DRC-2012-001946 - 0901a0688030af64

State of Utah
GARY R HERBERT
Governor
GREG BELL
Lieutenant Governor
department of
Environmental Quality
Amanda Smith
Executive Director
DIVISION OF RADIATION CONTROL
Rusty Lundberg
Director
DRC-2#12-001946
MEMORANDUM
TO
FROM
DATE
SUBJECT
Phil Goble, Section Manager
Russell J Topham, P E
March 23,2012
f
Results of Review of March 2012 Demson Mines USA Surety Submittal, White Mesa
Mill, Blanding, Utah
This is a summary of Utah Division of Radiation Control (DRC) staff review of the Denison Mines USA
(DUSA) Surety Submittal for 2012 This review entailed analysis of the following list of documents, some
of which are cited in the text below, as well as a site visit to note changes to the plant over the past year
1 Attachment C, White Mesa Mill Reclamation Plan, Revision 4 8, revised Cost Estimates for
Reclamation of the White Mesa Mill and Tailings Management System, dated March 2012 and
received March 6, 2012 (Surety Estimate)
2 Radioactive Matenals License UTI 900479, Amendment 5 (License Renewal currently under
review)
3 Amended Stipulated Consent Agreement for the Nitrate Plume - Docket No UGW09-03-A (SCA)
4 DUSA Response to January 19, 2012 DRC/URS Comments on Nitrate Corrective Action Plan
dated February 27, 2012 (Comments)
5 Corrective Action Plan for Nitrate, White Mesa Mill near Blanding, Utah dated Febmary 27, 2012
(Nitrate CAP)
6 Safety Evaluation Report for the Demson Mines White Mesa Mill 2007 License Renewal
Application dated October, 2011 (SER)
7 Review of Containment and Closure Issues, Demson USA/White Mesa Uramum Mill Relicensing
Application, Revision 5 0, September 2011, by RRD Intemational Corp, dated December 1, 2011
Provided to the DRC as Exhibit H in the Ute Mountain Ute Tnbe's comments for the DUSA
License Renewal
Selected unit cost figures in the Surety Estimate were compared with the RSMeans online cost estimating
utility, 2011 annual update (RSMeans) The followmg are my findings and recommendations
195 North 1950 West • Salt Uke City, UT
Mailing Address P O Box 144850 • Salt Uke City, UT 84114-4850
Telephone [phone] • Fax (801) 533^097 'TDD (801) 536^414
www deq utah gov
Printed on 100% recycled paper
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1.0 Summary Findmgs and Recommendations
For ease of review. Mobilization and Management/Support should appear in the summary Surety Estimate
as separate line items The current summary lumps these items in the Miscellaneous category In the
summary, the Mobilization line item should include the sum of the Equipment Mobilization and Office
Facilities as subcategories
I recommend a new line item for Engineenng and Redesign valued at 2 25% of direct costs
I recommend that all Uranium Mill Licensee's begin using RSMeans to identify labor and equipment rental
unit costs The methods currently in use by the Licensees underestimate labor costs and have the potential
to underestimate equipment costs Specifically, in the case of DUSA, the method currently in use (appeal to
General Decision UTI 20043 as posted on the US Dept of Labor website) underestimates labor costs
inasmuch as the Davis-Bacon wage is a mimmum RS Means provides an average, which often
substantially exceeds the Davis-Bacon minimum
I recommend the DRC petiUon DUSA for clanfication of where the Surety Estimate includes the Nitrate
CAP-driven soil removal and groundwater pumping costs to remediate the Nitrate groundwater plume
Calculation of soil volume and conversion to machine hours appeared in the Mill decommissiomng section
of the Surety Estimate, but I could find neither a reference to pumping nor a clear indication where the
excavation costs appeared in the tabulations Additionally, groundwater pumping cost to remediate the
Chloroform plume must also be mcluded m the Surety Estimate The groundwater pumping costs for both
the Nitrate and Chloroform plumes should be for a minimum of 5 years
I recommend boosting the Contingency line item to 25% of direct costs Appendix C of NUREG-1620,
Revision 1, sets the lower bound on contingency at 15% of direct costs Both NUREG/CR-6477 (which
presents a methodology for estimating costs associated with decommissiomng radioactive matenals
facilities) and NUREG-1757 (addresses decommissiomng of nuclear matenals facilities) use 25% of direct
costs to set the contingency fund
2.0 Surety comprehensiveness
The Surety Estimate presents a general work breakdown stmcture for closure of the White Mesa uramum
processing mill The Surety Estimate appears generally complete
I had to dig into the details to discover Mobilization and onsite project management (called out as
Management/Support) DUSA included these items in the Miscellaneous category in the Surety Estimate I
would prefer to see mobilization and project management listed as separate line items in the direct cost
summary The Miscellaneous category lists Equipment Mobilization and Office Facilities as separate
