Nuclear Official Allowed to Oversee Former Client

On April 17, 2014, Frank G. Klotz was sworn in as the new top overseer of the nation’s nuclear weapons complex. Just two weeks later, he appeared before Congress to request a bump in funding for the Uranium Processing Facility (UPF) in Oak Ridge, Tennessee, one of the costliest complex construction projects that the Project On Government Oversight has investigated.

What wasn’t disclosed to the public at the time was that Klotz received an ethics waiver on April 18, the day after he was sworn in, allowing him to make official decisions affecting the Bechtel Corporation. Klotz needed the waiver because he had previously advised Bechtel, a giant federal contractor, on its successful bid to manage the UPF project and other facilities in the nuclear weapons complex. The waiver was granted to Klotz last year and posted online last week by the Office of Government Ethics (OGE), POGO found.

Klotz’s waiver underscores how the Obama administration has continued to rely on officials who used to advise the same companies they must now oversee, despite President Obama’s commitment to curb the revolving door between the federal government and special interests. The waiver also shows how the government had to wrestle with a tough decision in Klotz’s case. If Klotz had to recuse himself from all matters affecting Bechtel—a company that’s deeply embedded in the nuclear weapons complex despite its track record of violations as a government contractor—he couldn’t possibly be effective as the head of the National Nuclear Security Administration (NNSA). But as a result of the waiver, Klotz has been allowed to make decisions that could mean big business for his former client, at a time when POGO and Members of Congress are sounding the alarm about the UPF and other costly nuclear weapons projects.

Klotz retired from the Air Force in 2011 as a Lieutenant General, having served most recently as Commander of the Air Force Global Strike Command, where he was responsible for overseeing U.S. nuclear-capable bomber forces and land-based missiles. In August 2013, President Obama nominated Klotz to serve as Under Secretary for Nuclear Security and Administrator for Nuclear Security at the NNSA.

Once nominated, Klotz had to disclose what he had done since leaving the Air Force. In June 2011, he had founded the Klotz Consulting Group, according to his 2013 disclosure form. The form says that Klotz provided paid “[c]onsulting services” to Bechtel “in connection with a proposal for a contract.”

In a 2013 ethics agreement, Klotz provided more information on the contract and laid out the steps he would take to avoid conflicts of interest related to Bechtel. Like other Obama appointees, Klotz had pledged to wait at least two years before handling agency matters affecting a former employer or client. But Klotz said in his ethics agreement that he would be receiving a “limited waiver” exempting him from this cooling-off requirement in the case of Bechtel. The waiver would not allow him to evaluate or award the contract on which he had previously advised Bechtel—a project to manage Y-12 in Tennessee and the Pantex weapons lab in Amarillo, Texas. Nonetheless, Klotz said he would “fully participate” on other aspects of the project, even if the contract was awarded to his former client.

That waiver did in fact exempt Klotz from the cooling-off requirement and said he was free to participate in official actions affecting Bechtel or its subsidiaries.

The waiver notes that the contract on which Klotz had consulted was recently awarded to Bechtel. That contract was a huge win for Klotz’s former client, and shows how much money could be at stake in future NNSA contracting decisions involving the company. A contracting team led by Bechtel, known as Consolidated Nuclear Security, was originally awarded the contract in early 2013. Bechtel in particular was assigned to manage construction of Y-12’s UPF (now known as the Uranium Capabilities Replacement Project), as POGO wrote last year. The contract on which Klotz advised Bechtel could be worth as much as $22 billion if all options are exercised, according to the original contract award. The Bechtel-led team has received more than $1.7 billion in obligated contracts from the Department of Energy (DOE) since fiscal year 2013, according to USAspending.gov.

Klotz’s waiver underscores the central role that Bechtel plays at Y-12 and throughout the nuclear weapons complex:

Bechtel has a number of large contracts with DOE, including NNSA, and operates facilities dedicated to critical DOE programs. Bechtel is a partner in the [management and operating] contracts for two out of the three DOE weapons laboratories (i.e., Los Alamos National Laboratory and Lawrence Livermore National Laboratory). The Y-12 M&O contract on which you consulted was recently awarded to Bechtel. The Bettis Atomic Power Laboratory, dedicated to the joint Navy-DOE program responsible for nuclear-powered warships, is managed and operated by Bechtel Marine Propulsion Corporation which is a subsidiary of Bechtel....

In light of the critical services that Bechtel provides the Department with respect to national nuclear facilities, it is necessary that you participate in matters in which Bechtel is a party or represents a party in order for you to perform your duties as Under Secretary for Nuclear Security.

The waiver says that Klotz’s consulting work for Bechtel was “limited to a single procurement (the Y-12 M&O contract)” and that he “provided actual services to Bechtel on only 10 days in 2012.” It goes on to tout his qualifications and argue that it would be in the public’s best interest to exempt him from the two-year cooling-off rule on actions affecting his former client:

Substantial national security challenges require your expertise and judgment in making sound decisions on major defense and public security programs, several of which involve Bechtel or one of its subsidiaries....

Your experience with nuclear weapons command, maintenance, diplomacy and policy uniquely qualify you for this position, and the government will benefit greatly from your expertise....

[T]he Department’s interest in your ability to participate in [particular matters involving Bechtel or one of its subsidiaries], given the critical responsibilities associated with your position, outweighs any possible concern that a reasonable person may question the integrity of DOE programs and operations.

In a statement to POGO, Bechtel spokesperson Fred deSousa said it is “normal industry practice to engage subject matter consultants to help with project matters. We did engage Gen. Klotz as a consultant in 2012. Gen. Klotz completed his services on our behalf before his nomination in August of 2013. We believe that both Gen. Klotz and Bechtel met all of our respective legal and ethical requirements regarding these services.”

At his 2013 confirmation hearing before the Senate Armed Services Committee, Klotz testified that “escalating costs in several major programs are a cause for serious concern, especially as pressures mount on overall government spending.” He said he would improve NNSA’s contract management by strengthening cost estimates and providing more rigorous assessments of alternative projects. In addition, when it received the original Y-12 and Pantex contract, the Bechtel-led team said it would help the federal government save more than $3 billion over the next decade.

It would be welcome news if the NNSA and Bechtel can get costs under control. But the job may be easier said than done.

As POGO noted in a letter to Congress last year, since the UPF was first approved in 2005, potential costs have skyrocketed from $1 billion to as much as $19 billion, and delays have pushed the estimated completion date back 12 years. The project “has become yet another multibillion-dollar DOE boondoggle,” POGO wrote. “Not only is it over budget and behind schedule, there may not even be sufficient mission to justify its construction at all.”

In addition, POGO has raised concerns about Bechtel’s performance record. The company has had more than 19 instances of alleged misconduct on government contracts since 1995, according to POGO’s Federal Contractor Misconduct Database. In December, POGO and Nuclear Watch New Mexico asked DOE to slash a contractor award fee for the Los Alamos National Laboratory, run in part by Bechtel, because of “grossly substandard contract performance.” The NNSA ultimately cut the contractor’s award fee by 90 percent due to a “significant or ‘First Degree’ performance failure.”

Klotz, as well as spokespeople for the NNSA, DOE, and the national labs, did not respond to POGO’s requests for comment or declined to comment on the record.

POGO has called for the timely online posting of waivers and other ethics records so the public can get a better glimpse at the revolving door between the federal government and big businesses—especially those that receive significant funding from the U.S. taxpayer.