RESPONSES TO ADDITIONAL QUESTIONS FROM SENATOR GRASSLEY Question 1. Are you acquainted with Mr. Luis Mola and/or DNE? If so, how long have you been acquainted and what is your relationship? Answer. I am not acquainted with Mr. Luis Mola and/or Diverse Marine Engineering (DME). Question 2. Have you, or anyone on your DOT staff, ever met with Mr. Mola or any other representative of DME to discuss DME contracts with the Coast Guard or the Department of Transportation, or for any other purpose? If so, please separately list the times, places, dates, and the names of those present during these meetings. Answer. To the best of my knowledge, I have never met with Mr. Mola or any representative of DME. I have been advised that the following meeting took place with Mr. Mola and DOT officials. Mr. Mola, as a small disadvantaged business owner of an SBA 8(a) certified firm, met with various DOT Operating Administrations in efforts to market his business and seek DOT contracting and subcontracting opportunities. These occasional marketing meetings are usually held with agency procurement staffs and may also involve DOT's Office of Small and Disadvantaged Business Utilization (OSDBU) staff, and the SBA representative at DOT. DME's marketing meetings with DOT Operating Administrations occurred periodically from 1990 through the present. I have been advised that these are commonplace meetings that small and disadvantaged businesses have with Federal contracting personnel and OSDBU offices to ensure that small and disadvantaged businesses receive an equitable opportunity to participate in Federal procurement programs. OSDBU's statutory mission is to encourage and assist small and disadvantaged businesses in obtaining and managing transportation-related contracts, subcontracts, and projects. OSDBU serves as a liaison to the small and disadvantaged business community in all DOT procurement activities. On February 2, 1994, Mr. Mola met with the DOT OSDBU Director, Mrs. Luz Hopewell, and the Associate Director, Mr. Will Terry Moore, and Mr. John Kyle, Chief of the Coast Guard's Minority Business Program Office, to request OSDBU's assistance in resolving a contractual dispute with the Coast Guard. On February 3, 1994, Ms. Brenda Harris, OSDBU staff member, and Mr. Reginald Holloway, DOT S8A representative, spoke with Mr. Mola to further learn his view of the dispute. In late February 1994, Ms. Harris, OSDBU staff member, and Mr. Holloway, the DOT SBA representative, spoke with Mr. Mola, at Coast Guard's request. On March 16, 17, and 18, 1994, Ms. Brenda Harris, OSDBU staff member, and Mr. Luis Rey-Moran, an SBA representative, and Terence Carlson, an attorney with DOT's Office of General Counsel (OGC) together with Coast Guard officials, met with DME officials at DME's facilities in Florida. The OSDBU staff member and OGC's attorney participated as observers to the meetings. The Coast Guard participants at these meetings were Thomas K. Brust, the contracting officer; Stephen Brophy, attorney with Coast Guard's Office of Chief Counsel; Cdr. R. Gutridge, Project Officer; Cdr. Don Rigney, Contracting Officer's Technical Representative. DME officials at these meetings were Mr. Luis Mola, owner and President of DME; David Eppsteiner, attorney for DME; Gary Shapiro, DME Contract Manager; Richard Gilmartin, DME Project Manager. The Coast Guard contracting officer conducted the negotiations with DME officials. Mrs. Hopewell played no role in these negotiations. I have been advised that the OSDBU Director and her staff have not had occasion to meet with DME since these meetings. Question 3. How many contracts have the Department of Transportation (including any agencies or instrumentalities thereof) and DME (including any whollyowned subsidiaries or parent companies) entered into since 1992? What is the nature of these contracts? What is the total value of these contracts? Answer. (a) I have been advised that DOT has entered into eight contracts with DME since 1992. Six of the contracts are with the Federal Aviation Administration. Two are with the Coast Guard. The FAA contracts are the following: Contract No. DTFAO1-92-Y01047, Doppler Very High Frequency Omnidirection Range Conversion Kits and Spares, awarded in 1992 for approximately $9 million; Contract No. DTFAO1-92-Y01048, Digital Altimeter Setting Indicator System, awarded in 1992 for approximately $6 million; Contract No. DTFAO1-94-YDY01030, Medium Intensity Approach Lighting System, awarded in 1994 for approximately $7.4 million; Contract No. DTFAO1-95-C01014, Integrated Communications Switching System By-Pass System Software, awarded in 1995 for approximately $2.7 million; Contract No. DTFAO1-95-C01043, Area Route Surveillance Radar Regulator Mod Kit, award ed in 1995 for approximately $3 million; Contract No. DTFAO2-95-C95327, Air Route Surveillance Radar, awarded in 1995 for approximately $450,000. The Coast Guard contracts are Contract No. DTCG23-92-C-AMR017, awarded on July 2, 1992, for the development of the Avionics Maintenance Trainer for the HH60J helicopter, the contract in question here, and Contract No. DTCG38-95 D-30006, awarded in 1995, for supply of data marker buoys, in Coast Guard Station in Elizabeth City, North Carolina. Coast Guard has expended approximately $700,000 on the latter contract. (b) I have been advised that the total value of the DOT contracts with DME from 1992 to the present is $30,866,250.00. Question 4a. Was the contract between the Coast Guard and DME, contract number DTCG23-92-C-ANR017, subjected to a Coast Guard