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Printed Hearing The Committee on Energy and Commerce W.J. "Billy" Tauzin, Chairman Review of the University of California's Management Contract for Los Alamos National Laboratory <DOC>
[108th Congress House Hearings]
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REVIEW OF THE UNIVERSITY OF CALIFORNIA'S MANAGEMENT CONTRACT FOR LOS
ALAMOS NATIONAL LABORATORY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 1, 2003
__________
Serial No. 108-14
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
Dan R. Brouillette, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Oversight and Investigations
JAMES C. GREENWOOD, Pennsylvania, Chairman
MICHAEL BILIRAKIS, Florida PETER DEUTSCH, Florida
CLIFF STEARNS, Florida Ranking Member
RICHARD BURR, North Carolina DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire JIM DAVIS, Florida
GREG WALDEN, Oregon JAN SCHAKOWSKY, Illinois
Vice Chairman HENRY A. WAXMAN, California
MIKE FERGUSON, New Jersey BOBBY L. RUSH, Illinois
MIKE ROGERS, Michigan JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana (Ex Officio)
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Atkinson, Richard C., President, University of California.... 60
Brooks, Hon. Linton F., Under Secretary for Nuclear Security
and Acting Administrator for Nuclear Security, National
Nuclear Security Administration, U.S. Department of Energy. 9
Darling, Bruce B., Senior Vice President, University Affairs,
Interim Vice President for Laboratory Management,
University of California; Accompanied by Anne Broome, Vice
President for Financial Management, University of
California; and Patrick Reed, University Auditor,
University of California................................... 64
Friedman, Gregory H., Inspector General, U.S. Department of
Energy..................................................... 43
McSlarrow, Hon. Kyle E., Deputy Secretary of Energy, U.S.
Department of Energy....................................... 8
(iii)
REVIEW OF THE UNIVERSITY OF CALIFORNIA'S MANAGEMENT CONTRACT FOR LOS
ALAMOS NATIONAL LABORATORY
----------
THURSDAY, MAY 1, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Oversight and Investigations,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:40 a.m., in
room 2123, Rayburn House Office Building, Hon. James C.
Greenwood (chairman) presiding.
Members present: Representatives Greenwood, Walden, Tauzin
(ex officio), Deutsch, and Schakowsky.
Also present: Representatives Radanovich, Markey, Eshoo,
Stupak, and Udall.
Staff present: Ann Washington, majority counsel; Michael
Geffroy, majority counsel; Yong Choe, legislative clerk; and
Edith Holleman, minority counsel.
Mr. Greenwood. Good morning. This hearing of the Oversight
and Investigations Subcommittee of the House Energy and
Commerce Committee will come to order. We welcome our witnesses
and our guests, and the Chair recognizes himself for the
purpose of an opening statement.
The subcommittee meets today for the third time this year
to hear testimony related to the management situation at Los
Alamos National Laboratory. Currently operated by the
University of California, the lab is one of the Nation's
premiere research facilities on matters critical to our safety
and security. Yet, as we have learned in the course of our
investigation, the lab has also been a premiere site of serious
property mismanagement and even theft.
Our February and March hearings concentrated on concerns
raised by current and former lab employees about lab
procurement and property management systems. I believe the
issues identified at those hearings as well as the continued
diligence of this committee prompted the unprecedented
Department of Energy announcement yesterday that forms the
backdrop to this hearing. The DOE announced its decision to put
the Los Alamos contract up for competition for the first time
in the lab's 60-year history. This decision is long overdue and
one that members of this committee on a bipartisan basis have
been calling for for many years.
The University of California has operated Los Alamos under
contract with DOE since 1943. At no time during its long reign
as operator of the facility has UC ever been faced with the
possibility of having to compete for this privilege. Given the
length of time UC operated without the threat of competition,
it appears that it has been lulled into a state of
irresponsible complacency.
Let me add that progress has been made to improve the
situation. The university has become much more involved in the
daily operations of the lab in the past 6 months, and I am
pleased with some of its efforts to get lab management back on
track by replacing much of the senior staff, but it remains to
be seen if those efforts will effect any meaningful change at
the lab.
We heard at our last hearing from Joe Salgado, the former
principal deputy director of the lab, who said that Federal
money was treated like monopoly money, which is hardly a
description of the kind of fiduciary responsibility expected
and required of DOE contractors.
The lab argues that the amount of identified abuse of
Federal money is just a drop in the bucket when compared to the
lab's budget as a whole, and that perhaps is why the abuses
have not garnered the required attention. I appreciate the
point, but this multibillion dollar facility is operated on
taxpayers' money, and as a steward of that money for the
American public I am not comfortable with that explanation. As
I have said before, when this same lab is responsible for
safeguarding not only taxpayer money but the Nation's most
sensitive nuclear secrets there is little room for error.
So I salute the Department's decision to compete this
contract, to identify the best administrator for the lab. These
are steps that the prior administration and prior secretaries
have been too afraid to take, even in the face of repeated
scandal and repeated promises of reform. In the testimony today
we will hear from both the Department and the university on
factors associated with this decision and exactly what will be
sought in the competitive process.
On our first panel we will hear from Deputy Secretary of
Energy Kyle McSlarrow and Ambassador Linton Brooks of the
National Nuclear Security Administration. These gentlemen have
been involved in the decision to compete the contract, and they
will explain their rationale for their decision. I look forward
to their testimony and to learning how DOE will improve its own
oversight of UC or its successor.
Next we will hear from the DOE Inspector General, the
Honorable Greg Friedman. Inspector General Friedman's office
has audited various aspects of Los Alamos management, ranging
from nuclear safety to procurement problems. Recently, his
office released an audit questioning over $14 million in costs
charged by the lab to DOE and controls on classified and
unclassified computers. I am particularly interested in his
views regarding what standards the Department should set when
competing this contract.
Finally, we are joined by a panel of senior officials from
the University of California: current University President Dr.
Richard Atkinson; Vice President for Financial Management Ms.
Anne Broome; University Auditor Mr. Patrick Reed; and,
reappearing for the third time before us in this investigation,
Mr. Bruce Darling, Interim Vice President for Laboratory
Management.
The university faces some tough questions if it intends to
put itself in the competition for the LANO contract. What would
UC do to banish what appears to be a lax attitude within the
current lab culture? I trust our witnesses today will be able
to shed some light on these and similar areas of inquiry. Let
me thank all of the witnesses for attending this very important
hearing today.
I now recognize the ranking member, Mr. Deutsch, for his
opening statement.
Mr. Deutsch. Thank you, Mr. Chairman.
This is a historic occasion, one that I know Mr. Dingell
has looked forward to for many years. He apologizes for not
being here but will submit a statement for the record.
For 60 years the Department of Energy's contract to operate
the Los Alamos National Laboratory has been awarded to the
University of California without any competition to see if
another entity could better run the lab. Despite numerous
congressional and other investigations over the years that have
found serious security, safety environmental management
problems at the laboratory, there has not been a single attempt
by the Federal Government to compete that contract until now.
It is my hope that these hearings will ultimately result in
finding the best contract to carefully use the taxpayer's money
and run a laboratory that produces excellent science while
being run like a business.
Like all institutions which are seldom challenged about how
they operate, the university and the laboratory's management
became arrogant and defiant over the years. When problems were
uncovered, they made promises to Congress and others about how
they were going to fix them, promises that the university took
few steps to fulfill, that the Department of Energy did not
enforce.
Whistleblowers who tried to bring problems to management
attention were punished and, even if they won decisions,
finding retaliation, establishing remedies, were hounded by the
university's full legal forces until many of them were ruined
financially and emotionally. Some had been employees for
decades. One person who contacted us recently managed to keep
his job but had been without a work assignment for 7 years.
What happened most recently to Glen Wobb and Steven Dorn,
two former police officers who were hired to professionalize
criminal and security investigations and then fired when they
actually attempted to do so, is only the most recent example in
a long chain of unsuitable behavior by the university and the
laboratory.
Three years ago, UC promised to fix their security
management weaknesses. One of those commitments was to
implement best business practices. Yet today the Inspector
General of the Department of Energy will testify he does not
believe that Los Alamos can provide adequate assurances that
classified, sensitive or proprietary information is
appropriately protected because of poor controls over laptop
computers containing classified information.
In the committee's own investigation we have found missing
hard drives and other classified electronic media for which
there are no acceptable explanations. In addition, the entire
business financial system by which the laboratory is supposed
to document and control how it spends Federal money is in
shambles, as is its internal auditing system.
These systems are so bad that the Inspector General
concluded in a recent report that DOE has less than adequate
assurances that costs claimed by the university for operation
of the laboratory are allowable under the contract. Mr.
Chairman, what that means is that DOE can't have any confidence
in the course claimed under this entire billion dollar
contract.
This is the third year in a row that the IG has come to
this conclusion. That is how you get the thefts like we have
heard about at previous hearings and the careless use of
taxpayer funds by workers who think the Federal Government owes
them top-of-the-line shoes, coats, shirts and gloves. One
employee bought 13 pairs of allegedly work-related shoes in 18
months, 12 of which were running and sports shoes.
Joseph Salgado, the former deputy director of their
laboratory, testified that taxpayers' money often was treated
like monopoly money.
And what has been the response to procurement problems,
poor property management and lack of effective business
controls? There have been many well-publicized investigations.
But while these investigations were ongoing, the Department and
the university were quietly negotiating new fiscal year 2003
performance standards for Los Alamos standards drafted by the
university that put science and technological goals at the
forefront and pay little attention to inadequate business
systems and controls that have brought down the top management
at the laboratory.
There is one sentence, ``Implement effective controls and
business systems by assisting existing controls were needed.
Strengthen controls to insure effective stewardship of public
assets.'' DOE cannot even tell us what percentage of the
performance fee will be allocated to this objective, which was
only one of 40.
Mr. Chairman, we must ask whether any of the problems that
we have been discussing for the last several months are going
to get fixed when it doesn't appear that they would even
seriously affect the performance fee. Despite anything said
today, despite any promises made today by either the Department
of Energy and the University of California, this is the only
document that deserves our attention because it is where the
money is.
I look forward to the testimony.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes the chairman of the full committee, the gentleman
from Louisiana, Mr. Tauzin.
Chairman Tauzin. Thank you, Chairman Greenwood.
The hearing this morning marks a milestone of sorts because
this morning we will talk about the University of California
management contract for Los Alamos not only in terms of what
should happen but in terms of now what will happen, putting the
lab's management contract out for bid for the first time in its
60-year history. The subcommittee's exposure of the management
problems of Los Alamos is truly shaking things up, Mr.
Chairman; and you deserve extreme amounts of credit for
doggedly pursuing this matter on behalf of the full committee
and, by the way, the American public which relies, as we do, on
the sensitive work of the lab to make our lives safer and more
secure.
We should also recognize the decisive actions taken by
Secretary Abraham and his management team at DOE for
confronting the problems at the lab and doing something
meaningful about them. The Secretary's announcement yesterday
to compete the lab's management contract is the equivalent of a
political earthquake. It shouldn't be. Periodic competition
should be normal. It should be the necessary procedure for such
an important contract. But it is a big deal precisely because
it has never been done before, ever; and, as a result, the
pressure of competitive bidding, one of the most powerful
cleansers of management problems, has never really bore down on
those responsible for the lab's contract.
We should commend Secretary Abraham for his aggressive
action to fix Los Alamos, especially because the current 5-year
contract was literally dumped in his lap by the previous
administration just days before they left office. And they knew
better. Remember, it was the prior administration that talked
tough after the last round of lab scandals involving Los Alamos
and the University of California.
Yet not only didn't they follow through on the tough talk,
Secretary Abraham's predecessor took the remarkable step of
ordering this flawed contract be extended for a new 5-year term
without competition literally 2 days before President Bush and
Secretary Abraham took office; and he did so even though that
prior contract was not due to expire for nearly 2 years, when
there was ample time for the new administration and the
Congress to review and to conduct a thorough examination of any
potential contract extensions.
It may be ironic, but one of the very first acts as
chairman of the Commerce Committee in January, 2002, that I
conducted was to call on DOE and request that any action on the
current UC contract be delayed until the new administration
committee had an opportunity to review it. And that simple
request was rejected. I have with me the letter of January 22,
2001, to the Department making that case. Our concerns, of
course, sadly were borne out, and it hasn't been easy to deal
with.
The Secretary has had additional challenges thrust upon him
when he was trying to sort them out. He had to deal with a new
entity, the National Nuclear Security Administration, also
created over this committee's objections. NNSA produced a new
layer of bureaucracy between the Secretary and the managers at
the nuclear weapons labs that was supposed to improve
accountability and oversight. And he had to deal with the long
delay in the confirmation of Kyle McSlarrow, his Deputy
Secretary, who would be his right-hand man on these matters.
Because of that delay, the crucial position in the Department
of the officer in charge of DOE operations was vacant during
much of the lead-up time leading to the recent controversy at
Los Alamos.
Despite all this, the Secretary and his new Deputy
Secretary have stepped up to the plate to address the situation
aggressively, even before the latest announcement, by
pressuring UC to make sweeping changes in the lab's management
and UC's oversight of the lab.
An NNSA colleague, Ambassador Linton Brooks, also has
provided able leadership in this crisis, which is an
encouraging sign that we're finally on the right course. I want
to agree with Ambassador Brooks' own comments yesterday that
NNSA and its oversight of the lab over the past several years
has not been up to par, not what Congress was promised when we
took this gamble by further insulating the nuclear weapons lab
from central DOE management.
I look forward to hearing from both of you on this morning.
Mr. Chairman, let me welcome the witnesses today, with
three excellent and knowledgeable panels, to discuss these
important developments to provide some answers about the future
of Los Alamos and of the University of California's contract
with it and to provide, perhaps, some sense that when we're
finally closing a very sad chapter in the history of the lab so
that we finally open a new one.
In a conversation I had with Senator Domenici yesterday I
congratulated him on reaching the same conclusion that
Secretary Abraham had, that it's time to bid this contract out,
that it's time to give Los Alamos a credible platform upon
which it can proceed, instead of having this specter of poor
management and the questions always being asked about what's
being done about it and what's being done to correct it
constantly on the shoulders of the managers of that most
important lab for this Nation's safety and security.
Mr. Chairman, again, my very deep thanks on behalf of the
full committee for your subcommittee's actions and doggedly
pursuing this matter and leading to this conclusion by the
Department; and hopefully this wrap up hearing where we can
look forward now to a new chapter, as I said, in the history of
this extraordinarily important asset to America.
I yield back the balance of my time.
Mr. Greenwood. The Chair thanks the gentleman and
recognizes for an opening statement the gentleman from
Michigan, Mr. Stupak.
Mr. Stupak. I'll waive my opening statement, Mr. Chairman.
Mr. Greenwood. The Chair recognizes the vice chairman of
the subcommittee, Mr. Walden of Oregon.
Mr. Walden. Thank you, Mr. Chairman. I, too, will waive my
opening statement so we can proceed with the hearing.
Mr. Greenwood. Very well. We appreciate that.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Thank you, Mr. Chairman, for holding this hearing to discuss the
very significant decision by the Department of Energy (DOE) to
competitively bid the contract to operate the Los Alamos National
Laboratory. Although we do not have details about how the competition
is going to be run, I applaud Secretary Abraham for this decision.
Prior Energy Secretaries tried, but failed, to force needed changes
short of this step. They did not realize that the University of
California was too obstinate, arrogant, and entrenched to make needed
changes.
The most recent failed DOE effort was Appendix O, which was added
to the contract by the University after the Wen Ho Lee and the lost
hard drive incidents, and the cost overruns and schedule delays of the
National Ignition Facility. These were just the latest in two decades
of ``chronic security and other management-related problems.'' On
October 26, 2000, then Committee Chairman Tom Bliley and I wrote a
letter to then-DOE Secretary Bill Richardson after he had decided to
extend the UC contract for another three years. We knew then that the
promises made by the University in Appendix O, which included a new
vice president for laboratory management, would not work, and we asked
the Secretary to compete or renegotiate the contract. As we stated:
``As the briefing the Members last week amply demonstrated,
these five action items [in Appendix O] fall far short of the
fundamental restructuring necessary to bring new management
expertise and accountability into the operations of these labs.
Indeed, these actions are, for all practical purposes, either
meaningless or already provided for in the current contract.
When pressed about the details of these five actions, or how
they would be implemented, neither DOE nor UC was able to offer
any substantive explanations--saying only that the specifics
would be worked out during contract negotiations.''
(October 26, 2000, letter from Reps. Tom Bliley and John Dingell to
Secretary Bill Richardson, p. 2. (emphasis added))
In July of 2000, Dr. John McTague, who became the University's vice
president for laboratory management, had written to Secretary
Richardson proposing this position for a person who would ``assess and
assure the performance of the laboratory directors, as well as
technical excellence of programs, major project management, personnel
systems, safety, security, and business practices.'' Dr. McTague said
the UC oversight role of the laboratories was ``poorly defined and
inadequately manned.'' (July 16, 2000, letter from Dr. John McTague to
Secretary Bill Richardson, p. 2.)
Dr. McTague got that job, but promptly used it to negotiate FY 2003
performance standards for the laboratory that elevated scientific tasks
and denigrated even further the value placed on adequate security,
safety, environment, financial controls, and business practices. These
standards were adopted lock, stock, and barrel by the Department barely
a month ago--after the procurement scandal had broken, after the broken
property management system was identified, after Messrs. Walp and Doran
were fired in just the latest maltreatment of whistleblowers and
problem-raisers, after the lab director and more than a dozen other
people were removed from their jobs, and after the audit function at
Los Alamos was taken over by the University's auditor. Yesterday,
Ambassador Brooks claimed that these standards were negotiated before
any of this happened--although the University did not sign off on the
implementation plan until April 13--and that perhaps they would have to
be renegotiated to reflect current events.
