The government has slashed its funding of the Los Alamos nuclear research centre, the birth place of the atom bomb, after a major security scare.
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The US National Nuclear Security Administration (NNSA) cut fees by two-thirds to the University of California which runs the Los Alamos National Laboratory after "serious safety and security problems", including the reported loss of two classified computer discs.
"Although multiple investigations have confirmed that the 'missing' discs never existed, the major weaknesses in controlling classified material revealed by this incident are absolutely unacceptable, and the University of California must be held accountable for them," said NNSA administrator Linton Brooks.
"Of even greater concern are significant safety weaknesses which came to light at around the same time," said Brooks.
Under the existing contract, the university is entitled to a fixed fee of almost £2m plus a performance-based fee up to an additional £3m. As a result of the NNSA penalty, the University of California will receive a total management fee of £1.6m for 2004, only a third of the maximum potential fee.
Los Alamos was the first nuclear weapons laboratory in the US and has been managed by the University of California for the past 60 years.
In 2003, the Department of Energy announced that as a result of previous weaknesses in business practice, the management contract would be open for competition when it expires this September.