subcategones I have no objection to that treatment in the detail portion of the Surety estimate I would
prefer to see those items summed as Mobilization, and that sum used in the cost summary
[MJobilization should not represent an excessive portion of direct project costs Excess mobilization cost is
one sign of an unbalanced bid or estimate An estimate is unbalanced if some items of cost are
underestimated and others overestimated Unbalancing can result in excess prepayment of constmction
costs, or distortion ofthe total cost of the project "There are numerous reasons why a bidder may want to
unbalance his/her bid on a contract One reason is to get more money at the beginning of the project The
bidder does this by overpricing the work done early m the project This is called "front loading" the
contract [AJcceptance of the bid would result in the same evils as an advance payment Another
reason is to maximize profits The bidder does this by overpricing bid items he/she believes will be used in
greater quantities than estimated in the proposal and underpncing items he/she thinks will be used in
significantly lesser quantities Care should be exercised to ensure that mobilization bids do not mask
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unbalancing If bidders are bidding too high on mobilization, the [agency] should be encouraged to limit
mobilization to a fixed percentage of the contract" (Federal Highway Admimstration Memorandum, Bid
Analysis and Unbalanced Bids, May 16, 1998, accessed at
http //www fhwa dot gov/programadmin/contracts/051688 cfm on Apnl 10, 2012) The above quotation
assumes the case of a bidder trying to maximize retum on the bid In the case of surety, the reverse case
would hold, the person assembling the estimate may unbalance the bid in order to favor low-cost items and
diminish high-cost items I found numerous examples of govemment entities that limited mobilization
costs in an effort to reduce the nsk of receiving bids or estimates that were unbalanced
The Washington Department of Transportation recommends inclusion of a mobilization charge of about
9% for contracts $5 million and over (Washington State Department of Transportation, Plans Development
Manual, June, 2011, p 8-2) Given the foregoing discussion of unbalanced bids, I would not recommend a
mobilization charge exceeding 9% without strong justification Mobilization usually includes general site
preparation charges, which would be minimal on the DUSA site MobilizaUon accounts for 3 5% of direct
costs in the Surety estimate, indicating that DUSA has not inappropriately generalized costs into the
mobilization category, i e , the opportumty to unbalance the Surety estimate by hiding costs or discounts in
the mobilization charge is limited to a small percentage of the total estimate
The Surety Estimate represents an orderly closure of the facility at the end of its design life As such, it is
necessarily general inasmuch as modifications to the facility cannot be forecast with total accuracy The
DRC can expect the actual work to deviate somewhat from the stmcture presented in the Surety Estimate in
the event of an unexpected business failure The Surety Estimate assumes, for example, full tailings cells,
depleted material stockpiles, and equipment at the end of its useful life The Surety should consider an
unexpected closure when these assumptions do not apply Premature closure would necessitate re-
engmeenng, or a modification of the closure plan NUREG-1620, Appendix C, p C-4 specifies inclusion
in Surety costs for "engineenng design, review, and change " Engineering design will be required, at a
minimum, to adjust grades from those anticipated in the closure plan and those extant in the event of
untimely closure
DRC Staff recommends inclusion of a Surety line item for engineenng and redesign, valued at 2 25% of
the Subtotal Direct Costs Ime item in the Surety The 2 25% value reflects DRC's current practice for other
licensees
3.0 Surety adequacy
Unit cost basis
DUSA has used two data sources for most of its cost basis for the Surety Estimate General decision
UTI200043 for heavy constmction in San Juan County dated January 6, 2012 (General Decision) provides
a basis for Davis-Bacon wages, and is available on the US Department of Labor website Third party
vendors provided quotations for equipment and services not tied to the General Decision
Davis-Bacon wages represent a minimum umon-negotiated wage The wage tables are short and general,
requinng substantial interpretation NUREG-1620, Appendix C, p C-4 encourages Surety reviewers to
compare unit costs to standard constmction cost guides, citing RSMeans as one source of such cost data
RSMeans polls constmction firms quarterly and compiles wage statistics for a broad range of trades The
values in RSMeans represent an average, rather than a minimum, thus affording a more realistic estimate of
constmction labor costs than reliance upon the general decision
I compared a few select data points to assess the potential differences The wage reported in RSMeans