inspection, performance review or audit? Answer. The contract number is DTCG23-92-C-AMR017. I have been advised that this contract was subjected to Coast Guard inspections, performance reviews and audits. The inspections, including use of an independent Verification and Validation Contractor, were an ongoing process and part of the normal contract administration process. The performance reviews were specifically called for in the contract. The audit was due to a request for an equitable adjustment (REA) to the contract price. I have been advised that this REA was not certified as required by statute and accordingly was not a claim. However, an audit was needed to judge its validity. I have been advised that the usual pre-award audit was also performed. Question 4b. What was the result of the inspection/performance review/audit? Answer. I have been advised that the Coast Guard's inspection and performance review led to the conclusion that DME was unable to perform the contract as specified. The audit when combined with a technical assessment led to the conclusion that the REA was not justified. The auditor also alleged that the contract may have contained defective pricing. I have been advised that it was the judgment of the contracting officer that the chance and quantum of possible recovery did not justify the cost of pursuing this allegation. Question 4c. Was this contract terminated at any point in time and reinstated? Answer. The contract was terminated for default for failure to deliver on March 2, 1994. It was later reinstated with a decreased scope of work and approximately a $140,000 reduction in contract price. Question 4d. If so, what were the reasons for the termination and the reinstatement and what role did you or your staff play in seeking termination or reinstatement or increasing payments to DME? Answer. I have been advised that the contract was terminated for default because DME failed to deliver a completed product on the required delivery date, in accordance with the terms of the contract. DMS was originally hired to "design and build" a product. I have been advised that the termination was due to DME's inability to perform the design work properly. Coast Guard reinstated the contract because it believed that there was a significant chance of DME completing the contract and delivering the product with a reduced scope of work and a reduced price. The reinstatement reduced the contractor's scope of work to only the build portion of the contract with the Coast Guard taking on the responsibility for the design portion of the contract. I have been advised that this left DME with the portion of the contract for which it had a proven past ability to perform. I have been advised that the following chronology describes OSDBU's role in this contractual dispute. On February 2, 1994, Mr. Mola met with Mrs. Hopewell, DOT's OSDBU Director, Will Terry Moore, OSDBU's Associate Director, and Mr. John Kyle, Chief of Coast Guard's Minority Business Program, and requested OSDBU's assistance in resolving a contract dispute with the Coast Guard under the Avionics Trainer contract. On February 2, 1994, Coast Guard sent DME a "Show Cause” letter expressing serious concerns that DME would not meet the February 11, 1994, delivery date under the contract. On February 3, 1994, OSDBU and SBA staff spoke to Mr. Mola to learn his view of the dispute. On that same day, OSDBU staff spoke to Coast Guard contracting officials to learn the details of the dispute. On February 7, 1994, OSDBU staff met with Coast Guard officials to further understand the background to DME's performance problems and the Coast Guard's view of the matter. In late February 1994, OSDBÚ and SBA staff again spoke with Mr. Mola, at Coast Guard's request, to discuss DME's response to the "Show Cause" letter. On March 2, 1994, Coast Guard issued a termination for default letter to DME concluding that DME's failure to deliver was not excusable. On March 5, 1994, Mrs. Hopewell informed Deputy Chief of Staff, Katherine Archuleta, of her concerns regarding communications problems between OSDBU staff and Coast Guard contracting officials concerning this contract. It was Mrs. Hopewell's understanding that she would be advised before Coast Guard issued a termination for default letter to DME. This did not occur. The Deputy Chief of Staff then called the Coast Guard to ask them to continue to work with OSDBU staff on this dispute. Ms. Archuleta cannot specifically recall whom she called. Coast Guard contracting officials met with OSDBU and the SBA representative on March 7, 1994. Coast Guard informed OSDBU that it planned to meet with DME at DME's facilities on March 16, 1994, to discuss the issues surrounding the default. Coast Guard further informed OSDBÚ that it was willing to reconsider the default issues and did not rule out reinstating DME on the contract. It was decided that an OSDBU staff member, an attorney from DOT's OGC and an SBA representative would attend this meeting. The SBA staff representative advised the Coast Guard and DME that it was in the best interests of all parties to resolve this dispute to the mutual satisfaction of all parties, particularly since so much time and money had already been invested in the project. On March 16, 17, and 18, 1994, an OSDBU staff member, an SBA representative, and an attorney from DOT's Office of General Counsel attended the meetings at DME's facilities in Florida. The Coast Guard contracting officer handled the negotiations with DME. As a result of this effort, including the provision of SBA technical