There is a great deal of blame to spread around, but most of it
belongs on the backs of the University of California, which never
integrated the laboratories into its financial and management control
structures, and the Department of Energy, which failed to hold the
University accountable. Los Alamos must make real change--a change in
which employees who in good faith bring problems to management's
attention and openly discuss them without paying for it with their
careers and their financial and emotional well-being. Until this
happens, there will not be a free and open discussion of problem areas,
nor will there be proper remedies. But the University's recent
responses on questions Rep. Markey and others have raised about
specific whistleblower cases are not particularly encouraging. As this
competition goes forward, the issue of openness and responsiveness
should be a critical factor in assessing bids.
Mr. Greenwood. In that case, the Chair welcomes our guests.
Our first witnesses are the Honorable Kyle E. McSlarrow, Deputy
Secretary of Energy at the Department of Energy, and Ambassador
Linton F. Brooks, Under Secretary for Nuclear Security and
Acting Administrator for Nuclear Security at the National
Nuclear Security Administration within the Department.
We welcome both of you gentlemen. Thank you for being here.
I think you're aware that this is an investigative hearing,
and it is the practice of the subcommittee when holding
investigative hearings to take testimony under oath. Do either
of you object to giving your testimony under oath this morning?
Mr. McSlarrow. No, Mr. Chairman.
Mr. Brooks. No, sir.
Mr. Greenwood. Okay. Pursuant to the rules of the committee
and the House, you are entitled to be represented by counsel.
Do either of you wish to be represented by counsel this
morning?
Mr. McSlarrow. No.
Mr. Brooks. No.
Mr. Greenwood. In that case, if you would stand and raise
your right hand, I'll give you the oath.
[Witnesses sworn.]
Mr. Greenwood. You're under oath.
We will start with you, Secretary McSlarrow. You're
recognized for your opening statement.
TESTIMONY OF HON. KYLE E. MCSLARROW, DEPUTY SECRETARY OF
ENERGY, U.S. DEPARTMENT OF ENERGY; AND HON. LINTON F. BROOKS,
UNDER SECRETARY FOR NUCLEAR SECURITY AND ACTING ADMINISTRATOR
FOR NUCLEAR SECURITY, NATIONAL NUCLEAR SECURITY ADMINISTRATION,
U.S. DEPARTMENT OF ENERGY
Mr. McSlarrow. Mr. Chairman, distinguished members of the
committee, thank you for the opportunity to discuss with the
committee our review of the University of California's
management of Los Alamos National Laboratory, the
recommendations we have made to the Secretary and his
decisions.
The starting place for our inquiry is our national
security. Secretary Abraham has said repeatedly that he has no
more important responsibility than his obligation, together
with the Secretary of Defense, to certify to the President the
safety and reliability of the nuclear weapons stockpile. The
basis for our security is in obvious and important ways
dependent on the credibility of our nuclear deterrent, and
those laboratories and facilities and the people who manage and
work in them are rightly considered national treasures. Thus,
when the problems of last fall surfaced, Secretary Abraham
viewed the various investigations, whether ones directed by the
Inspector General or Congress, whether civil or criminal, as
necessary but additional to his responsibilities. He therefore
directed us to conduct a review and make recommendations with
the goal of ensuring that the management of the lab was one in
which he, Congress and the public could have total confidence.
Ambassador Brooks will provide more detail on our report in
a moment, but let me highlight a few conclusions.
First, the problems identified, while unacceptable, are
primarily related to management of business systems. There is
no indication that the science performed by the lab and the
university is anything other than world class.
Second, the University of California, under the personal
direction of its President, Dick Atkinson, has responded
forcefully and effectively. This is in no small measure also
due to the leadership of the university Senior Vice President,
Bruce Darling, and the lab's Interim Director, Admiral Pete
Nanos.
Third, both the fact that the university contributes
enormous value to the science that underpins the national
security mission of the lab and the great strides they have
made over the last 5 or 6 months lead us to conclude that
termination is not in the interest of our country.
Fourth, though this is a much more complex issue than is
present in even very large government procurements normally,
our conclusion is that our administration's presumption of
competition is not overcome in circumstances where business
systems have fallen so short of an acceptable level; and we
therefore recommended and the Secretary approve a decision to
announce yesterday our intent to compete the LANL contract
which expires in September, 2005.
Finally, Mr. Chairman, we recognized that this issue is
part of a larger set of issues about competition of the so-
called federally funded research and development centers, our
national laboratories. The Secretary recognized last year that
there is some fundamental policy issues that need to be
explored.
On the one hand for example, long-term, enduring
relationships are likely to be extremely valuable in accruing
the intellectual capital in which this country has invested. On
the other hand, lack of competition can lead to complacency, as
you mentioned.
Because these are issues that the Secretary needed to be
confronted, he established a blue ribbon commission which is
due to report to him in the late summer on its recommendations
on how we should approach performance oversight and competition
in the context of bidding on national laboratories. Thus, how
we compete this contract with regard to Los Alamos will be
informed by the results of that commission as well.
Mr. Chairman, I will conclude there and let Ambassador
Brooks provide you more detail on the decisions made by the
Secretary. Thank you.
Mr. Greenwood. Thank you, Mr. Secretary.
Mr. Brooks. Ambassador Brooks.
TESTIMONY OF HON. LINTON F. BROOKS
Mr. Brooks. Mr. Chairman, members of the subcommittee,
thank you for the opportunity to appear on this important
issue.
The Deputy Secretary has addressed the Department's
approach to competition and the immense importance Secretary
Abraham and all of us place on maintaining the highest
standards for our nuclear facilities. I'd like to turn to the
conclusions that we've reached and the actions we are taking
with respect to the future relationship between the University
of California and Los Alamos National Laboratory.
These conclusions and recommendations are set forth in our
joint report to the Secretary of Energy which was released
yesterday, and with your permission I would like to formally
submit that report and the Secretary' response for the record.
I want to state also for the record that we have received
superb cooperation from both the University of California and
the Los Alamos National Laboratory in conducting our review.
Our report covers the details of the problems uncovered at Los
Alamos and the university's response. The problems are well-
known to this committee, and Dr. Darling has outlined the
university action in great detail in previous testimony, so I
am not going to cover those here.
As the Secretary of Energy has made clear, the problems
represent a systemic management failure. I would only note the
conclusions of the report, that the university's actions were
broad, forceful and effective and that, ``It is difficult to
see how any organization could have done more to deal with the
problem than the University of California has since December,
2002.''
Our review suggests that there are multiple causes of the
failure of business systems at Los Alamos.
First, prior to November of last year, the university's
supervision of Los Alamos was ineffective in the area of
business process. The university focus was almost entirely on
other areas, including science, security, environment and
project management.
Second, the National Nuclear Security Administration's
direct Federal oversight was narrowly focused on specific
performance measures called out in the contract, rather than on
overall effectiveness and the interface between different
areas; and I will say more about this in a moment.
Third, in hindsight, warning signs appear to have been
ignored. Following the problems of several years ago involving
Wen Ho Lee and the hard drives, neither the university, the
laboratory, the National Nuclear Security Administration, nor
the Department examined in sufficient detail whether these were
symptomatic of broader management problems.
Finally, cultural problems beyond the control of the
university or the Department played an important role. The Los
Alamos culture exalted science and devalued business practices;
and changing this culture will be the most difficult long-term
challenge facing the laboratory, no matter who runs it.
As Deputy Secretary McSlarrow indicated, our review also
confirmed that the university brings substantial value to the
mission of Los Alamos. Los Alamos' mission depends on
attracting and retaining world-class scientific talent, and the
academic prestige of association with a world-class university
is a clear benefit in both recruiting and retention.
In addition, there are formal agreements for scientific
cooperation with four of the component campuses of the
university. These areas of cooperative research directly
advance the national security mission of the laboratory.
And, finally, an important and often overlooked benefit of
the university is to foster a culture of scientific skepticism
and peer review. That attitude within the laboratory and
between Los Alamos and Livermore National Laboratories is, in
my view, absolutely crucial to the success of the stockpile
stewardship program and to the ability to certify the safety
and reliability of the nuclear weapons stockpile.
Our report recommends and the Secretary has approved a
series of actions.
The most important of these are, first, that the university
continue to manage Los Alamos through the end of the current
contract in September, 2005. The vigorous action the university
is taking to correct the problems, the significant value the
university brings in the area of science and the disruption to
the mission of the laboratory and morale from early termination
all make retaining the university through the end of the
current contract the most appropriate course. Termination of
the contract would not improve the management of Los Alamos in
the near term, because the university is fully engaged in an
effective and comprehensive program.
Second, we recommended and the Secretary approved that the
Department announce its intent to compete the Los Alamos
contract when it expires in September, 2005. Given the
Department and the administration's strong preference for
competition and the widespread nature of the problems
uncovered, it's difficult to argue for any other course.
Third, however, we urged that the University of California
compete for the contract in 2005 perhaps in association with
another entity with business and project management experience.
The university has brought immense benefits to the laboratory
and the country over the past 60 years, and it is important to
note that a decision to compete is not a repudiation of the
university but simply a recognition that its performance in the
area of business management did not rise to the exceptionally
high standards required to overcome the presumption of
competition in the Department's policy.
Next, we begin now to develop the appropriate criteria for
evaluating the future competition. Normally, those criteria
would not be developed until next year, but the results of the
competition are going to have to preserve the many advantages
offered by the current association with the university, while
also ensuring continuation of the reforms now being initiated;
and finding the proper criteria to achieve these results will
be complicated and should begin at once.
Further, we recommend that the Secretary reject in advance
any notion of split responsibility for the laboratory in which
different contractors perform the science and business
operation functions. Some have argued that having the science
and business portions of the laboratory managed by separate
contractors would let us have the best of both worlds. I do not
believe that the laboratory director should report to two
entities. Indeed, a major part of the problem at Los Alamos is
fragmentation between the science and the business communities;
and a dual reporting approach would make the problem worse, not
better.
We also recommend, finally, that if we devise a mechanism
to insure that if the university does not continue to operate
Los Alamos following 2005 the pension benefits of current Los
Alamos employees are fully protected. Failing to do this could
lead to a significant challenge to morale and potentially to a
devastating exodus of the most experienced employees. It is
important to note that the vast majority of Los Alamos
employees have done nothing wrong and are continuing to perform
in an exceptional manner.
Let me turn now to the Federal role of discovering and
correcting problems of this type.
One element of the Federal responsibility, of course, is to
insure the university lives up to its own obligations. But, as
the report makes clear, the National Nuclear Security
Administration shares responsibility for allowing these
problems to develop.
Prior to November of last year, the Federal oversight role
was limited to a stove-piped review of performance set forth in
specific elements of the contract, when in fact what was called
for was a broader, more cross-cutting and more aggressive role.
Our reviews focused on performance in individual areas, rather
than in the intersection and relationship among those areas.
The report, recognizing this weakness, recommends that all
current and future DOE contracts be reviewed in order to insure
that performance reviews capture the cross-cutting information
necessary to form a complete picture of performance.
The National Nuclear Security Administration has begun this
process through our revised approach to evaluating Los Alamos
and Livermore National Laboratories. Under Appendix F of the
contract, we review broad cross-cutting areas and involve the
laboratory directors, the senior leadership of the university
and the senior leadership of my organization, including myself
personally, in these reviews.
In your opening statement, Mr. Chairman, you noted that we
had not established a weights for the criteria within those
reviews. That's by design. We believe that one should look at
cross-cutting areas in order to gauge overall performance and
that we run the risk of falling into the trap that got us here
if we start looking mechanically at business services as some
specific percentage, and so we believe that this overall
approach to review and most particularly the engagement of the
senior leadership will let us focus on the relationship of all
the performance elements.
Federal oversight in the past was also hampered by
fragmentation and lack of clarity in roles and responsibilities
within the National Nuclear Security Administration. For
example, before December of last year, the Albuquerque
operations office assessed business practices performance of
Los Alamos, while the Los Alamos site office assessed other
practices. This fragmentation has long been recognized,
including by Congress.
As a result and unrelated to the specific problems of Los
Alamos, in December of last year I implemented a major
reorganization of the National Nuclear Security Administration,
abolishing a layer of management and placing authority and
responsibility for Federal oversight in site office managers--
in the case of Los Alamos, Ralph Erickson, who has appeared
before this committee, who will now report directly, without
any intervening layers of management, to my Principal Deputy.
I expect that, in the aggregate, these changes will
significantly improve the quality of Federal oversight.
Mr. Chairman, let me conclude with two points.
First, it is important to recognize that the overwhelming
majority of Los Alamos employees in all areas, including
business services, are honest, dedicated, competent and hard-
working. Ultimately, the value of this laboratory does not lie
in expensive technology, it lies in people. And the failures of
Los Alamos were real, but they are the failures of a few, and
as we move to correct these failures it is important to keep
that fact in mind.
Second, I want to reiterate Secretary McSlarrow's emphasis
on the overriding importance of national security in all of the
decisions we've made. In approving our report, Secretary
Abraham said, ``The management of the nuclear weapons complex
is my most important responsibility as Secretary of Energy.
Under the university's stewardship, the science of Los Alamos
has consistently been of the highest caliber. But it is
important that business services be as good as the science. In
approving your recommendations it is my intention to make it
clear that, in dealing with nuclear weapons, only the highest
standards of performance are acceptable.'' All of us in the
Department remain committed to that goal.
Thank you for your attention, sir; and I look forward to
your questions.
[The prepared statement of Hon. Linton F. Brooks follows:]
Prepared Statement of Hon. Linton F. Brooks, Acting Under Secretary of
Energy for Nuclear Security and Acting Administrator, National Nuclear
Security Administration
Mr. Chairman, members of the subcommittee. Thank you for the
opportunity to appear before you on this important issue. Deputy
Secretary McSlarrow has addressed the Department's approach to
competition and the immense importance Secretary Abraham and all of us
place on maintaining the highest standards at our nuclear facilities. I
would like to turn to the conclusions we have reached and the actions
we are taking with respect to the future relationship between the
University of California and Los Alamos. Theses conclusions and
recommendations are set forth in our joint report to the Secretary of
Energy which was released yesterday. With your permission, I would like
to submit that report and the Secretary's response for the record.
Before I do, I want to formally state for the record that we have had
superb cooperation from both the University of California and the Los
Alamos National Laboratory in conducting our review.
Our report covers the details of the problems uncovered at Los
Alamos and the University's response. The problems are well known to
this Committee and Dr. Darling has outlined the University actions in
great detail, so I will not cover them here. As the Secretary of Energy
has made clear, they represent a ``systemic management failure.'' I
would only note the conclusion of the report that the University's
actions were ``actions were broad, forceful, and effective'' and that
``It is difficult to see how any organization could have done more to
deal with the problem than the University of California has since
December 2002.''
Our review suggests that there are multiple causes of the failure
of business systems at Los Alamos:
<bullet> Prior to November 2002, the University's supervision of Los
Alamos was ineffective in the area of business processes.
University supervision was almost entirely focused on other
areas including science, security, environment, and project
management.
<bullet> The Department of Energy and the NNSA's direct Federal
oversight was narrowly focused on specific performance measures
called out in the contract, rather than on overall
effectiveness. I will say more about this in a moment.
<bullet> In hindsight, warning signs may have been ignored. Following
the Dr. Wen Ho Lee and hard drive incidents, neither the
Laboratory, the University, NNSA, nor the Department examined
whether broader problems existed at Los Alamos.
<bullet> Finally, cultural problems beyond the control of the
University or the Department played an important role. The Los
Alamos culture exalted science and devalued business practices.
Changing this culture will be the most difficult long-term
challenge facing the Laboratory no matter who manages it.
As Deputy Secretary McSlarrow indicated, our review also confirmed
that the University brings substantial value to the mission of Los
Alamos. Los Alamos missions depend on attracting and retaining world-
class scientific talent. The academic prestige of association with a
world-class university is of clear benefit in both recruiting and
retention. In addition, there are formal agreements for scientific
cooperation with four of the component campuses of the University of
California. These areas of cooperative research directly advance the
scientific mission of the Laboratory. Finally, an important, little-
noted benefit of the University is to foster a culture of scientific
skepticism and peer review. This attitude, both within the Laboratory
and between Los Alamos and Lawrence Livermore National Laboratories, is
absolutely crucial to the success of the Stockpile Stewardship Program
and to the ability to certify the stockpile.
Our report recommends, and the Secretary has approved, as series of
actions. The most important include:
<bullet> That the University of California continue to manage Los
Alamos through the end of the current contract in September
2005. The vigorous action the University is taking to correct
the problems uncovered at Los Alamos, the significant value the
University brings in the area of science, and the significant
disruption to the mission of the Laboratory and the morale of
the employees from early termination all make retaining the
University through the end of the current contract the most
appropriate course. Termination of the contract would not
improve the management of Los Alamos in the near-term; the
University appears to be fully engaged in an effective and
comprehensive program.
<bullet> That the Department announce its intent to compete the Los
Alamos contract when it expires in September 2005. Given the
Department's and the Administration's strong preference for
competition, and the widespread nature of the problems
uncovered at Los Alamos, it is difficult to argue for any other
course of action.
<bullet> That we urge the University of California to compete for the
contract in 2005, perhaps in association with another entity
with business and project management experience. The University
has brought immense benefits to the Laboratory and the country
over the past 60 years. It is important to note that a decision
to compete is not a repudiation of the University, but simply a
recognition that the University's performance in the area of
business management did not rise to the exceptionally high
standards required to override the presumption of competition
in Department orders.