ranged from 2 1 times the General decision value for a tmck dnver to 2 6 times the General Decision value
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for a loader operator I did not compare all trades or disciplmes, but I can state that the wage basis in
RSMeans is generally 2 to 2 5 times that of the General Decision
Appendix A to NUREG/CR-6477, p A 3 indicates that expense for contracted personnel would bear a
higher cost overhead than home office personnel, and recommends a staff overhead rate of 110% The
General Decision would not include the additional overhead to compensate for travel or other field-related
expenses
As the foregoing demonstrates, labor rates presented m the Surety estimate underestimate the tme cost
Both the General Decision and RSMeans incorporate labor burden (fnnge benefits, employer-paid payroll
taxes, etc) in the wage figure
Third-party vendor quotes provided to an active participant in the constmction industry will include pnce
concessions and incentives that may not extend to us Therefore, third-party quotes have potential to
underestimate the cost of equipment rental and the like RSMeans provides a robust dataset for equipment
rental costs I reviewed a subset of the quotes DUSA provided in the Surety Estimate against similar items
in RSMeans In most cases I found general agreement between the third-party quotes and the RSMeans
estimated costs RSMeans updates its data quarterly The third-party vendor quotes all bore January, 2012
dates, except for fuel, which was indexed from 2009 Excepting fuel costs, the difference between the
vendor quotes and the RSMeans data was near null on balance
While I found general agreement between the RSMeans data and the vendor quotes, I recommend using
RSMeans whenever possible RSMeans represents an unbiased third-party data source, and eliminates the
potential for underestimating costs due to discounting
I recommend using RSMeans as the reference tool for wage and equipment unit costs where possible
Ground water plume remediation
License Condition 9 5 of the License requires inclusion of outstanding groundwater remediation in the
Surety Estimate The DRC has identified and DUSA has delineated a nitrate plume on the mill property
Section 3 2 1 ofthe Nitrate CAP requires that the Surety Estimate include removing double the quantity of
soil estimated to be contaminated A calculation sheet titled Mill Decommissiomng appears behind the tab
of the same title in the Surety Estimate Item 1 a) of the calculations presents an estimate of 1,926 cubic
yards of soil to be removed The quantity used in the Surety estimate is 6,000 cubic yards, more than tnple
the estimated value The soil volume is then converted to machine hours I could not discern which of the
accumulation tables in the Mill Decommissiomng section converted these hours to dollars The Mill Yard
decontamination table contained sufficient hours, but not equipment to perform the excavation
Part 11 A of the SCA requires DUSA to pump to control expansion of the mtrate plume I could find no
reference to pumping in the Surety estimate
I recommend the DRC petition DUSA for clanfication of where the Surety Estimate includes the Nitrate
CAP-dnven soil removal and pumping costs Additionally, groundwater pumping cost to remediate the
Chloroform must also be included in the Surety Estimate The groundwater pumping costs for both the
Nitrate and Chloroform plumes should be for a minimum of 5 years
Contingency
License Condition 9 5 ofthe License requires inclusion of a contingency Ime item in the Surety estimate,
and sets the minimum value of the contingency at 15% This is consistent with what is found in NUREG-
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1620, Rev 1 (Standard Review Plan for the Review of a Reclamation Plan for Mill Tailings Sites
Under Title II of the Uranium Mill Tailings Radiation Control Act of 1978), which states
"The licensee should add a contingency amount to the total cost estimate for the final
site closure The staff currently considers a 15 percent contingency to be an acceptable minimum amount "
However, given the industry's history of exceeding surety budgets, the value of 15% seems low, therefore,
because ofthe uncertainty in contamination levels, waste disposal costs, and other costs
associated with decommissioning, the cost estimate should apply a contingency factor of 25%
to the sum of all estimated decommissiomng costs This is consistent with NUREG-1757 Vol 3
(Consolidated NMSS Decommissioning Guidance Financial Assurance, Record Keeping, and Timeliness),
which states
The 25 percent contingency factor provides reasonable assurance for unforeseen circumstances that
could increase decommissioning costs, and should not be reduced or eliminated simply because
foreseeable costs are low "
The contingency line item increased to 25% will provide better assurance that the contingency will fund
site closure