we can better understand the indirect cost component of the laboratories' budgets. Secondly, we are now requiring schedules identifying indirect costs in the budget years. In addition to that, we are conducting budget reviews and validations with regard to the projected fiscal year 1993 indirect costs. These efforts represent beginnings. In the past, the Department has not required these kinds of activities, but it's something that we are starting off on, and I expect that in the near future, we will expand upon these kinds of analyses so that we understand the components and understand the changes and so that we can have input and, therefore, some degree of control over this very important aspect, as has been pointed out by the Inspector General. The issue that I consider most telling is the issue that relates to the SAN staffing. As I'm sure you are aware, no job can be accomplished if there are not the proper mix of people, well-trained people, and enough people. That situation is the situation at SAN as well as anywhere else. Given the very high-cost living area that exists in the San Francisco Bay Area and the level of competition for the kinds of skills that we are seeking, we have to engage in what I consider to be extraordinary efforts to find the people, to attract them, to hire them, to train them, and most importantly, to retain them. It is clear that the significant additional resources beyond the 301 that I now have it's clear that I am going to need a lot more if I am going to fully implement the management improvements with contractor oversight that are expected by this committee, by the Secretary, and by me in a time frame that I desire. In this regard, what I am doing is increasing the emphasis on the business management aspects of what we do so that future increases-and I hope there will be future increases in my staffing— will be such that we can allot them to things such as project management, the budget analysis, and those kinds of things that will look to and treat the control and oversight of the contractor operations. I hope to do the same thing now and in the future that I did last year when I first became the manager. At that point, I allocated the very scarce new resources that we had and money management, time, and attention to the high-hazard facility oversight concerns that I had at that time: to safety, to health, to environmental compliance, and to safeguards and security. With respect to the need for clarification of SAN's missions and responsibilities, as I mentioned, I have engaged in a reorganization and I have sought to improve the definition of the rules and responsibilities in my organization. I think that this conforms to and is further enhanced by the realignment that has taken place recently in the Department wherein there are now clear lines of accountability, not just within individual offices, but for my office all the way up through the headquarters office and to the Secretary. In addition to these overall findings that the IG has pointed out, your staff has made specific request and has asked questions with regard to various areas, and I would like to briefly discuss these and answer some of those questions. Regarding the need for increased oversight with regard to the contractor litigation and the use of outside counsel, I would like to briefly state at this point that my Office of General Law, as of February of last year, now requires that there be reports submitted on a regular basis so that we understand the status of all litigation firstly. Secondly, that we understand what the cost situation is, and thirdly, that we be advised beforehand when outside counsel is being retained. While that is not a strict approval, there is consultation and discussion, and I believe that it gets very close to approval. With regard to the Livermore 1988 voluntary separation program, my organization conducted review in February of that year. This review surfaced several issues, including Livermore's leave without pay practices and also the severance payments that were discussed earlier and the degree of adherence to the requirements that were stipulated in that particular program. As a result of a subsequent IG recommendation, we looked at that. I became concerned and continue to be concerned about the cost and the benefits of that program and the allowability. So, as has been pointed out, we have continued a more thorough review. We have requested information. We have that information. That information is being evaluated and analyzed and we will be meeting with the headquarters experts, and we will determine in the relatively near future what should be the final resolution with regard to that voluntary separation program that took place in 1988. At the same time, I believe that the increased interest and the increased oversight that has been demonstrated by my office is beginning to pay off. The University of California conducted their own early retirement program earlier this year, and I think that we see something that is taking place in an entirely different manner. We were advised up front. We were advised and informed in a formal manner. We were given information. We engaged in a costbenefit analysis. Headquarters was involved, and finally, headquarters agreed with the cost-benefit analysis, and my organization approved Lawrence Berkeley Laboratory and Lawrence Livermore Laboratory's participation in this program. I think that this is the kind of thing that should be taking place on a regular basis. I think this is the kind of thing that will be taking place on a regular basis. Certainly, that is my aim. The other major area in the reports that you addressed concerns the property management, particularly at the Lawrence Livermore National Laboratory. I think the bottom line is quite simply the fact that the property management situation at Livermore has been way less than adequate and the oversight by the San Francisco field office has been way less than adequate. Since these findings, however, in the various reports have been made, there are several things that I have done. First, I have put in place policies and procedures to develop appropriate property management systems. Secondly, I have sought to institutionalize within my organization and within the contractors' organizations the philosophy in fact that the oversight and protection of government property is absolutely necessary. In fact, we issued property management instructions to our contractors. These property management instructions are the same instructions and they coincide exactly with the instructions in the Federal property management regulations. I have increased the staff significantly from the one that was noted before to four so that there are now four people at a minimum to engage in oversight of property at our contractor sites. These are only some of the things we've done, and I will be able to expand on those things later. There are a lot more things that have been done, but we are being responsive. At Livermore, I think that the improvements are significant. The property management function has been reorganized. They have now added 21 additional people to that function. They have allotted $675,000 to improving that function. They have put together a very formal and computer-based program so that there can be instantaneous reporting with regard to the status of the inventory. Finally and probably most importantly, they have developed and submitted procedures and policies that are essentially in compliance and conformance with the Federal property management regulations. In summary, I would like to say that both DOE and my office are undergoing changes, and I think that we are moving toward better and more active management and oversight of our M&O contractors. The findings and recommendations contained in the IG and GAO reports that I've discussed today affirm the importance of the Secretary's call for improved management within DOE. I believe that the findings and recommendations of the reports are being addressed through reforms in the Department and specifically through reforms in my organization and through the actions that I have taken. I am using the information and recommendations that have been shared with me to build an organization that is consistent with the Secretary's direction to establish a more effective and active oversight, and I expect that this organization will be responsive to the needs of the Department, to the taxpayer, as well as to the intent of Congress. Mr. Chairman, I would like to add that I agree fully that there is not the necessity for the mutually exclusive nature of science and business management. I believe that we can and we should pursue excellence in both arenas. Again, thank you for the opportunity to appear here today. My staff and I are available to answer any questions that you might have. [The prepared statement of Mr. Pearman follows:] STATEMENT OF DONALD W. PEARMAN, JR. before the SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT JULY 31, 1991 INTRODUCTION Mr. Chairman and Members of the Committee, I am pleased to appear before you today. My name is Donald W. Pearman, Jr. and I am the Manager of the Department of Energy Field Office, San Francisco (SAN) (formerly the San Francisco Operations Office). I have held this position since January 1990. I am here at your request to discuss the steps being taken by the Department of Energy (DOE) to respond to the issues and recommendations raised in the following reports, issued by the DOE Inspector General (IG) and the U. S. General Accounting Office (GAO) cited in your July 15, 1991 letter to the Secretary of Energy: General Management Inspection of the San Francisco Department of Energy Oversight of Lawrence Livermore National Laboratory Property Management (DOE/IG WR- Follow-Up on SAN Oversight of Livermore's Management of Personal Property in Unofficial Storage (DOE/IG WR-L-91-1); Audit of Selected Aspects of the Management of the • Audit of Lawrence Livermore National Laboratory • Report on Accountability for Livermore's Secret 65). Report on DOE Oversight of Livermore's Property Management System, April 1990 (GAO/RCED-90-122); Before I begin a discussion of those issues and recommendations, I would like to provide a brief overview of the mission and functions of SAN. SAN provides management and oversight of Department of Energy program activities at eight DOE sites located in the State of California that are managed and operated |