docs: organize root files and add P1 synthesis fallback bug report

MOVED to proper locations:
- SPEC_12_NARRATIVE_SYNTHESIS.md → docs/specs/
- BRAINSTORM_EMBEDDINGS_META.md → docs/brainstorming/

KEPT in root (per project convention):
- TOOL_ANALYSIS_CRITICAL.md
- CLAUDE.md, AGENTS.md, GEMINI.md, README.md

NEW bug report:
- P1_NARRATIVE_SYNTHESIS_FALLBACK.md - Documents why SPEC_12's LLM
synthesis silently falls back to template output. Root cause is
exception handling that catches all errors without user feedback.
LLM synthesis works locally with API keys; HF deployment needs secrets.

Updated ACTIVE_BUGS.md index with new P1 bug.

docs/bugs/ACTIVE_BUGS.md

@@ -1,6 +1,6 @@
 # Active Bugs
 
-> Last updated: 2025-11-29
+> Last updated: 2025-11-30
 
 ## P0 - Blocker
 
@@ -8,6 +8,22 @@
 
 ---
 
+## P1 - Important
+
+### P1 - Narrative Synthesis Falls Back to Template (NEW)
+**File:** `P1_NARRATIVE_SYNTHESIS_FALLBACK.md`
+**Related:** SPEC_12 (implemented but falling back)
+
+**Problem:** Users see bullet-point template output instead of LLM-generated narrative prose.
+**Root Cause:** Any exception in LLM synthesis triggers silent fallback to template.
+**Impact:** Core value proposition (synthesized reports) not delivered.
+**Fix Options:**
+1. Surface errors to user instead of silent fallback
+2. Configure HuggingFace Spaces secrets with API keys
+3. Add synthesis status indicator in UI
+
+---
+
 ## P3 - Architecture/Enhancement
 
