitrification than for HLW vitrification.

"Ihe TPA includes two sets of milestones that directly apply to the Phase I project. The first set, known as the Pd sy Path, applies to the previous plan where two contractors would pucess waste during Phase I. " Ibis path would have required start of hot operations for LAW processing A8Porf 88C883res, 50 1

1

i

TWRS Phase 1Profict A uthori:ation-to Proc:ed by December 2002. The second set of milestones, known as the Alternate Path, applies to situations where DOE does not authorize two contractors to proceed. The Altemate Path requires start of14ot operations for LAW puc hing by December 2003.

The BNFL target schedule will put DOE on a path to closure of SSTs and DSTs and completing the vitrification of HLW and LAW. The schedule will not be finalized, however, until completion of the design phase. He start of HLW p.L huent and vitrification with BNFL's target schedule would occur more than two to three years early (between February 2006 and February 2007) under the BNFL contract. The BNFL target schedule would, however,

- require some changes in near-term TPA milestones. He targeted start of LAW vitrification (TPA milestone date of December 2003) would occur about three to four years later (between January 2007 and January 2008).

These schedule changes result from the reduction of concunent design and constmetion. BNFL developed its schedule assmning that design would be largely completed before initiation of construction. His revised scheduling assumption leads to greater confidence that the facilities will come on-line as scheduled, and once on-line, will operate ec~~hily and safely. The inclusion of the design phase as e separete phase in the contract does not delay BNFL's waste pc-x=:ng schedule; it simply delays the point in the schedule at which fixed prices are established.

In general, BNFL's schedules for some Phase I bot operations will favorably affect the confidence levels assigned to schedules for several TWRS projects that are neceaary to support BNFL's operations (e.g., infrastructure support and interim storage).

The proposed schedule for Phase I will require appmval by the state of W=hingtan and EPA through the renegotiation of applicable TPA milestones. Figure 5-5 compares the current Phase I schedule with the current TPA milestones. The Depm ouent is currently conducting a detailed review of potential impacts of the BNFL schedule on the out-year TPA milestones. DOE has requested the Hanford M&I Contractor to deine the effect of the revised contract schedule on the TWRS baseline, particularly on SST retrieval and associated TPA milestones. As schedules are finalized through the end of the design phase, DOE will further refine the schedule and will propose and negotiate any =~==ry changes to the TPA milestones with the state of Washington and EPA.

15.5 Allocation of Project Risks and Obligations A key consideration in building this contract is the allocation of risks and other obligations (e.g., financial,' regulatory, and environmental) betuo DOE and the contractor. As discussed in Section 3, the DOE strategy for allocating risks has evolved. The design phase has been developed to reduce project risks and to arrive at the best allocation of the remaining risks.

Section 5.2.1 addresses the allocation cf financial obligations under this contract.

Asporrio cong = , 51

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2003 2004 2005 2006 2007 2008 2009 2010 Figure 5 5. Comparison of Tri-Party Agreement and BNFL Milestones 5.5.1 Allocation of Project Risks Figure 5-6 illustrates the allocation of risks under this contract. Understanding the risks allocated to either party or shared by both parties is particularly important to understanding the agreement for the two phases of this contract.

During the negotiations for Part B of the contract, the 1996 contract with BNFL was modified to reduce significant risks to the contractor, particularly financing risks. These changes were motivated by a desire to lower the ultimate unit price for waste treatment services.

Under this contract, BNFL is ultimately accountab'le for the successful design, construction, and efficient operation ofits facility. Among the principal risks allocated to BNFL are those detailed below.

• Performance During the Construction and Operations Phase. BNFL is responsible for constructing and operating the waste treatment plants and for producing acceptable immobilized waste products. DOE will verify that the immobilized products meet storage and disposal specifications. BNFL's investment in construction and operations will only be I

recovered by successful treatment and delivery of waste products. If those operations do not meet expectations because of poor technical performance, shortcomings in design, or other reasons, BNFL's revenues will suffer.

Report to Congress 52

l 4 6 7%RS Phase i Project Authorization-to-Proceed

< Feasible Region yeasible}4 Je ons . .

2"N6 ' ~ -i sh;n.

?c ;E,% t:

~ sis:

V* cY lQ -

l$$hW$',

a m?' !aa

i. h O ib.

b y%

f"ish 5;4 As~Rh;,.E$

Risk Allocation a=;&"b.-mp$ ii n 1 Ii i a g .

DOE takes Reasonable Risk Contractor takes all the risk Sharing all the risk Negotiated Risk Allocation Allocated to DOE

• Perfonnance Dunng

• Uncontrollable Construction and Operations Circumstances Shared Phase a Pre-existing Site Conditions . Tennination for Default

• Waste Characterization

• Permitting . Design Errors

• Termmation for Convenience

• Performance Dunng . Facility Construction

• Budget Appropriations Design Phase . Operations

• DOE-Directed Scope Change

• Decommissioning . Indemnities /Ittrd-Party

• Idle Facilities

• Project Management Liability

• Contract Administration &

• IntellectualProperty . Regulatory Compliance Management Rights

. Cost and Schedule

• Inflation

• Fmancm, g Performance A

Figure 5 6. Risk Allocation I

i Report to Congress 53

TWRS Phase i Projact Authortation-to-Pr eed e Terminationfor Default. During the design phase, if DOE terminates the contract for default, BNFL risks ' ising its investment in the project including up to $25 million of internal research anc developments funds invested in a pilot melter needed to test and demonstrate its design. During the construction and operations phase, BNFL equity will  ;

be at risk (BNFL will seek to maximin its equity commitment such that it falls within a j range of $200 million to $500 million).

l

• Regulatory Compliance. Once environmental permits are in place, BNFL will be responsible for operating its facility in compliance with those permits. Failure to do so will directly affect BNFL's operating schedule and costs and erode potential profits. In addition, BNFL l will be required to reimburse DOE for the amount of fines and other associated costs for violations caused by contractor activities that are not in accord with the contract.

I Under this contract, many risks, including the following, are shared by DOE and BNFL.

e Permitting Risks. After the Draft Permit and Notices of Constmetion for Operations of a Dangerous Waste Treatment Facility are issued, DOE and BNFL work together to secure the final permits from regulatory agencies. Issues will be handled by the most appropriate party, I or both, on a good-faith basis. BNFL may be reimbursed for costs if permits are denied following a good faith effort and if the problems are not the fault of BNFL.

• Perforanance During the Design Phase. BNFL has incentives that increase payment for the design phase based on reducing target prices and reaching financial closure. DOE retains some risks because, ifit chooses to terminate the cook.ct, it must pay BNFL termination costs. These costs would approach $275 to $350 million towards the design phase,

<Lapending on the circumstances surrounding the termination.

. Financing. Financing risks are shared through equity and private financing by BNFL and terrnination payment com'aitments by DOE. 'Ibe exact mix of financing for the construction and operations phase will be determined in the first 20 months of Part B. In addition, BNFL j faces the risk associated with private financing interest rates, and DOE faces the inflation rate risk.

. - Decommissioning. A specific amount of BNFL's payments will be set aside for deactivation.

If deactivation costs exceed budgeted funds, BNFL is responsible for the additional cost; DOE is responsible for daea==i==ioning facilities after deactivation by BNFL.

• Intellectual Property Rights. To ensure that the project can proceed on another basis, if that becomes necessary, DOE has the right to obtain BNFL's intellectual p+dy (design and technical information) if the contract is termia*d for convenience. DOE, however, faces the risk under this circumstance that transferring this information to another contractor could cause a delay in the overall project.

Report to Congreu 54

1

. I TWRS Phase IProject Authoritation-to-Proceed The risks that are allocated to DOE through this contract include the following.

i e Pre-existing Site Conditions. DOE agrees to reimburse BNFL for any expense that may be incurred by the contractor arising out of any pre-existing site condition, such as radiological ,

contamination.

. Terminationfor Convenience. DOE has the right to terminate the contact for convenience of 1 i

the govemment. However, such termination will result in obligations and costs under the l

terms and conditions of the contract, including those relating to reimbursement of financing costs.

. Uncontrollable Circumstances. DOE will assume the risk, for certain acts, events, or i conditions uncontrollable by the contractor that have a material and adverse effect, including l cost or schedule, on the contractor to perform its obligations.

e Ide Facilities. DOE may incur idle facilities payments if the Department does not provide  ;

waste feed according to terms of the contract for schedule, quantity, and type.

5. 5.2 Project Obligations of B NFL and DOE DOE provides certain utilities and services to BNFL under the contract. For the most part, DOE carries out its obligations through the Hanford M&I Contractor and does so at no cost to BNFL.

The most significant of these obligations are described in a separate set of documents called Interb+ Control Documents, as shown in Figure 5.4 and did in Section 53.1. Specific obligations of the DOE include the following. ,

e Raw and Potable Water. DOE is required to provide adequate water for waste prea=ing operations and fire control.

• Electricity. DOE will provide 33 MW of electricity.

. Land and Roads. DOE will provide BNFL land for siting its plants, parking lots, and road access to that land.

. Faste Treatability Samples. DOE will provide BNFL samples of the waste for the contractor's use in testing its treatment and immobilization processes.

. Faste Feed Tank. DOE will provide to BNFL a feed tank for its use. The tank will be warranted by DOE for use on the project. BNFL will prepare all permit changes and carry out all modifications and upgrades.

Reportsc congress 55

TWRS Phase 1 Project A uthorization-to-Proceed

• Faste Feed. DOE will provide BNFL with IAW and HLW in the amounts and type specified in the contract. Through the Hanford M&I Contractor, DOE will retrieve the waste from SSTs and DSTs, transfer it to a staging tank, test the waste to ensure it meets the chemical specifications, and deliver the waste feed to BNFL.

• ReturnedPretreatedLAWandEntrainedSolids. DOE will accept and store ywusated waste during the first two years of operation and entrained solids for the duration of the contract from the yms uoent process.

• LiquidEgluents andSolid Faste. DOE will accept liquid effluents and solid wastes meeting eccoyLuice criteria that are generated in the course of waste treatment and will dispose of them on the Hanford Site.

• ImmobilizedProducts. DOE will verify that immobilized LAW and immobilized HLW products meet specifications and then accept these products for storage and disposal, as approyriate.

DOE and the contractor have allocated regulatory and environmental obligations on the basis that: (1) where DOE and the contractor have joint obligations, the contractor is required to take lead responsibility; and (2) where DOE has no obligation, the contractor has sole responsibility.

Given the current project K huiiy and the responsibilities that DOE could delegate, the following allocations have been made for operations.

• The contractor is responsible for c-1 -- ;donal safety and health under regulatory oversight.

• 1he contractor is responsible for radiological, nuclear, and process safety under regulatory oversight.

• DOE is responsible for regulating radiological, nuclear, and process safety (through the iP+ TWRS Regulatory Unit).

• 'Ibe contractor is responsible for assuring its treetment facilities are permitted and 08.;e4 within Hanford's env&--- u : 1 compliance framework and applicable laws and regulations.

The following allocations have been made for waste ===23==^

• The contractor is responsible, with DOE concurrence, for identifying and implementing a technical and regulatory path for s c-#"== RCRA-compliant HLW and LAW waste forms.

• DOE is responsible for okaiaing RCRA delisting for HLW (using contractor data and technical support).

Further definition of responsibilities is needed and provided for in the contract. The contract has provisions that will drive both parties toward increasingly well-defined roles and responsibilities Jtyarrse coryar 56 m

. k TWRS Phase 1 Project Authorkation-to-Proceed as the project matures. In effect, the contractor is accountable for its environmental, safety, and health program with respect to both safe operations and production of treated defense nuclear waste. DOE assumes responsibility for its roles as regulator for radiological, nuclear, and ,

process safety; land owner; and customer for waste treatment services.

5.6 Project Costs and Cost Savings This section addresses project costs and estimated cost savings that are WM over the duration of the contract with BNFL. These assessments are based on comyd design work and other information developed by BNFL during the first 20 months of the TWRS Phase I contract as well as data developed by DOE. The estimate = will be updated during the next phase of the contract as the BNFL design becomes more matme, the technical .yywech is aptimiW, the specific mix of private and public fla=eing is # :=i, and final fixed-unit prices are set.

Specifically, this secdon addresses the following questions. - l

• What are the WM costs for the design phase and the construction and operations phase?

(Section 5.6.1)

- What incentives will be used to contain costs?

- How and why do these costs differ from previous estimate =7 I What is the cost of private versus government financing? I

• Do the expected project costs w.y. e savings relative to other possible contracting approaches? (Section 5.6.2)

• How do these costs compare to other DOE vitrification projects? (Section 5.6.3)  !

l 5.6.1 Project Costs i

" Ibis section addresses project costs that are er-+M over the two phases of the BNFL contract- the 24-month design phase and the construction and operations phase. For each phase, DOE has defined incentives to contain future cost g:owth.

1 Design Phase Costs. Based on the contract scope of work, the estimated cost for the design phase is approyimately $350 million. BNFL will fmane this work with its working capital. No .