<bullet> That we begin now to develop appropriate criteria for
evaluating a future competition. The results of the competition
in 2005 should preserve the many advantages offered by the
current association with the University while also ensuring
continuation of the reforms now being initiated and
strengthening business functions. Devising the proper criteria
to achieve these results while avoiding unforeseen consequences
will be complicated and should begin at once.
<bullet> That we reject in advance any notion of split responsibility
for Laboratory operations in which different contractors would
perform the science and business operations functions. Some
have argued for having the science and business portions of the
Laboratory supervised by different contractors. The Laboratory
Director should not report to two entities. A major part of the
problem at Los Alamos is fragmentation between the science and
business communities within the Laboratory. A dual reporting
approach would make this problem worse, not better.
<bullet> That we devise a mechanism to ensure that, if the University
does not continue to operate Los Alamos following the 2005
competition, that the pension benefits of current Los Alamos
employees are fully protected. Failing to do this could lead to
a significant challenge to morale and, potentially, a
devastating exodus of the most experienced employees. It is
important to note that the vast majority of Los Alamos
employees have done nothing wrong and continue to perform in an
exceptional manner.
Let me turn briefly to the Federal role in discovering and
correcting problems of this type. One element of our Federal
responsibility, or course, was to ensure that the University lives up
to its own obligations. But as the report makes clear, National Nuclear
Security Administration shares responsibility for allowing these
problems to develop. Prior to November 2002, the Federal oversight role
was limited to a mechanistic review of performance as set forth in the
contract when in fact a broader, more aggressive role was called for.
Our reviews focused on performance in individual areas rather than the
intersection between those areas. The report, recognizing this
weakness, recommends that all current and future DOE contracts be
reviewed in order to ensure that performance reviews capture the
crosscutting information necessary to form a complete picture of
performance. NNSA has begun this process through our revised approach
to evaluation of Los Alamos and Livermore National Laboratories under
Appendix F of the contract. We review broad, crosscutting areas and
involve the Laboratory Directors, the senior leadership of the
University, and the senior leadership of NNSA, including myself,
personally in these reviews.
Federal oversight was also hampered by fragmentation and lack of
clarity in roles and responsibilities within the National Nuclear
Security Administration. For example, before December of 2002, the
Albuquerque Operations Office assessed business practices at Los
Alamos, while the Los Alamos Site Office assessed other performance
areas. This fragmentation problem has long been recognized, including
by the Congress. As a result, on December 20, 2002 I implemented a
major reorganization within NNSA, abolishing a layer of management and
placing authority and responsibility for Federal oversight in the site
office managers, who will now report directly to my Principal Deputy. I
expect that these changes will significantly improve the quality of
Federal oversight.
Mr. Chairman, let me conclude with two points. First, it is
important to recognize that the overwhelming majority of Los Alamos
employees--in all areas, including business services--are honest,
dedicated, competent, and hard working. Ultimately, the value of the
Laboratory lies not in expensive technology, but in people. The
failures at Los Alamos are real, but they are the failures of a few. As
we move to correct these failures, it is important to keep this fact in
mind.
Second, I want to reiterate Secretary McSlarrow's emphasis on the
overriding importance of national security in all of the decisions we
have made. In approving our report, Secretary Abraham said
The management of the nuclear weapons complex is my most
important responsibility as Secretary of Energy. Under the
University's stewardship, the science at Los Alamos has
consistently been of the highest caliber. But it is important
that business services be as good as the science. In approving
your recommendations, it is my intention to make it clear that,
in dealing with nuclear weapons, only the highest standards of
performance are acceptable.
All of us remain committed to that goal.
Thank you for your attention and I look forward to your questions.
______
Department of Energy
Washington, DC 20585
April 26, 2003
MEMORANDUM FOR THE SECRETARY
FROM:
Kyle McSlarrow, Deputy Secretary
Linton F. Brooks, Acting Administrator,
National Nuclear Security Administration
SUBJECT: Los Alamos National Laboratory
On December 24, 2002, you concluded that events at Los Alamos
National Laboratory reflected a ``systemic management failure.''
Although this conclusion was primarily aimed at the management at Los
Alamos itself, you also directed us to conduct an examination of the
relationship between the University of California, as the responsible
contractor, and the Los Alamos National Laboratory. We have also
explored the relationship among the University of California, Los
Alamos, and the National Nuclear Security Administration, Department of
Energy.
The University and the National Nuclear Security Administration
share responsibility for allowing these problems to develop. Prior to
November 2002, the University's supervision of Los Alamos was
ineffective in the area of business processes. The Federal oversight
role was limited to a mechanistic review of performance as set forth in
the contract when, in fact, a broader, more aggressive role was called
for, particularly in light of the problems that developed at Los Alamos
in the late 1990s.
Although the University was slow to take action to correct these
failures, once it became engaged its actions were broad, forceful, and
effective. It is difficult to see how any organization could have done
more to deal with the problem than the University of California has
since December 2002. Further, the University brings substantial value
to the mission of Los Alamos, in science, recruiting, retention and
fostering a culture of scientific skepticism and peer review.
Therefore, given the extraordinary disruption that would flow from an
immediate termination, we do not believe contract termination is in the
best interests of the national security missions conducted at Los
Alamos.
We recommend:
<bullet> That the University of California continue to manage Los
Alamos through the end of the current contract in September
2005.
<bullet> That you direct the NNSA Administrator to examine the utility
of a contract modification institutionalizing some of the
reforms made by the University over the last few months.
<bullet> That the Department announce its intent to compete the Los
Alamos contract when it expires in September 2005.
<bullet> That we urge the University of California to compete for the
contract in 2005, perhaps in association with another entity
with business and project management experience.
<bullet> That you direct the NNSA Administrator to begin now to develop
appropriate criteria for evaluating a future competition,
taking into account the results of the Blue Ribbon Panel when
available.
<bullet> That you further direct the NNSA Administrator to ensure that
any future competition includes provisions for retaining the
current Los Alamos workforce following September 2005.
<bullet> That you reject in advance any notion of split responsibility
for Laboratory operations in which different contractors would
perform the science and business operations functions.
<bullet> That you direct the NNSA Administrator to devise a mechanism
to ensure that, if the University does not continue to operate
Los Alamos following the 2005 competition, the pension benefits
of all Los Alamos employees on the rolls as of September 30,
2005, or previously retired, are fully protected.
<bullet> That in dealing with future competitions, the Department
explore ways in which to not only take into account truly
outstanding performance but also to encourage contractors who
might fall short during a contract term to strive to develop
plans to correct problems so that they may compete and succeed.
<bullet> That you direct that all current and future contracts be
reviewed in order to ensure that performance reviews capture
the crosscutting information necessary to form a complete
picture of performance.
<bullet> That you direct us to continue to monitor progress and
subsequent information from either internal or external reviews
in order to provide additional recommendations as facts and
circumstances develop that warrant additional action.
Attachment: Complete report
Report by the Deputy Secretary of Energy and the Acting Administrator
of the National Nuclear Security Administration on the Ruture
Relationship between Los Alamos National Laboratory and the University
of California
April 26, 2003
Introduction. In accordance with your direction in your letter of
December 24, 2002, we have conducted an examination of the relationship
between the University of California and the Los Alamos National
Laboratory. Our examination included the following:
<bullet> Review of briefings to the University Regents, internal
University of California reports, and similar documents between
2001 and the time of the relief of the Los Alamos National
Laboratory Director in 2003.
<bullet> Review of all relevant Inspector General and Office of
Independent Assessment and Oversight reports covering Los
Alamos. We paid particular attention to those Inspector General
reports covering the period since the problems at Los Alamos
surfaced; a list is attached.
<bullet> Review of the Appendix O process and material (Appendix O was
put in place during contract renewal in 2001 to correct
perceived security problems; it is further discussed below).
<bullet> Review of testimony given by witnesses to the Subcommittee on
Oversight and Investigations of the House Energy and Commerce
Committee.
<bullet> Interviews with former Vice President for Laboratory
Management, John McTague, former National Nuclear Security
Administration (NNSA) Administrator, General John A. Gordon,
and the Los Alamos Site Manager, Ralph Erickson.
<bullet> A daylong meeting with senior Los Alamos and University
officials at Los Alamos, including a separate meeting with
Federal site office management officials who have contract
oversight responsibilities.
<bullet> A number of meetings with Senior Vice President for University
Affairs Dr. Bruce Darling, who also serves as Interim Vice
President for Laboratory Management, along with phone calls
with Dr. Darling several times a week.
<bullet> A similar set of meetings and phone calls with Interim
Laboratory Director, Dr. George ``Pete'' Nanos, and his senior
staff.
<bullet> Conversations with various Regents of the University of
California to review our conclusions.
This memorandum reports the results of our assessment and our
recommendations for the future Los Alamos--University of California
relationship.
Background. The University of California has operated the Los
Alamos National Laboratory since 1943 under contract with the
Department of Energy and its predecessors. The contract has routinely
been extended without competition, most recently in January 2001 just 2
days before the Bush Administration took office. The University also
operates Lawrence Livermore National Laboratory under an identical, but
separate contract, as well as the Lawrence Berkeley National
Laboratory. The University has traditionally regarded its management of
the laboratories as a public service to the nation. As one indication
of this, the University has taken the position that its operation of
the laboratories should be revenue neutral. That is, the University
retains no fee for operating the laboratories and seeks to use no
University of California funding to do so. The fee paid by the
Government is returned to the laboratories for additional laboratory-
directed research and development, after deducting the costs of that
portion of the University Office of the President involved with
overseeing the laboratories, paying expenses not otherwise
reimbursable, and establishing a reserve to cover significant losses.
During the late 1990's two major concerns arose with Los Alamos
National Laboratory, both involving security. The first was the case of
Dr. Wen Ho Lee, a Los Alamos scientist who was ultimately convicted of
mishandling classified material. This case raised extensive questions
about the adequacy of security at the Laboratory. These concerns were
reinforced in May 2000 when two hard drives containing Restricted Data
could not be located for an extended period of time. The hard drives
were ultimately located in a secure area within Los Alamos, but the
Laboratory's inability to locate them, coming on top of the concern
raised by the Wen Ho Lee case, further exacerbated security concerns.
Security concerns were among the reasons that Congress created the
National Nuclear Security Administration. Despite this, no senior Los
Alamos manager was terminated, reassigned, or demoted as a result of
either of these incidents, although some formal reprimands were issued
and two lower-level employees were reassigned.
Notwithstanding these security concerns, the University's contract
to manage Los Alamos was extended non-competitively in January 2001.
The current contract expires on September 30, 2005. In extending the
contract, the Department imposed a number of requirements to correct
the perceived problems with the management of Los Alamos. The new
requirements were codified in a separate appendix to the Los Alamos
contract called Appendix O. An identical appendix was included in the
contract for Lawrence Livermore National Laboratory.
Appendix O committed the University to establish a position of Vice
President for Laboratory Management and made the first incumbent of
that position subject to departmental approval. It also committed the
University to take a series of discrete steps to improve management. To
enforce these commitments, Appendix O established a series of quarterly
reviews between the Department, the University, Los Alamos, and
Livermore. By its own terms, Appendix O expired on September 30, 2002.
At that time, the NNSA, on behalf of the Department, concluded that all
the requirements of the Appendix had been met. None of these
requirements related to business services.
The precipitating incidents. Beginning in the summer of 2002, a
series of problems with business services at Los Alamos came to light.
The problems themselves originated several months earlier, but were not
widely recognized outside the Laboratory until the summer of 2002.
These problems included:
<bullet> Questions concerning the effectiveness of controls over
Government purchase cards (credit cards). Several laboratory
employees (all now terminated except one, where disciplinary
action is pending) used a laboratory-issued purchase card to
make fraudulent purchases, including an attempt to purchase an
automobile. Actual loss to the Government was only about $3000,
but the massive audit conducted by the University in response
to the issue revealed an additional $195,246 worth of purchases
where documentation was inadequate or missing (some
documentation was destroyed in the Cerro Grande fire) along
with $125,000 in employee recognition awards that exceed the
approved DOE threshold. Although no additional cases of fraud
were uncovered, the University chose to reimburse the
Government the entire sum of both questionable items for a
total of about $320,000.
<bullet> A scheme by two employees (both now terminated) apparently
used doctored purchase orders to order material for their
personal use. The incident is still under investigation by the
FBI. The amount of the apparent theft exceeded $300,000, but
all but about $50,000 has been recovered. The University has
reimbursed the Government for the loss.
<bullet> Questions concerning the adequacy of property controls.
Newspaper revelations indicated that the laboratory was unable
to account for $1.3 million worth of controlled property,
including such pilferable items as computers. Although the most
spectacular allegations (a missing fork lift, for example) were
ultimately resolved, substantial amounts of property remained
un-located.
<bullet> The Laboratory's action in firing two investigators within a
few days of those same investigators raising concerns with the
Inspector General. You, the University and the Inspector
General have all stated that the Laboratory's action in firing
the inspectors was ``incomprehensible.'' We share that
assessment. While the Inspector General's investigation did not
substantiate the allegation that Laboratory management
deliberately hid criminal activity, this incident (in which the
University played no role) demonstrated the degree to which the
Laboratory's management was out of touch and ineffective.
Taken individually, it is possible that none of these incidents
would call into question the adequacy of Laboratory management. Taken
in the aggregate, however, they revealed systemic weaknesses in
business practices at Los Alamos. These weaknesses were further
confirmed by additional Inspector General audits in unrelated areas,
including:
<bullet> An audit of firearms control that revealed significant
weaknesses in procedures and accountability, although all
firearms were ultimately located.
<bullet> An interim audit that determined that control over laptop
computers was inadequate. Computers were not properly
controlled, not adequately safeguarded against theft, and not
always acquired in accordance with approved procedures.
Computers that could not be located were written off without a
formal inquiry and theft of laptop computers was not always
reported to the appropriate office.
<bullet> An audit of the allowability of incurred costs that assessed
that just over $14 million (about 0.3 percent out of the total
of $5.4 billion examined) was improperly charged to the
government under existing rules. The three areas of concern
were travel and conference costs not adequately documented,
provision of business meals, and an audit function evaluated as
inadequate.<SUP>1</SUP>
---------------------------------------------------------------------------
\1\ Although the Laboratory has generally agreed with all the
findings of outside audits, it disagrees with this specific audit,
contending that virtually all the costs should be allowable. Final
determination of allowability will be made by the Contracting Officer
in accordance with established DOE procedures.
---------------------------------------------------------------------------
The fact that there was not greater fraud and theft at Los Alamos
is a tribute to the character of the vast majority of men and women
working there, and not to the efficacy of the management systems in
place. The actual loss to the Government could have been far greater
and the business practices in place in 2002 would not have been able to
identify and therefore prevent such a loss.
There is no evidence that the lax approach to business processes
and business issues extended to science or security. The fear that such
practices might spread, however, was--justifiably--a primary motivation
for insisting that the University of California move promptly to
correct the problems.
University of California response. The University was relatively
slow to respond to the public allegations of business practices
problems. University response was initially limited to providing
assistance as requested by the Laboratory Director and did not include
any action to ensure that the Laboratory Director was taking sufficient
steps to examine the problem. The University engagement began in
earnest in mid-November following the commissioning of an Inspector
General investigation (requested by the Laboratory) and a series of
increasingly embarrassing press accounts. University engagement
increased still further following the intervention of the Secretary of
Energy in November and December 2002.
Once the University became engaged its actions were broad,
forceful, and effective. The University made significant personnel
changes in Laboratory management, including accepting the resignation
of the Laboratory Director, terminating the Principal Deputy Director,
and transferring, downgrading, or terminating 16 other officials
including the Chief Financial Officer, Laboratory Auditor, Security
Office Director, and the heads of the procurement and purchase card
programs. Given the size of the Los Alamos management team, these
represent sweeping changes.
The University mobilized substantial auditing resources to examine
issues in depth. It used teams of extremely senior officials to
investigate the issues. University senior officials (for example the
University Auditor) essentially devoted full time to Los Alamos issues.
The University permanently subordinated the Laboratory auditor to the
University Auditor and temporarily subordinated all Laboratory business
functions to the University Vice President for Financial Management. It
directed a series of external reviews by Ernst and Young,
PriceWaterhouseCoopers, and a team headed by a former DOE Inspector
General. These were major reviews; the Ernst and Young review, for
example, involved 20 people at the Laboratory. It is difficult to see
how any organization could have done more to deal with the problem than
the University of California did after about mid-December 2002. In
particular, we have been impressed with the performance to date of both
the Interim Vice President for Laboratory Management, Dr. Bruce
Darling, and the Interim Los Alamos Director, Dr. George ``Pete''
Nanos.
The University's steps were not limited to Los Alamos. Although we
did not investigate actions at other laboratories, the University
appears to have been vigorous in taking the lessons from Los Alamos and
applying them to the Lawrence Livermore and Lawrence Berkeley National
Laboratories. The University required these Laboratories, as well as
the University auditor, to examine their own internal procedures to
ensure similar problems did not arise elsewhere. The University also
used senior officials at these Laboratories to assist at Los Alamos.
The University and the new Laboratory leadership are viewing the
necessary improvements broadly, not narrowly. Although the specific
issues that came to light in late 2002 dealt with business practices,
the University and the Interim Laboratory Director are taking the
opportunity to look at Laboratory practices in all areas, including
project, program, environmental, procurement, and nuclear facilities
management. While the responsibility for implementing this broad
approach belongs to the Interim Director, the University selected that
Director and has been strongly supportive of examining all areas of Los
Alamos management. This increases the chance that the changes being
made will endure.
Finally, the University is in the process of putting in place a new
governance model involving strengthened internal management and
oversight and a strong external governing Board with members having
strong backgrounds in industry, defense and science. The new Board will
have some of the responsibilities of the Regents and will be able to
hold both the University administration and Laboratory Management
accountable. We are not yet able to evaluate the efficacy of this new
governance model, but it is a clear indication that the University sees
its task not simply as implementation of a temporary ``get well''
program but as a transformation of its model of oversight.
