GAO: NNSA M&O contractors lack reliable cost estimates for subcontracts

Management and operating (M&O) contractors at National Nuclear Security Administration (NNSA) have not developed reliable cost estimates for fixed-price construction subcontracts, the Government Accountability Office said.

The Government Accountability Office (GAO) has a cost estimating guide that established 12 steps that “reflect commercial best practices to help agencies develop comprehensive, well documented, accurate, and credible cost estimates,” the report published Sept. 9 said.

“NNSA spends millions of dollars on hundreds of construction projects each year to maintain and modernize the research and production infrastructure at its eight nuclear security enterprise sites,” the report said. It added that while M&O contractors are in charge of day-to-day activities involving these projects, they may use fixed-price subcontracts to procure subcontractor services for less costly projects.

According to GAO, M&O contractors, usually the prime contractors in charge of virtually all facets of an NNSA site, “generally underestimated” costs associated with fixed-price subcontracts for construction at the site. Of the 252 subcontracts analyzed by GAO and completed in fiscal 2023, final costs of the subs exceeded initial estimates by over $37 million, or 14% overall. The cost increases usually occurredoccurred after the subcontracts were already awarded, GAO said.

Of the seven M&O contractors operating at NNSA sites during the time of GAO’s review, four contractors’ policies “met or substantially met most of the steps.” The remaining three contractors’ policies “only met or substantially met a few steps.”

The GAO recommended the NNSA administrator directs M&O contractors to abide by the 12 steps identified in GAO’s cost guide to ensure the policy relates to estimating the cost of fixed-price construction subcontracts. The report did not include a response from NNSA.a letter of acknowledgement from NNSA.