_ government involvement in financing project costs is contemplated during this 24-month period.

. With successful. completion of the design phase, the contractor has the opportunity to receive imawli=** payment of $50 million of the estimated $350 million. ' Ibis payment involves a base payment of approvimately $20 million and an incentive fee payment of up to $30 million. Both fee payments are dapandaa' upon BNFL r=^ing financial closure. In addition, the amount of incentive fee is determined by BNFL's success in radaeing the project's construction and operations costs.

BNFL's remaining costs of approximately $300 million for the design phase are not paid by DOE at financial closing and will be carried into the construction and operations phase.

Report to conqtrars 57

)

rWRS &se iProJ1ct A uthorizanon-to-Proceed BNFL's working capital is at risk during the design phase in the event that DOE termina es the contract for default. If DOE terminatas the contract for convenience, then DOE would c+';=== BNFL for its negotiated settlement costs.

To ensure that design phase costs are reaec,rd,le, BNFL's costs will be subject to certified cost and pricing requirements. DOE will only allow actual costs consistent with the contract to be included in the waste processing fixed-unit prices. Early in the design phase, BNFL will implement a cost accounting system that will provide certified cost and pricing data for both the design phase and the construction and operations phase. This system will help DOE ensure that only appropriate costs are included in the final fixed-unit prices.

Construction and Operations Phase Costr. The BNFL contract contains target prices for tremmant and immobilization services during the construction and operations phase. These target prices will be refined during the design phase as new information becomes available.

'Ibe agreement negotiated with BNFL establishes a $6.9 billion target price (constant FY1997 dollars) for a 10-year, minimmn-order quantity of trem and immobilitatian services. (This price includes allowable design phase costs.) 'lhis minimum-order qu-.4 will treat 10% of the Hanford tank waste (by mass) and 20% to 25% of the radioactivity (see Section 5.3).

This target price is significantly higher than the original DOE estimate for Phase L The current Construction Project Data Sheet, included as Appendix C, shows an esti== tad cost of

$3.95 billion ($3.2 billion in constant FY1997 dollars). The higher price is, in part, because the hazards r- --- r-i by the operations to be performed under the contract necessitated robust facilities for processing and confineraant of the waste. These facilities will have a 30-year design life rather than the original aaa~pt of a 5- to 9-year demonstration facility. As a by-product of the longer design life, the plant has the potential to treat waste for a longer period, to treat waste with a broader range of w,-r,shion, and to treat more th= half of the tank waste by mass and .,r#: "y 95% of the long-lived radionuclides if the past is expanded with limited additional investment (see Section 4.1.2).

Table 5-2 shows the separate cost elements that comprise BNFL's target total price iw the minimum order quantity. DOE compared the individual cost alamame of BNFL's target piice to a separate government estimate of the target prices to ensure that the negotiated target prices were appropriate given the cuncut level of-u.' ty in facility design and fidar 'Ihis initial comparison identified appr=i=*1y $1.9 billion in differences between the gover==aw's price estimata and BNFL's target price. The construction and operations cost in both were similar.

The main differences were in fee / profit, general.and administrative expenses, insurance, and research and technology costs. Many of these issues were resolved during contract negotiations and led to roughly a $700 million reduction in BNFL's target prices compared to those offered in its January 1998 submittal. 'Ihe =maindar of the cost issues will be resolved during the first 20 to 22 months of Part B. A final price-reasonableness determinatian will be completed when fixed-unit prices are finali=1 at 20 to 22 months after the start of Part B. Ifprices are too high, BNFL will not be authorized to proceed beyond the 24-month design phase.

Jtqpomo Cays, 58

, u \

DVRS Phase 1 Project Authoriwtion-to-Proceed l

Mechanisms to Contain Costs. Prior to the construction and operations phase, DOE will consider the merits of pard =1 chanye in the target prices that may be proposed in the context

. of BNFL's cost elements and the contract-specified bounds. BNFL will have to supply certified cost and pricing information and must track and explicitlyjustify the basis for each change from the current cost baseline. Regular reviews are planned during the design phase, including an

-important review at six months, which will focus on terms and methodology that BNFL will use i to establish fixed-unit prices and the nwhanism by which cost savings during the construction and operations phase will be shared with DOE.

i j

Table 5 2.BNFLTarget Price Summary  !

(Minimum 4rder Quantity)  ;

Target Price Element (Constant FY1997 Values MakrCost Drhees {

in millione) l Basic Component costs l

Fac$lty Coneiruchon" $1,061 Selety feelures, weste form acceptance critorie Faceity Operemons $1,046 Safety, sucomesful startup of incety, penod of

%. operatino %  :

Descevuton 8 94 Fac5ty desen, facAty contemmehon level at the i and of & i Contmgency and Risk $ 430 Maturity of technology and doesgn, and r-% uncertemmes Subtotal $3.230 l AddihonalCosts insurance, General and 8 424 Amount of insurance required by the contract, Administration, PropertyTax, tax rates setabtehod by Benton County and Business and OccunellonTax '/-_ _ _^: 81ste Desertment of Revenue Subtoemi 8 424 l Finanomatinconeverett i I,. w .," " $1,304 Amount of private Snencing and debt type l Decourse and norwecourse) -

l Income Tax 8 000 Tax esemated by ONFL Actuel tem rate wSi tae  !

determned by the U.S. Intemel Revenue Service BNFL Fee /ProAt $1,287 Intemel rate of retum; amount of equity commleed; fees forservios ^

Subtotal 83.271 Total 86.928 Nominal Dollars - $10,483' (a) Indudes design phees costs rated fansard into conobuceon and operemons phase (b) includes Snencing of design phase costs rolled fonsard into construceon and operatone phaes.

(c) seced on BNFUs soeumed constut rate of 4.3% equel to the assumed nonnel interest rate (6.8%) rninus the assumed oneston rate a.5%).

During the construction and operations phase, DOE will apply several nwhanie== to contain project costs.

• The fixed-unit prices established at the end of the design phase will be subjected to price adjustmants that are intandad to reduce contingencies in BNFL's fixed-unit price. The

- precise adjustment n=hanisms will be defined during the first six months of the design phase.

Aaport so cosyser 59

i e TWRS Phase 1 Project A uthorintion-to. Proceed

• DOE will retain the right to acquire BNFL's facility design and rights to intellectual property if the contract is termin*d for convenience. In addition, DOE may obtain the facility at the end of the construction and operations phase if BNFL's prices for processing in excess of the minimum order quantity are deemed ume=9=hle.

• DOE and BNFL also will negotiate waste minimization incentives during the design phase.

These incentives are intendad to reduce the total lifecycle cost for the project.

Private versus Government Financing. It might appear that sutodiuGng the project's private financing sources with public funding (as in a cost-reimbursement contract) would enable tapping of the government's relatively lower cost of capital (typically two to four percent lower) and effect cost reductions in the project. Although this argument might appear logical, it oversimplifies the pucees of allocating risks and costs bet;eeca the govemment and its contractor. Often, the debate over private fin = acing assumes the project being financed will achieve the same degree of success regardless ofits financing source. Indeed, under this.

==nadion, the interest rate premium attached to private financing is difficult to justify.

However, the incentives to contain costs and to ensure project success must be considered in d1 %g the merits of private versus government An= acing. For example,in a recent report on altemative financing strategies for cleanup projects (GAO 1998), the General Accounting Office concluded:

"While govemment fin ==cing of construction costs would appear to be the most attractive option, under this approach the government is assuming a much greater level of performance risk than it would face under a private fia=~ias option.

This risk includes the risk that the facility the government finances will not be completed successfully or that the facility will experience significant cost growth.

The potentini costs associated with these risks could offset - or more than offset - ~

any potential benefits oflower cost government financing."

Financing costs (i.e., return on equity and interest on debt) account for a significant portion of '

BNFL's total target price. The target price also assumes that the project is financed with both equity and debt capital, including between $200 million and $500 million of equity. 'Ibe remaining portion is financed by debt. The target price also assumes that the pre-tax intemal rate of return for the equity portion would be approximately 35% to 40%, while the real interest rate for the debt portion (assuming gover===am credit wrait) would be 6.8%. Given these assumptions, the finance costs (including the financing, income tax and BNFL fee / profit categories shown in Table 5.2) would be $3.27 billion (constant FY1997 dollars). This results in a weighted average cost of capital of approximately 9% (with rate ofinflation removed),

assuming the capital is spent over 7 years and repaid over the next 9 years.

By comparison, if the project was financai by the United States instead of by priu te sector co dal lenders, a real interest rate of 3.8% (comparable to the 9% weighted average cost of capital) would apply (per January 1968 guidance from the Office of Management and Budget) and the interest charge would be approximately $1.1 billion (constant FY1997 dollars).

Report to congras 60

, 1 TWRSPhase 1 Project Authorkation-to.Procted It should be emph==ived that the contractor will not be guaranteed any specific equity return and will only earn the assumed equity retum if the project is successful. If the project fails, the contractor's entire equity is at risk.

During the design phase, DOE and BNFL will Analize the project financing approach, including the specific rates for equity and debt En=Mng; and seek to optimize the relative amounts of public and private financing. The goal of the Department is to develop a final balanced approach in which the higher cost of private Ea==dag (corup.id to government En=cing) should be offset by the strong incentives to contain cost growth (coroy id to a cost-reimbursement contract).

The following section addresses the potential for cost savings that could result from this contract.

~

5.6.2 Potential for Cost Savings _

The negotiated contract terms and target prices provide a potential for cost savings to the government comoy.id to traditional contracting methods. However, it is prematme to reach a definitive ===a== ment. of cost savings until the end of the design phase, when final fixed-unit prices are act and the project 8===dag .py.uech is En=1imi In devataaing prelirrdnary estimates of cost savings, DOE naneidered the current target prices, including enrim=*a= of construction, operation, nnance, and other costs, and cor-yerd these to the costs eraaa*M from a cost-reimbursement E- : g approach. Table 5-3 summarizes DOE's cost comparison of the BNFL contract with potential cost-reimbursement contracting. As the table shows, these 2

comparisons led to a range of aerimated cost savings for the BNFL contract As shown in Table 5-3, DOE prepared two separate *=ri==tae of the costs that could be incurred under a cost-reimburneable contract. 'Ihe range of these estimates is typical of the cost estimates prepared at this stage in design development (such antimates typically have a range of 40%).

This range of estimata= reflects uncertainties in various assumptions underlying the cost estimates (e.g., the amount of cost growth) and assumptions used to place privately nnanced and government-financed projects en comparable terms. These cost estimates provide a range of costs that DOE could incur if TWRS privatirarian was not pursued.

'Ibe first cost estimate, shown in column C, used past Hanford Management and Operations contractor cost data and assumed that a cost-reimbursement contractor was w+4.M to proceed with the treatment and immobilization of the tank waste. ' Ibis enti==ta was intended to show the costs that would be incurred if the Hanford M&O contractor was asked to i form the Phase I work scope. 'Ihis cost estimmte ===nmed that there were no lessons learned from the privatization contractors and that the M&O contractor praW with the design, construction, permitting and operation of a facility in a manner comparable to historical practices.

' Prior to the begummg of Part A, DOE estunated that the i41 1 privei=*ian approach would result in approximately 25% to 30% cost savmss (Holbrook at al 1996). His savings estunate was based on the past exponence with privanannon (where market forces drive ef5ciencies) and prelimmary expectanons about responses to the Part A contracts.

Aqportsocorysss 61 l

l

TMRS Phase i Project A uthortation-to-Proceed Table 6 3. Summary of Potential Cost Savings from the Phase I Contract (Constant 1997 Dollars, Billions)

A B C D BNFL Under a Cost BNFL DOEJtL M&O Reimbursement Contract Estimate Contract Base Cost Esemate 6.9* 8.2" 3.9" Potental Cost Growth 0.0 0.0" 2.6" 0.0 1.6 2.0 Credit for FederalTaxes (0.7)" (0.07)" (0.06)W Not Cost to the Govemment 6.2 9.7 8.4 O*8"""8" # '

h -

3.5 (30%) 2.1 (26%)

Notes:

(e) BNFUs target price indudmg design phase cools.

(b) Estunate denved from pronous Herdord TWRS studies (c) BNFUs costs endudmg inaneng costs and pro 8t.

(d) No addibonel cost growth was assumed for this case.

(e) The 68% cost gewth represents the type of cost growth that DOE has hetencegy experienced with an M&O contractor. This cost growth factor is bened on an independent cost segmate study performed for DOE by Bums and Roe (Bums and Roe, June 1998). Even K this cost growth factor were reduced by half, cost envings may stb be reenmed.

(f) The esgusanent for #ie Govemment cost of capital is en imputed charge on the Govemmeni s inveelmont in caplial assets noosenery for the treatment and imipaW*=8=wn of tank weste (g) Tax payments are BNFL's projected teens. Actual tax payments condd ESNor depom5ng ose the tax sostment BNFL recorvos from the U.S. kesmal Revenue Sennae repenNng appmpnete ndes for depreoleton (h) Esemated bened on the fee paid to M&O contractors. The tax *W assumes that the M&O contactor news at a meminal tax rete of 30%.