The cause of the problems. Our review suggests that there are
multiple causes of the failure of business systems at Los Alamos:
<bullet> Prior to November 2002, the University's supervision of Los
Alamos was ineffective in the area of business processes.
University supervision was almost entirely focused on other
areas including science, security, environment, and project
management. Briefings to the Regents never discussed business
practices nor was the subject a focus of the former Vice
President for Laboratory Management. Internal documentation
relating to University oversight in this period is silent on
business practices.
<bullet> The Department of Energy and the NNSA's direct Federal
oversight was narrowly focused on specific performance measures
called out in the contract, rather than on overall
effectiveness. Appendix O was focused on issues other than
business services. Most discussions were in areas of safety or
of having Los Alamos and Livermore work together. NNSA's own
supervision focused on areas such as safety and security,
rather than business services and tended to assess performance
within ``stovepipes,'' while many of the actual problems were
failures of appropriate connections between stovepipes. A
division of responsibility between the Los Alamos Site Office
and the former Albuquerque Operations Office further weakened
NNSA oversight, with oversight of business practices coming
almost exclusively from Albuquerque.<SUP>2</SUP>
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\2\ The NNSA reorganization implemented in December 2002 is
designed to centralize responsibility to the Site Manager and thus
avoid this fragmentary oversight in the future.
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<bullet> In hindsight, warning signs may have been ignored. Following
the Dr. Wen Ho Lee and hard drive incidents, neither the
Laboratory, the University, NNSA, nor the Department examined
whether broader problems existed at Los Alamos. For years,
there has been general acknowledgement of a ``Los Alamos way''
that was unique and that devalued business practices.
Evaluations of Los Alamos in recent years always showed it
slightly inferior in overall performance to the other two
weapons laboratories, but never by enough to cause strong
concern. Because there was no precipitating event, no one at
any level acted on these indicators.
<bullet> Cultural problems beyond the control of the University or the
Department played an important role. The Los Alamos culture
exalted science and devalued business practices. Changing this
culture will be the most difficult long-term challenge facing
the Laboratory no matter who manages it.
The value of the University. In evaluating our options, it is
important to recognize that the University brings substantial value to
the mission of Los Alamos, in both obvious and less obvious ways.
Stockpile Stewardship and other Los Alamos missions depend on
attracting and retaining world-class scientific talent. The academic
prestige of association with a world-class university is of clear
benefit in both recruiting and retention.<SUP>3</SUP> In addition,
there are formal agreements for scientific cooperation with four of the
component campuses of the University of California. These areas of
cooperative research directly advance the scientific mission of the
Laboratory.
---------------------------------------------------------------------------
\3\ At least some prospective employees at both Los Alamos and
Livermore in recent months have stated that they were uninterested in
affiliating with a national laboratory that is not connected with the
University. We lack data on how extensive this belief is.
---------------------------------------------------------------------------
Finally, an important, little-noted benefit of the University is to
foster a culture of scientific skepticism and peer review. This
attitude, both within the Laboratory and between Los Alamos and
Lawrence Livermore National Laboratories, is absolutely crucial to the
success of the Stockpile Stewardship Program and to the ability to
certify the stockpile. A senior laboratory official at Los Alamos has
told us, for example, that the culture of peer review is the only thing
that allowed the successful dual revalidation of the W76 warhead
conducted a few years ago.
In addition to the actual value that the University brings, an
important consideration is the widespread perception among Laboratory
employees at both Los Alamos and Lawrence Livermore National
Laboratories that the University association is critical to the mission
of the Laboratory. Examples of this perception abound and have been a
constant theme of our discussions with laboratory employees. We
received petitions from 2,500 Los Alamos employees and 3,000 Livermore
employees stressing the value of the University association. We
received a similar, separate communication from the Los Alamos Fellows,
those senior scientists at Los Alamos not part of management. We have
reviewed public statements by distinguished figures such as Edward
Teller, arguably the most famous living nuclear weapons designer. Even
if we disagreed with these assertions of the University's value (which
we do not), we need to take account of the widespread perception among
the people who actually carry out the important national security
mission of the Laboratory that the University association is critical
to that mission.
At the same time, the national security missions carried out at Los
Alamos require the total confidence of Congress and the public as well
as of Los Alamos employees. An erosion of that public trust undermines
not only the University but our national security as well. Our
recommendations are, therefore, premised on a view that ensuring public
confidence is merited is crucial for our country, the University and
Los Alamos.
Problems with immediate termination. We are aware of forceful calls
that the University contract with Los Alamos be terminated immediately.
While the University can be faulted for having allowed the problems to
develop, we believe that immediate termination would undermine the
national security mission at the lab without measurably addressing the
problems that Los Alamos faces today. Further, the Department, and
since its creation, the NNSA, share responsibility for lax oversight of
business practices. In our view, immediate termination is undesirable
for several reasons. Such a step would be highly disruptive to the
things that are going well at Los Alamos, especially science. It would
also hamper the implementation of the internal reforms the University
has put in place. Immediate termination would lose the very real
benefits of the University association and, because of this, would be
devastating to morale.<SUP>4</SUP> Finally, any decision for immediate
termination would almost certainly have a counterproductive effect on
other contractors facing similar problems in the future. If this
vigorous get well program put in place by the University leads only to
termination, no future contractor will have any incentive to put this
much of an effort into remediation of major problems.
---------------------------------------------------------------------------
\4\ The prospect of termination may already have had an adverse
effect. As of April 8, 266 Los Alamos employees (68 with critical
skills) have applied for retirement. In contrast, there were only 177
retirements during all of 2002. Retirement requests at Livermore are
currently running at roughly twice the 2002 rate.
---------------------------------------------------------------------------
Recommendations. Based on the above, we recommend:
<bullet> That the University of California continue to manage Los
Alamos through the end of the current contract in September
2005. The vigorous action the University is taking to correct
the problems uncovered at Los Alamos, the significant value the
University brings in the area of science, and the significant
disruption to the mission of the Laboratory and the morale of
the employees from early termination all make retaining the
University through the end of the current contract the most
appropriate course. Termination of the contract would not
improve the management of Los Alamos in the near-term; the
University appears to be fully engaged in an effective and
comprehensive program.
<bullet> That you direct the NNSA Administrator to examine the utility
of a contract modification institutionalizing some of the
reforms made by the University. If the University continues to
operate Los Alamos through 2005, it will be important to ensure
that the current momentum for improvement continues. Some
institutionalization of the reforms may assist in this area. We
believe that discussions between Los Alamos, the NNSA, Los
Alamos Site Office, and the University are necessary before
determining exactly what changes require codification.
<bullet> That the Department announce its intent to compete the Los
Alamos contract when it expires in September 2005. Given the
Department's and the Administration's strong preference for
competition, and the widespread nature of the problems
uncovered at Los Alamos, it is difficult to argue for any other
course of action. Because the question of competition for
National Laboratories is the subject of your recently chartered
Blue Ribbon Panel, the mechanics of implementing this decision
should take into account the results of the Panel's
report.<SUP>5</SUP>
---------------------------------------------------------------------------
\5\ The Blue Ribbon Panel, formally the ``Blue Ribbon Commission on
Use of Competitive Procedures at the Department of Energy
Laboratories,'' was established on January 3, 2003 as a subsidiary body
to the Secretary of Energy Advisory Board. It is tasked with examining
the Department's policy on competition for management of national
laboratories and is expected to make its report by July 2003.
---------------------------------------------------------------------------
<bullet> That we urge the University of California to compete for the
contract in 2005, perhaps in association with another entity
with business and project management experience. The University
has brought immense benefits to the Laboratory and the country
over the past 60 years. It is important to note that a decision
to compete is not a repudiation of the University, but simply a
recognition that the University's performance in the area of
business management did not rise to the exceptionally high
standards required to override the presumption of competition
in Department orders.
<bullet> That you direct the NNSA Administrator to begin now to develop
appropriate criteria for evaluating a future competition,
taking into account the results of the Blue Ribbon Panel when
available. The results of the competition in 2005 should
preserve the many advantages offered by a world-class academic
institution while also ensuring continuation of the reforms now
being initiated and strengthening business functions. Devising
the proper criteria to achieve these results while avoiding
unforeseen consequences will be complicated and should begin at
once.
<bullet> That you further direct the NNSA Administrator to ensure that
any future competition includes provisions for retaining the
current Los Alamos workforce following September 2005. The
staff of Los Alamos is a national treasure that must be
preserved. It is important to establish now that a competition
in 2005 will not result in a changed workforce. Otherwise we
will face both a serious morale problem and the prospects of a
significant exodus of staff in the mistaken belief that their
jobs are at risk.
<bullet> That you reject in advance any notion of split responsibility
for Laboratory operations in which different contractors would
perform the science and business operations functions. Some
have argued for having the science and business portions of the
Laboratory supervised by different contractors. We urge you to
reject this approach. While the University might well benefit
from a partnership with industry, the Laboratory Director
should not report to two entities. Further, the Interim
Laboratory Director believes that a major part of the problem
at Los Alamos is fragmentation between the science and business
communities within the Laboratory. A dual reporting approach
would make this problem worse, not better.
<bullet> That you direct the NNSA Administrator to devise a mechanism
to ensure that, if the University does not continue to operate
Los Alamos following the 2005 competition, that the pension
benefits of all Los Alamos employees on the rolls as of
September 30, 2005, or previously retired, are fully protected.
While the Los Alamos employees who have contacted us are
generally concerned about the impact on science and mission of
losing the association with the University of California, many
are also concerned with their benefits under the University's
pension system. It is important to reassure employees, that,
regardless of the outcome of the future competition, those
benefits will be protected. Otherwise, we could face a
significant challenge to morale and, potentially, a devastating
exodus of the most experienced employees.
<bullet> That you direct us to continue to monitor progress and
subsequent information from either internal or external reviews
in order to provide additional recommendations as facts and
circumstances develop that warrant additional action.
Lawrence Livermore National Laboratory. The University of
California also manages the Lawrence Livermore National Laboratory
under a separate, but essentially identical, contract as the contract
with Los Alamos. Our review did not explicitly cover Lawrence Livermore
National Laboratory and we believe that there is no need to make even a
preliminary decision on whether to extend or compete the Lawrence
Livermore contract when it expires in September 2005. Such a decision
can clearly be deferred and can await, among other things, the results
of the recently established Blue Ribbon Panel. There is no legal reason
why the Department could not choose to compete the Los Alamos contract
and extend the Lawrence Livermore contract, and the Secretary should
continue to hold that option open.
Additional issues. An important aspect of the problems of Los
Alamos has been the potential loss of Congressional and public trust
resulting from the revelations of the serious management deficiencies
at the Laboratory. This problem was exacerbated by two factors:
<bullet> The current Government rules on property accountability
significantly overstate the value of the unaccounted for
property. Government rules require that property be carried at
its original cost. Thus, for example, an obsolete computer that
would not fetch $50 at a yard sale is carried at its original
purchase value of several thousand dollars. A 35 year-old
forklift, which any business would have written off as an asset
through depreciation years ago, is carried at its original
cost. As a result, the apparent dollar value of un-located
property overstated the actual magnitude of the problem and
diverted the attention from the more systemic problems. The
Secretary should direct that the Department seek authority to
revise government property accounting rules to be more
consistent with those used in the private sector.
<bullet> The grading system at Los Alamos, adapted from other
Government systems, is based on a scale of Outstanding,
Excellent, Good, Satisfactory, and Unsatisfactory. This scale
suffers from what might be called ``rhetorical grade
inflation.'' Thus, a mark of ``Excellent'' conveys a sense of
exceptional performance, when, in fact, it is used for routine
performance. The Secretary should direct that in future
contracts the NNSA Administrator use a descriptive system that
will more accurately reflect the intent of a particular grade.
The grading problem is simply one example of a broader set of
concerns raised over the issues relating to competition of Federally
Funded Research and Development Centers such as Los Alamos. Although it
was not specifically established with any one facility in mind, the
Blue Ribbon Panel discussed above was created in part because it became
clear that any decision to compete was increasingly perceived as a
repudiation of an incumbent contractor. This is a view that has
undoubtedly grown over many decades, but it has had unfortunate
consequences. Incumbent contractors view their choices as being either
a series of contract extensions, or loss of the contract. As a result,
incumbent contractors often assert that they will be unwilling to
participate in a competition.<SUP>6</SUP> We recommend that the
Department explore ways in which to not only take into account truly
outstanding performance but also to encourage contractors who might
fall short during a contract term to strive to develop plans to correct
problems so that they may compete and succeed.
---------------------------------------------------------------------------
\6\ The wide spread perception that no incumbent DOE contractor has
ever prevailed in a competition is one manifestation of this attitude.
The perception is wrong. There are at least four instances where
incumbents have retained contracts following competition, including one
Federally Funded Research and Development Center (National Renewable
Energy Laboratory). Still, the perception exists and needs to be
dispelled.
---------------------------------------------------------------------------
An equally important concern is the overall ``stove piped'' nature
of the NNSA evaluation system in place at Los Alamos (and elsewhere).
The contract entered into in January 2001 established a performance
review process that considered individual areas in isolation. By
failing to consider relationships between different processes, it
failed to detect overall systemic problems and thus failed to capture
the type of management failures that we are addressing in this
memorandum. As a result, the performance review process assigned an
``Excellent'' rating to the Laboratory management almost simultaneously
with the Secretary of Energy stating publicly that there was a
``systemic management failure.'' We therefore recommend that all
current and future contracts be reviewed in order to ensure that
performance reviews capture the crosscutting information necessary to
form a complete picture of performance.<SUP>7</SUP>
---------------------------------------------------------------------------
\7\ Recent changes in NNSA evaluation procedures are designed to
ensure a focus on broad management issues. It is important that these
changes be pursued vigorously.
---------------------------------------------------------------------------
Concluding observation. We believe it is important to recognize
that the overwhelming majority of Los Alamos employees--in all areas,
including business services--are honest, dedicated, competent, and hard
working. Ultimately, the value of the Laboratory lies not in expensive
technology, but in people. The failures at Los Alamos are real, but
they are the failures of a few. As we implement changes, we urge that
all levels of the Department emphasize this fact at every opportunity.
Inspector General Reports consulted
Completed reports
------------------------------------------------------------------------
Report Number Title Date Issued
------------------------------------------------------------------------
L-03-06............................ Recruitment and 11/27/2002
Retention at the Los
Alamos and Lawrence
Livermore National
Laboratories.
S02IS013........................... Inspection of 2001 01/12/2003
Safeguards and
Security Survey of
Los Alamos National
Laboratory.
IG-0584............................ Special Inquiry: 01/28/2003
Operations at Los
Alamos National
Laboratory.
IG-0587............................ Inspection of Firearms 02/21/2003
Internal Controls at
Los Alamos National
Laboratory.
IG-0591............................ Allegations Concerning 03/20/2003
the Reporting of a
Radiological Incident
at LANL.
IG-0596............................ University of 04/16/2003
California's Costs
Claimed And Related
Internal Controls for
Operation of Los
Alamos National
Laboratory.
IG-0597............................ Inspection of Internal 04/24/2003
Controls Over
Personal Computers at
Los Alamos National
Laboratory (Interim
Report).
------------------------------------------------------------------------
Reports not yet made public but where we have reviewed draft findings
The Dual Axis Radiographic Hydrodynamic Test Facility (Draft
Report)
Ongoing reports to which we have not yet had access <SUP>8</SUP>
---------------------------------------------------------------------------
\8\ We have no reason to believe that any of the ongoing
investigations and audits would change the recommendations of this
report.
---------------------------------------------------------------------------
LANL's Nuclear Materials Stabilization Program
Various Law Enforcement Sensitive reports on criminal activity
Mr. Greenwood. Thank you, Ambassador.
The Chair recognizes himself for 10 minutes for the purpose
of inquiry.
From the Wen Ho Lee situation in 1999 to the missing hard
drive management failures at Los Alamos, consistent gender and
minority employment discrimination lawsuits, billion dollar
cost overruns and the most recent allegations of
counterintelligence and business operations problems, the
University of California has faced a variety of challenges in
its management of its national laboratories over the past 5
years. A question for both of you gentlemen is what caused DOE
and NNSA to finally decide to compete the Los Alamos contract?
What was the proverbial straw that broke the camel's back? What
was the most important consideration in the decision to pursue
competition?
Mr. McSlarrow. There were a number of factors, but in terms
of isolating the central precipitating factor I would say it
was a recognition that the management itself at Los Alamos was
not on top of the problems and a recognition that, if that were
true, it required the university to step up to the plate and
insure that it was fixed; and we didn't see that. That's
something that took place over a period of meetings and
discussions last fall.
This country made a decision fundamentally a long time ago
that this kind of big-time science and national security work
is going to be done with contractor-operated facilities, and
that places an enormous burden on the actual management of any
facility and the contractor who's responsible for oversight. So
it's hard to isolate a particular incident, but I think that
would be the central point.
Mr. Brooks. I would add, Mr. Chairman, that in some ways
the focus on particular incidents is what got us into this
problem, that the incident standing alone can be looked at and
there are reasons for each of them. The problem has been that
the aggregate revealed a broad pattern of management problems,
and I think that probably was the most important recognition
and that's what in my statement I alluded to, trying to focus
our future oversight more on interrelations and broad issues
rather than dealing on an incident-by-incident event. So I
think it was the interrelationship of everything, rather than
any specific incident that, at least in my mind, led to this
conclusion.
