Arming America’s Cold War deterrent of Mutually Assured Destruction left a legacy of nuclear waste on 10 square miles of rocky ground 15 miles from Denver.
The centerpiece of this super-secure and super-secret bomb-building complex, known as Rocky Flats, was Building 771, dubbed “the most dangerous building in the world.” Walk in there with a radioactivity sensor and you would get a new definition of “red zone.” Plutonium-fueled radiation levels were so high the building earned the nickname “the infinity room.”
Since 1953, nuclear bomb-making at Rocky Flats created contamination and waste materials whose disposal was secondary to keeping the nuclear arsenal ready. There were many accidents and spills including the worst industrial fire in US history. Despite the tightest security measures, word got out, and in 1989 a joint FBI/EPA raid exposed so many problems that the Department of Energy, to whom Rocky Flats reported, decided to end weapons production there in 1994.
But DOE didn’t want to just shut down Rocky Flats. They decided to clean it up and restore it to what it was before the first bomb-making building went up: 10 square miles of prairie at the foot of the Rocky Mountains. They eventually decided to do even better than that: turn it into a National Wildlife Refuge.
No-one, no government, no nuclear research institute, no electrical power generating company, anywhere, had ever attempted anything so daunting. Hundreds of observers thought DOE was, at best, over-reaching. Trying to make the impossible possible. The US General Accounting Office, when it examined the project, gave it a 1% chance of succeeding.
But US Energy Secretary Bill Richardson remained undaunted. "Rocky Flats is the flagship site ... in demonstrating tangible and significant progress toward safe closure of former nuclear weapons production sites. The safe closure of Rocky Flats by 2006 is a top priority.”
The impossible was made possible. It took a public-private partnership that exemplifies
Vested Outsourcing principles and practices to get the job done.
DOE and Kaiser-Hill (now part of
CH2MHill) forged a creative enterprise to go where no human endeavor had ever gone before. And they did it 60 years faster and $30 billion cheaper than initial estimates.
How?
The first thing they did was define the outcome they wanted: Ten square miles of pristine prairie. That’s the foundation for
Vested Outsourcing’s Rule 1: Create an Outcome-Based vs. Transaction-Based Business Model. Neither DOE nor Kaiser-Hill knew, going in, how to get there, so it would have made no sense for DOE to attempt a traditional government outsourcing contract that specified every detail down to how short the grass should be cut. As Kate Vitasek, Mike Ledyard and Karl Manrodt wrote in their recent book
Vested Outsourcing: Five Rules That Will Transform Outsourcing, Kaiser-Hill and DOE had to create a
Flexible Framework for a mutually-beneficial relationship governed by a
win-win attitude. This approach was embedded in contract language. Two examples:
“Seek ways to accelerate cleanup actions and eliminate unnecessary tasks and reviews, by requiring that the Parties work together.”
“Provide the flexibility to modify the work scope and schedules, recognizing that priorities may change due to emerging information on site conditions, risks and resources.”
The contract had to focus on the WHAT, not the HOW –
Vested Outsourcing’s Rule 2 – with clearly defined guardrails. DOE and Kaiser-Hill embraced a “learn as you go” approach that they sometimes referred to as “experiment and conquer.” The guardrails were safety, environmental and national security standards plus extensive 3
rd party scrutiny – the public, the media, local governments, watchdog organizations – not to mention operators of nuclear facilities worldwide.
Step 3 (
Vested Outsourcing Rule 3) was to define the outcomes. Secretary Richardson had defined the overarching goal of safely closing Rocky Flats. The next level of desired outcomes was a relatively short list:
1. Collect and dispose of about 2,000 pounds of missing Plutonium
2. Securely remove radioactive waste that terrorists would love
3. Extract, transport and store huge quantities of contaminated soil, asphalt and concrete
4. Demolish and dispose of more than 800 buildings
5. Operate at the highest levels of worker safety.
Providing for flexibility, combined with clearly defined desired outcomes, led to the creation of hundreds of innovations including:
· * Methods to treat and safely dispose of 76 toxic substances that had never before been addressed with regulations or standards.
· * How to safely demolish buildings by carefully removing contaminated concrete from steel reinforcements designed to withstand aerial bombing attacks.