The second enti==te, shown in column D of Table 5-S, was developed by updating an estimate provided by BNFL prior to delivery of their Part B proposal in January 1998. This estimate assumes that the current technologies proposed by BNFL, as well as their proposed construction, operation and deactivation processes, would be used by BNFL under a traditional DOE cost-reimbursemble contract. DOE developed factors that estimate the differences between a privatized fixed price contracting approach and a traditional DOE cost-reimburneable contracting w s The estimates in columns C and D were compared with the cost of the BNFL cus.ct, ===ning the currently negotiated target price (shown in column B of Table 5-3). It should be noted that various mechanisms in the contract provide the pa*-=*ial to reduce this target price, including technical oprimi=*ian and incentives to drive down costs. To determine the net cost to the government of the BNFL coe.ct, BNFL's target prices were adjusted for federal taxes paid back to the government.

As shown in Table 5-3, before comparisons of the costs to the govemment could be made, adjustments were made to account for three key differences: (1) the Government cost of capital under the cost-reimbursement wvech; (2) the amount of federal taxes paid; and (3) estimates ofpotential cost growth. These adjustments are discussed below.

Jtsportto congrear 62

r .

. 1 TWRS Phase 1 Project A uthoritation-to-Promed Govermnent Cost ofCapital. The price paid for services under the BNFL contract includes the cost of capital for both equity and debt capital requirements. However, the cost of capital is not included in DOE's payments to the cost-reimbursement contractor, even though the government has a cost of capital. In effect, there is a cost of money associated with paying a cost-reimbursement contractor as the costs are incurred compared to a fixed-price contractor, which is, for the most part, not paid until waste is processed. To allow for a fair cost comparison, the government's cost of capital should be added to DOE's cost of performing the work under the i cost-reimbw gst contract. This approach is consistent with both public and private financial analysis practices used to place c+y;--ng investments on common terms.3 Creditfor Federal Taxes Paid. The fixed-priced contractor pays considerably more federal taxes than would be paid by a cost-reimbursement contractor. BNFL's potential profit will likely be

- <nW=Hy larger than the typical 2% to 3% fee camed under a cost-reimbursemer:.t contract to comaaa-~ for higher risks. Thus, BNFL will pay more in federal taxes than would.be paid under a cost-reimbursement contract.

Expected Cost Growth. The last adjnement is made to account for the difference in the

, paeaad=1 cost growth under the BNFL contract compared with the pneand=1 cost growth under a cost-reimburnament contract. The BNFL contract contains several factors not present in typical cost-reimburnament s-.. cts, which are emae*ad to minimire the potential for cost growth.

These factorsinclude:

• The fixed-price nature of the BNFL contract should improve technical and schedule performaner relative to a cost-reimburnamant approach. BNFL must stay within budget or pa*andmHy suffer a reduction in profit. This will lead BNFL to minimire costs in order to maximize profits. On the other hand, cost-seimburnament contracts generally have nehadule slippage that leads to cost growth. The added costs result from the same quantity of staff takinglongerto do the samejob.

• The BNFL contract shifts substantial performance risk fe construction and operations (including processing technology) to the contractor, thereby creating incentives for the contractor to ensure the success of their .grosch. This risk sharing for the overall performance of the facility and technology is not present in cost-reimbursement contracts.

BNFL's equity and the desire to recover it, plus an equitable rate of return, drives performance.

i l

8 For example, the_Of5ce of Management and Budget uses a aindar approach to account for Be implicit government cost ofihnds in its guidance on how to perform discountag in cost effectiveness analysis of alternative government programs. Ibe discountag is E=---q "'i by using the real (i.e., a4usted for inhnan) cost of government i borrowing. In its January 1998 gedance, the Office of Management and Budget prescribed a real inteest rate of l 3.8% as the government cost of finance (OMB 1998).

I 1

a ,po n re ca,grest 63 L ,

L i

e .

TMRS Phase I Project A uthorkation-to-Proceed

• Additionally, private lenders will add a further layer of oversight to the project. The lending community will want assurances that they will recover their principal and interest. To ensure that recovery, they will employ independent engineers and other consultants to study BNFL's approach, validate the tarhaical approach and the cost estimates, and monitor progress of the project throughout.

5.6.3 Comparison with other DOE Vitrifleation Projects DOE has initiated a preliminary analysis to compare the BNFL HLW target prices to the cost of making HLW glass at the Defense Waste Prweing Facility (Savannah River, South Carolina) and the West Valley Demonstration Project (West Valley, New York).

The BNFL estimated price for HLW treatment services is approximately $300,000 per metric ton of glass pu-A=+i for the minimum order quantity. Actual fixed-unit prices will be established at the end of the design phase.

A fair and accurate comparison of this price with the costs of treatment at the South Carolina and New York facilities is made difEcult due to differences in the processing configurations, design-life ofplants, and designed and realimi throughput. In addition, the scope of work to be performed at the facilities differs. The BNFL facility will be used to produce both high-level and low-activity waste glass, whereas the Savannah River and West Valley facilities podace high-level waste glass and cemantitious low-level waste forms.

'Ibe following comparisons wrm an initial mana==mant that will be refined as the design phase moves forward. Although the comparisons are complex to perform, all three facilities use similar technology and must meet nimilar requiramants for their HLW products.

All three facilities use ajoule-heated, liquid-fed, ceramic metter and pour molten glass into j stainless-steel canisters to produce glass " logs." The Whd borosilicate HLW glass from )

all three facilities must meet specifications and quahty assurance requirements prescribed by the OfEce of Civilian Radioactive Waste Management and the Office of Envie- :1 Management. With .gr riste e adjustmante, cost comparisons with these two ~i= ting facilities can provide a reasonable benchmark for BNFL's enti== tad price. The following adjustments were made to provide a basis for comparison:

• BNFL's estimated price for HLW processing (price per metric ton of HLW oxides) was converted to a price per metric ton ofimmobilized HLW glass.

• West Valley's costs were adjusted to exclude those costs not associated with HLW vitrification, such as some storage costs, tank farm operations and closure, and waste retrieval. l

• Savannah River's costs were similarly adjusted to exclude costs not associated with HLW vitrification, such as waste water tie =.t construction and operation of LAW disposal (saltstone facility), waste retrieval, and tank farm operations and closure.

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q

. i TWRS Phase iProject A uthori:ation-to-Proceed The adjusted average unit cost for the Defense Waste Processing Facility is $670,000 per metric ton, which assumes a 22-year operating life. The adjusted average unit cost for the West Valley Demonstration Project is $1,228,000 per metric ton for its planned 2.5-year operating life.

In comparison, BNFL's adi==+ad unit price is approximately $300,000 per metric ton of glass for the minimum-order quantity (assumed to be the first 10 years ofoperations). BNFL's facility, however, is expected to have a useful life of 30 years or more. Because the capital cost of the contractor's facility will be recovered during the pivcessing of the minimum-order quantity, DOE expects to negotiate a see=>*ially lower price on treatment of any waste in excess of the mininmm-order quantity. These " post-minimum-order quantity" prices will be established at the end of the design phase.

5.7 Phase I Funding Requirements Pra~aiing with the design phase will require that sufficient funds are .yy.opriated to DOE for both the BNFL contract and for the various support projects, which must be completed by the Hanford M&I Coe.ctor. The funding requirements are described in Section 5.7.1 for the BNFL contract and in Section 5.7.2 for the various Hanford M&I Contractor projects required to accomplish Phase I Part B.

5.7.1 TWRS Phase I Fanding Requirements Annual budget appropriations will be required through FY2017 to allow DOE to pay for the tremment, immobilization, and deactivation services to be provided by BNFL during Phase I of the TWRS program, if BNFL is authorized to proceed to the construction and operations phase l of the contract.

1 When DOE pays for waste treatment services under the contract with BNFL, these payments will l have two co... +=-- 2: a capital portion that pays for amortization of the BNFL waste tremment j and immobilization facility and an operating portion that pays for the labor, vn=*~i=1* and other l

costs associated with providing waste tramtment and immobilization services. Since 1997, Congress has yyavyaed budget authority (BA), totaling $285 million, for the capital portion

(" capital BA")through the Envia - - 21 Management privatization account. When waste treatment is initiated, the capital BA accumulated in this account will be the source of funds for budget outlays (BO) for the capital portion of the payments for waste tremment services. BA for the ope.Gug portion of the payments for waste treatment services ("op-.0Lg BA") is outlayed in the same year that it is -yy.vydsted.

Table 5-4 provides current estimmtee of BA and BO profiles for Phase L The operating BA and BO profiles are based on the current BNFL target prices and schedule and will be adjusted

' during the 24-month design phase. As a result, they do not wyim precise budget estimates.

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TWRS Phase 1 Project Authortation-to-Proceed Table 6 4. Potential Budget Authority / Budget Outlay Profiles for 90% Confidence Schedules for Phase I, Part B Wasta Processing Services (Nominal Dollars, Millions)

A B C l D E l F l G Fiscal BNFL's Estimated Budget Authonty Estimated Budget Outisys Year Estimated Capital Operating Capital Operating Total Outlays 1997 0 170 0 0 0 0 1998 20 115 0 0 0 0

1999 155 113 0 0 0 0 2000 291 474 0 50 0 50 2001 631 675 0 0 0 0-2002 659 675 0 0 0 0 2003 633 610 0 0 0 0 2004 594 600 0 0 0 0 2005 598 573 0 _0 0 0 2006 563 529 0 58 0 58 2007 518 530 0 188 0 188 2008 804 403 0 401 0 401 2000 712 0 711 197 711 908 2010 691 0 691 382 691 1.073 2011 705 0 705 397 705 1,102 2012 661 0 661 436 661 1,097 2013 669 0 669 442 669 1,111 2014 599 0 599 766 Sep 1,365 2015 498 0 498 939 498 1,437 2016 354 0 354 876 354 1.230 2017 128 0 128 335 128 463 Total 10,483 5,467 5,016 5,487 5,018 10,483

(a) Excludes payment made to BNFL and LMAES for Part A.

Notes:

(1) Fundmg is in fiscal year dollars.

(2) These nurnbors reflect BNFL's current financzel model and will be updated during the desgn phase The seemste provuses an example of potential spendng streams rather than a precase budget seemeie.

A number of additional factors were considered in developing the capital BA profile, including the following:

• Coverage will be provided for termination liability in accordance with the Anti-DepciencyAct. .

l e Sufficient fundmg will be provided to allow BNFL to accelerate the design, construction, and permitting ofits facility or to continue design, construction, and permitting in the event of a continuing resolution. The ability to accelerate the project could lead to cost reductions for DOE as a result of the reduced financing costs of the project.

• A level budget request is desirable to avoid the need for imawainnhle out-year funding increases.

Report to Congress 66

. f TWRS Phase IProject Authorization-to-Proced e Assurance needs to be provided to the private financial community that DOE and the  !

Congress are committed to TWRS privatization; thereby, providing downward pressure on the cost ofcapital.

• Funds will be provided for the capital portion of the payment to BNFL for services provided.

The capital BA profile will result in instances where there will be unobligated funds and

>=ceed h=1=aca In the event that BNFL finds a means of accelerating the construction schedule by doing work faster or by ordering material sooner, the unobligated funds serve as a reserve to allow DOE to meet its contractual obligations and cover the additional costs for the accelerated performance. By allowing acceleration of the construction schedule, BNFL should be able to start the facility sooner, reduce the interest costs, and decrease the total cost to DOE. l The capital BA profile shown in Table 5-4 would allow an acceleration estimated to be approximately 6-9 months. Since the capital BA provided to DOE is assigned to the BNFL w.m.c, there will be strict accountability of these funds.

The operating BA will be used to pay for the operations costs of the facility when it is treating j and immohi1 Mag tank waste. Capital BA has been requested since FY1997 through the' privatization account and will continue to be r=W through FY2008. Operating BA will be requested from FY2008 through FY2017. As shown in Table 5-5, an overlap in the construction and operation of the BNFL facilities will require DOE to request both capital and operating dollars in some years.

Table 5-4 is based on the assumption that BNFL will be authorized to proceed to the construction and operations phase. Ifnot, a termination artt1*mant would be = *"i with BNFL. The estimated costs of a termination for convenience settlement at the end of the 24-month design j phase range fmm approximately $275 to $350 million, dapaading on the circumstances surmundmg the termination.

If the project moves forward to the construction and opemtions phase, DOE does not plan to provide a payment in FY2000 equal to the BNFL costs for the 24-month design phase. A maximum payment of $50 million is planned in FY2000, consisting of a base fee of $20 million and an incentive payment of no more than $30 million. The incentive payment is based on BNFL's ability to minimire the construction and operating costs of the facility. An incentive based on reductions in construction and operations costs wks selected because BNFL has the greatest control over these costs. These costs are also the clameat< that drive the na==eing costs l

of the facility. The payment will be outlayed from the funds mMy appropriated in the TWRS privatization account.