Mr. Greenwood. Mr. Ambassador, you, in your opening
statement, referred to the culture at the lab and said that
that is the most difficult thing--the most difficult challenge
is to change that culture. A culture like that does not develop
in a vacuum. It develops fundamentally, it seems to me--I think
it's human nature for cultures to develop when there are no
consequences either in sufficient oversight or no consequences
to actions. We hold the management at the lab responsible for
that. We hold the university responsible for that. We also have
to hold the Department responsible for that.
Now I know that the top management of the Department
changes with elections. But who were the folks who have been
consistently at the Department whose job it was to provide this
oversight? And what consequences do they face?
Mr. Brooks. Mr. Chairman, I believe that the problem with
the Department oversight was not primarily failure of
individuals but failure of structure.
Mr. Greenwood. Well, somebody has a responsibility to
create that structure. An individual has the responsibility to
create that structure.
Mr. Brooks. Yes, sir, I do; and that's what I'm doing. And
that's what my predecessor had determined to do. So we had a
structure in NNSA which Secretary Abraham and Deputy Secretary
McSlarrow inherited and my predecessor inherited when he
started to stand up NNSA in which there was confused roles and
responsibilities between headquarters and the field and
multiple layers of organization within the field; and,
therefore, it is not possible to point with certainty to the
single individual. We're changing that. We're right now looking
forward.
You point to two people. You can point to me, and I can
point to my site manager, and everybody else in my organization
is supposed to support one or the other of us. So I have not
attempted to go back and identify specific individuals in the
past, because I think the problems in the past were
organizational and structural and that's the reason we are in
the process of implementing this major reorganization that we
announced in December.
Mr. Greenwood. I think you said that there was not a focus
on business management. Did you mean to say that the University
of California was not focusing on business management or the
Department was not focusing on business management?
Mr. Brooks. The university was not focused on business
management. And, to be fair, in looking back at our
interactions with the university since this administration came
in, I don't think we were encouraging them to focus on business
management. We were----
Mr. Greenwood. Well, in fact, they were rated on business
management; and I think they were given an excellent rating.
Mr. Brooks. They were.
Mr. Greenwood. So I guess what I'm trying to figure out, is
it that no one was focusing on it? Is it that a review that
granted them an excellent rating, was that--in retrospect, was
that a cursory and superficial review? How can you rate--how
can you rate--decide to rate business management, rate it
excellent and then our committee staff over a short period of
time takes a cursory look and finds the kinds of things that we
found.
Mr. Brooks. Because we were using a mechanistic approach
which set up criteria; and if you met those criteria, didn't
look at whether they tracked with other criteria and didn't
look back to say are you doing a sensible result. So that our
problem with the former rating system was that it was narrow
and stove-piped.
Mr. Greenwood. Let me ask you this question. How many labs
does the Department oversee?
Mr. Brooks. The Department oversees 10; the National
Nuclear Security Administration oversees three of those.
Mr. Greenwood. Okay. Is what's true--just in talking about
the way reviews are conducted, whether they're mechanistic,
whether they can be described otherwise and whether they are
adequate or not, does that apply to the other labs for which
the Department has responsibility? Are their things done
differently?
Mr. Brooks. I can only speak for the two other labs which I
have responsibility for, and I'll let the Deputy speak for the
rest of the Department.
The system at Livermore is essentially identical to Los
Alamos both in its past and in its future. The system at
Sandia, because that's a separate contract, is comparable; and
in all of those cases we are moving to a broader new method of
oversight.
Evaluation, in my opinion, always walks between two
dangers. One is, if you try to be very, very objective,
quantifiable, X percent of that, Y percent of this, you can
lead to a result where you're not looking at the connections
between areas. That's the problem we're in now. The other thing
is, if you use broad, subjective judgment, you run the risk of
that judgment being influenced by external factors. What we are
trying to do now is apply broad subjective judgment but in
areas where we can actually tell.
I believe that the system that we have put in place with
Appendix F with the University of California, the new model of
oversight that we are putting in place with the Federal
employees is going to be substantially better. But we'll know
that better in a year. We'll know that really well in 2.
So I think we are moving in the right direction, but I
don't want to assert that I can prove that all the problems are
solved because I can't prove that yet.
Mr. Greenwood. Well, to make it very simple, we in the
Congress are responsible to make sure, and particularly this
committee, that taxpayers get the most bang for the buck.
Mr. Brooks. Yes, sir.
Mr. Greenwood. I think what everybody said is the bang is
pretty good. Okay. The science, the work that's done there has
been excellent. But its stewardship of the taxpayers' dollar
has not. And I think what we're looking for not only at Los
Alamos about across the board is that the Department of Energy
has in place individuals who get up in the morning and think
about whether or not the taxpayers dollars are being well
protected there and not used like monopoly money but used like
the hard-earned dollars that the taxpayers provide to the
project.
Mr. Brooks. At the three labs that I supervise I'm
confident I have people like that because I picked them.
Mr. Greenwood. Okay. Let me just let the Deputy Secretary
respond with regard to the supervision of the other labs.
Mr. McSlarrow. Like the Ambassador, I'm confident that we
have the right people who get what you just said. The Secretary
has made very clear to me and I've made very clear to everybody
else one of the things that we were not happy with when we came
into office was a lack of line management control.
We've made a number of organizational changes. Obviously,
the most difficult was NNSA, standing up that organization, but
we've made great strides. But it's been true on the other side
of the Energy Department as well; and I know exactly who to go
to and who's responsible for these kinds of decisions. The
President, through his management agenda and what we've done in
terms of contract management, have made a number of changes
that lead me to be very confident. That's not to say we're not
going to have any problems. But if you're going to have
problems, you've got to identify them early, and you have to
fix them. You've got to know who's responsible, and I think
we're well on our way to achieving that.
Mr. Greenwood. The Chair recognizes the gentleman from
Florida for 10 minutes.
Mr. Deutsch. Thank you, Mr. Chairman.
Thank you, Ambassador Brooks, and thank you for your
personal work and your staffs' work on the enriched uranium
issue. I appreciate your help.
Ambassador Brooks, it appears that you and Mr. McSlarrow
think that most of these problems were of relatively recent
origin, even though the DOE Inspector General has been bringing
business control problems to DOE's attention for years. For
example, the Inspector General said in 2000 and 2001 that it
could not sign off on the allowability of costs for Los Alamos.
Where was DOE, where was NNSA at that point in time?
Mr. Brooks. I tried to say in my statement that, in
hindsight, there were a number of warning signs where the
reaction was to deal with the specific problem and not look to
see if it was systemic. And the answer is that, in failing to
look and see if we had systemic problems, we were not where we
should have been.
On the other hand, with the greatest respect, 2001 was a
different leadership team, and so I wasn't there, and I don't
want to try and characterize why people made particular
decisions that they made.
We have been trying to look at this broadly. We have looked
at the past Inspector General reports, and that's one of the
things we discovered, was this pattern.
Mr. Deutsch. Right. I guess the question, though, is that
the IG--this is not the first year that the IG has not signed
off and, you know, acknowledged these problems. And I guess the
question in 2000 and 2001 also is why should we believe that
this year is going to be any different than the prior 2 years?
Mr. Brooks. I don't think you should. I don't think there
is any reason for you to. I think you should wait for a year
and see because you're going to be able to tell by then.
As I attempted to make clear in my opening statement and as
the university has made clear in its discussion, we are
beginning a process. None of the witnesses you hear today will
suggest that we have, ``solved the problems at Los Alamos.''
What we will suggest, I believe, is that we are on the right
direction to solve them with the right management attention and
the right sense of urgency. But as both you and the chairman
commented in your opening statement, it took us a long time to
get here and I think it is going to take us a while to get off.
So I can't speak for failures before I got here. All I can tell
you is that Secretary Abraham has made it very clear to me, Mr.
McSlarrow has made it very clear to me that he doesn't expect
us to fail this time. And I spent a long time in the military.
I understand direct orders very well.
Mr. Deutsch. Right. Appendix O agreed to in 2000 which was
supposed to fix all problems included a provision that the Vice
President of Management was supposed to implement best business
practices in support of core mission requirements. We didn't
find any evidence that Dr. McTague made any attempt to do this,
nor do we find any evidence that DOE followed up on this
requirement. Can you explain the response--your response of
allowing the university's activity or no follow-up on this
issue?
Mr. Brooks. I think you've just quoted my statement, sir.
That's exactly the problem, that neither the university nor we
followed up on that part. And I can't explain it. I mean, in
hindsight, knowing where we are now, we should have been more
vigorous on that. We were focused--in our minds, on the
problems that led to Appendix O were primarily in other areas,
and that's where we focused.
I think the lesson that you get out of this is that high-
level attention tends to fix problems. We focused on problems
of security, and largely those problems have improved. We
didn't focus on business services.
The idea of the new model of oversight is to make sure we
focus on everything. One of the things we have to do that we
have not yet done that is alluded to in our report is look to
see whether we need to change the contract, including Appendix
F, to make sure we don't fall into that trap again.
Mr. Deutsch. Okay. I think this is a really different
question, and I'm just trying to get to the same failures that
occurred. Can you explain to us why DOE didn't seem to care
about the lack of independence of the lab's auditors and its
failure to complete literally hundreds of audits on time?
Mr. Brooks. No, I can't explain that, sir. And let me tell
you what I can say. As you know, while it's a matter of some
dispute in terms of cost allowability terms, the Inspector
General has consistently found that the audit function at the
lab was ineffective. The university has found that. I cannot
explain now, of my own knowledge, why we didn't stumble on that
fact earlier. I mean, in hindsight, it's glaringly obvious; and
I can't explain why my oversight didn't find that.
Mr. Deutsch. All right. Thank you.
Mr. Greenwood. The Chair recognizes the gentleman from
Oregon for 10 minutes for questioning.
Mr. Walden. Thank you very much, Mr. Chairman.
Ambassador, you've recommended that Los Alamos contract not
shift between science and--not be split, I mean, between
science and management. My understanding is that there are
other national labs like Oak Ridge and even Hanford out in the
Northwest, for example, that have managed to sever significant
portions of their management responsibilities among different
contractors. Why is it that you've rejected that concept out of
hand at the beginning? Or Mr. Secretary.
Mr. McSlarrow. If I could just--because I'm much more
familiar than the Ambassador with those other sites. I would
say while the site may actually have some different
contractors, when you look at a lab and the facility that's
doing the science there they do have a contractor who has
integrated business and science. So what's different about Los
Alamos, for example, is it's the same contractor at the same
site and all the missions are all there. As you well know, at
Hanford and sites like that, you've got a lot of different
things going on. At least for the Los Alamos lab it is
integrated.
Mr. Walden. But you don't think that could happen. You
don't think it makes any sense to look at----
Mr. Brooks. No, because the mission is so integrated at the
lab, I don't. And I do believe, as I tried to say in my opening
statement, that if the problem is that science and business
services are not connected, you don't solve that problem by
having them report to different people. You solve that problem
by having the people they report to value both of them as the
interim laboratory director does now and then by having the
overall management be somebody who has expertise in both of
them.
Now our report, in urging the university to compete for the
contract, acknowledges that it may want to bring in some kind
of partner. But that's a decision for the future. So I don't
mean to reject drawing on outside expertise, but these are at
the macro level single mission laboratories, and I think they
need to be run by a single person.
Mr. Walden. All right. In your statement, apparently to
committee staff, you said you were trying to work around the
problems related to the costs of bidding on a project the size
of Los Alamos and that you wanted all the entities who bid to
be on a level playing field. I've heard estimates that it may
cost as much as $25 million to simply bid on this contract. Is
that an accurate number, a ball park number and how would you
work around that?
Mr. Brooks. That is a higher figure but not dramatically
higher than estimates I have heard. I've heard numbers more
like 10. But large procurements are very expensive. We believe
that it is possible to find the mechanism which would allow the
university to compete without--the university's operation of
the lab financially has all been on a cost-neutral basis.
Mr. Walden. I understand.
Mr. Brooks. The State doesn't make any money off of it. The
State doesn't spend any money. The current rules on what the
university can use retained earnings for were drafted in an era
when, as several of your colleagues stated, there was a de
facto assumption that this was going to go on noncompetitively
forever.
We believe that it is quite possible to modify those rules,
but when you're dealing with things that involve procurement
regulations and law, I really am reluctant to get into any kind
of detail in an area in which I lack expertise.
One of the reasons I want to start now is to make sure
that, on the one hand, I'm positive I can do this. But I can do
it in a way that is both seen and actually is fair to both the
incumbent contractor and somebody else who wants to do it. A
level playing field means just that to us.
Mr. Walden. I guess as I read some of the information here
today from--I think it was the Secretary, perhaps, and the
documentations or the memorandum from the Deputy that I just
wondered, if I'm a university taking a look at this or some
other group taking a look at this contract, do you think what's
written here basically says that the University of California
has done a great job or a good job, has addressed the
management problems--I mean, I read that in here--and should be
encouraged to reapply? Would those be words of discouragement
to anybody else taking a look at it if, in fact, they have got
to also roll the dice on maybe $10 million or more? I mean, is
it a----
Mr. Brooks. Well, they're not intended to be.
Mr. Walden. But if you were an outside person looking at
this and read that----
Mr. Brooks. But it is true, sir, that while we need someone
who can run--as the Chairman said, and can make sure the
taxpayers' money is being spent efficiently, this is big
science. This is enormously complex science. We are dealing
with conditions in the nuclear world that don't exist in nature
except on the sun, and so you need someone to understand how to
run big science. That doesn't mean it has to be the University
of California. It doesn't even mean it has to be a university.
But it does mean that people who don't understand how to run
big science are not likely to be appropriate competitors.
We intended those words to make it clear that the deck is
not stacked in either direction. But we also intend them to say
that we'd like very much to have the university in the mix
because, if the university prevails, that's good. If the
university doesn't prevail, it will be because somebody is even
better at mixing, running big science and running as a wise
stewardship the taxpayers' money; and then that's good for the
country, too.
Mr. Walden. Is it your view then that the university system
has done the job on the science side?
Mr. Brooks. Yes, sir.
Mr. Walden. Has had some management issues that they need
to address and maybe have addressed now?
Mr. Brooks. Well just as with me, the jury is still out on
the permanence and efficacy of the reforms. I don't think, and
I'm pretty sure that my university colleagues will say this,
nobody should believe that when we walk out of this hearing
today, the effort to put Los Alamos back on the management
footing it should be on is over. We need to be vigilant. The
university has given every indication that they intend to be
vigilant. But I do believe--for the very reason that we didn't
recommend termination, the university has certainly shown that
it has the capability and the assets and the desire to deal
with these problems, and I do not want to preemptively cut the
Nation off from having that in the mix in 2005.
Mr. Walden. As you prepare the Los Alamos bid, how far down
the management structure at the lab do you expect potential
bidders to go?
Mr. Brooks. I don't have the foggiest idea, and I don't
mean to be flip about that. In the normal course, we would be
having the discussion of whether to compete next year, and then
we would be working on the details. And so what we have decided
is to move that decision forward by a full year, decide how we
are going to compete so that we have plenty of time to work out
the details.
Mr. Walden. You have 30 months before the next contract
expires. I am sure you don't want a lapse in the science and
activities at the lab?
Mr. Brooks. No, sir.
Mr. Walden. How far down do you go, and when do you
contract out?
Mr. Brooks. We have only a single example, and if you look
at Sandia Laboratory, when the contractor there changed, there
were replacements sort of at the senior manager level, but at
Sandia, like at Los Alamos, like at Livermore, people rise up
primarily in the science, and for that matter in the business
area, and so most of the people were retained. It is a
customary thing in large procurements in this Department and in
others that the overwhelming majority of the workforce would be
retained, and particularly important in the nuclear weapons
area because there aren't any substitutes. But I can't answer
that, but if you look at 8,000 employees at Los Alamos, the
percentage is going to be--who I would expect to change--
regardless would be small.
Mr. Walden. When do you think the contract would be ready
to put out for bid?
Mr. Brooks. Well, based on history, you would expect that
late in 2004 right near the end of the year, you would issue an
RFP. You would expect that you would receive bids in the spring
of 2005. You would expect that you would then, you know, make--
the Secretary would make a decision so that you had time for an
orderly transition.
Mr. Walden. That gives you time for that orderly
transition?
Mr. Brooks. That is historical evidence. At the moment I
have no reason to assume that this will be anything other than
on a comparable schedule. But I don't want to misstate the
amount of thought we have given to those details. We focused on
the question of whether, and we recognize we need to get
started to get the criteria right. But in terms of the
mechanical process in preparing an RFP, that is a year from now
at least.
Mr. Walden. I have overrun the clock. Thank you very much,
Mr. Chairman.
Mr. Greenwood. Chair thanks the gentleman, and the Chair
recognizes the gentleman from Michigan Mr. Stupak for 10
minutes.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Brooks, you talked about the big science, and I agree
they do wonderful work down there and brilliant work, but what
is it in big science that prevents us from properly handling
computers with classified information on? Why would big science
prevent us from--just lose them, we can't find them?
Mr. Brooks. It wouldn't, and it shouldn't, but it has. It
is not that the science prevents it. It is a focus exclusively
on science as what is important.
Mr. Stupak. Then why not split it? If we want to focus
exclusively on science, why not have a contract for science,
and why not have a contract then for management so we don't
have these problems?
Mr. Brooks. Because I believe that it is not practical to
split it, that at some level----
Mr. Stupak. Then how do you get big science to understand
that, as it says in the OIG report, thefts of laptop computers
have to be reported. How do you get science to do it, then, if
you're not going to break it up and bring in a different type
of management style?
Mr. Brooks. You get science to do that by making it clear
that there are consequences for failure. The university has
done that at the top, and the Director is trying to implement
that culture.
