Mr. WOLPE. Thank you very much, Mr. Layton. TESTIMONY OF VICTOR S. REZENDES, DIRECTOR, ENERGY ISSUES, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY DORIS CANNON, ASSIGNMENT MANAGER, ENERGY ISSUES; AND RICHARD HALE, ASSISTANT DIRECTOR, ENERGY ISSUES Mr. REZENDES. Thank you, Mr. Chairman. Let me introduce my two colleagues here. First, on my left, is Rick Hale, our assistant director for GAO's contracting work at DOE. To his left is Doris Cannon, our assignment manager for our safeguards and security work. We appreciate the opportunity to discuss management issues relating to the University of California's operation of three of DOE's laboratories. While these labs have received considerable praise for their research activities, our work, as well as work by DOE's IG, clearly point out the need for substantial improvements in the university's management of the laboratories and DOE's oversight of that management effort. Let me highlight some of the inadequacies that we found in the university's management. Last year, we reported that the Lawrence Livermore Lab did not account for 16 percent of governmentowned property in its custody. Rather than correcting this problem, the lab chose to eliminate accountability controls for many of the lost equipment types. In essence, property accountability controls have actually been weakened for Federal property since we first identified the problem. I contrast, University of California property at the lab remains under tighter controls. In another recent report, we found that the lab could not locate 10,000 secret documents. Because control over secret documents was decentralized and practices vary, the laboratory management could not readily assure that secret information was being effectively controlled. DOE did not ensure that procedures were in place to protect the government's interests. Nor did it carry out adequate on-site reviews. Our classified document report is a good example. Despite routine evaluations, neither DOE's field nor headquarters offices identified the problems we noted with missing secret documents. In another report, we found that inadequate DOE oversight allowed the Lawrence Livermore Lab, and the Los Alamos Lab, to inadequately use over $2.6 million in discretionary research and development funds to pay uncollected costs for three non-DOE projects. This illustrates the temptation facing laboratory officials to bypass standard procedures when faced with an unexpected and embarrassing expense, and instead, utilize uncontrolled funds. DOE's ability to effectively manage the contracts with the University-operated laboratories is also impaired because the contract contains clauses that provide DOE with less authority than the standard clauses contained in other DOE and Federal contracts. Many of these nonstandard clauses restrict DOE from unilaterally requiring policy and procedural changes at the laboratory. For example the absence of a standard property management provision in the contract with the university prevents DOE from holding the lab accountable for the lost property I discussed earlier. DOE has taken actions to respond to the specific recommendations we have made. It has also recognized the need for overall improvements in its management of its M&O contracts, and has begun making changes. DOE's negotiations with the University of California to extend the laboratory contracts will provide a critical opportunity for DOE to demonstrate its commitment to improved contract management. This would include obtaining a commitment to improve management by the university and obtaining agreement that new contracts with the university contain clauses giving DOE clear authority to administer the contracts in a manner that will protect the government's interests. Thank you, Mr. Chairman. I would be delighted to answer any questions. [The prepared statement of Mr. Rezendes follows:] Mr. Chairman and Members of the Subcommittee: We appreciate the opportunity to discuss management issues relating to the University of California's operation of three Department of Energy (DOE) laboratories--Lawrence Livermore National Laboratory, Los Alamos National Laboratory, and Lawrence Berkeley Laboratory. As you are aware, DOE has decided to extend the contracts it has with the University for operating the laboratories (which will expire on September 30, 1992). As you requested, my testimony summarizes the weaknesses in both laboratory management and DOE oversight that we reported in a number of reports issued during the past 16 months. However, our In summary, these three DOE laboratories have received considerable praise for their research activities. reports have identified a number of problems related to the management of these laboratories. Specifically, we found problems with - - University of California controls over laboratory operations such as managing property, protecting classified documents, and ensuring that subcontractors are not subject to foreign influence that might potentially result in the uncontrolled transfer of nuclear weapons-related technology or material to foreign countries; DOE oversight to ensure that the University of California complies with DOE rules and regulations; and clauses in the University of California contracts that laboratories. DOE's Office of Inspector General (IG) has reported similar weaknesses. DOE has recognized that management weaknesses exist and that actions are needed to address them. DOE's negotiations with the University on the contracts' content provide an opportunity to obtain an increased commitment to effective management by the University of California and to implement changes to the contracts to better enable DOE to ensure that the laboratories are effectively managed. I would now like to describe the laboratories and discuss some of the specific problems that we have reported. BACKGROUND The University of California serves as the management and operating (M&O) contractor for three DOE multiprogram laboratories--Lawrence Livermore, Los Alamos, and Lawrence Berkeley. In fiscal year 1990, DOE obligated approximately $2.3 billion to these contracts--$1.1 billion to Lawrence Livermore, $1 billion to Los Alamos, and $200 million to Lawrence Berkeley. The University also operates the DOE Laboratory of Radiology and Environmental Health, a much smaller facility. The multiprogram laboratories serve as DOE's primary mechanism for conducting energy and defense research and development (R&D). Laboratories involved primarily in energy research, such as Lawrence Berkeley, are under the cognizance of DOE's Director of Energy Research. On the other hand, laboratories concentrating on defense research, such as Los Alamos and Lawrence Livermore, are under the cognizance of DOE's Assistant Secretary for Defense Programs. INADEQUACIES FOUND IN UNIVERSITY Several reports that we have issued in the past 16 months have pointed out weaknesses in the University of California's |