If DOE authorizes BNFL to proceed to the construction and operations phase, payments to BNFL for delivery of myi ble product starting in FY2005 to FY2006 will provide the mechanism for repaying that portion of the BNFL costs for the design phase which are not covered by the DOE payment in FY2000.

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TWRS Phase 1 Project A uthorisation-to-Procesd Table 6 6. Estimated Budget Profile for M&l Contractor Costs (Direct and indirect)

To Support Privatization (Nominal Dollars, Millions)

A B C D E Fiesel Esemate for TWR8 Esemate for BNFL Esthnete for Total Baseline M Year Bees Operations try Direct Suppost by TWRS RA&l Funding Profile RA&l($88) M&l($M) Requiremente ($18) ($88) 1999 210 112 322" 302 2000 202 133 335 346 2001 154 184 338 335 2002 124 216 340 326 2003 121 245 386 388 2004 128 209 337 392 2006 114 180 274 298 2006 114 127 241 348 2007 85 135 220 "

2006 85 81 186 "

2000 87 80 147 "

2010 88 55 143 "

2011 87 29 116 "

2012 87 21 108 "

2013 84 17 101 "

2014 86 15 101 "

2015 86 "

15 101-2016 86 "

15 101 2017 86 15 101 "

Total 2.114 1,844 3.968 (e) The planned work scope for FY1999 escoeds sie antapeted funding levels. DOE wm actuet the pionned work scope to meet Wie antapeted funding BNFL support ecAwlbes wm be funded at their requesd level.

(b) The Erwironmental Management "Pelha to Closure" pionning horizon cunenlly extends to FY2006. and beoeline fundmg proflies have not been pmpered for the period a8er FY2006-5.7.2 Hanford M&I Contracto r Fanding Requirements for Support of Privatization "Ihere are three x- ;e= 1 of the TWRS program: TWRS base operations, TWRS support to '

BNFL, and the work to be performed by BNFL. The Hanford M&I Cs-+--w will perform the work associated with TWRS base operations and TWRS support to BNFL. All costs for these two components of the TWRS program are abown on Table 5-5. Costs associated with work to be performed by BNFL were shown on Table 5-4.

The work associated with TWRS base operations shown in Column B must be performed whether or not DOE authorizes BNFL to proceed to the construction and operations phase.

These activities include routine surveillance and maintenance of the tanks, receipt ofliquid wastes from other site cleanup efforts, continued characterization of the tank wastes, and resolution of safety issues associated with continued storage of the waste in the tanks.

The work - M +ad with TWRS support to BNFL, shown in Column C, includes retrieving wastes from the tanks, delivering feed to BNFL, amyGug and storing the low-activity and high-level vitrified waste products, and providing other services to BNFL, such as roads, water, and electricity.

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I

.. f WRS Phase i Project Authoraation40 Proceed The total cost of TWRS base operations and TWRS support to BNFL (Column D)'through the year 2018 is estimated to be approximately $4 billion. This estimate is based on a preliminary analysis that will be refined and verified in FY1999. Although this refinement and verification is likely to result in some changes, DOE is confident that the costs shown are realistic and the Department does not expect any major changes.

Column E of Table 5-5 provides the baseline funding profile for TWRS base operations plus TWRS support to BNFL. This funding profile was developed prior to the time that the decision

. was made to not consider LMAES for Part B work and before the current agreement was nWa*~i with BNFL. 'Ibe treatment and immobilization of tank wastes accodaug to the terms of the agreement with BNFL will necessitate only w h1 changes to the baseline funding pmfile.

5.8 Plaaming for Phase H Following completion of the BNFL contract, either after the minimum-order quantity or after possible contract extension (s), DOE will be responsible for decomminaioning the Phase I facilities after deactivation by the contractor. DOE will also be responsible for continued safe storage of any returned intermediate waste puducts (e.g., entrained solids), disposal of all -

immobilized LAW, and interim storage and eventual transfer to the geologic repository of the immobilized HLW produced by the contractor.

Completion of the TWRS mission will require waste processing beyond that provided under the BNFL Phase I contract. A TWRS Phase H will be required to complete the TWRS pmgram mission by implementing s>.L.-s to retrieve, treat, and immobilize the remaining inventory of tank waste. Phase H activities will also need to dispose of all immobilized LAW, store immobilized HLW =amag shipment to the ..yssitory, close all waste tanks, decontaminate and d==nmiamian all TWRS facilities, and conduct post-closure monitoring of closed tanks

. and facilities.

Pix =- :--g by BNFL of the Phase I minimum-order quantity will result in tramtmant and immobilization of approvi==tely 10% of the Hanford tank waste by mass and 20% to 25% of the mdionuclide content. The BNFL contract does provide DOE with some flexibility in how j it approaches Phase H and completion of the tank waste cleanup. If the BNFL facility eW I efficiently and effectively, DOE may request BNFL to process additional quantities of waste in Phase I, thus rMag Phase H i%ui. --.a. BNFL's design also includes the capability to expand capacity and extend operations beyond Phase L This expansion capability could be l used to process most of the remaining tank waste during the W plant's remaining  !

cr .J u g life.

The TPA requires that DOE complete all tank waste immobilization by 2028. To meet this milestone, DOE would need to add Phase II capacity that is greater than the expansion option l cunently envisioned. BNFL's p e---- facilities were sized to =-xe - - 42 a c# city increase of 100%. The HLW vitrification facility was designed with sufficient space for two ,

melters; only one melter was required for the minimum-order quantity =pa ifiad in the BNFL contract. A =~ wad larger HLW melter could be added to increase the initial Phase I capacity Jtsport to cons =, 69

t .

mtS Phase iProject hthorkation-to-Proceed (by greater than a factor of four). He LAW vitrification facility was designed with the connections and flexibility in common support systems to add a second LAW facility with c.gcity similar to that of the Phase I facility. BNFL estimmten that these capacity expansions could be accomplished for a limited additional investment. (See Section 4.1.2.)

If those changes are authorized by DOE, the modifications would effectively double the LAW capacity of the BNFL facility and qs.Japle the HLW c.g:ity. If the expansion were completed in approximately 2012, BNFL estimates that the cs.p.ky expansions could enable this facility to immobilize 55% to 65% of the total tank waste (by mass) by 2028. The balance of the waste requiring treatment by 2028 would require additional capacity. "re : := y estimate.

by DOE indicate that the addition of a separate facility operating in parallel with the BNFL er==MM facility, with HLW and LAW capacities approximately equal to the W BNFL facility, could complete the TWRS cleanup minnian by 2028 if brought on-line by 2016.

DOE will initiate p!-- *r.g for Phase H during the Phase I design phase, and decisions res / Jog how best to deploy Phase H services will occur during Phase I construction and sp ik,s .

These decisions will occur some time after hot start of the Phase I facility, thus allowing some Phase I operating experience to be Lym.; d into the Phase H plan. This acherhde w e a change to the Phase H planning activities contained in the current ofEcial TWRS baseline schedule and will require a change in the h==eline ne current TWRS baseline shows Phase H planning starting in FY2002 and contmuing through initiation of Phase H contract award in FY2005. Given the BNFL achewhde for a Phase I hot start, the TWRS baseline dates for Phase H planning and execution need to be nM De costs for Phase H planning are not shown in Table 5-4 and are er=~*d to be approximanaly $10 million per year above the Wag shown i in Table 5-4. In addition, there will be requests for capital BA to cover the ad@ad terminst an-for-conveniere costs for the Phase H contractors, as there were for Phase L ,

S JtqporttoCongr , 70

lt , i TWRS Phase 1 Project Authortation-to-Proceed 6 Management of the TWRS Phase I Project The successful execution of the TWRS Phase I project requires effective management by DOE.

Accoraingly, DOE is establishing separate project management teams with expertise in technical, financial, legal, and contract administration areas. The privatization project team will be responsible for the successful administration of the BNFL contract. The operations contractor project team will manage the activities of the Hanford Site contractor performed in support of the BNFL contract. This section describes the elements DOE has incoryvi.ied into its management plan for the TWRS Phase I project. This management approach has been adopted due to the size, complexity and unique nature of both contracts and the overriding =sey to ensure integration across all TWRS and Hanford activities.

6.1 Overview of DOE's Management Approach With TWRS Phase I, DOE is taking on a new management role-one that requires the integration of activities of two prime contractors to execute the entire TWRS Phase I work scope.

BNFL will be responsible for design, construction, waste treatment and immobilization. The Hanford M&I Co h.Gur will be responsible for retrieving the waste from the tanks and providing it to BNFL for treatmant and immobilization. The Hanford M&I Co b.ctor will also be responsible for accepting, receiving, and storing or di=v=ing of the treated waste and byproducts.

Under the TWRS management approach, DOE primarily defines the requirements (i.e., specifies what it wants accomplinhad) and the performanne incentives, and the details of: ; '=Waa

- (i.e., the how) are left largely to the g4 - /= contractors. This approach is designed to allow the contractors freedom to determine the best way to carry out the work and to be rewarded for a goodjob. To carry out this role e5ectively, DOE is taking a project-oriented approach. Ibe Phase I project includes features to assure effective management and integration of the work, including incentives and tools to ensme and monitor contractor performance. Key features include assembling - ;+i=+1 dedicated contract management teams and implamdag disciplinad project management systems that cantain approved scope, achadnie, and cost hanelinen and enable performance to be measured and ah==gan to be formally controlled. The project management systems will be tailored to TWRS Phase L The management approach is based on project management, performance-based, fixed-price ,

and incentive based contract administration principles and best practices from the private sector and other govemment agencies, as well as lessons learned captured in DOE Order 430.1, Life Cycle Asset Management, and the DOE Headquarters Emimmnental Management Fdn.uation Program Management Plan (DOE 1997a). The TWRS Phase I Management Plan will describe DOE's management .grvech.

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TWRS Phase 1 Project A uthortation-to-Proceed 6.2 Special Elements for Mamagement Special elements have been incoigrided into DOE's management approach. These elements focus on: (1) managing the risk that DOE is assuming for the y.n uoent and immobilization of the waste by BNFL under the BNFL contract and (2) inwrgmaug lessons learned from other DOE privatization projects. Table 6-1 highlights these elements and their use.

Table 6-1. Special Elements of DOE Management Approach Element Function Direct contraceng between DOE and BNFL Pnmdes contract management and control to DOE rather then to the Hanford M&l Contractor Performance moontwosin the BNFL Equity, thrd-party financmg, and incentwo fees prcmde moentwos contract for BNFL's to perform on schedule and withm cost i r . _ _ .

BNFLIntegrated Master Plan Estettehes weilassfined cost and schedule beesiines and obpectwo, (BNFL 1998b) verthable intonm and complebon mRestones from which to monitor performenos and detect non-performance eeny in the process idenuses the athcal programmebe risks for monitanno and

.T - ---- c r.:of these risks BNFL project management plan Estettehes a management plan for the esecubon, mlegrabon, and control of the BNFLwork Estettehes monthly reportmg agenet the integrated Master Plan for monitoring of BNFL performance and sorty detecton of performance problems A Contract Administrebon Plan for the Ensures DOE monitanng and admmestrobon conentent with contract BNFL Contract twee, terms, and conditens Performance agrooments with the Henford Provulos ncontwo for the M&l Contractor to meet its obligabons M&l Contractor undertw orgioct integrated TWRS Phase i project beechnes Provulos for anonitoring of overal propect performance and eeny detecmon ofimpens un performanos resumng from conesotor performance problems integrated Procktct/ Process Teams Prov6de for frequent exchange of informabon, informal monitonne of contremor performenos, eeny detecton and timely resolueen of and problems, and teemma of the serbes incdudno reautators intensos Control Documents SpecNy contractor interface regurements and acevlbes to meet the requirements, to eterWy and communiones the partles and their intertece Memorando of Understandag SpecNy DOE orgemzetenal meerfoos reguraments and scewlbes to meet se requirements, to cierwy and cornmunmate the perbes and their au-ams Teams of management and technmal Augment DOE capabillbes in the technical, busmees and Anonce, e mW and praiecs .. _ __ . .; areas Ongong non proponent revow Pronde gustance and lessons loomed from pnvete induery and oeur novemment noencies 6.3 Establish TWRS Phase I as a Separate Project TWRS Phase I includes four major functions. These functions are performed by the Hanford M&I Contractor and BNFL as described below.

Report to congrars 72

i

,. 1 TWRS Phase 1 Project Authortation-to-Proceed Hanford M&I Contractor

. Faste Retrieval involves retrieval of waste from DSTs, retrieval of waste from SSTs, and delivery of four envelopes of characterized waste feed to BNFL for processing. Waste retrieval also includes all activities e-ey to install retrieval systems, retrieve waste, and test retrieval technology. i 1

• Faste Disposalinvolves receipt and storage ofimmobilized HLW and receipt and disposal ofimmobilized LAW and interface with the national geologic repository.

• Infrastructure involves physical intadam with the BNFL facility, includmg land, roads, utilities, effluent treetment systems, feed tanks, and radioactive solid waste systems.

