Summary of the technical report on estimating the impact of key programmatic risk allocation decisions on Phase 1 bids and U.S. Department of Energy costs

The US Department of Energy (DOE) is privatizing the processing of hazardous and radioactive tank waste at the Hanford Site in Washington State. As part of the privatization process, a request for proposals describing the conditions and DOE`s expectations for contractor performance and responsibilities was issued. Argonne National Laboratory and Pacific Northwest National Laboratory collaborated to analyze programmatic risks and costs associated with privatization. They examined nine major risks to determine financial impacts on the prospective vendors and DOE for three alternative risk allocations: (1) DOE bears the risk, (2) the vendor bears the risk, or (3) the risk is shared. With the help of a subject-matter expert, each risk was characterized by estimating potential consequences and likelihood of occurrence. A financial risk model was developed to estimate the total cost to DOE for a given risk allocation strategy covering all nine risks. Results showed that it is financially advantageous to DOE to bear some risks, share some others, and assign some to the vendor.