Information Notice No. 89-56: Questionable Certification of Material Supplied to the Defense Department by Nuclear Suppliers

                                  UNITED STATES
                          NUCLEAR REGULATORY COMMISSION
                             WASHINGTON, D.C.  20555

                                  July 20, 1989

                                   SUPPLIED TO THE DEFENSE DEPARTMENT BY 
                                   NUCLEAR SUPPLIERS 


All holders of operating licenses or construction permits for nuclear power 


This information notice is being provided to alert addressees to a possible 
problem with the certification of material furnished by Meredith Corporation, 
Pressure Vessel Nuclear (PVN) and Alloy & Carbon Steel Company, Incorporated 
(ALLOY) of Hillside, New Jersey.  It is expected that recipients will review 
the information for applicability to their facilities and consider actions, as 
appropriate, to avoid similar problems.  However, suggestions contained in 
this information notice do not constitute NRC requirements; therefore, no 
specific action or written response is required. 

Description of Circumstances: 

On May 4, 1989, the U.S. Department of Justice, District of New Jersey, issued 
information that corporate officers for PVN and ALLOY were indicted for their 
alleged roles in selling commercial-grade steel as military-grade steel which 
was used to build and repair U.S. Navy submarines and surface ships.  The 
27-count indictment rendered on May 4, 1989, by a Newark Federal Grand Jury, 
charges the defendants, some of whom are presently employees of PVN, with 
substituting commercial-grade steel for military-grade steel and fraudulently 
documenting the substitutions as meeting military specifications.  From April 
1984 through August 1985 the defendants allegedly caused nonconforming steel 
to be shipped to Department of Defense contractors.  The defendants allegedly 
falsely marked and stenciled steel, created false documentation bearing the 
letterhead of various companies, falsely altered manufacturer issued certified 
material test reports (CMTRs), caused fraudulent chemical and physical test 
certificates to be prepared for tests that had not been performed, and 
prepared false certificates of conformance (C of Cs) for steel that did not 
conform to purchase requirements.  Attachment I contains a copy of OVERT ACTS 
from the indictment that identifies faulty documents, heat numbers, and 
manufacturers' names.

.                                                                 IN 89-56 
                                                                 July 20, 1989
                                                                 Page 2 of 3 


During NRC inspections of PVN conducted the weeks of November 2, 1988 and 
February 1, 1989, three examples of material supplied to ASME Section III 
requirements without adequate basis were discovered.  In all three cases PVN 
purchased stock material and sold it as meeting the requirements of Section 
III without performing the upgrade testing required by NCA-3867.4(e).  In 
addition, it was also noted that PVN had altered CMTRs received from American 
Tank and Fabricating Company (ATF).  On material ATF had purchased from an 
ASME Quality Systems Certificate (QSC) holder as stock material and 
subsequently sold to PVN, PVN had removed ATF's name from the "Sold To" and 
"Shipped To" blocks of the CMTR and inserted PVN's name and address.  Based on 
the indication that the material was purchased directly from an ASME QSC 
holder, the customer would not be looking for upgrade testing results nor 
suspect the material was not in conformance with code requirements.

On June 13 and 14, 1989, Virginia Power conducted an audit of PVN.  The audit 
examined a sample of purchase orders which consisted of 16 safety-related 
purchase orders, encompassing 30 individual line items of various types of 
safety-related materials.  The 16 safety-related purchase orders were issued 
between September 1, 1988 and May 4, 1989.  From the sample of 30 line items, 
Virginia Power auditors determined that in 3 cases PVN purchased material from 
unapproved suppliers and in 17 cases PVN supplied commercial grade material.  
In all 20 cases, PVN certified that the material met all the requirements of 
Virginia Power's purchase orders, including Appendix B to 10 CFR 50.  However, 
there is no indication that PVN took any action to determine that the 
materials supplied were suitable for safety-related applications prior to 
certifying the material met the requirements of Appendix B.

Addressees may wish to review nuclear procurements from these vendors to 
ensure that appropriate bases exist for the use of PVN or ALLOY supplied 
material.  Further, addressees may wish to contact the steel mills identified 
as the manufacturer of the procured materials to confirm traceability of the 
material and to inform one of the NRC technical contacts listed below of any 
materials identified as not originating from the manufacturer indicated in the 
documentation or having material properties different from those indicated in 
the documentation.  The NRC is interested in obtaining information on material 
supplied by PVN or ALLOY in which discrepancies have been found that are 
similar to those described above or in the indictment described in Attachment 
1.  The NRC is particularly interested in discrepancies discovered as a result 
of independent verification testing of chemical and mechanical properties and 
information on recent procurements.

Addressee audits of material manufacturers and suppliers which include a 
review of the basis for certifications provided by vendors and the supporting 
tests and records of traceability can prevent problems such as those discussed 
above.  Addressees may wish to review the adequacy of previous vendor audits 
and their general vendor approval process in light of Information Notice No. 
88-35, "Inadequate Licensee Performed Vendor Audits" and the above 

.                                                                 IN 89-56
                                                                 July 20, 1989
                                                                 Page 3 of 3

No specific action or written response is required by this information notice.
If you have any questions about this matter, please contact one of the techni-
cal contacts listed below or the Regional Administrator of the appropriate 
regional office. 

                              Charles E. Rossi, Director
                              Division of Operational Events Assessment
                              Office of Nuclear Reactor Regulation

Technical Contacts:  Ramon Cilimberg, NRR
                     (301) 492-3220

                     Ed Baker, NRR
                     (301) 492-0959

1.  Overt Acts
2.  List of Recently Issued NRC Information Notices

.                                                            Attachment 2 
                                                            IN 89-56 
                                                            July 20, 1989 
                                                            Page 1 of 1

                             LIST OF RECENTLY ISSUED
                             NRC INFORMATION NOTICES
Information                                  Date of 
Notice No._____Subject_______________________Issuance_______Issued to_________

89-45,         Metalclad, Low-Voltage        7/6/89         All holders of OLs
Supp. 1        Power Circuit Breakers                       or CPs for nuclear 
               Refurbished With Substandard                 power reactors. 

89-55          Degradation of Containment    6/30/89        All holders of OLs
               Isolation Capability by a                    or CPs for nuclear
               High-Energy Line Break                       power reactors. 

89-54          Potential Overpressurization  6/23/89        All holders of OLs
               of the Component Cooling                     or CPs for nuclear
               Water System                                 power reactors. 

89-53          Rupture of Extraction         6/13/89        All holders of OLs 
               Steam Line on High                           or CPs for nuclear 
               Pressure Turbine                             power reactors. 

88-46,         Licensee Report of            6/8/89         All holders of OLs
Supp. 3        Defective Refurbished                        or CPs for nuclear
               Circuit Breakers                             power reactors. 

89-52          Potential Fire Damper         6/8/89         All holders of OLs
               Operational Problems                         or CPs for nuclear
                                                            power reactors. 

89-51          Potential Loss of Required    5/31/89        All holders of OLs
               Shutdown Margin During                       or CPs for nuclear
               Refueling Operations                         power reactors. 

88-88,         Degradation of Westinghouse   5/31/89        All holders of OLs
Supp. 1        ARD Relays                                   or CPs for nuclear
                                                            power reactors. 

89-50          Inadequate Emergency          5/30/89        All holders of OLs
               Diesel Generator Fuel                        or CPs for nuclear
               Supply                                       power reactors. 

89-49          Failure to Close Service      5/22/89        All holders of OLs
               Water Cross-Connect                          or CPs for nuclear
               Isolation Valves                             power reactors. 
OL = Operating License
CP = Construction Permit

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