BNFL l e Faste Processing involves treetment and immobilization of LAW and HLW, including all i r es... ant, separation into high-level and low-activity fractions, separation of byproducts, operation of waste processing plants, and production ofimmabilized waste forms.

The contract management teams and the necessary components of the project management I systems are being implamanteA on a schedule that assures the elements are aligned with TWRS i Phase I activities and will be in place when needed.

6.4 TWRS PhaseI Project Managessent The DOE Phase I project teams will be located in close proximity to the BNFL and Hanford Operating Contractor managers at the Hanford Site.

The DOE teams will possess the requisite qualifications, experience, and mix of capabilities to manage Phase L The core positions for the DOE privatization project team are as follows:

• Project Manager, e Deputy Project Manager;

• Baseline Integration Manager, o Quality Assurance Manager,

• Contracting Officer, e General Counsel; Reportto cairras 73

h a TWRS Phase I Project A uthorization-to-Proceed I

e Contract Specialist; e Financial analyst experienced in commercial financial markets;

• Engineers with experience in radioactive facility design, constuction, and operation;

• Cost estimatar with experience in large, construction and operating projects; e Couu.cGug OfEcer's Royastative;

• Stakeholder Involvement Specialist; and -

• Management, regulatory, and technical experts.

DOE will fill these key positions with skilled and experienced staff from within and outside DOE. DOE-RL is currently below its Strategic Aligara-at Initiative

• mag eailing. providing syyouuulty for hiring patie to fill critical staff positions. When needed, ~ap*ad service positions are being used to acquire these special skills. In =Mitian, DOE's teams will include an established group of management, technical, and financial experts from national laboratories and the private sector, which has been supporting DOE on the TWRS project for the past several years.

Project staffing and training plans are being prepared. The TWRS Phase I Project StafEng Plan will identify the project management functions that need to be performed by DOE, the staff required to perform these functions, and the staff assigned to fulfill the functions. The TWRS Phase I project training plan will *L..:;fy the TWRS Phase I project-specific training 1%4- . -.... for project staff and staff af-clog with the projects.

In addition to managing TWRS Phase I DOE will build the capability to provide direction to a new contractor in the event that BNFL must be terminatad for convenience at the end of the design phase.

6.5 Project Management System

'Ibe Project Management System is being revised to meet specific iga. ..-..a of the TWRS Phase I Project in Part B. The revised DOE Project Management Systems of TWRS Phase I will include: ,

. Work Breakdown Structures ddaing all of the work to be performed, including work to be performed by DOE to manage PhaseI; e Organizational Breakdown Structures descdbing how Phase I is orgmai=i, key DOE and  :

i contractor organizations, their relationships, and lines of authority; e Descriptions of the ein.uiz.donal and key personnel roles and responsibilities; i

I Jtaport to Congress 74

, 1  ;

TWRS Phase i Project Authoritation-to-Proceed e Specific management plans and procedures for project management, stakeholder and public involvement, quality assurance, risk and decision mm angement, staffing, and training;

• Interface Control Documents to manage the interfaces between the contractors and interface MOUs to manage interfaces within and outside of DOE;

• Project Baselines containing project scope, schedule, and cost ha=Aines and monthly baseline status reviews used to manage and control project scope, schedule, and cost performance and to monitor the contractors; e Project controls .yymyriate for fixed-price and incentive-fee contracts that include change control, configuration control, funds control, baseline variance threshold monitoring and evaluation, and monthly project reports and review == age to review contractor and overall l project baseline performance against the approved baseline; e Critical Risk Management Lists and Decision Tracking Lists to ensure critical risks are l identified and managed and key decisions are made when needed; i e Annual Budget Authority and Budget Outlay profiles, containing life cycle 9= ding profiles for each of the projects to ensure the a-'y F= ding is planned and provided as scheduled to meet DOE commitments; e Non pmyci.r; project reviews at key project milestones and decisions.

The Project Management Plans will describe how DOE will manage TWRS Phase L These plans will emphasize DOE's managecient role and will describe the mission, strategy, objectives, scope, eharhde, and cost baselines of Phase I; work and organizational breakdown structures; roles and responsibilities; and project management and contract adminiestion functions and

..yocag relationships.

6.6 Management Elements for Maintahdag Financial Accountability and Reporting Cost Variances 1

During the design phase, the Hanford M&I Com .Jor and BNFL will evaluate and report their progress and performance to DOE manthly. For BNFL, this ..yviig will be against the Integrated Master Plan. For the Hanford M&I Contractor, this ioyorig will be against the

- annually updated Multi-Year Work Plan. Written reports submitted to DOE will contain:

• A narrative assessment by the Project Manager, o The significant accomplishments and progress towards completion of project goals,  !

. objectives,and milestones;

. . A comparison of the amount of work completed against the approved contract baseline; Aspartto congeras 75

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TRRS Phase I Project A uthorization-to-Procted

. Potential problems, imme, and alternative courses of action using a schedule-based method to identify potential schedule deviations and needed corrective actions before they affect the baseline; e A critical path analysis to monitor the completion ofimportant activities in the correct sequence;

• Identification of cost and schedule variances excMing 10% and plans for addressing the vanances; e Critical risks and actions planned to address those risks; e Status of decisions and information requirements for those decisions; and

. A 90-day preview of major activities and milestones.

This information will be integrated by DOE and used to assess the contractors' performance and the performance of the project overall, using performance and variance analyses. Through these analyses, significant variances will be identified and evaluated further by DOE to determine:

• Cause: The specific reasons why the variance occurred; e Impact: The specific : ;+m on rammining work scope, including impacts to the estimate of fixed prices at completion of the design phase; and e Corrective Actions: The specific plans developed by the contractors to mitigste variances.

The information resulting from these analyses will berA by DOEin regularly scheduled Project Mwgamaat IAy.;J Product / Process Team meetings to review and discuss contractor and overall project performance with contractor project management staff. Topics WM to be addressed during these meetings include performance accomplishment <; technical, schedule, and cost variances; risks; im:=_m; and corrective actions associated with each of the contracts and the overall project. In addition, the Critical Risk Management Lists and Decision Tracking Lists will be reviewed and discussed to ensure critical risks are being managed and key decisions are occurring when needed Pwposed corrective actions r=*ing from discussions will be recorded and tracked to completion.

The information and results of the performance evaluations and project reviews will then be wr=&ized and reported to DOE Headqwas. Significant technical / schedule / cost variances and increases in the BNFL contract cost estimate will be reported as required in Section 3132 of the National Defense Authorization Actfor Fiscal Year 1998. Specifically, any increases in the cost estimate of the BNFL contract that equal or exceed the estimates provided to Congress by 10% will be reported to Congress by DOE Headqu rus.

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. t TWRS Phase 1 Project A uthorkation-to-Procerd 6.7 BNFL and Hanford M&I Contractor Management Approaches The Hanford M&I Cow actor and BNFL, like DOE, are taking a project-oriented approach to managing their efforts in support of TWRS Phase I. Each contractor is implementing its effort as a project and establishing the wa==y project management elements. The most iropunaut elemente include a project office; project team / organization; work and organizational breakdown structures; a project management plan; a project baseline containing scope, schedule, and cost baselines; and monthly reports and reviews of status against baselines. The Hanford M&I Contractor's project management approach and ability to manage was indapand-ady evaluated, as well as evaluated by DOE, as part of the Hanford M&I Contractor radia*==-to-proceed ateetament Lockheed Martin Hanford Corpion is the rubce .ctor, under Fluor Daniel Hanford (the Hanford M&I CW-), responsible for day-to< lay operation of Hanford's tank fanns and will ensure all activities in support of the privatization contractor will be carried out successfully.

Both Fluor Daniel Hanford and knad Martin Hanford Cory 4on are staffed by individuals with extensive experience in defense waste cleanup activities, and who have a thorough understanding of the tank waste challenge at Hanford. Key performance measures have been built into the Hanford M&I contract that provide substantial incentives for strong performance.

BNFL's project management approach and ability to manage was evaluated prior to the award of its contract for Part A, and again for authorization to proceed, based upon its Part A deliverables.

The BNFL team has successfully demonstrated extensive, relevant technical and management experience. BNFL has 40 years of experience in the 8===ria% devek; e, design, construction, and operation of complex nuclear waste management facilities. For TWRS Phase I, they have established a best-in-class project management team with a combined experience base totaling more than one hundred years, and recent experience (within the past 5 years) managing 15 major projects, each with an overall cost in excess of $100 million.

De team is cc-rleed of BNFL Inc., BNFL F=g'=-A Ltd., Bechtel, GTS Duratek, and SAIC.

BNFL will serve as the project manager providing the project management, integration, and operations expertise; with Bechtel p' cviding design and construction management services; GTS Duratek providing waste treatment and vitrification xMoes; and SAIC providing regulatory compliance services. BNFL's Project Manager has 33 years of project management and engineering experience with complex radiochemical processing projects, with 13 of the last 16 years managing the successful design, constmetion, comminaioning, and operation of BNFL's Hermal Oxide Repr===iag Plant and associated operating plants in Sellefield, England. His plant is of similar size and has muy facility features that will be implementM in BNFL's proposed facilities. It was recently commissioned, and therefore, the Project Manager has very recent experience in the engineering and construction of a radiochemical processing facility.

6.8 Management ofInterfaces Successful management of the TWRS Phase I project requires management of the interfaces' bsc. w different organizations and functions. Interfaces in the TWRS Phase I project are anpanto convar 77

t .

TWRS Phase i Project Authorization-to-Proceed managed and documented primarily through the Interface Control Document <, Integrated

- Product / Process Teams, and interface MOUs.

• Interface ControlDocumews are agreements that are actively managed and baa part of the work requirement < of the project. For each interface, they define the scope, responsibilities, applicable docinnante, physical sa;yiion, functional / procedural calyiion, and major interface product delivery dces. The Interface Control Documents 1 have been co-prepared and agreed upon by BNFI., the Hanford M&I Contractor, and DOE.

• IntegratedProduct/ Process Teams have been established to promote contractor innovation and accountability for deliverables and services; minimin formal reporting and other )

administrative requirements; integrate contractors (both BNFL and the Hanford M&I Contractor) activities by linking interfaces; and provide contractors with focused, timely access to information. Integrated Product / Process Teams take a cosp..iive, partnering approach without compmmising the contractors' responsibility for contract perfom. l Four ' ^ . -- _ i Product / Process Teams have been established for: (1) Project M-->=aat:

(2) Contract and Business / Finance; (3) Environment, Safety, and Health; and (4) Interfaces.

e Memoranda ofUnder.stsidhg andAgreement are written agr=nante between the TWRS Phase I project and other Hanford Site organizations with a key interface. These age =nante define the necessary working relationships, obligations and commitments, rolea and responsiMIh. and authorities and accountabilities ofeach DOE organization supporting the TWRS Phase I project. Points of contact for the project and the interface organization and regularly achrinlad meetings of the points of contact are being established. Interfaces for which mamaranda are planned include:

- DOE-RL Site Infrastructure Division;

- DOE-RL Waste Management Division (including the Spent Nuclear Fuel Project);

- RePM Unit; and

- DOE Headquarters Office of Civilian Radioactive Waste Management.

, 6.9 Issue Identineneian and Resolution Process l

There are several forums for early detection and resolution of issues: Integrated Product / Process Teams and interface Control Don =nent working groups. These forums provide for frequent, regular meetings in which the early identification and resolution ofissues are key meeting objectives. As an example, during the regularly achdalad Project Mer.; m Integrated Product / Process Team meetings, contractor and overall project progress is evaluated against appmved scope, achdale, and cost baselines. In addition, p formance issues and risks (i.e., achdale slippage, cost growth) are discussed and corrective actions identified and tracked.

Issues that cannot be resolved within these forums or that require a change to the project I healine and/or privatization contract are refened to the Project M 9

• I i A Product / Process Team.

Asparr so cosyns 78-

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.- t LS Phase i Propet A uthori:ation-to-Proceed The intent of these forums is to identify and resolve issues before they evolve to the point where -

they require contract change order or dispute resolution processes and advenely affect progress.

However, in the event such processes are needed, provisions for handling disputes are provided in the BNFL contract. In addition, guidance for h=adling disputes is provided in the BNFL Contract administration plan.

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, t j TWRS Phase 1Projac2 A uthoraation-to-Proceed 7 Conclusions The Hanford tank wastes present a serious safety concem to the environment, and proceeding toward treatment and immobilintion of the wastes is the prefermd course of action for the TWRS program. Further delays in initiating tank waste processing could lead to additional tank leaks and the potential for contamination of the Columbia River.

DOE has developed a prudent approach for moving toward tank waste processing. That approach not only serves the needs of the TWRS program, but also the taxpayer, the public, and the environment. DOE is now looking to Congress to acknowledge the crucial natum of this cleanup work and provide fnnding for DOE to cany out this strategy.

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, i TWRS Phase 1 Proj1ct A uthorization-to-Proceed 8 References 10 CFR 61, U.S. Nuclear Regulatory Commission, " Licensing Requirements for Land Disposal of Radioactive Waste," Code ofFederal Regulations, as amended.