 ### ~~P3 - Missing Structured Cognitive Memory~~ FIXED (Phase 1)

docs/bugs/P1_NARRATIVE_SYNTHESIS_FALLBACK.md

@@ -0,0 +1,185 @@
+# P1: Narrative Synthesis Falls Back to Template (SPEC_12 Not Taking Effect)
+
+**Status**: Open
+**Priority**: P1 - Major UX degradation
+**Affects**: Simple mode, all deployments
+**Root Cause**: LLM synthesis silently failing → template fallback
+**Related**: SPEC_12 (implemented but not functioning)
+
+---
+
+## Problem Statement
+
+SPEC_12 implemented LLM-based narrative synthesis, but users still see **template-formatted bullet points** instead of **prose paragraphs**:
+
+### What Users See (Template Fallback)
+
+```markdown
+## Sexual Health Analysis
+
+### Question
+what medication for the best boners?
+
+### Drug Candidates
+- **tadalafil**
+- **sildenafil**
+
+### Key Findings
+- Tadalafil improves erectile function
+
+### Assessment
+- **Mechanism Score**: 4/10
+- **Clinical Evidence Score**: 6/10
+```
+
+### What They Should See (LLM Synthesis)
+
+```markdown
+### Executive Summary
+
+Sildenafil demonstrates clinically meaningful efficacy for erectile dysfunction,
+with strong evidence from multiple RCTs demonstrating improved erectile function...
+
+### Background
+
+Erectile dysfunction (ED) is a common male sexual health disorder...
+
+### Evidence Synthesis
+
+**Mechanism of Action**
+Sildenafil works by inhibiting phosphodiesterase type 5 (PDE5)...
+```
+
+---
+
+## Root Cause Analysis
+
+### Location: `src/orchestrators/simple.py:555-564`
+
+```python
+try:
+    agent = Agent(model=get_model(), output_type=str, system_prompt=system_prompt)
+    result = await agent.run(user_prompt)
+    narrative = result.output
+except Exception as e:  # ← SILENT FALLBACK
+    logger.warning("LLM synthesis failed, using template fallback", error=str(e))
+    return self._generate_template_synthesis(query, evidence, assessment)
+```
+
+**The Problem**: When ANY exception occurs during LLM synthesis, it silently falls back to template. Users see janky bullet points with no indication that the LLM call failed.
+
+### Why Synthesis Fails
+
+| Cause | Symptom | Frequency |
+|-------|---------|-----------|
+| No API key in deployment | HuggingFace Spaces | HIGH |
+| API rate limiting | Heavy usage | MEDIUM |
+| Token overflow | Long evidence lists | MEDIUM |
+| Model mismatch | Wrong model ID | LOW |
+| Network timeout | Slow connections | LOW |
+
+---
+
+## Evidence: LLM Synthesis WORKS When Configured
+
+Local test with API key:
+```python
+# This works perfectly:
+agent = Agent(model=get_model(), output_type=str, system_prompt=system_prompt)
+result = await agent.run(user_prompt)
+print(result.output)  # → Beautiful narrative prose!
+```
+
+Output:
+```
+### Executive Summary
+
+Sildenafil demonstrates clinically meaningful efficacy for erectile dysfunction,
+with one study (Smith, 2020; N=100) reporting improved erectile function...
+```
+
+---
+
+## Impact
+
+| Metric | Current | Expected |
+|--------|---------|----------|
+| Report quality | 3/10 (metadata dump) | 9/10 (professional prose) |
+| User satisfaction | Low | High |
+| Clinical utility | Limited | High |
+
+The ENTIRE VALUE PROPOSITION of the research agent is the synthesized report. Template output defeats the purpose.
+
+---
+
+## Fix Options
+
+### Option A: Surface Error to User (RECOMMENDED)
+
+When LLM synthesis fails, don't silently fall back. Show the user what went wrong:
+
+```python
+except Exception as e:
+    logger.error("LLM synthesis failed", error=str(e), exc_info=True)
+
+    # Show error in report instead of silent fallback
+    error_note = f"""
+⚠️ **Note**: AI narrative synthesis unavailable.
+Showing structured summary instead.
+
+_Technical: {type(e).__name__}: {str(e)[:100]}_
+"""
+    template = self._generate_template_synthesis(query, evidence, assessment)
+    return f"{error_note}\n\n{template}"
+```
+
+### Option B: HuggingFace Secrets Configuration
+
+For HuggingFace Spaces deployment, add secrets:
+- `OPENAI_API_KEY` → Required for synthesis
+- `ANTHROPIC_API_KEY` → Alternative provider
+
+### Option C: Graceful Degradation with Explanation
+
+Add a banner explaining synthesis status:
+- ✅ "AI-synthesized narrative report" (when LLM works)
+- ⚠️ "Structured summary (AI synthesis unavailable)" (fallback)
+
+---
+
+## Diagnostic Steps
+
+To determine why synthesis is failing in production:
+
+1. **Check logs for warning**: `"LLM synthesis failed, using template fallback"`
+2. **Check API key**: Is `OPENAI_API_KEY` set in environment?
+3. **Check model**: Is `gpt-5` accessible with current API tier?
+4. **Check rate limits**: Is the account quota exhausted?
+
+---
+
+## Acceptance Criteria
+
+- [ ] Users see narrative prose reports (not bullet points) when API key is configured
+- [ ] When synthesis fails, user sees clear indication (not silent fallback)
+- [ ] HuggingFace Spaces deployment has proper secrets configured
+- [ ] Logging captures the specific exception for debugging
+
+---
+
+## Files to Modify
+
+| File | Change |
+|------|--------|
+| `src/orchestrators/simple.py:555-580` | Add error surfacing in fallback |
+| `src/app.py` | Add synthesis status indicator to UI |
+| HuggingFace Spaces Settings | Add `OPENAI_API_KEY` secret |
+
+---
+
+## Test Plan
+
+1. Run locally with API key → Should get narrative prose
+2. Run locally WITHOUT API key → Should get template WITH error message
+3. Deploy to HuggingFace with secrets → Should get narrative prose
+4. Deploy to HuggingFace WITHOUT secrets → Should get template WITH warning