Mr. Stupak. What are the consequences? We have been doing
this since the late 1980's when Mr. Dingell was chairman. We
have been on these labs to clean this up, and it is now about
14 years later. What are the consequences of failure? What I
heard so far today is, I can't talk about what happened in the
past because we have a new program coming. How many new
programs do we start and stop? It seems every hearing we have
here, and I have been on this committee now for 10 years, we
have a new program that is going to clean this up. That program
fails, so when we get the witnesses come back, we can't talk
about it, those are the past failures. Where is the
responsibility here?
Mr. McSlarrow. Can I respond? The responsibility resides
with the Secretary first and foremost, and with me as the chief
operating officer. And what's different, Congressman, is over
the last year as these problems surfaced, first we made clear
to the university that people had to be held accountable. They
agreed. They made sweeping management changes at the
laboratory, and now we have announced this decision, two things
that never happened before. So it is now a new ballgame.
Mr. Stupak. What sweeping changes in the laboratory
management? You have a new Director.
Mr. McSlarrow. New Director and new Principal Director, and
almost every top officer out there has been replaced.
Mr. Stupak. And we were out there in January, myself, the
chairman, a bunch of us, and, you know, the top people say
that, but when you talk to the people who are doing the real
work, it's just going to be more of the same. It is more like,
we won't let this person or--I mean, when you have things like
computers that are stolen or missing, and it says right here
that they're required to do it, it's all in this OIG report,
and no one does it, it tells me that there is a culture there
that has to be changed, and I don't see it changed.
Mr. McSlarrow. I couldn't agree more, and people have to be
held accountable.
Mr. Stupak. Are you going to hold yourselves accountable?
Mr. McSlarrow. Absolutely.
Mr. Stupak. What are the consequences if it doesn't work?
Mr. McSlarrow. If we fail, we leave.
Mr. Stupak. So my impressions from your answers to Mr.
Walden and Mr. Brooks is U.C. is going to be allowed to compete
on this contract in 2005?
Mr. Brooks. Yes.
Mr. Stupak. And to use your words, they have many
advantages over other bidders. So they already have a leg up in
the bidding process.
Mr. Brooks. I did not intend to say many advantages over
other bidders, because that's a question for the competition.
Mr. Stupak. You said they have many advantages.
Mr. Brooks. That have brought value to this laboratory.
Mr. Stupak. Will that value then be in bonus points or
extra incentive to award the contract back to U.C.?
Mr. Brooks. I don't know that. The reason that the report
the Secretary has directed us to start is that--that is a
complex question that I need to work on. The reason we're going
to start on the criteria now a year before we would is to make
sure that we do things that are equitable and fair and----
Mr. Stupak. I also thought you said--and again, you didn't
submit your testimony, so I am going from what I heard--you
said U.C. could not have done more to change things here.
Mr. Brooks. That's a quote out of our report, and I believe
that to be correct.
Mr. Stupak. Well, it's been about 14 years, and they
haven't changed anything. Why is it suddenly now going to be
just peachy?
Mr. Brooks. I don't know that it is. What the report says,
and what I was quoting in my testimony, in my oral statement,
was that since December it is difficult to see how anybody
could have done more or acted more vigorously than the
university has.
Mr. Stupak. Since December of----
Mr. Brooks. 2002.
Mr. Stupak. So for the last 4 months they have been doing
pretty good.
Mr. Brooks. And our assessment is that--the university is
fully capable of speaking for itself, but our assessment is
that since President Atkinson realized that the problems were
severe, he has been vigorous and has directed and thrown a lot
of the university resources in. And in fact, it is difficult to
see what else anybody could have done--that doesn't alter the
fact that we shouldn't have gotten into the problem. That
doesn't alter the fact that you make about a long time. That's
one of the reasons the Secretary has made a decision to
compete.
Mr. Stupak. We have thrown a lot of resources in the last 4
months, and things are looking pretty good. What are the
vigorous actions that U.C. has undertaken to make sure this
stops and it gets improved here on out? What are the vigorous
actions?
Mr. Brooks. I think that President Atkinson and Senior Vice
President Darling will provide you some details, but let me
just suggest some: The permanent subordination of the auditor
to the university and the repeal of an internal procedure
sometimes called the loyalty oath, which could have confused
auditors in thinking that they were supposed to worry about
reputation rather than fact; the near full-time presence of the
university auditor despite his other responsibilities in Los
Alamos to supervise the reorganization of the auditing
function; the bringing in of Price Waterhouse to do a massive
audit; the bringing in of an outside team headed by a former
inspector general to do a massive audit of purchase cards; the
20 full-time Ernst and Young employees that have been brought
in to conduct a detailed management review.
Mr. Stupak. That's all fine, but when we were here in
January, they gave us the same line when we asked the simple
question, well, can you tell us how many computers have been
missing, and they couldn't. They couldn't say, according to our
records so many computers were purchased in the last year, but
where they are now, we don't really know. What good is an audit
if you can't verify things that are supposed to be there?
Mr. Brooks. I believe we have the first ever, certainly the
first in a very long time, complete physical inventory of every
piece of controlled equipment, a process which is now 90
percent complete and has not been done, to the best of my
knowledge, at any national lab to precisely get to the question
of whether or not the records match the reality.
Mr. Stupak. Do you have a timetable as to when, in your
mind, this thing is supposed to be--we have got 4 good months
in--is there a timetable like by the end of the year where
things have to be improved or heads are going to roll?
Mr. Brooks. The inspector general when he testified before
this committee said somewhere between 6 months and a year would
be the right time for this committee to look again and see
whether we have been able to sustain this. That's a reasonable
estimation.
Mr. Stupak. If the chairman holds a committee hearing next
January, January 2004, and things aren't going well, and we
still have missing computers, classified computers, it's my
understanding that you guys are going to resign?
Mr. Brooks. Actually the way I read the Secretary's letter,
I may not have to. The Secretary has directed me to keep him
informed in his tasking back to me, and I didn't read that as
bring him excuses. So I don't know whether we are going to
resign. It depends how bad things are. But I know the Secretary
does not take responsibilities lightly, and he has been pretty
clear that he expects this to get better.
Mr. Stupak. Like I said, this has been going on since the
late 1980's. Are you talking about all these audits? We have
had these before. You talked about this loyalty oath and all
that. That is all fine and dandy, but I don't see any of that
changing the problems at Los Alamos. I really don't see it. I
don't see how it gets back anything. You have reports in here
where two computers used to process classified information were
missing for 1\1/2\ years, and no one even says anything about
it.
Mr. Brooks. In that particular report, we need to
distinguish problems here. One of the problems with Los Alamos
is they have multiple unconnected systems.
Mr. Stupak. The distinguished problem to me is basically
saying this is the reason why it happens, and we give them an
excuse, and then we let them off the hook, and then we go on
and we are back again in another year going through the same
old, same old, same old since late 1980's, and it's got to stop
or change until people are held accountable.
Mr. Brooks. I don't disagree with that. What I was
attempting to point out was you have to make sure you
understand what the real problem is so you can fix that,
otherwise we won't know if we have fixed the problem.
Mr. Greenwood. The time of the gentleman has expired.
The gentlelady from Chicago Ms. Schakowsky is recognized
for 10 minutes.
Ms. Schakowsky. Thank you, Mr. Chairman.
For me it is deja vu all over again, as Yogi Berra said. I
was the ranking member on the Government Efficiency
Subcommittee of the Government Reform Committee, and Chairman
Steve Horn and I had a number of hearings. In this case we were
looking into practices at the Department of Defense, and again,
when the GAO or the IG took a look, they found persistent
problems wherever they looked. And in fact, the inspector
general of the Department of Defense said that the Department
cannot accurately track--accurately track $1.2 trillion in
transactions. That is not to say all of it's lost, we just
don't know, can't match it up. And then we looked at purchase
cards in various departments and branches of the government,
and we found the same thing.
And so when you say there's just a few people because most
people are honest, I would agree with you. But there's just a
few people here, a few people there, a few people there, and I
would also posit that everywhere there are those people, and if
a culture isn't in place and systems aren't in place, those few
people are going to continue to take advantage of a situation.
So I would not be sanguine about the notion that we are just
talking about a problem at Los Alamos with a few people, and
that we better take a look everywhere.
But let me get down to my specific questions about the
situation that we are facing here. My understanding is that
there is a FY--there are new--I am looking at an fiscal year
2003 performance standards now and that they represent a
completely different approach to performance standards; is that
true?
Mr. Brooks. Right.
Ms. Schakowsky. And that the University of California's
performance fee is based now on attaining these objectives; is
that correct?
Mr. Brooks. Correct.
Ms. Schakowsky. And that these objectives are very mission-
oriented, and the mission is defined as providing good science
and technology; is that correct?
Mr. Brooks. Correct.
Ms. Schakowsky. Well, I want to ask you today then, because
we are talking about performance standards for 2003, why only 1
of the 40 objectives addresses all of the procurement, auditing
and business control problems that we're discussing today? I'm
looking at performance measure 8 under operations, and this is
the only one that directly addresses this problem, implement
effective controls and business systems by assessing existing
controls and, where needed, strengthen controls to ensure
effective stewardship of public assets.
Mr. Brooks. I think you raise a perfectly valid point. Let
me put it in context and tell you what I'm going to do. In the
report that we submitted to the Secretary, we alluded to the
fact that we might require some contractual changes now to make
sure that these reforms that have started continue. We didn't
specify what the changes are because we need to discuss it with
the site, with the laboratory and with the university. One of
those contractual changes might well be to give greater
visibility to this in the performance objectives. At the
moment, for obvious reasons, business services has very high
visibility and great attention for the leadership of the
laboratory, the university and the Department.
The point of the performance objectives change that you
suggest I should consider and that I had already concluded I
needed to consider is to make sure that it doesn't once again
fall below our radar scope. But I would not accept the view
that the number of times something is mentioned is a necessary
measure of the importance we place on it. One of the reasons we
went to this system was to try and focus on the overall
mission. But----
Ms. Schakowsky. Let me ask you then, have you assigned a
value to each standard?
Mr. Brooks. We have not. And the reason we have not is
because we fear that we will fall back into the trap that led
to the results of an evaluation of excellent business systems
virtually simultaneously with the Secretary's, quote, systemic
management failure. And the trap was that we got stovepiped.
And so what I want to do is I want to be able to focus on
everything.
There's a level of performance--I mean, if you assign the
value to business systems, and you look at the old system, it's
about 15 percent. I don't--since that's the old system, let's
not get into a debate about whether that's the right number,
but the old system did say that 50 percent of the score of the
lab was based on its mission accomplishment, and that's
stockpile, stewardship and science, and any reasonable system
is probably going to weight that very heavily. The problem with
systems that go to specific weighting values is they lead to
the trap where something can be a completely unsatisfactory
element, but it's a small weight.
Ms. Schakowsky. Let me just say I get your point. But,
Ambassador Brooks, I've been told that DOE can't tell us how--
I've been told that we can't know how DOE is going to evaluate
these objectives. The university wrote the objectives. Are we
going to let them decide which ones are important and which
ones aren't?
Mr. Brooks. No. We do this through a series of meetings
between the university, the laboratory senior leadership, my
own senior leadership, including myself, organized by the site
office manager, who in the legal sense is the contracting
officer. The formal responsibility for evaluation falls on the
site office manager, with approval by me, and we're not going
to change that. We're not arguing about who is responsible for
the evaluation, we're arguing about how to go about evaluating
this enormously complex enterprise.
Ms. Schakowsky. Let me get in my final question. The
inspector general just released a report that said that you
can't be sure that you have control of your classified
information because you don't have control of the classified
laptop computers, and yet you state that security has not been
affected by these sloppy business practices. How can you come
to the conclusion of no problems in your report?
Mr. Brooks. The inspector general's report looked at one
particular system, which is a property accountability system.
There's a separate disconnective system that's part of the
stovepiping problem I mentioned earlier that controls
classified material, and that has suggested to us that there is
no compromised classified material.
I would be happy to submit a longer answer--this is a
somewhat complicated issue--for the record.
[The following was received for the record:]
The Department of Energy Inspector General (IG) report
identified 5 laptop computers being used for classified
processing that were not identified on the Los Alamos list of
computers accredited for classified processing. Three of the
identified computers are supporting another DOE organization
and managed in accordance with the requirements of the work
sponsor. One of the laptops was a substitute for an older
desktop system and the procedures for updating the security
documentation and lists were not properly followed. This error
was corrected during the IG inspection at Los Alamos. The IG
report did not identify the specific laptop computers and Los
Alamos has been unable to identify any other laptop that might
have been referenced by the IG team. The IG report identified
one laptop computer listed as approved for classified
processing but lacked a valid property number. This laptop
belongs to another government organization and would not have a
Los Alamos property number. The IG report also identified
several laptop computers that were still identified as
accredited for classified processing but were no longer in use.
These laptops were all in the process of sanitization in
preparation for declaring them as excess property. Removal of
the laptops from the list of accredited systems is the last
step in the retirement of a laptop and is not performed until
the unit is removed from the security area and all information
is sanitized from the system.
Mr. Brooks. The conclusion in the report is also based on a
series of inspections conducted both by the inspector general
and the Office of Independent Oversight late last year. So I
don't want to say there's never--I mean----
Ms. Schakowsky. That's what I want you to say, that there's
never a security problem, and that we know that there isn't,
and because we can't identify where all this equipment is, I
think Americans have a right to have a slightly queasy feeling
about that.
Mr. Brooks. Yes, ma'am. But I believe in this particular
case there is not a problem.
Ms. Schakowsky. Let me ask this in my remaining time. It
appears--and I'm looking at the--on page 2, precipitating
incidents that the problems were not widely recognized outside
the laboratory until the summer of 2002. It seems that you
think that they were of recent origin even though the DOE
inspector general has been bringing business control problems
to the DOE's attention for years. For example, the inspector
general said in 2000 and 2001 that it could not sign off on the
allowability of costs for Los Alamos. So where were you?
Mr. McSlarrow. As these IG reports came in we were
implementing the recommendations of the IG, the purchase card
in particular, at the Department. It was not an IG
investigation at DOE, it was one at DOD which our management
team brought to the Secretary's attention, and he directed late
in the spring of last year the enormous purchase card
investigation that was complexwide. And then the whistle-
blowers came out of that, and we went to the FBI.
When we talk about the precipitating incidents, you are
quite right to suggest----
Ms. Schakowsky. The whistleblowers who were fired you're
speaking of?
Mr. McSlarrow. No. These are different people.
Mr. Brooks. That's part of our problem.
Mr. McSlarrow. Part of the cultural change is that people
believe they can't go to management and tell the truth and be
rewarded, and that's one of the things we have to change from
the Fed side to the contractor side.
To go to your point about precipitating incidents, we are
not suggesting that all of this stuff started with the
discovery of the purchase card problem. What we're saying is
that precipitated the crisis that culminated in the firing of
the two whistleblowers you were just referencing. This is what
we have to change. And I believe with the university's action
in terms of the sweeping management changes, I don't think
there is anybody left at Los Alamos that doesn't get that
people are going to be held accountable today. That's
different.
Mr. Greenwood. The time of the lady has expired.
The Chair recognizes the presence of the gentleman from New
Mexico Mr. Udall, and although not a member of the committee,
is not permitted to ask questions, but we appreciate his
interest on behalf of his constituents.
The Chair recognizes the gentlelady from California, Ms.
Eshoo for 10 minutes.
Ms. Eshoo. Good morning, Mr. Chairman, and my thanks to you
again for the legislative courtesies that you have extended to
me as a member of the full committee, but not a member of this
subcommittee, to participate.
Good morning, both of you, and welcome to the committee.
Let me just get right to the questions. I appreciate what you
have said so far, and I have listened carefully to the
questions of my colleagues on the committee, which are
excellent ones.
The purpose, of course, today of this hearing is to discuss
the decision of the Department that has been made about
recompeting the management and the operation of the lab, and
focusing in on the reasons for the decision, and what exactly
the Department is looking for in seeking a new Administrator of
Los Alamos. So I'm going to stick--I'm going to focus right in
on that.
When you spoke of big science, who is out there that is in
the world of big science that would--in the Department's view
would be in contention for this? Do we have many players in the
country relative to this?
I also want to note, it was a curiosity--excuse me for
interrupting--that the contract with the University of
California was signed April 14, 1943. I was 4 months old--4
months and a day. So there's a long history here.
At any rate, can you address that? And I know--I have a
series of questions. I know I have 10 minutes, which is
generous, and I want to make use of that time.
Mr. McSlarrow. First I don't think we should be in a
position of naming anybody in particular.
Ms. Eshoo. Are there many contenders? Are there 5 or 10?
Mr. McSlarrow. Every university who does big science is
potentially somebody who could bid on this. And I would note at
Oak Ridge National Laboratories and Brookhaven National Lab, we
actually have a combination of a university--in Oak Ridge's
case.
Ms. Eshoo. So there are many?
Mr. McSlarrow. So I think----
Ms. Eshoo. So the Federal Government has many options.
Mr. McSlarrow. Yes, ma'am.
Ms. Eshoo. In setting up for competition, what are the
rules of the road that the Department--having experienced this
chapter with the University of California, what are the new
things that you are looking for, that you will establish? What
is the criteria that will change?
Mr. Brooks. Ma'am, that's too important to shoot from the
hip on, and that's why the Secretary directed that I start now
a year ahead of when you would normally start to work on the
criteria to make sure that they will lead to the result we
want, which is the same good science that we have had, but with
an improvement in the stewardship.
Ms. Eshoo. Would you say that the science--the big science
has been superb, good, mediocre, and that it is the management,
the oversight, the business part of keeping the books and the
management of the personnel and all that goes with that--which
is serious, and I am not diminishing that. We wouldn't be here
today were it not for the things that have happened that
certainly are not defensible, and I would not seek to defend
something that isn't defensible. But is there a bright line
between the two?