· * A robot-operated plasma arc torch to cut up large pieces of contaminated equipment.
· * A glycerin spray that could remove airborne Plutonium contaminants.
· * Safety practices, now emulated around the world, that resulted in no environmental releases and no life-threatening injuries in 60 million hours of work.
The working relationship spanned 11 years. The first contract, implemented in 1995, was a simple 5-year cost-plus contract that gave both DOE and Kaiser-Hill time to assess the challenge. They made a dent, and the relationship worked so well and they acquired sufficient knowledge that they decided to risk what for the government was a radical approach: A shared risk, shared reward structure that provided Kaiser-Hill with significant incentives to produce results below budget and ahead of schedule (less than 6 years).
It was a pricing model optimized for trade-up, not trade-off (
Vested Outsourcing’s Rule 4) that drove the innovation. The parties established the $3.94 billion budget together based on a cost-plus estimate. Part of the “plus” was Kaiser-Hill’s profit and Kaiser-Hill put part of that fee at risk. If costs ran over, Kaiser-Hill would lose some or all of the at-risk portion of its fee. If Kaiser-Hill managed costs down, they would add a portion of those savings to their fee.
DOE’s downside risk was mitigated by Kaiser-Hill’s at-risk fee. Costs could go 8% over budget and DOE would not go over its overall budget. DOE’s skin in the game was a minimum fee plus an agreement that any costs attributable to DOE’s failure to provide regulatory and other forms of support wouldn’t “count.” This provision kept DOE committed and reflected the fact that neither Kaiser-Hill nor DOE could do this project alone. They were in it together.
The result? Kaiser-Hill brought the project in $500 million below budget and 15 months ahead of schedule. Actual costs were 20% below budget. And even after Kaiser-Hill’s bonus, which resulted in an 11.6% profit margin, DOE’s total expenditure was 13% below its initial budget.
A true win-win.
It’s interesting to note that DOE’s friends at GAO – the folks who gave the project only a 1% chance of succeeding – later carped about Kaiser-Hill’s profit margin being well above the historical average rate of 4.1% on DOE projects. Well, consider the results.
There were three other elements of the pricing model worth pointing out. There was a second-level bonus for beating the time budget. And to deal with typical government funding and appropriations issues, Kaiser-Hill agreed to put up the capital required to develop the innovations that drove its success – a significant risk atypical of government contracts.
And before the project began, Kaiser-Hill committed 20% of its profits to be shared with employees. Many involved gave this provision a large portion of the credit for Kaiser-Hill’s success. That profit-sharing commitment motivated every single employee to think about how to do things better, faster and safer. All of those ideas, none of which could have been anticipated much less specified in a traditional cost-plus contract bound by a detailed scope of work, contributed to the hundreds of process and technical innovations that produced success.
How did they manage it all? From the very beginning, DOE and Kaiser-Hill, from the highest levels, committed to a governance structure characterized by transparency, inclusiveness and outreach (
Vested Outsourcing’s Rule 5). This was partly a requirement based on Rocky Flats’ history of secrecy and, some would argue, deception, resulting in tremendous distrust among the local population and their elected representatives, watchdog groups and the media. It was also essential to maintain the spirit of the collaboration. DOE and Kaiser-Hill had to be open and tell each other the truth about everything, the good, the bad and the ugly. They had to stay focused on the problem rather than blaming or finger-pointing when things went awry, as they will, and did, in any project of such scale and complexity.
This shoulder-to-shoulder approach was backed up by Kaiser-Hill’s project management technology, which provided the ability to dive into the details to diagnose the issues when they arose and extract the insight needed to develop good solutions.
DOE and Kaiser-Hill made the impossible possible. They committed to each other. They embarked on a performance-based, risk-sharing outsourcing agreement. The flexibility and partnership they built into their agreement resulted in hundreds of innovations and widely-celebrated results. The project won accolades around the world, including the Project Management Institute’s “Project of the Year” award and the “Project Merit Award” from the Environmental Business Journal. The Wildlife Refuge opened in 2007. And the experience provides a fantastic example of what can be achieved by applying the principles and practices of
Vested Outsourcing.
