Note: This story was last updated at 10:41 a.m. Oct. 1.

Two months after an unprecedented security breach, federal officials have recommended ending a contract with guard company WSI Oak Ridge at the Y-12 National Security Complex.

In a brief letter Friday, the National Nuclear Security Administration said it has had “grave concerns” about the ability of WSI Oak Ridge and managing contractor B&W Y-12 to “effectively perform physical security functions at Y-12” after the July 28 intrusion by three anti-nuclear weapons activists.

Federal officials said B&W Y-12 should assume direct responsibility for protective force operations as early as it can. B&W Y-12 manages and operates Y-12 for the NNSA, a separate U.S. Department of Energy agency, and the company will decide whether to end the WSI contract.

“They will have to figure out what that transition looks like,” NNSA Public Affairs Director Josh McConaha said.

B&W Y-12 officials were not able to immediately respond to the NNSA recommendation on Friday afternoon.

WSI Oak Ridge, also known as Wackenhut Services and G4S Government Solutions, now provides about 500 security guards at Y-12. The company has been the security contractor at the plant, which makes parts for every weapon in the nation’s nuclear arsenal, since 2000.

While recommending a contract termination for WSI, the NNSA has given B&W Y-12 a one-month contract extension. The B&W contract had been set to expire Sunday.

On Aug. 10, B&W Y-12 was notified that it could lose its contract. That “show cause” notice gave the contractor 30 days to explain why its contract should not be terminated.

“While we recognize that both B&W Y-12 and WSI-OR have undertaken corrective actions, neither these actions nor the response to the show cause notice are enough, at this point, to fully resolve the issues,” Jill Y. Albaugh, NNSA Production Office contracting officer, said in the Friday letter.

Although B&W Y-12’s response to the show cause was not deemed sufficient, McConaha said discussions continue between federal officials and that contractor.

“It was clear that we did not need to wait for that process to wrap up regarding WSI,” he said, although he didn’t give more information.

Albaugh made the recommendation to end the WSI contract in the Friday letter, which was written to B&W Y-12 President and General Manager Charles G. Spencer. She said it would assure the best performance of physical security operations and help transition to a new consolidated management contract at Y-12 and the Pantex Plant near Amarillo, Texas.

“This decision comes after the top leadership of WSI at Y-12 were removed and are no longer welcome at DOE sites,” an NNSA statement said. “The officers associated with the incident were fired, demoted, or suspended without pay. Additionally, three federal officials with security oversight responsibilities were reassigned.”

On Aug. 31, B&W Y-12 notified WSI that its contract could be terminated “for default” if the company didn’t take action to address security concerns, including the July security breach and an incident on Aug. 29, when a federal inspector allegedly found papers in a patrol vehicle that weren’t supposed to be shared. The papers included answers to a test scheduled to be given to guards as part of an investigation after the security breach and a copy of a test designed to quiz a random sample of a few dozen guards on policies and procedures.

WSI later announced that it had investigated the incident and found that its employees hadn’t intended to do anything wrong.

On Friday, WSI Oak Ridge Public Affairs Manager Courtney Henry said the company hadn’t received official notification of the NNSA and DOE recommendation to terminate its contract.

Federal officials have repeated an August statement by Energy Secretary Steven Chu that the Y-12 security breach was completely unacceptable.

“The security of our nation’s nuclear material is the department’s most important responsibility, and we have no tolerance for federal or contractor personnel who cannot or will not do their jobs,” the NNSA statement said.

It said NNSA and DOE have taken strong and decisive action to fix the problems that led to the security breach and are reviewing security operations at all levels from contractors to federal management to the security model itself.

“The final review in that series will begin shortly when the secretary asks observers outside the department to analyze the current model for protection of nuclear materials and explore additional options for protecting these sites,” the statement said.

One review by the DOE Office of Health, Safety, and Security has been completed. The classified report was delivered to Chu this week. It reinforced the seriousness of the incident, and it will help improve security at Y-12 and across the department, the NNSA statement said.

McConaha said there is no timeline for determining whether to end the B&W Y-12 contract. However, there is an early November goal to announce an award that would combine the management and operations contracts at Y-12 and Pantex.

McConaha said he couldn’t confirm details on the bidders.

During the July 28 security breach, three activists allegedly sneaked into Y-12 before dawn, cut through fences with bolt cutters, evaded guards, and spray-painted slogans and splashed human blood on the Highly Enriched Uranium Materials Facility, where bomb-grade uranium is stored. It’s the nation’s primary storehouse for enriched uranium.

The three protesters—Greg Boertje-Obed, Megan Rice, and Michael R. Walli—face a Feb. 26, 2013, trial in U.S. District in Knoxville on federal charges of property destruction, property depredation, and trespassing.

The intrusion has led to a string of staff changes in federal and contractor work forces, a series of investigations, a reassignment of the protective forces contract from NNSA to B&W Y-12, a temporary halt in nuclear operations, and congressional hearings.