Mr. Brooks. Certainly I would say the science at Los Alamos
has been world class, and there are few competitors, and most
of the competitors are other DOE-managed national labs. And as
the Secretary said in his tasking, what we seek is business
that's as good as the science.
Ms. Eshoo. So it's the business management that the
Department is going to focus on?
Mr. Brooks. While preserving the science.
Ms. Eshoo. Most certainly. I assume that for the good of
our country.
I want to move to the two other contracts that the
university has, Lawrence Livermore and Berkeley Labs. Are they
part of this? Do those contracts expire in 2005? Are they
negotiated at the same time? How are those handled?
Mr. Brooks. The Lawrence Livermore contract expires at the
same time, and although it's a separate contract--two contracts
are essentially identical.
Ms. Eshoo. Are those going to be recompeted?
Mr. Brooks. Our report says that there's no need to make
that decision now because we're making a decision to compete a
year ahead of when we would normally make it because of
problems we believe to be unique to Los Alamos. Because those
problems do not now exist at Livermore, our report says, and
the Secretary has agreed, that there's no need to make the
decision with regard to Livermore at this time. And that
decision----
Ms. Eshoo. Let me understand this. The Secretary is
implying or has stated that those will not be recompeted?
Mr. Brooks. He's stating he doesn't have to make a decision
on that today. And what our report said was there's no legal
reason why you couldn't extend Livermore and compete Los
Alamos. That's not saying that is a decision. They're saying
there's no legal reason why we couldn't do that, and there's no
policy reason why we have to make the decision now.
Ms. Eshoo. If you're going to open something up for
recompetition, you have to prepare for that.
Mr. Brooks. Yes, ma'am. But normally that would all start
next year. Remember, we're a year ahead of schedule. So that's
a decision we haven't made because there's not a need to make
it.
With regard to Berkeley that's not a lab under my
responsibility.
Mr. McSlarrow. We're in the process of extending that
contract right now. So it's a matter of contract negotiation,
but that decision has already been made.
Ms. Eshoo. What role will the Department play in the
timeframe leading up to recompetition to make sure that the
reforms that you have already described--and I don't need to
reiterate that because that's already part of the record--what
role will the Department play to make sure that these reforms
are sustained? What are you doing?
Mr. Brooks. Two things. First, in terms of the competition
itself, that's the reason why I need to start on these criteria
right now, to figure out how to get the criteria to maximize
the chance of getting them right.
Second, as I described earlier, we have altered the
oversight approach used by the National Nuclear Security
Administration, and we intend to push very vigorously to make
sure that that approach achieves what it is expected to
achieve, which is more effective oversight that looks at the
entire lab.
Ms. Eshoo. I'm not so sure I know what that description
means in terms of having legs on it, but I accept what you're
saying.
Has the Department itself taken a good hard look at itself
to see where it may have failed in its oversight?
Mr. Brooks. Yes, we have, although not as a direct result
of Los Alamos. As a result----
Ms. Eshoo. I would like to suggest that that be the case.
And I say that because this a marriage.
Mr. Brooks. Yes, ma'am.
Ms. Eshoo. It's a marriage. And in marriages, as we know,
it's not just up to one person. Certainly the University of
California bears responsibility in this, and the Congress has a
responsibility in terms of its oversight, taxpayer money. I
don't have to go into all of that. We have had many hearings on
that. But I also think in the executive branch that the
Department of Energy and those that are--if you're responsible
for setting up the criteria and letting a contract, that you,
too, have a responsibility in this marriage. So I think that we
need to bring balance to this. And I think it's very important
for the Department to weed through what it does, how well it
does it, what the steps are that you take, and that you report
back to the Congress in this. It's a real opportunity, I think,
for the Department as well.
Mr. Brooks. Yes, ma'am. I agree with that completely. What
I meant to say was that we already knew we had that problem,
and we were starting to try and fix it before these incidents
surfaced.
Ms. Eshoo. What did you identify was the problem?
Mr. Brooks. The problem within the National Nuclear
Security Administration was the lack of clarity on roles and
responsibilities, duplication and too many layers of
management. As a result, in December we eliminated a layer of
management and centralized responsibility for oversight in site
office managers.
Ms. Eshoo. There's something from the inside of the
Department just as there has been--as we have examined the
culture that we've called it at Los Alamos, this has spanned a
long period of time. This is not Democrats. It's not
Republicans. This is something that has been more than an
irritant inside of DOE and those that are responsible, and
that's why I raise it.
I see that the clock is ticking away, and I thank you both
for your testimony today.
And again, Mr. Chairman, I thank you for the courtesies
that you have extended to me.
Mr. Greenwood. The Chair thanks the gentlelady and
recognizes the gentleman from Massachusetts Mr. Markey for 10
minutes.
Mr. Markey. Who in the DOE was responsible specifically for
the oversight of Los Alamos?
Mr. Brooks. When you say was----
Mr. Markey. Or is.
Mr. Brooks. Me.
Mr. Markey. You are?
Mr. Brooks. Yes, sir.
Mr. Markey. How long have you had that job?
Mr. Brooks. Since last summer, sir.
Mr. Markey. Who had the job before you?
Mr. Brooks. General John Gordon.
Mr. Markey. Was there anyone under him who had the specific
responsibility?
Mr. Brooks. Specific responsibility I want to distinguish
between now and then. Now, under my supervision, the immediate
responsibility is Mr. Ralph Erickson, who has appeared before
this committee, he is the site manager of the Los Alamos site.
Before December of last year, responsibility was fragmented
between Mr. Erickson and the manager of what was then called
the Albuquerque Operations Office, and there was some ambiguity
about who was responsible in headquarters.
What we did in December was to clarify responsibilities by
putting the authority and responsibility in the hands of the
site manager, having him report directly without any
intervening layers. So that's why I stress ``was,'' because the
answer is different today than it was during the period when
these problems were developing.
Mr. Markey. Is anyone who was responsible before you took
over still on the job?
Mr. Brooks. Well, I mean--site officers.
Mr. Markey. Who is in a position to have known what the
problems were, did not correct them, and, subsequent to your
taking charge, remained in place?
Mr. Brooks. I think the answer to that is no, but I don't
want to suggest it's because we did some kind of house
cleaning. I mean, we abolished a layer of management, and those
people have gone to do other things. Mr. Erickson himself was
only assigned to the Los Alamos site last summer.
Mr. Markey. Let me move to the case of Dee Cotler, who
worked for Livermore until 1997 when she was fired after she
testified that she had witnessed sexual harassment at the lab.
The lab said she hadn't been retaliated against, but rather was
fired for improperly using her telephone and her computer. It
turned out that she made a whopping $4.30 worth of personal
calls. That's what she's being persecuted for. She sued, and
she won a million dollars. The university appealed. She then
asked for her legal fees, about $700,000, to be paid by U.C.,
and she won that as well.
The University of California continues to appeal. The
university has run up at least $800,000 in legal fees fighting
this case for 6 years, bringing the grand total to $2.5 million
all supposedly because of a $4.30 telephone call, and so far
that's the only charge against her. And she has to live every
day of her life trying to explain why she was fired, and that
makes it tough in terms of her prospective employees.
DOE actually reimburses more than 95 percent of all legal
fees incurred by its contractors, including those incurred in
the case of Dee Cotler. Would you agree taking a hard look at
procedures and standards that DOE uses to determine whether
contractor legal fees should be reimbursed would be a good
idea?
Mr. Brooks. Certainly. I would be happy to take a look at
it. I am not sufficiently familiar with the specific case,
however, to comment on that case now. But the basic principle
of looking at what legal fees are reimbursable, I would be
happy to look at that.
Mr. Markey. You have never heard of the case?
Mr. Brooks. I have heard of the case.
Mr. Markey. You have never reviewed this case?
Mr. Brooks. I have not reviewed this case because I regard
it as an issue between the university and a former university
employee, so I have not personally reviewed the case.
Mr. Markey. You're saying that as the person in charge,
knowing that $2.5 million has already been expended by the
university on a $4.30 phone call, that you haven't looked at
that yet?
Mr. Brooks. Yes, sir. That's what I said.
Mr. Markey. Well, I don't think that's good. This seems
like a pretty big expenditure, and especially if it sets
precedent or it's just a continuation of precedent in terms of
a disproportionate response to something which seems to me to
be very suspicious, you know, to punish a whistle-blower.
Mr. Brooks. Your point is well taken, and certainly the
point about not punishing whistle-blowers, I think there's no
question about the Secretary's or the Deputy's or my view that
that is unacceptable. I need to look into this case.
Mr. Markey. It is very troubling to me, to be honest with
you, sir, that someone who basically came forward on a sexual
harassment case is in turn, you know, punished for a $4.30
phone call, and the bill has run up to $2.5 million, and you
haven't looked at the case yet after a year on the job. From my
perspective, it just seems to me that this would jump out as
one of the 5 or 10 things you would have to look at, you know,
to make a determination as to whether or not there is a
systematic attempt here to squelch whistle-blowers from
identifying problems in the management of the facility. So why
wouldn't you have--since you say you are familiar with the
case, why wouldn't you have spent a little more time on it
trying to find out whether or not $2.5 million----
Mr. Brooks. I obviously don't have as good an answer as I
would like. I thought of it as an old case being handled in the
legal system, and I had no evidence that it was part of a
systemic problem at the laboratory, but you make a good point,
and I will look at it, sir.
Mr. Markey. You don't think it is sufficient evidence in
and of itself that someone who makes a charge of sexual
harassment, is basically upheld, you know, by the facts in the
case, and then subsequently is brought under a 6-year withering
assault that ultimately costs $2.5 million over a $4.30
personal phone call is a big indication of mismanagement or
cover-up at the labs?
Mr. Brooks. Once again, you correctly point out that I
should have looked at it, and I will, but since I haven't, I am
not in a position to comment.
Mr. Markey. During the Energy and Commerce markup, Chairman
Tauzin and Chairman Greenwood and Mr. Barton and I worked out
some language that would limit the reimbursement of legal fees
to its contractors in cases where the contractors lose a
whistle-blower case. The contractor would have to pick up the
tab for future appeals unless the adverse ruling is overturned
in the end. The point was twofold. First, it creates a
financial incentive for contractors to settle the case. And
second, it potentially saves the taxpayers a lot of money.
Do you agree with those provisions as described and as
they're now included in the energy bill that's left the House
of Representatives?
Mr. McSlarrow. We'd have to give you an exact answer on the
wording, but in the spirit of what you have just described, I
don't think we would have a problem with it at all. And we have
made it clear to other contractors when they've done things
wrong and they had to pay for it, we're not going to reimburse
them for that. I don't think that's any different than what you
described.
Mr. Brooks. And I would point out that the university has
preemptively--as I said, I am not familiar enough to comment on
the case, but in the Los Alamos incidents, the university has
said it will not seek reimbursement in several cases where
there's no particular evidence that there's been wrong, but the
records are sufficiently sloppy that you can't tell. But the
principle that you established is a perfectly sound one.
Mr. Markey. Is it your belief, Ambassador Brooks, that the
science being done at other DOE labs such as Sandia and Oak
Ridge is inferior to that at Los Alamos and Livermore?
Mr. Brooks. No. I think the science at all the national
labs is a national treasure. I am most familiar with the work
being done at the three weapons labs, and I have steadfastly
resisted any attempt to rank the quality of the science because
it's all very, very good, and it's all somewhat different.
So, no, I don't contend that only Los Alamos and Livermore
do good science. I contend they are among the people who do the
best.
Mr. Markey. Do you think that scientists will leave Los
Alamos if the contractor is changed?
Mr. Brooks. I hope not. I am concerned with the possibility
of large-scale retirements, but I believe that with this much
time, we can make sure that the competition is such that
individuals don't feel that they have to leave. If the new
contractor or the renewed contractor both preserves the spirit
of scientific inquiry, which is an important part of what the
university has brought, and if, as is customary in these
contracts, we require that the workforce--since there really
isn't an alternative to this workforce in many areas--is
retained, I don't think it is certain that people will leave. I
think it is a danger, and we are working hard to make sure that
people understand that the competition is about making Los
Alamos better, not about changing its scientific character.
Mr. Greenwood. The time of the gentleman has expired.
The Chair thanks the witnesses for your testimony and your
cooperation. We look forward to seeing you in 6 months to a
year from now. You are excused.
The Chair calls forward our next witness, the Honorable
Gregory H. Friedman, inspector general at the U.S. Department
of Energy.
Welcome, Mr. Friedman, and thank you for being with us.
You're aware this is an investigative hearing, and it is the
practice of this subcommittee to take testimony under oath in
these circumstances. Do you have any objection to testifying
under oath?
Pursuant to the rules of the subcommittee and the House you
are entitled to be represented by counsel. Do you choose to be
represented by counsel?
Mr. Friedman. No.
Mr. Greenwood. Raise your right hand.
[Witness sworn.]
Mr. Greenwood. You are under oath, and are recognized for 5
minutes for your opening statement, sir.
TESTIMONY OF GREGORY H. FRIEDMAN, INSPECTOR GENERAL, U.S.
DEPARTMENT OF ENERGY
Mr. Friedman. I am pleased to be here at your request to
testify on the Office of Inspector General's reviews of
management practices at the Los Alamos National Laboratory.
As you are aware, yesterday the Secretary announced his
decision to retain the University of California as the operator
of the laboratory through the end of the current contract in
September 2005 and to open management of Los Alamos to full
competition when the contract expires. In reaching this
decision, the Secretary adopted a series of recommendations
made by the Deputy Secretary and the Acting Administrator for
the National Nuclear Security Administration. As was noted in
yesterday's announcement, recent reviews completed by the
Office of Inspector General were considered as part of the
decision process. I would like to briefly discuss two of these
reviews this morning.
At the request of the National Nuclear Security
Administration, the Office of Inspector General reviewed the
allowability of the $5.2 billion charged to the contract for
the last 3 fiscal years, and we evaluated related internal
controls. Based on the audit, we questioned $14.6 million in
potential unallowable costs, including the following: $3.7
million for working meals that were inconsistent, in our
judgment, with acquisition regulations; $7.4 million for travel
in excess of contract limits; and $3.5 million for an internal
audit function that did not, in our professional judgment, meet
Department requirements.
Additionally, the Office of Inspector General conducted
reviews focused on accountability of laptop computers at the
laboratory and found inadequate internal controls over
classified and unclassified laptops. For example, laptops
reported as unlocated were written off the laboratory property
inventory without a formal inquiry. Thefts of computers were
not always reported to the appropriate laboratory security
office. In at least two cases, laptops were being used to
process classified information even though they were not
accredited to do so. And some computers were accredited for
classified processing, but were not on the laboratory master
property inventory list.
These Office of Inspector General reviews, as well as
several others noted by the Deputy Secretary and the Acting
Administrator in their report to the Secretary, disclosed
significant internal control weaknesses in the laboratory's
management systems. Our recent work at Los Alamos and other
Department locations has led us to develop a list of lessons
learned that we believe can serve as a path forward as the
Department works to strengthen its management practices in the
administration of its major contracts.
Specifically, in our view, the Department needs to ensure
that its contractors establish robust, effective and reliable
business systems; promote contractor governance models that
adequately protect the Department's interests; foster a culture
where contractors fully understand and honor the special
responsibility associated with managing taxpayer funds at
Federal facilities; promote an environment where both Federal
and contractor employee concerns can be raised and addressed
without fear of retaliation; develop quantifiable, outcome-
oriented metrics and maintain a system to track critical
aspects of contractor performance; and finally, to rate and
reward contractors commensurate with their accomplishments.
Given that contract administration has been a significant
longstanding challenge to the Department of Energy, the Office
of Inspector General will continue to evaluate the Department's
progress as it works to address this issue.
Mr. Chairman and members of the subcommittee, this
concludes my statement. I will be pleased to answer any
questions that you might have.
[The prepared statement of Gregory H. Friedman follows:]
Prepared Statement of Gregory H. Friedman, Inspector General, U.S.
Department of Energy
Mr. Chairman and Members of the Subcommittee, I am pleased to be
here at your request to testify on the Office of Inspector General's
(OIG) reviews of management practices at the Los Alamos National
Laboratory (Laboratory).
In February of this year, I testified before this Subcommittee
regarding our Special Inquiry report on Operations at Los Alamos
National Laboratory (DOE/IG-0584, January 2003). That report noted a
series of actions taken by Laboratory officials, which obscured serious
property and procurement management problems and weakened relevant
internal controls. In March, I testified before the House Committee on
Government Reform on the Department of Energy's (Department) contract
administration activities, including the need for the Department to
more effectively manage certain aspects of contract operations at Los
Alamos.
In light of criticism regarding internal control weaknesses at the
Laboratory, the National Nuclear Security Administration (NNSA)
requested that the OIG perform an audit of the costs incurred by the
Laboratory for Fiscal Years 2000 through 2002. Today, I will discuss
the results of this review, as well as our recent report on computer
controls at the Laboratory. Based on the record developed from these
and previous reviews, we concluded that the business operations at the
Laboratory have not been given adequate attention. This conclusion is
consistent with the findings of a series of reviews commissioned by the
University of California (University), the Laboratory's operating
contractor.
COSTS CLAIMED AND RELATED INTERNAL CONTROLS
Consistent with NNSA's request, my office sought to determine the
allowability of the $5.2--billion charged to the contract for the last
three fiscal years and to evaluate relevant controls. Our report,
University of California's Costs Claimed and Related Internal Controls
for Operation of Los Alamos National Laboratory (DOE/IG-0596, April
2003), questioned the allowability of $14.6 million in costs claimed
and identified a number of internal control weaknesses.
Questioned Costs
We identified potentially unallowable costs incurred by the
Laboratory between Fiscal Years 2000 and 2002. This included about $3.7
million for working meals that were inconsistent with acquisition
regulations, $7.4 million for travel in excess of contract limits, and
$3.5 million for an internal audit function that did not meet
Department requirements.