62 FR 8693, February 26,1997, " Record of Decision for the Tank Waste Remediation System,"

FederalRegister.

62 FR 12861, March 18,1997, " Notice of Availability of Memorandum of Under=tanding Between the Nuclear Regulatory Cn==i== ion and the Department of Energy Concerning the Cooperation and Support for Demonstration Phase (Phase I) of DOE Hanford Tank Waste Ramadi=tian System Privatization Activities," Federal Register.

Anti-Defciency Act,31 United States Code 1341.

Atomic Energy Act ofl954,42 United States Code 2011 et seq., as ==andad Boomer, K. D., J. Colby, T. Crawford, J. Garfield, J. Galbraith, C. Golberg, C. Leach,  ;

D. Mitchell, F. N==6i. E. Slasthaugh, L. Swanson, T. Waldo, and C. Wrinkler,1994, Tank Waste Remediation System Facility Confguration Study, WHC-SD-WM-ES-294, Rev. O, Westinghouse Hanford C===ny, Richland, W hinyan BNFL,1998a, Interface Control Documents Between DOE and BNFL Inc., BNFL-5193-ID-01 through BNFL-5193-ID-22, BNFL Inc., Richland, Wa%f+

BNFL,1998b, Tank Waste Remediation System Fri uiuzion Project TankIntegrated Master i Plan, BNFL-5193-IMP-01, Rev.1, BNFL Inc., Richland, Wa=hiaran.

Burns and Roe, June 1998, Independent Cost Estimate to U.S. Department ofEnergyfor Tank j Waste Remediation System (TWRS) DOE M&O Contractor Cost Estimate, Burns and Roe, Inc., for the U.S. Department of Energy.

Comprehensive Environmental Response Compensation, andLiability Act of1980, Public Law 95-510, D~~=har 11,1980,94 Stat. 2767, Title 26.

DOE Order 430.1, August 1995, Life Cycle Asset Management, as amended DOE,1995, TWRS Privatization Requestfor Proposals Draft, DE-RP06-96RL13308, U.S. Department of Energy, Richland Operations Office, Richland, Washington.

DOE,1996b, Tank Waste Remediation System, HanfordSite, Richland Washington, Final Environmental impact Statement, DOE /EIS-0189, U.S. Department of Energy and Washington State Dep mt ofEcology, Richland, Wa=hinyan.

Rapanso conrau 83

\ ,

TWRS Phase i Profact A uthorkation-to-Proceed DOE,1996c, Tank Waste Remediation System Privatization Requestfor Proposals, DE-RP06-%RL13308, U.S. Dep hoent ofEnergy, Richland Operations Office,

' Richland, W==hinyan DOE,1997a, Environmental Management Privatization Program Management Plan, U.S. Department ofEnergy, Wa=hinyan, D.C.

DOE,1997b, Privatization Project Stafing Plan, U.S. Department of Energy, Washington D.C.

Ecology,1994, Dangerous Waste Portion ofthe Resource Conservation andRecovery Act Permitfor the Treatment, Storage andDisposal ofDangerous Waste, Permit .

Nianber WA7890008967 (HanfordFacility), August 1994, Wa=hinyan State Depamnent ofEcology, Olympia, W==hinyan. q GAD,1997, Nuclear Waste: DOE's Estimates ofPotentialSavingsfrom Printization Cleanup '

Projects, GAO/RCED-97-49R, Government Ameunting Office, Washington, D.C.

I GAO,1998, Alternative Financing and Contracting Strategiesfor DOE Cleamp Projects, GAO/RCED-98-169, Government Accounting Office, Washington, D.C.

Hanford Federal Facility Agreement and Consent Order, 89-10, Rev. 0, as ="_,

Washington State Depamnent of Ecology, Olympia, Washington; U.S. Envimamental Protection Agency, Mi , Washington; and U.S. Department ofEnergy, Richimad, Washington.

Hazardous Waste Management Act, t%n+ar 70.105, Revised Code of Washington.

Holbrook, J. H., M. A. Duffy, D. L. Vieth, and C. L. Sohn,1996, A Systematic Look at. Tank Waste Remediation System Pri iision, PNNL-10937, Pacific Northwest National Lebui.; cry, Richland, Wa=hinyan- .

National Defense Authorization Actfor Fiscal Year 1998, Public Law 105-85, as amended National Environmental Policy Act of1P69, Public Law 91-190, 42 United States Code 4321 et seq.

NRC,1991, " Principles ofGood Regulation, " Announcement 6, U.S. Nuclear Regulatory Cn==i== ion, W==hinyan D.C.

OMB,1998, " Discount Ratesfor Cost-Efectiveness, Lease Purchases, and RelatedAnalyses, "

OMB Circular No. A-94, Ag= C-- C, revised January 1998, Office of Management and Budget, Wa=hinyan D.C.

I Aaport to Congress 84 l 1

, i MS Phase i Project Authorization-to-Procaed Resource Conservation and Recovery Act of1976, Public Law 94-580, 0ctober 21,1976, 90 Stat. 2795, Title 42, as amended.

)

World Bank,1990, Understanding the Costs andSchedules ofWorldBankSupported Hydroelectric Projects, R-89-04-WB, Industry and Energy Department, The World Bank, Washington, D.C. 1 9

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, f i TR2tS Phase 1 Project A uthortation-to-Proceed I

t APPENDIX A TWRS Phase I Authorization-To-Proceed Decision and Decision Methodology

)

Raport to Congras 'A-1

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TWRS Phase iProject A uthorization-to-Proceed

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Jtaparre Congreer A-2

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,.  ; . i WRS Phase IProject A uthortation-to-Proczed Appendix A TWRS Phase I Authorization-To-Proceed Decision and Decision Methodology The Tank Waste Remediation System (TWRS) Part B authorization-to-proceed (ATP) decision described in this report was made using a systematic decision process, which was based on the application of the Cost and Operational Efectiveness Analysis (DoD 1991) decision approach used by other federal agencies. In addition, the process involved extensive indapandant reviews cf both the decision pwss and the results. The ATP decision and the piwss for making the decision are smnmarized here.

The ATP decision process is illustrated in Figure A-1 and included two major parts. The first part consisted of readiness-to-proceed (RTP) reviews for the Hanford Management and Integration (M&I) Contractor, the U.S. Department of Energy (DOE) itself, and the DOE Office of Radiological, Nuclear, and Fisse Safety for TWRS Privatization (Regn% Unit); and a review of the " Record of Decision for the Tank Waste Femediation System" (62 FR 8693).

Those RTP me-nana are dimmed in Section A.I.

'Ibe second part addressed selection of the best arrangement with private wou.cm(s) for Part B.

A me==mants were made of the contractors' Part A deliverables against each of the three, contract-specified decision. criteria:  ;

1 o Ability to meet Phase I, Part B contract requirements; o Ability to perform Part B services for a reasonable price; and o Ability to provide best value to the government Using these prime criteria, the decision methodology for contractor selection was constructed to make several key decisions answering the following questions:

o - Should zero, one, or two contractors be selected?

o Should high-level waste (HLW) processing be included or not, and with which contractor?

o If one contractor is selected, should it be BNFL Inc. (BNFL) or LvWad Martin Advanced Environmental Systems (LMAES)?

o Is this cost-effective for the government versus other options (e.g., the M&I, cost-reimbursement .yymech)?

Raport so Congren A-3

TWRS Phase I ProjecM uthortation-to Proceed The decision process was capable of handling the situation where either one or both contractors passed the initial Part B viability screen. However, DOE determined in the sucess ofevaluating LMAES' Part A deliverables that there was too much risk associated with its technical approach, and LMAES was eliminatad from further consideration. This outcome has the result of directly answering some of these fnad==aat=1 questions. The rest of the ATP process is one of ensuring price reasonableness in the BNFL bid and, thmugh contract negotiation, ensuring that the best deal for the government was achieved with BNFL. 'Ihe contractor selection pucess is described further in Section A.2.

A.1 Readiness-to-Proceed (RTP) Assessments The RTP reviews were performed to ensure that all vig- L ::ons recphM to support the Part B contractor would be able to perform their functions.

e HanfordM&IContractor Readiness-to-Proceed. This RTP assessment consisted oithe review of the Hanford M&I Contractor's TWRS Phase I plans to carry out feed delivery, immobilized product and secondary waste scey;.uce, and infrastructure improvements in support of the TWRS Phase I project. In its role of carrying out the non-privatized portions of the TWRS scope, the Hanford M&I C<-4-Mer will need to provide all services nare==y to ensure the privatized contractor can be successful.

• DOEReadmess-to-Proceed. Another crucial element for the success of TWRS Part B is to ensure that DOE be prepared to manage BNFL and the Hanford M&I Cvou svi during Part B. Since the TWRS Phase I project is a different contract arrangement than DOE has negotiated in the past, DOE has to manage an irsy.;d TWRS that includes both the Hanford M&I and BNFL contracts.

• DOERegulatory Unit Readmess-to-Proceed The Re&=*=y Unit is the i~'*p*~'="t regulatory body that will oversee the nuclear, radiological, and process safety of BNFL in TWRS Phase I, Part B. It has been crucial to the ATP decision that the Regulatory Unit be prepared to carry out its regulatory duties and have those plans clearly understood by the privatized contractor. The Regulatory Unit RTP consisted of an assisted self-a=== ment carried out in February 1998 and an ind pami-at review, completed in April 1998, by the DOE Office of Environmental Safety and Health.

• EnvironmentalImpactStatement-RecordofDecision Review. The TWRS Environmental Impact. Statement (DOE 1996) Record of Decision (62 FR 8693) committed DOE to complete a review of the TWRS Phase I project prior to initiating Part B. The review was designed to ensure that DOE did not proceed with Part B unless the goveming strategy for TWRS was adequately covered by the Environmental Impact Statement and Record of Decision pursuant to the National Enviromnental Policy Act.

Jteportto Congrm A4

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. _" ' .'.,i Reportto Congress A-5

TWRS Phase 1 Project Authorization-to-Proceed A.2 Contractor Selection Process The selection process, which was based on the contractor's ability to: (1) meet Part B

' requirements, (2) provide Part B services for a reasonable price, and (3) provide best value to the government, is discussed in the following sections.

A.2.1 Ability to Meet Part B Requirements Based on a review of each contractor's deliverables, two determinations were made:

• Whether the contractor sufficiently met the Part A requirements to qualify for payment for Part A; and -

e Whether the contractor is able to meet Part B contract requirements.

DOE evaluated the contractor's ability to meet Part B contract requirements based on the following questions.

• Does the contractor have a viable technical, regulatory, and busine== approach?

e Has the contractor provided sufEcient information to assess its ability to implement its processes at full scale?

• Are the skills and experience reflected in the contractor's management and technical teams adequate to demonstrate a reasonable ey that the contractor's project will be successful?

This evaluation was conducted by a team of DOE, external experts, and national labvievry staff.

The evaluation was based on a set of 13 evaluation planse for each of 12 deliverables, plus one for overall viability. As described in Appendix B, two outside reviews also were conducted.

A.2.1.1 Viability Evaluation Res uits for BNFL Based on its evaluation of Part A deliverables, DOE determined that the BNFL team demonstrated that its pvycd technical and regulatory approaches were viable. Its ba=i==s and financial approach required negotiations to achieve mv ble conditions and better value for the government. There was a strong indication that BNFL would be successful in the Phase I, Part B work. DOE alsojudged that BNFL's proposed technologies and =g-:=; d facility design were robust and niature, based on the demonstrated use in operating plants in the United States, the United Kingdom, Japan, and France (see Table 4-1).

A.2.1.2 Viability Evaluation Resuits for LMAES Based on an analogous evaluation, DOE determined that the deliverables provided by LMAES set forth an .yrvech with an =====p bly high technical risk in attaining DOE's cleanup goals.

LMAES' approach proposed numerous technalogies that would require research and Raport to Congress A-6 \

l

c:

' ;, I TWRS Phase i Profret A sahorkation-to-Proceed development. The approach wasjudged by DOE (and two groups of avtamal experts who assisted DOE with its review of the proposed waste treatment technology of both contractors) to be too risky and require substantial, additional development work. In DOE'sjudgment, the LMAES facility configuration and technical approach would likely undergo substantial change prior to the time that a waste traatmant facility would be operational. LMAES Part A deliverables placed the risk associated with these changes on DOE through cost-reimbursement ceA--^ g and would not provide a fixed price for tramtmant services until at least one year after the start ofhot operations. The LMAES approach was daemad not viable for Part B of the TWRS Phase Iproject.

A.2.2 Price-Reasonableness De ternaination Price-reasonableness was determined by considering the following questions.

• How do the pive cr .d prices compare with the "should cost" (government fair cost) estimataa?

l

• How do the proposed prices compare with a conventional M==i =e and Operating i approach for a co-r.si.ble plant capacity and useful life?

