http://www.forbes.com/forbes/2005/0815/035.html
Waste Mismanagement - Forbes.com

Christopher Helman, 08.15.05

Bechtel's project to clean up the biggest nuclear waste site in
America is now in limbo. Who's to blame?

Underneath the tumbleweeds in the desert of southeastern Washington
lies the most dangerous waste dump in America. Here, at the Hanford
Reservation, the U.S. government produced 74 tons of plutonium for
atomic warheads during the Cold War, leaving behind 53 million gallons
of plutonium-laden sludge in 177 underground tanks. Leaks in a third
of those tanks have leached a million gallons of toxic goo into the
earth. The water table is 300 feet down; the Columbia River flows 8
miles away. For good reason, the 150,000 people downstream are worried.

Uncle Sam has been trying to clean up the site for 16 years. After
false starts--and a quadrupling of the price tag to a possible $10
billion--the skeleton of the largest nuclear waste treatment plant in
the world finally went up. The plan is to transform the sludge into
glass blocks, where the trapped isotopes would decay harmlessly over
10,000 years. But in late June, after a detailed inspection by the
Army Corps of Engineers, the Department of Energy shut down the
project. Just who is at fault for the engineering screwups is a matter
of dispute. The House Subcommittee on Energy & Water Development has
called for a complete audit, indicating that it believes the project
could cost an additional $4 billion and another four years.

In charge of the plant is Bechtel National, a unit of the $17 billion
(sales) construction giant. Three main buildings will contain 250,000
cubic yards of concrete, 30,000 tons of steel and 1,600 miles of
cable. Bechtel National's Hanford project director, James Henschel,
predicts it will be so robust that "this will be the last building
standing on earth."

If it ever gets finished. Now that it's one-third built comes the
revelation that the Energy Department and Bechtel grossly
underestimated how strong the plant must be to withstand severe
earthquakes. The project had slowed even before new Energy Secretary
Samuel Bodman called a halt to construction on the core of the plant.
Bechtel has laid off 1,000 workers.

If those workers are unsettled by the shaky state of this project,
Bechtel is not. This is a cost-plus-incentive-fee deal. The
construction firm puts up no capital but is guaranteed at least
something and could get as much as $425 million in gross profit. "They
need only show up with two hands and a brain," says an Energy
Department manager. Contracts like this (common in defense
procurement) reward speed, cost containment and quality of work. In
the most recent contract Bechtel gets up to $114 million in fees for
hitting milestones; another $110 million depends on the quality of the
glass logs. (That work relies on melter technology from Duratek, a
waste management outfit.) And the big one: For every dollar under the
current $5.6 billion projected total cost, Bechtel keeps 50 cents, up
to $200 million. These numbers will have to be renegotiated now that
new seismic work is going to change the design.

Such are the vicissitudes of big, messy public projects. This one
started in 1998, when Uncle Sam hired British Nuclear Fuels to build a
vitrification plant for $2.3 billion. When the U.S. insisted that BNFL
finance construction itself, cost estimates climbed to $15.2
billion--which triggered congressional hearings. After revelations of
problems at a nuclear site in Britain, the Energy Department fired
BNFL in 2000.

Bechtel was called in. The San Francisco contractor entered the
megaproject era in 1931, part of a consortium to build the Hoover Dam.
Then the world's biggest engineering marvel, the dam came in at $165
million, under budget and two years ahead of schedule. Safety
regulations would make repetition impossible today: 100 workers died
building the dam. Bechtel has also had a taste of recent imbroglios.
The lead contractor on Boston's Big Dig--a nightmare that dragged on
for 20 years and ran $12 billion over the original estimate--Bechtel
says it earned $70 million and may refund a few million for tunnel
repairs.

By the time Bechtel got started on the vitrification plant in 2001,
three years had been lost to delays. To keep to a 2028 deadline
negotiated in 1989, the government put Bechtel on a fast-track
schedule. That drew fire from the Defense Nuclear Facilities Safety
Board, which suggested a slower pace and ordered additional seismic study.

Auditors from the Office of Inspector General, meanwhile, tagged
Bechtel for lax engineering and safety standards. Among the
violations: near-fatal mishaps and hiding on-the-job accidents; a
contractor managing the sludge tanks was investigated for workers'
exposure to deadly tank fumes. In January 2003 the Energy Department
withheld $3 million in quarterly fees because of quality lapses. By
mid-2004 geologists became so concerned about the ability of the plant
to withstand a 9-plus magnitude earthquake (such a tremor hit the area
in 1700) that government managers ordered a building slowdown in
December. Two months later, in a report to Congress, the safety board
chided Bechtel and the Department of Energy for their "reluctance to
admit safety concerns, in part because the design and construction
contract incentivizes minimization of costs and maintenance of
schedule." The government fined Bechtel $300,000 for safety violations.

From there things spiraled downward. In February Bechtel and Energy
announced the plant's seismic standards had to be boosted 38%. In June
Bodman visited Hanford for 11 hours, peppering engineers with
questions. He then called for an inquiry into the plant's problems.

Bechtel must work hard to please Bodman's Hanford minders. And yet to
preserve its profits--or even increase them in the renegotiated
contract--it will have to blame the Energy Department for any
miscalculations. The government will, no doubt, point the finger at
Bechtel.

Meantime, old sludge tanks continue to weaken and the costs mount. The
glassmaking operation is only a piece of the Hanford cleanup anyway;
all told, the project will cost at least $85 billion and last until
2050. What's a few more months or another billion or two?

For more, see www.forbes.com/energy.