assistance, Coast Guard and DME entered into a March 18, 1994, Memorandum of Understanding (MOU), a preliminary agreement on resolving the performance issues and outlining steps to withdraw the termination for default letter and institute a global settlement. Reinstatement would occur in a later contract modification if DME achieved the steps outlined in the MOU. I have been advised that OSDBU played no role in ongoing negotiations between Coast Guard and DME to carry out the MOU, nor did OSDBU play any role in Coast Guard's decision to withdraw the termination for default letter and reinstate the contract. On May 19, 1994, at the request of Coast Guard, Coast Guard briefed OSDBU on the status of the DME issue. Coast Guard informed OSDBU that, although problems had occurred during negotiations, it planned to continue negotiations to reinstate the contract with appropriate risk management tools to assure successful completion. Coast Guard further informed OSDBU that a DME employee had alleged defective pricing on DME's original proposal and its request for equitable adjustment. Coast Guard stated that the allegation was no longer being investigated as the Department of Justice declined to pursue it. On July 13, 1994, Coast Guard and DME and SBA executed Modification 0006, "Global Settlement Agreement", to the original contract, which withdrew the termination for default and reinstated DME on the contract with a reduced scope of work and approximately a $140,000 reduction in contract price. OSDBU played no role in this action. I played no role in this sequence of events, nor was I otherwise involved in this contract. I am advised that the file for this contract contains a copy of a memorandum from the Chief, Office of Acquisitions, Coast Guard, to the Vice Commandant stating that Mr. Mola met with me on February 2, 1994. That information is not correct, to the best of my recollection. Question 5. Have you or any member of your DOT staff, ever been affiliated in any way with Latin American Management Association, also known as "LAMA”? If so, please describe this affiliation and specifically describe any contact you may have had with Mrs. Hopewell prior to working for DOT. Answer. I have never been affiliated with the Latin American Management Association (LAMA). Mrs. Luz Hopewell, the Director of DOT's OSDBU, previously served as Director of that association prior to serving in her present position. My first contact with Mrs. Hopewell was in September 1993, when she was being considered for her present position. I have no knowledge of any other DOT employees being affiliated with LAMA. APPENDIX III Additional Material Submitted for the Record U.S. SENATE, SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS, Hon. FEDERICO PEÑA, DEAR SECRETARY PEÑA: As you may be aware, since 1986, the federal False Claims Act has resulted in the return to the Treasury of over one billion taxpayer dollars spent to pay false and fraudulent claims. As the principal sponsor of the 1986 amendments to the False Claims Act, I am proud of the Act's success. In my view, the False Claims Act has been a crucial weapon in the war against government fraud and abuse. Moreover, in this era of smaller budgets, reducing fraud on the federal government will become an even more important part of balancing the budget and ensuring the vitality of important government programs. I have recently received information which raises serious questions concerning a contractual relationship between the Coast Guard and Mr. Luis Mola, a principal of DME Corporation ("DME"). According to a sworn affidavit from a whistle blower familiar with the DME contract, DME fraudulently billed the government for work which was not performed or which was not performed to contract specifications in apparent violation of the False Claims Act. Importantly, this affidavit also indicates that you may have been involved in improperly reinstating the DME contract-causing significant losses to the American taxpayer. These disturbing allegations raise questions that should be fully and thoroughly answered so that the Senate can appropriately consider your nomination to be Energy Secretary. In order to facilitate this process, please provide written responses to the attached list of questions.* If you have any questions regarding this matter, please contact John McMickle of my Judiciary Subcommittee staff at (202) 224-6736. Sincerely, CHARLES E. GRASSLEY, Chairman. Hon. FRANK H. MURKOWSKI, DENVER METRO CHAMBER OF COMMERCE, U.S. Senate, Energy and Natural Resources Committee, Washington, DC. DEAR CHAIRMAN MURKOWSKI: Former Denver Mayor and Secretary of Transportation Federico Peña is scheduled to appear before the Senate Energy and Natural Resources Committee during confirmation hearings on his nomination as Secretary of the Department of Energy. I would like to strongly recommend Mr. Peña's confirmation and urge the committee to move quickly to approve his nomination. I have known Mr. Peña since the mid-1970's when I served as the Governor of Colorado's Chief of Staff. I have found him to be a visionary and boundless in his determination to serve well as a leader in and from our community. Mr. Peña has a long history of dedication to public service. He now stands before you as the nominee to become Secretary of Energy. I believe Secretary-designate Peña will carry the same kind of understanding, sensitivity, and energy he has demonstrated to local and state needs into the position of Secretary of Energy. *Questions and answers can be found in appendix II. |