I e Does the price of waste p = -- :i per unit of measure represent a good value co-pi.id with other applicable esti==ta= of the price for this work?

e Has a sufficient degree of competition been ==intainad during the pricing process?

This ==ea==mant was osGy carried out for BNFL.

A.2.2.1 Best Value to the Government The objective of the best-value ==aa==mant was to identify contract terms that orwthe best deal for the American taxpayer in carrying out TWRS Phase I work scope and to compare the j negotiated arrangement with other programmatic alternatives.

i l The sub. criteria for evaluating best value to the govemment were constructed to mirror the fimdamental objectives of the TWRS Phase I project. These sub-criteria, and further levels of detail, were used both to evaluate contractor-pmposed anhannamente and to make the final best value determination about which g- L-1s) should be the basis for prMag with Part B.

These best-value'sub-criteria were:

. Minimim programmatic risk for Phase I;

• Minimim environment, safety, and health risk; Jtsporta cosierers A-7

2 .

TWRS Phase iProject A uthoritation-to-Procead

. Position DOE to complete the balance of the TWRS minaion after Phase I; and

. Minimi= costs.

These sub-criteria were developed to encompass values and concerns ur seed by Hanford regulators, affected Tribal Nations, and stakeholders. They also recognized that the quality of the contractors' project pisus and the experience of the contractors' management teams are key factors in DOE's assessment ofprogrrunmatic risk for a me-dul TWRS outcome.

Accordingly, these aspects of the contractors' proposals have been included as an input during the best-value assessment.,

The best-value assessment included two element <:

• Determination of the best path forward for Part B (privatization best value) based on

- Ameenamant ofpossible enhancamante and ebngen to contractor proposals; P-=. ment best-value me=amement, comparing contractors for mimilar work scope; Privatization depley-sist best-value manaanmant, (+2=LC..g one versus two contractors and the inclusion of high-level waste vitrification services; and

• Emgrammatic best-value determination comparing the contract aaga*i-*ad with BNFL with other program == tic alternatives.

The best-value ammaamment was based on a h inian framework previously used in major DOE and D@m.st ofDefense decisions and adapted for use on the TWRS Phase I project The Department of Defense Cost and Operational Effectiveness Analysis decision framework was adopted to ensure that the basis for the ATP decisions could be clearly articulated and documented. 'Ibe best-value decision analysis was based on the criteria defined earlier, with further definition, ineWiag specific metrics for each sub<:riterion.

To ensure that the best approach to rM with tank waste processing and disposal was selected, other alternatives were defined and compared to prMing with BNFL. This comparison was part of an iterative process to evaluate specific tank waste processing and disposal approaches.

The best-value assemament of the BNFL enhancarl proposal, which included an initial design period, referred to as Part B-1 in the evo..ct, determined that strw=L.g Part B with this initial period and subsequent decision point was of benefit to DOE.

1 A broad range of alternatives with differing levels of detail was considered as part of the ATP i decision pwcess. The range included:

• Having BNFL proceed with scope other than combined HLW and low-activity waste (LAW) l processmg services; I

A-8  !

Rgortso Congreat l

f, a mtsPhase1 Project Authorkeion-to Proceed 1

1

• Considering alternatives to privatiration (e.g., government-owned, contractor-operated) for accomplishing the TWRS mission; and

. . Considering alternatives to the current TWRS strategy.

This assessment and comparison, as wm==rized below, confirmed that pasWLg with BNFL l is in the government's best interest. .

l DOE also evaluated the alternative of paM#hg with BNFL as the contractor for LAW

processing services only. " Ibis alternative was considered to be inferior to the decision to I

proceed with BNFL providing both LAW and HLW immobilization services.

l Combined HLW and LAW processing services were preferred for several reasons.

l e- DOE cost and management ofintermeAinte waste product are avoided.

l e HLW processing service in Phase I provides a technical basis for timely completion of the TWRS mission.

• There is a sufficient technical basis for the HLW processing.

• Including HLW services does not substantially raise the Phase I cost, and does not impose significant additional requirements on the Hanford Site infrastructure, while treating the highest risk waste.

• Including the HLW processing service p. its treating some of the highest risk tanks early in Phase L Three non-privatization alterr.atives were developed in the ATP decision process prior to receipt l of contractor deliverables. The purpose of these alternatives was to provide hanchmarks against

! which implementing the Part B decision could be a,-y d The three alternatives developed j were:

-* Delayed implemantation of the TWRS strategy p ikg available funding; e Single-phased, full-scale, government-owned, contractor-sp. 64 facility; and

. Government-owned, contractor-egi.w4 facility executing the Phase I work scope.

DOE wanted to ensure that a w,-y.J.er.sive range of alternatives was considered in == king its decision whether to authorize BNFL to proceed with Part B. Each of these alternatives had major disadvantages includmg long delays in initiation of waste processing and di-al, incurring delay in retrieval of single-shell tanks or building of new double-shell tanks, higher cost, inability to support feed schedule, and/or higher ya,,-.....ric risk. ' Ibis led to a consideration of additional altematives to: (1) determine if any alternatives with lower near-term mportto congren A-9 L .

a 4 zwRS Phase i ProJ0ct Authorization-to-Proceed costs were plausible and atersctive to DOE; and (2) have some fallback position should negotiations with BNFL not produce an acceptable agraamaat An analysis of these alternatives was performed. The conclusions are discussed below.

• None of these alternatives are clearly superior to ==+harida BNFL to proceed into the next contract phase.

• A few alternatives reduce near-term costs by performing the current work scope in a different sequence or at a slower pace. However, all of these alternatives require a redesign phase and j would delay startup. All would be strongly opposed by regulators and stekeholders. These alternatives are also less cost effective from a life cycle p#tive, l

e Other alternatives would reduce near-term cost by performing very different scopes of work but would be innansierant with the Record of Decision for TWRS (62 FR 8693) and the ,

HanfordFederal Facility Agreement and Consent Order (also known as the Tri-Party Agr=nant). Extensive delays would result.

Each alternative was assessed for schedule ima=e* near-term cost, life cycle cost, envirnamanal safety and health i=a=e+=, TWRS system *-i+m, compliance, and stalrahaldar suppost.

A.3 References 62 FR 8693, February 26,1997, " Record of Decision for the Tank Waste Famadiatian System,"

FederalRegister.

DoD,1991, Cost and OperationalEfectiveness Analysis, DOD 5000.2-M, Part 8, U.S. mgm.=;; of Defense, W==hia=*aa D.C.

DOE,1996, Tank Waste Remednation System, HanfordSite, Richland Washington, Final EnvirommentalImpact Statement, DOE /EIS-0189, U.S. Department of Energy and

- Washington State mp-- 1 of Ecology, Fichland. Wa=hinataa_

HanfordFederal Facility Agreement and Consent Order, 89-10, as ====Aal Washington State Departmant of Ecology, Olympia, Wee:.issica; U.S. Envirnnmental Protection Agency, Seattle, Wa=hia-taa: and U.S. D,.,, -.ss: ofEnergy, Picht=d. W=ahia=*aa.

National Environmental Policy Act of1969, Public Law 91-l90,42 United States Code 4321 et seq.

Asporrso Cong m r A-10

l rns rhae iproper authori arion.go.rrocaas l

l APPENDIX B Expert sad Non-Proponent Reviews l

i t

j l

i Report to Congras B-1 l '

[

e .

TWRSPhaseiProject Authorkation-to-Proceed -

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9 Asparrso ca y an B-2

, o TWRS Phase i Project Authori:ation-to-Proceed Appendix B Expert and Non-Proponent Reviews B.1 Introduction Throughout the authorization-to-proceed decision process, the U.S. Department of Energy (DOE) had many different reviews of their work performed by expert reviewers chartered by the DOE Richland Operations Office (DOE-RL) and non-proponent reviewers chartered by DOE Headquarters. These reviews were designed to help assure DOE that it had a program that was well positioned for successful implementation. In addition to the experts brought in to assist in developing speci6c portions of the process, more than 100 expert reviewers from the following were asked to evaluate the work done for the authonzation to givceed:

. .c.A m t.,

e private industry, e nationallaboratories, e other DOE high-level waste facilities, and e other federal agencies. )

These reviewers had expertise in a variety of key areas relating to the Tank Waste Famadiation j System (TWRS) program, such as:

]

• glass production, e nuclear facility management, e cost-e=timating,

. -mEement oflarge complex projects, e fixed-price contracting, and e decision analysis.

l The reviewers were tasked to evaluate the overall decision process as well as specific portions of the contract decision-moleing process. Extensive expert reviews were conducted for each of the key steps in the process and for the process as a whole, plus the final decision. These expert reviews are shownin Figure B-1.

RyorttoC , B-3

3 o s rwas Phase 1 Project Authorization-to-Proceed I

l Overall A uthorization-To-Proceed Process \

Five Reviewers with specialized expenise from:

Academia Private Industry i

(

Former DoD Manager '

NationalLaboratory Evaluation ofPrivate Contractors Pan A Deliverable Price Reasonableness Best-Value Contract Reviews & Cost Savings Deterssiastion Negotiations 13 Revwwers fresn: 9 Revwwers from: 1 Reywwer from: 4 Rmevers from:

• Acadsmua + Arhea

• Acadesua + PrrvanzanomContractag

+ Pnvaseladestry

• PrrvaseIndusay

• ProyectFmance

• Other DOE HLW Sites . GovernmentConescang

• SupportagDOE& + Large Consinusom NanomalLaboratory Comences Readiness-to-ProceedProcess Record of Doculon Banford M&IContractors Department ofEnergy Re-Evalaation 19 Revwwers A Mad by 2 Revwwers from: 5 Revwwers from:

Hanford M&I Comeractor:  ;

• DOE Complex + FoneerDOE Sies Manager + FonnerDOEDisposal j

• HAB + FennerDoDManager Manager l

• FennerRegulasors

• NASMember  !

• FonnerDOEContractor

• Tank Advoory Panel

' + NationalLabonsory 30 Reywwers Assembled by Hanford M&!Contactor

• FonnerWesangbouse

• NationalLaborasary Hanford -TWRS Program

. DoD laaegnaan

+ Other DOE Complex

+ Pnvaseladestry Figure B-1. Expert Reviews Report to Congress B-4

.> L TWRS Phase i Project A uthorization-to-Proceed As a result of the issuance of a report by the National Research Council dunng the course of this work,- Assessing the Needfor Independent Project Reviews in the Department ofEnergy (Duscha 1998), DOE Headquarters also chartered non-proponent reviews of the authorization-to-proceed process, involving outside experts and DOE persvuocl with no vested interest in Hanford or the outcome of this decision. These non-pmpeuent reviews are shown in Figure B-2. Each of the expert reviews and non-proponent reviews developed an evaluation plan and criteria to evaluate the work, produced a report that identified key concerns or findia=<, and provided recommandations to address the problems identified.

B.2 Process In the early stages of this activity, an expert review was conducted specifically for the amharization-to-proceed decision logic, as discussed in Appandiv A and shown in Figure A-1, to determine if there were any gaps present, if the process was logical, and whether the ultimate decision would be defensible. Based on the results of this early review, expert reviews were then performed on many of the key steps in the process:

• Hanford Management and Integration (M&I) Contractor Readiness to Piwed,

e. DOE Pandinaan to Proceed,

• TWRS Environmantal Impact Statamant Randina== to Proceed, e Contract Negotiations Strategy, 1

e - Best-Value Detennination, i e Cost Savings and Price R-ahl , and e Part A Deliverable Review.

A non p i-:= -i review was performed to evaluate the entire expert review process and all of the key steps listed above. A non-prapa'*at review of the DOE OfEce of Radiological, Nuclear,  !

and Process Safety for TWRS Privatization (Raga % Unit) was performed by the OfEce of  ;

Environment, Safety and Health at DOE Headquarters. Finally, a non-proponent review team l was asked to evaluate the final decision and to determine if DOE had followed the decision logic it had p.yered and whether the decision had been adequately documented in this Report to Congw.

B.3 Review Teams and Resaits Each of the review teams varied in its number of personnel, the tscimieunds ofits personnel, the type of review it p i's =-i, and at what time in the pass its evaluations were performed. The scope of the randinaes-to-proceed reviews is = '-i in greater detailin Ap,=adiv A.I.

Agm to Cogren B-5

. s TWRS Phase i Project Authorization-to-Proceed Overall Authorization-To-Proceed Process Decision )

• Five Reviewers with specialized expertise from: f Academia 1 Private Industry

= Former DoD Manager )

Overall A uth orisation-to-Proceed Process Two Reviewers with specialized expertise from:

PrivateIndustry Fonner DoD Manager Evaluation ofPrivate Contractors Part A Deliverable Price Reasonableness Best-Valse Contract Reviews & Cost Savings Deteranisation Negotiations 11 Rmewers frumt 5 Rmewers front 2 Rmewers front

• OmceofProcuranent

• Academia e Priveneladstry Prmasin&sey

• OeneralCounct

• OlberDOESines  :" .

• DOE :' ' a. 7 Of5cc ofFieldMe

• ContactReformand

• Prmacladustry "'

.Rmewers fron:: Priv=a=== Project Omo.

