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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 the Lawrence Livermore National Laboratory and the Lawrence Berkeley Laboratory. These contracts, along with the one for the University's management and operation of the Los Alamos National Laboratory, expire in September, 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.

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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

critical to the Department's ability to exercise authority over the operation and management of it 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 internal committee established by the Department, 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 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, 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 set of financial arrangements within the DOE system almost $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 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 improve 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 affords 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 reforns be secured in the contracts if DOL is going to be successful in reasserting control over its contractor and the Labs it owns.

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Unfortunately, the Department has declined to even send a representative fron 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 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 then 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 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.

Mr. WOLPE. Mr. Boehlert?
Mr. BOEHLERT. Thank you, Mr. Chairman.

For more than 40 years, the University of California-managed national labs have been at the forefront of security and technology research. That record of achievement set against the problems that are the focus of today's hearing far outweighs those failings. But that record of achievement does not excuse managerial problems that come at the taxpayers' expense. While we can applaud the contributions these labs have made to our national security and our scientific knowledge, we have to address the pattern of waste at the labs head-on and fix whatever is broke.

Of all the difficult jobs Secretary Watkins has set for himself, none is more daunting and none is more important than the effort to instill a new managerial culture into the Department of Energy. While we will hear much today about provisions in the University of California management and operations contract, provisions which reduce the Department's ability to exercise effective oversight of its contractors, the fact is that the problems at the national labs are more the result of managerial failures than of legalese and contractual provisions.

As far as I can see, changing the contract is less important than changing attitudes both at the University of California and at the San Francisco DOE regional office.

I support the Secretary's efforts to negotiate a tougher contract with the University of California and I applaud his effort to change managerial attitudes at DOE and among its contractors. I trust that we will see the fruit of these efforts in the way our national labs conduct business.

Thank you, Mr. Chairman.
[The prepared opening statement of Mr. Boehlert follows:]

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DOE-UNIVERSITY OF CALIFORNIA MANAGEMENT OF NATIONAL LABS

Statement by the Honorable Sherwood Boehlert (R-NY)

July 31, 1991

For more than forty years, University of California-managed national labs have been at
the forefront of security and technology research. That record of achievement, set
against the problems that are the focus of today's hearing, far outweighs those failings.

But that record of achievement does not excuse managerial problems that come at the
taxpayers' expense. While we can applaud the contributions these labs have made to
our national security and our scientific knowledge, we have to address the pattern of
waste at the labs head-on and fix whatever is broke.

Of all the difficult jobs Secretary Watkins has set for himself, none is more daunting
and none is more important than the effort to instill a new managerial culture into the
Department of Energy. While we will hear much today about provisions in the
University of California management and operations contract--provisions which
reduced the Department's ability to exercise effective oversight of it's contractor--the
fact is that the problems at the national labs are more the result of managerial failures
than of legalese and contractual provisions.

As far as I can see, changing the contract is less important than changing attitudes both
at the University of California and at the San Francisco DOE regional office.
I support the Secretary's efforts to negotiate a tougher contract with the University of
California and I applaud his effort to change managerial attitudes at DOE and among its
contractors. I trust we will see the fruit of these efforts in the way our national labs
conduct business.

THIS STATIONERY munu MADE OF CYCLED FIDERS

Mr. WOLPE. Thank you very much, Mr. Boehlert.

We are being joined by a Member of the Full Committee, Mr. Kopetski.

Mr. KOPETSKI. I have no opening statement, Mr. Chairman.
Mr. WOLPE. Mr. Thornton?

Mr. THORNTON. Thank you, Mr. Chairman. I would like to congratulate you on scheduling these important hearings and express my endorsement of the views that you and Mr. Boehlert have expressed.

There is a tremendous record of achievement in these laboratories and we're proud of them, but there are also some problems in management. We need a full and fair inquiry in order to find out how to improve the operations. The free and honest exploration of ideas is central to a good university relationship with science and with the Congress, so I am dismayed that the Department of Energy and the University of California have not seen fit to attend and to engage in a free and honest exploration of ideas.

I think, Mr. Chairman, that we should somehow get the views of these vital components of the inquiry before the Committee. I stand ready to assist you in any way that you choose in order to bring their testimony and their knowledge into our Committee record.

Thank you.

Mr. WOLPE. Thank you very much, Mr. Thornton.

Without objection, permission is granted for coverage of the meeting by television, radio, and still photography. Hearing no objection, permission is granted.

With that, we will now turn to our first panel of witnesses. I would like to ask if any of those who will be testifying have any objection to being sworn in? As you know, it is the policy of the Committee to swear all witnesses in.

[Witnesses sworn.]
Mr. WOLPE. Please be seated.

Our first two witnesses today will be Mr. John Layton, the Inspector General of the United States Department of Energy and Mr. Victor Rezendes, Director of Energy Issues, Resources, Community, and Economic Development Division of the GAO.

I want to say in advance of hearing your testimony today-and you may want to identify those who are accompanying you in a moment—that I think that the work that you both have performed in this area is really extraordinary.

The Inspector General's report, which I think is a most extensive undertaking into such basic management issues has been enormously helpful in identifying areas of concern and also proposed solutions to the problems that are out there. The GAO's investigative activity has been enormously helpful to the work of this Committee and to the Congress and, hopefully, will prove to be of constructive assistance to the Department itself.

I want to applaud the reports that you will be testifying to as you begin your testimony today. With that, we would invite each of you to make your verbal submissions. The entire text of the reports that you are submitting will, of course, become part of the Committee record.

I would like to turn first to Mr. Layton.

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