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ADMINISTRATION AND IMPLEMENTATION OF

THE MANAGEMENT AND OPERATING CONTRACT FOR THE LAWRENCE LIVERMORE NATIONAL LABORATORY AND THE LAWRENCE BERKELEY LABORATORY

WEDNESDAY, JULY 31, 1991

HOUSE OF REPRESENTATIVES,
COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY,
SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT,

Washington, DC. The subcommittee met, pursuant to recess, at 9:45 a.m., in room 2318, Rayburn House Office Building, Hon. Howard Wolpe (chairman of the subcommittee) presiding.

Mr. WOLPE. The hearing will come to order.

This hearing is a continuation of the Subcommittee's ongoing review of the relations between Federal agencies and their contractors. Increasingly, the Government employs contractors to perform an array of services. Some are quite unique and essential to the mission of an agency. It is critical that these contracts are administered and managed properly in order that taxpayers will get a fair and honest return on their money.

Last week, the Subcommittee reviewed NASA's management of a contract to procure the next generation of weather satellites. Today, we will focus on contracting at the Department of Energy.

The Department of Energy is uniquely dependent on Management and Operations contractors to construct, manage, and operate many of its facilities, including its weapons plants and laboratories. In fiscal year 1989, $12.5 billion of the Department's $16.2 billion budget went to M&O contractors.

Despite the vast sums of money and the sensitive operational responsibilities involved, DOE has adopted a “least interference, limited accountability” approach to its contractors' management activities. DOE has exerted little oversight or control and has willingly entered into contracts that limit its own authorities, further restricting its ability to adequately control activities at its own facilities. As a result, the contracts are not administered in a manner that fully protects the interests of the taxpayer and the Government.

Indeed, today's weapons complex is virtually shut down due to environmental and safety problems. It will cost close to $150 billion to correct these. There are also numerous instances of costly waste

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and mismanagement. This clearly calls DOE's management philosophy into question.

To better understand the impact of this philosophy, today's hearing will focus on the Department's administration and oversight of the contracts with the University of California for the management and operation of Lawrence Livermore National Laboratory and the Lawrence Berkeley Laboratory.

These contracts, along with the one for the University's management and operation of Los Alamos National Laboratory, expire in September of 1992. Within the last week, DOE announced that it will not even seek other bidders and will deal exclusively with the University on contract renewal.

We are particularly interested in DOE's plans for changes in the contracts with the University. This is important for several reasons.

The clauses in the contracts establish the fundamental relationship between the parties and are critical to the Department's ability to exercise authority over the operation and management of its own facilities. Today, we will see dramatic evidence that the current contracts are inadequate for that purpose.

Detailed reviews conducted by DOE's Inspector General, the General Accounting Office, and even an internal committee established by the Department itself, underscore how a lack of contractual controls, poor administration by DOE, and poor management by the contractor have resulted in serious losses to the Government and the taxpayer. Indeed, what is remarkable and perhaps hopeful, is that even Secretary Watkins is cognizant of the situation.

Instructive is this excerpt from a letter sent in April of 1990 by the Secretary to David Gardner, the President of the University of California: "I do not believe that the Department can defend contract relations that have evolved to the point where there are virtually no controls exercised by the government over annual expenditures of nearly $1 billion and government property reflecting an investment of similar magnitude.” Fundamental reforms are needed in DOE oversight and administration, University of California management, and the contract which governs the relationship between them.

In addition, the contracts between DOE and the University for management and operation of the three labs comprise one of the largest sets of financial arrangements within the DOE systemalmost $3 billion annually. It is likely that the standards set here will influence how DOE will be dealing with all other nonprofit operators of labs and facilities throughout the complex. Therefore, we are interested today in finding out what kind of contractual reforms the Department is committed to securing in the negotiations with the University.

Finally, the Department has made a public commitment to improving the management and administration of its complex. The forthcoming negotiations with the University on the extension of its contracts for the Livermore and Berkeley Labs afford DOE the opportunity to successfully alter the existing situation and make good on its continuing assurances that it will improve the control and operation of its facilities.

That is why we have invited DOE to discuss today its objectives in the pending contract negotiations. It is critical that certain reforms be secured in the contracts if DOE is going to be successful in reasserting control over its contractor and the labs it owns.

Unfortunately, the Department has declined to even send a representative from headquarters to testify before the Subcommittee and discuss this important issue. I find that very distressing.

We should be talking today with those who are setting DOE policy. The reforms we are interested in discussing are critical to establishing DOE's control over its own facilities.

They should be non-negotiable, and the Department should be willing to publicly identify them as such at the outset of negotiations, for the benefit of the contractor and the public. If the Department is unwilling to publicly commit to securing even these critical changes in its contracts, then it has undermined its own position going into negotiations and has undermined the credibility of its commitment to make the fundamental reforms required. Moreover, it leaves the fate of our national labs at risk.

There are some who argue that increased efforts by both the Department and the Congress to oversee the management of the labs detracts from the science that is being performed there. I reject that argument unequivocally.

Good science and good management are not incompatible. Indeed, it is impossible to have good science without good management. In my view, the pattern of waste, abuse, and mismanagement that will be revealed today puts the science performed at the labs in jeopardy and threatens to undermine the credibility of these important institutions.

Before I turn to my distinguished colleague, Mr. Boehlert, for his opening remarks, and also to our first panel of witnesses, I should indicate that the University of California was offered an opportunity to testify at the hearing today, but declined the Subcommittee's invitation.

[The prepared opening statement of Mr. Wolpe follows:)

STATEMENT OF REPRESENTATIVE HOWARD WOLPE

JULY 31, 1991 Today's hearing is a continuation of this Subcommittee's ongoing review of the relations between federal agencies and their contractors. Increasingly, the Government employs contractors to perform an array of services. Some are quite unique and essential to the mission of an agency. It is critical that these contracts are administered and managed properly, in order that taxpayers will get a fair and honest return on their money.

Last week this Subcommittee reviewed NASA's management of a contract to procure the next generation of weather satellites. Today, we will focus on contracting at the Department of Energy.

The Department of Energy (DOE) is uniquely dependent on Management and Operations (M&O) contractors to construct, manage and operate many of its facilities, including its weapons plants and laboratories. In FY 89, $12.5 billion of the Department's $16.2 billion budget went to M&O contractors. Despite the vast sums of money and the sensitive operational responsibilities involved, DOE has adopted a "least interference, linited accountability" approach to the its contractors' management activities. DOE has exerted little oversight or control, and has willingly entered into contracts that limit its own authorities, further restricting its ability to adequately control activities at its facilities. As a result, the contracts

not administered in a manner that fully protects the interests of the taxpayer and the Government.

Indeed, today DOE's weapons complex is virtually shut down due to environmental and safety problems. It will cost close to $150 billion to correct. There are also numerous instances of costly waste and nismanagement. This clearly calls DOE's management philosophy into question.

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