• PrivaleIndustry Readiness-to-ProceedProcess Hanford M&I Departenest of Record of Decision Contractors Energy Regulatory Unit Re-Evalsation 3 Rmewers front 3 Rmewers froar 9 Rmewers froar 3 p,y,,,,, g,,,g )

• A*ta e' Acadman

• FonnerNRCOf5cc . Amm l

• PrivmeIndusty

• PrmacIn&sry Dssciars . . p, ,,, gag ,,y l

• OtherFederal Ageomes

• Pmmeindary Figure B-2. Non. Proponent Reviews Report to Congress B-6

,. s TWRS Phase iProject Authorkation-to-Proceed Overall Authorization-to-ProceedDecision Process. Five individuals from = cad

• min, the U.S. Department of Defense, and private industry participated in this expert team early in the review process. Its Gading= indicated that the decision process "is logically sound and the staff

. has made an effort to ensure that all technical, cost, and risk concerns are covered in the best-value judgment." Recommendations were provided to straagthan the process, and these

!%ommandations were Eccsykd and incviyvialed.

HanfordM&1 Contractor Readiness-to-Proceed As part of the puccie of developing its raadi -to-proceed plan, the Hanford M&I Contractor brought in a team of 19 outside subject matter experts to evaluate its plan. The team concluded, "there is reasonable assurance that the M&I contractor will be able to deliver feed to the privati=rion contractor." A total of 30 people, split equally iwm DOE and national laboratory personnel, then performed an evaluation of the Hanford M&I Cv==.Gui plan. The results of their review confirmed that the Hanford M&I Contractor was ready to proceed provided certain risks were addressed in the privatization contracts. These risks included adequ.cy of funding to meet the existing schedule and adequacy of float in the schedule for receipt of the final waste forms. It appears these riaks will be reduced subarantially by der.v proposed by BNFL in the original schedule for construction and operations. The Hanfoni M&I Contractor plans will be refined during the design phase to assure

. DOE that the Hanford M&I Contractor is prepared to deliver feed and to store and dispose of the final waste products scconding to the new schadnle proposed by BNFL.

The non-proponent review team determined that the conclusions of the external review team were supportable and adequately domnnantad The non-proponent review team reca==andad that DOE expand the self-===aetment to fully evaluate any additional interfaces as a result of the contract negotiations. This racnmmandatian was meey-d and will be completed through the use ofInterface Control Documents and Integrated Product /P,vc.ee Teams.

DOE Readiness-to-Proceed The expert review team assembled to canduct this ===a==mant consisted of a former DOE Ohio Field Office Manager and a former U.S. Department of Defense .

senior manager with expertise in fixed-price contracting. The team concluded that the management amee==mant performed by DOE-RL was conducted in a structured mannar and was  !

credible, and it agreed with the results, observations, and path forward. However, the team

. expressed concern that additional amag was needed on the project team to ensure a successful execution of the privatization contract. They also suggested additional training in fixed-price contracting for all staff directly or indirectly involved with the project. As described in Section 6.4, actions are underway to address these concerns.

The non-proponent review ouryoned the conclusions and IE+ ==4= dons of the expert review of the readiness-to-proceed review, particularly those related to *= mag limitations. The non-proponent review team determined the expert review "was compsc=sive and no significant gaps were identified in the overall methodology." Recommandationr, provided by the non-proponent review team included developing a time da-dant internal amag plan, augmenting the DOE staff, and refining the interface review process after Part B is started. These

. ig+- = Mons were ae prad matrixed staffwas brought in from other offices within DOE-RL, and the staffing plan is - -aly being developed. The non-proponent review team _

also renammanded that the Headqu.nere elements perform a ra diaa==-to-proceed evaluation to Jtsportto congrau B-7

TWRS Phase i Project A uthorization-to-Proceed ensure that there is a recognition and und@=ading of the unique interface requirements of this fixed-price contract. This Headquarters r*=diaa -to puceed evaluation is presently under development. Additional inforrnation on the management approach is provided in Section 6,

" Management of the TWRS Phase I Project."

DOE Regulatory Unit Readiness-to-Proceed The OfEce ofEnvironment, Safety, and Health performed a non-proponent review of the Regulatory Unit. Based on evaluation criteria established by the review team, the team concluded that the Regulatory Unit met the criteria and is ready to regulate in Part B provided identified wa=b==ae are corrected. These weaknesses are categorized as those requiring completion of corrective actions prior to regulatmg in the design phase and those tlist could be addressed during the design phase.

The areas to be addressed prior to regulating in the design phase include the following:

• Identify and train individuals to serve as Safety Concerns / Allegations Program Coordhator and Enforcement Imd CoeJ..aw, e Identify the additional qualification requirements for Regulatory Unit staff and complete applicable requirements, e Fully implement the commitment tracking system, )

• Improve controls on proprietary and c+ :--JJon-sensitive information and upgrade guidance in this area, and e Complete a plannad reviWon. ,

The issues to be addressed early in the design phase include the following:

• Fill open federal staffpositions with personnel having expertise in the areas of process safety management and vitrification,

. . Develop a directive and handbook on its haafit suc.ss, and

• Elevate the priority of the development ~of pre-construction inspection procedures.

The Acting Assistant S-my for Environmental Management issued the EH report,

" Independent Assessment ofthe Tank Waste Remediation System Privatization Regulatory Unit-Readinessfor Phase B" on May 1,1998. Corrective actions are under way, and several of the weaknesses alreadyhave been partially or completely resolved. ,

EnvironmentalImpact Statement-Record ofDecision (62 FR 8693) Review: Because of the diverse nature of the three envir -

2 1 dc- -- ==* that were reviewed for this report, this five-member team had a wide range of backgrounds in waste maria ioein, scientific, and technical fields. The objective of this review was to ensure compliance with the National Environmental Raparrso congress B-8

> o TWRS Phase i Project Authori:ation-to-Proceed andPolicy Act regulation. The results ofits reviews indicated there was no need for a Supplemental Environmental Impact Statement or other National Environmenrol Policy Act l documentation priorto s -M c g with Phase I, Part B.

Evaluation Reports ofPrivatized Contractor Deliverables. The expert review of the privatized contractor deliverables chartered by DOE-RL was comedwd of a multi-disciplined team of 13 outside reviewers from ="-A-mia, private industry, DOE high-level waste sites, and other federal agencies. "Ibe reviewers were organi=d into specific teams, based on individual expertise, to conduct the evaluations for all except the health and safety deliverables, which were reviewed by the Regulatory Unit. The input from these teams was used as the basis for DOE

=% :- -? for payment of deliverables and annansmants of technical viability of the contractors.

The evaluation concluded that the BNFL team demonstrated that its proposed technical and regulatory .gro.ch were viable. 'Ibe review also indicated that the LMAES technology

.groech, facility concept, and regulatory strategy had significant risks for both the contractor and DOE, and were determined not to be viable. More detailed results of this review are discussed in Section 4 and Appandir A of this report.

The non-prapa=* review of this evaluation agreed with the viabihty determinations and j concluded that " omissions, uncevaiatia=, and lack ofintegration within the LMAES deliverables '

were systemic and undermined mnMence in their successful implementation." It father ranammandad several specific steps to minimim technical risk to DOE in pranaading with the BNFL proposal. 'Ibese steps included:

• Unde taking a parallel effort to evaluate technologies for separation of technetium, e Providing more consideration of waste .. ;.T... ' , lon, j e Resolving waste diena== hili ty issues, and i

e D . :- : g the need to maintain the apa =tian_ of a testing facility throughout the operating  ;

life oftherudssion facility.

' DOE-RL plans to have a symposium during the design phase to evaluate the technical issues relating to technetium separation, and the other issues were addressed during the negotiation Process.

Price Reasonableness and Cost Savings. 'Ibe objectives of the Price Reasonableness and Cost Savings Evaluation were to determine whether the contractor's price could be determined to be fair and reasonable to the government and whether the private contractor's approach saved money in comparison to a traditional Management and Operations (M&O) contractor .yrvech.

The reviewers evaluated (1) the methods used to detennine the costs, (2) the methods used to determine whether the contractor's price was fair and reasonable, (3) the methods used to determine whether a more equitable risk allocation was possible between DOE and the contractors, and (4) the evaluation of the conector's prices on the TWRS life cycle costs. The Aqparrso cener B-9

o s TWRS Phase 1 Project A uthorization-to-Proczed expert review team that evaluated the fia=aciM model consisted of four members from private industry and five from =a-d-ia The non-proponent reviews were che.M by two indapaadent offices at DOE Headquarters.

Specifically, the Government Fair Cost Estimate and M&O Cost Estimate were evaluated by two separate teams chartered by the OfEce ofField Management. These reviews, as well as the l review of the Anancial model, were the evaluated by anothernon-proponent team chartered by DOE Headqs.&.. The results of this final review stated each of the areas was reviewed adequately and the teams pie... 'ng the reviews were qualified. The non-geycesst team 4 identined several areas that had not been addressed in the review, including reconciling the M&O cost estimate prepared by the OfEce of Field Management team with the DOE-RL estimate to harmonize the two cost estimates to support the fixed-unit price determinatian. +

Best-Value Determbution: The expert reviewer for this determination noted "the hierarchical structure of the attematives, their specifications, and the sequence of the decisions are well formuisted." The main mmandatian was to restructure the list of criteria.

The non-proponent review team that looked at this determination noted that some portions of this evaluation had been subjected to an expert review and some portions had not. However, the non-proponent review team also noted this was a result in part of the fact that negotiations were ongoing at the time of the non-proponent review. The non rvessst review team recommandad that the final non-gegessa review team evaluating the final ATP decision evaluate the portions that had not been reviewed as part ofits analysis, and this was completed by that group. Another mmandstian was to perform another Best Programmatic Value Determination at the end of the two-year design phase.1he Best Fm,-......ric Value Determination will be continued as part of the.optimintian steps described in the overall m=andariane. (See also Section 5.2.2.)

Contract Negotiation. Three expert reviewers evaluated the DOE's negotistion position and syrwech and provided private sector > Aves to the DOE negotiating team, particularly on legal and financial issues. Because of the sensitive nature of this information, the non-proponent evaluation was limited to key DOE officials at Hesquarters, particularly the OfBee of Procurement and Assistance Management, the Contract Reform and Privati=tian Project OfHee, and the Of5cc of General Counsel.

Non-Proponent Review ofOverall Authorization-to-ProceedProcess. In addition to the specific ruw n= Mons provided in the sections listed above, the non-prapanaat review team identified several overall ranammandatians The primary rarammand=*ian was to include n

opti-intion studies to (1) evaluate altemative a==aing -:+ - to ensure that the Phase I, Part B contract has the flexibility to accammadata changes that would benefit the DOE, (2) evaluate the cost and time savings as a result of changes to technical requiremaa*=. and (3) complete a programmatic re-evaluation to assure that no better programmatic solution exists.

In addition, the team m=andad that an "open item tracking list" system should be put in place to assure that all commitments to responses and commitments to actions are completed.

The review team concluded that " authorization to proceed to Phase IB should be given" provided Jtsport to congrau B-10

L TWRS Phase !Propct Authorization-to-Proceed the commitments to all expert review recommendations were resolved and the optimintion studies were included in the contract.

The aptimi= tion studies are either underway or are now included in the contract requirements for completion early in the design phase. The open tracking system has been developed and is close to completion.

Final Authorization-to-ProceedDecision. The role of this five-member team was to A****wia*

whether this Report to Congress " clearly and adequately presents the DOE decision and the rationale used to arrive at that decision" and whether "the deal presented wrs the best deal for the government corord io other options" evaluated. 'Ihe team was an expert review team 4 l

chartered by DOE Headquarters. The results indicated "the fixed price -grusch should be a better deal for the government both from the standpoint oflower cost and improved performance (higher likelihood of success). However, the ==gai+=i= of the Anancial savings will not be quantin ed until Phase IB-1 [ design phase)." 'Ibe team supported and endorsed the 24-month period to move from a 5% to a 30% design in the resulting plant. It was stated this period was of great benefit to the government because it tremendausly reduced the risk and uncertainties of this project.

l B.4 Conclusion i l

DOE had many different reviews ofits work performed by experts and non-prapaa*at reviewers throughout the process of devalaaiag the authorization-to-proceed decision in order to assure ,

itselfit had a well-positioned program ready for successfulimplement=vian. The n adias and l

wammandatians straa.h he process.t Although not all of the G=dby will be resolved prior to the design phase, the review teams supported DOE's plan to proceed with this phase.

Outstanding issues are being resolved as part of the design phase.

B.5 Referomees 62 FR 8693, February 26,1997, " Record of Decision for the Tank Waste Femadiarian. System,"

FederalRegister.

Duscha, L. A.,1998, Assessing the Needfor Independent Project Reviews in the Department of Energy, National Research Council, Washington, D.C.

National Environmental Policy Act of1P69, Public law 91-190,42 United States Code 4321 et seq.

i Raportso Cmyss: B-Il

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