The majority of the $3.7 million in questioned meals was provided
by the same contractor that provides services to the Laboratory's
cafeteria. The remainder was for meals at restaurants in Los Alamos,
Santa Fe, and Albuquerque, New Mexico. In our judgment, the number,
frequency, and apparent routine nature of most meals provided indicated
that the Laboratory was not exercising care to distinguish situations
when working meals truly were in the Government's best interest. In
addition, the Laboratory had a more restrictive policy for using
University funds, than for using Government funds, on meal expenses.
When University funds were being used, the approval of the Director's
office was required, but when Government funds were being used for
meals at the Laboratory, Group Leader approval was sufficient.
The University also charged $7.4 million to the contract for travel
costs that were not in compliance with Federal Travel Regulations.
Travelers were reimbursed for lodging that exceeded established General
Services Administration rates, conference fees that had no accompanying
receipts, and various other costs that were not in accordance with the
Federal Travel Regulations. After the completion of our review, we were
informed that the Laboratory was able to locate additional supporting
documentation that was not available during our audit. NNSA may be able
to use this documentation to assist in making final allowability
determinations. However, the absence of documentation at the time of
our review calls into question the travel claim review process used by
the Laboratory.
Finally, we questioned as unreasonable about $3.5 million charged
to the contract by the University for the cost to operate a Laboratory
audit function that did not meet the requirements of the contract.
Specifically, the function was not organizationally independent, did
not adequately plan and execute its internal audit work, and did not
conduct timely follow-up reviews.
Control Weaknesses
During our review, we noted a series of internal control weaknesses
that contributed to an environment where questionable costs could be
incurred and claimed. These weaknesses related to:
<bullet> The Laboratory audit function;
<bullet> Financial system reconciliations;
<bullet> Payroll and travel approval processes;
<bullet> Financial management personnel turnover; and,
<bullet> Financial system review and approval.
Laboratory Audit Function--A quality internal audit function is
crucial to effective program management. The University contract
required the Laboratory to establish an audit function that was
acceptable to the Department. We concluded that, for the period Fiscal
Year 2000 through Fiscal Year 2002, the Los Alamos National
Laboratory's internal audit function did not meet Department
requirements.
For example, the audit function did not prepare a plan to audit
subcontracts for the three years reviewed, although subcontracting
represented about one-half of the expenses of the Laboratory. Of
particular concern to us was the fact that the Laboratory provided
documentation indicating unaudited subcontract costs of over $1 billion
at the time of our review. Further, for one of the subcontracts that
had been audited, the results of the examination (including $12.8
million in questioned costs) had not been reported to the Department's
contracting officer. Given the dollar value of the subcontracts to be
examined and weaknesses in reporting, we concluded that the subcontract
audit function at the Laboratory needed substantial strengthening.
Financial System Reconciliations--The review also identified
weaknesses in reconciling cost data from the Laboratory's financial
systems. The Laboratory has over 60 feeder systems that provide cost
information to its Financial Management Information System (FMIS). The
University had not established a process to periodically reconcile
costs generated by these systems. University officials told us that
reconciliations could be completed, but only with great difficulty. We
were able to reconcile the payroll system to within $1.4 million of
payroll costs in FMIS and the travel disbursements system to within
$2.3 million of costs in FMIS. However, the absence of a process to
periodically reconcile costs, and our inability to completely reconcile
payroll and travel data, led us to conclude that the costs claimed by
the University could be misstated and the universe of costs subjected
to audit could be incomplete.
Payroll and Travel Approval Processes--The Laboratory also
permitted payments to be made based on electronic signatures of
administrative personnel or, in some cases, subcontractor support
staff. Supervisors made only 15 of the 120 electronic approvals checked
in our sample. The written policy for approvals stated that travel
claims and payroll time sheets required supervisory approval--Deputy
Group Leader and above--using either online electronic signature or
hardcopy signature prior to paying travels claims and salaries.
Although we were able to verify in some instances that hardcopy
signatures did exist, our primary concern was that the Laboratory's
Business Operations Division made payments based exclusively on the
electronic signatures without any process, test-basis or otherwise, to
verify supervisory approval of transactions.
Financial Management Personnel Turnover--During our review we also
noted that there had been substantial turnover in Laboratory personnel
responsible for financial management activities. While we recognized
the challenge of retaining qualified personnel, the fact remained that
excessive turnover left a void in the Accounting Department's ability
to fully understand and execute the interfaces and capabilities of the
Laboratory's financial management systems. In particular, Accounting
had been severely affected, with five of seven managers (71 percent)
having less than one year of experience in their current positions.
Financial System Review and Approval--Finally, the University had
not obtained Department approval for its financial systems. Although
the University's contract required such approval, we found no evidence
that the Department approved the Laboratory's existing financial
systems. Further, the University had initiated a 5year, $70 million
overhaul of its existing system without required Department approval.
Management Response and Corrective Actions
In response to this report, NNSA indicated that corrective actions
had been taken or were planned. Planned actions included improving
controls and conducting a review of the allowability of the $14.6--
million in questioned costs. Although the University took strong
exception to our characterization of questioned costs and internal
control weaknesses, University officials informed us of several recent
changes intended to address weaknesses in the audit function at the
Laboratory. For example, the University reported that it had
established an independent reporting structure for the audit function.
If successfully implemented, the NNSA and Laboratory initiatives should
address the identified internal control concerns.
CONTROLS OVER LAPTOP COMPUTERS
The Office of Inspector General also recently issued an interim
report focusing on accountability of laptop computers at the
Laboratory, Inspection of Internal Controls Over Personal Computers at
Los Alamos National Laboratory (DOE/IG-0597, April 2003). The
Laboratory maintains approximately 30,000 desktop and 5,000 laptop
computers for processing a broad range of classified and unclassified
information. We determined that internal controls over classified and
unclassified laptop computers at the Laboratory were inadequate. Laptop
computers were not appropriately controlled or adequately safeguarded
from loss, nor were they managed in accordance with security
requirements.
The Laboratory's process did not assure that required inventory
controls were followed when new computers were acquired using purchase
cards. During Fiscal Years 2001 and 2002, the Laboratory used purchase
cards to acquire over 1,000 new personal computers. Laboratory policy
identifies computers as ``sensitive items'' due in part to their
susceptibility to theft. Sensitive items should have property numbers
assigned to them when they are acquired, and if the item was acquired
using a purchase card, this number should be entered into the purchase
card database. We found that the purchase card database was incomplete,
in this regard, for 70 percent of the computers acquired during this
period. In addition, laptop and desktop computers were acquired using
purchase cards even after the Laboratory limited such purchases. A
number of other control weaknesses were identified. For example:
<bullet> Laptop computers reported as ``unlocated'' were written-off of
the Laboratory property inventory without a formal inquiry;
<bullet> Thefts of laptops were not always reported to the appropriate
Laboratory security office; and,
<bullet> Laboratory employees were not held accountable in accordance
with Laboratory requirements for the loss of their assigned
Government computers.
The review also disclosed weaknesses in controls over classified
computers. For example, during our review, the Laboratory provided us a
listing of laptop computers that had been ``accredited'' for use in
processing classified information; however, several discrepancies were
found. Specifically, we identified instances where laptops used for
classified processing were not on the list. In two of these cases, the
computers were being used to process classified information even though
they were not accredited to do so.
Based on these and other discrepancies, we concluded that the
Laboratory could not provide adequate assurance that classified,
sensitive, or proprietary information was appropriately protected. We
referred these findings to the Department's Offices of
Counterintelligence and Independent Oversight and Performance Assurance
and the NNSA's Office of Defense Nuclear Counterintelligence for
further review and appropriate action.In summary, our reviews have
disclosed significant internal control weaknesses in the Laboratory's
management systems. In response to our recent reports and those of
other external reviewers, the University has indicated that it has
implemented a number of reforms.
CONCLUSION
The environment described in my testimony today can--as was the
case with many issues raised in previous reviews--be attributed in
large measure to management decisions and policies that did not assure
the interests of the Federal taxpayers were adequately protected. In
this context, our recent work at Los Alamos and at other Department
locations has led us to develop a list of lessons learned that can be
used by the Department to strengthen its management practices.
Specifically, the Department needs to:
<bullet> Ensure that its contractors establish robust, effective, and
reliable business systems;
<bullet> Promote contractor governance models that adequately protect
the Department's interests;
<bullet> Foster a culture where contractors fully understand and honor
the special responsibility associated with managing taxpayer-
funded Federal facilities;
<bullet> Promote an environment where both Federal and contractor
employee concerns can be raised and addressed without fear of
retaliation;
<bullet> Develop quantifiable, outcome-oriented metrics and maintain a
system to track critical aspects of contractor performance;
and,
<bullet> Rate and reward contractors commensurate with their
accomplishments.
To assist the Department in addressing the weaknesses discussed
today and measure progress against these lessons learned, my office
will continue to review the situation at Los Alamos National Laboratory
and other contractor-operated facilities.
Mr. Chairman and Members of the Subcommittee, this concludes my
statement. I will be pleased to answer any questions.
Mr. Greenwood. Thank you, Mr. Friedman.
As you pointed out in your opening statement, the IG has
done considerable audit work at Los Alamos from firearms
control, to general operations, to costs claimed. This
committee has uncovered what we think are some questionable
procurement practices at the lab with local vendor agreements.
Our investigators have uncovered hundreds of thousands of
dollars in purchases using the local vendor agreements that do
not seem to have legitimate business purposes, in my eyes.
For example, we identified purchases of shoes for fiscal
year 2001 and 2002 totaling $881,488.97. Now I understand that
there are business needs arguably for some lab employees to be
provided with safety shoes, but this other amount seems
excessive to me. I find this particularly irksome since on my
way to Washington this week, I bought myself a new pair of
shoes, and they cost me $139. I did not use my Federal credit
card for those shoes. I used my personal credit card for those
shoes.
And looking at an item that our staff just pulled off of
the data that we collected, we don't just see work boots here.
We see a total of 7,476 pairs of shoes purchased in this 2-year
period, including 615 pairs of New Balance sneakers, athletic
shoes; 566 pair of Nike shoes; Rockport shoes. We even have
nine pairs of Tevas, which are sandals. I'm not sure that
anybody at Los Alamos is required as a part of their work to
wear sandals to work. But the list goes on. Adidas, Asics,
Bates, Carolina, Dexter, HH, Doc Martens, Durangos, Golden
Retrievers, et cetera. These are all brands of shoes we
identified, as well as in that 2-year period 517 coffeemakers.
Now, I understand that offices have coffeemakers, but it's hard
to imagine that you need to replace 517 of them at one
facility. Four hundred ninety-one pair of gloves, et cetera.
Does the--does your--have you done any work in this area?
Have you looked at these kinds of procurements?
Mr. Friedman. Mr. Chairman, I believe the number now is 18
civil and criminal investigations ongoing at Los Alamos. And
it's entirely possible, but I can't attest to that as I sit
here this morning, but those issues are under investigation as
we speak. But I certainly would be interested in the
information, and if they're not under review, we will certainly
consider that.
Mr. Greenwood. It looked like to me both in the case of the
footwear and the gloves is that somewhere someone in the
laboratory decided that somebody needed to have safety boots.
So there was some decision made that certain footwear could be
reimbursed, and that people just went nuts, and people passed
catalogs, I assume, and purchased shoes from these vendors, and
nobody ever bothered to look. And that's a tiny little
microscopic analysis that we made of the procurement at the
lab, and we came up with these results, and it's pretty
discouraging, as it should be.
Given your extensive background in working with DOE
facilities, do you think that the University of California can
pull itself up by its business operation bootstraps and start
running those portions of the lab effectively and efficiently?
Mr. Friedman. Well, I think in all fairness as we tried to
analyze the situation, Mr. Chairman, the university has taken
fairly dramatic action, and that's certainly been bolstered by
the actions of Secretary Abraham and the Deputy Secretary as
announced today.
I think the jury is out, as was said earlier, and remains
to be seen, and we will have to look at it in the months ahead
to see what the status of their business systems is after they
have implemented and executed the fixes that they have
announced.
Mr. Greenwood. Is it customary for DOE officials to consult
with you and your employees when they are, for instance,
designing a system to attract new bids? Are they likely to come
to you and say it's your role to look for, among other things,
misspent Federal dollars, weaknesses in the system, failures to
maintain integrity? What is your advice as to how we should
design a contract so that we can minimize the likelihood that
this will happen in the future? Is that likely to happen?
Mr. Friedman. It's likely to happen, and it has happened in
the past.
Mr. Greenwood. I would certainly hope that if it doesn't
happen, that you will take the initiative to remind those
others in the Department that you have some helpful advice as
they design this.
The Chair relinquishes the balance of his time and
recognizes the gentleman from Florida.
Mr. Deutsch. Thank you, Mr. Friedman. It's good seeing you
again.
Mr. Greenwood. Before I do, the Chair would like to
recognize some visitors that we have in the audience. We have
four visitors from Kenya who are with us today, and if they
would stand for a moment and say hello.
Gentleman is recognized.
Mr. Deutsch. You have been investigating and reporting on
problems at Los Alamos for many, many years. The inspector
general has appeared at many, many hearings held by this
committee to report on his office works. Do you agree with
Ambassador Brooks that the culture at Los Alamos--that business
practices is beyond the control of DOE or the university?
Mr. Friedman. I don't want to characterize what Ambassador
Brooks said. I don't know precisely--I didn't catch that phrase
precisely. What I would say is you cannot have a well-managed
laboratory and cannot have good science unless as a corollary
you have good business practices. So to the extent that they
have fallen down in the area of business practice, I think it
reflects on the entire operation at the laboratory.
Mr. Deutsch. I think the question really is--and, again,
for the extensive hearings that we have had and the
investigation, I mean, I think what we have talked about is
systemic problems, literally a culture, as I think the chairman
alluded to as well. The phrase ``Monopoly money''--or in terms
of--or you don't get the number of instances, 18
investigations. It's not one bad apple. It's not one person who
has a criminal intent. I mean, I just don't see that from 18
examples that we're aware of in a short investigation. I think
really the question is--is that--just the culture of the
institution and is that part of the thing that needs to change.
And it also reflects on the university as well in terms of its
position, in terms of the new proposal, in terms of the bid
process that exists.
Mr. Friedman. Well, I think the answer to your question is
that they are cultural issues and environmental issues at the
laboratory. Since 19--since fiscal year audits inspections at
Los Alamos--and 33 of those dealt with financial systems,
business management systems, procurement and the like, as I
indicated earlier, in the 6 or 7 points where contractors fully
understand and honor the special responsibilities associated
with managing taxpayer-funded Federal facilities, so it seems
to me there is a higher standard that exists.
Mr. Deutsch. To deal with the sort of cultural or systemic
problems that we see or that we--I say if we all, in a sense,
acknowledge exists at the lab.
Mr. Friedman. Well, my responsibility, as I understand it,
is to make sure the taxpayers have a seat at the table when the
business decisions or the science decisions are made at the
laboratory, No. 1; and, number 2, to raise problems as we come
across them. We've done that aggressively, I think, over time;
and I think it's for others, actually, to implement the
recommendations once we've made them.
Mr. Deutsch. You have made some fairly devastating
conclusions about the financial controls, business systems,
property management and the internal audit operations at Los
Alamos. In fact, in your cost reports you have drawn the
following conclusion, and I'm quoting: The Department, in our
judgment, has less than adequate assurance that the costs
claimed in the operation of the laboratory are allowable under
the contract.
This is from page 11 of your report. Are you saying that
DOE cannot be assured that any of the over $1 billion spent at
the laboratory is allowable because there is no acceptable
method to check it?
Mr. Friedman. What I'm saying is that there were enough
issues that were raised in terms of the three main components
of the costs that we have questioned as well as the fact that
there is a substantial backlog of subcontract costs which have
never been audited that raise enough questions that reduce our
assurance, our level of confidence that all of the costs
claimed were allowable.
Mr. Deutsch. I mean, the statement that I quoted from is an
extraordinarily broad statement. It's really the equivalent of
a company's auditor refusing to sign off on their financials
because they can't verify that. Is that effectively what you're
saying is the situation at Los Alamos?
Mr. Friedman. That's what we are saying; and, as was
pointed out earlier in the hearing, we disclaimed an opinion on
the 2000 and 2001 statements of cost claims submitted by the
contractor as well.
Mr. Deutsch. All right. So, again, you issued similar
disclaimers on your cost audits for 2000, 2001, correct?
Mr. Friedman. Correct.
Mr. Deutsch. All right. Were the University of California
and DOE aware of this?
Mr. Friedman. Absolutely.
Mr. Deutsch. And what was their response to these reports?
Mr. Friedman. Lethargic is the only way I can describe it.
I think the intensive management oversight really took place
within the last 6 to 9 months. There has been energy expended
by Secretary Abraham and Kyle McSlarrow and Ambassador Brooks
and by the university as well. They've taken a real interest in
what's gone on, it seems to me, at Los Alamos.
Mr. Deutsch. We have been told that the financial controls
and audit functions at Lawrence Livermore National Lab, which
is also run by University of California, are better. Is that
correct? And, if so, why is that?
Mr. Friedman. That's our view, that it's run on a more
professional basis; that they report more fully and completely;
and it's a better quality team.
Mr. Deutsch. I mean, could you elaborate why or speculate
why?
Mr. Friedman. I can't look in the, you know, frankly, in
the minds of the people who are doing it. All I can tell you it
is a more professional operation that is more responsive. It is
an operation which does a more comprehensive review of costs
that are incurred at Livermore. At least, that's been our
finding to date.
Mr. Deutsch. How does Los Alamos compare financial controls
in place by other contractors? Is it the worst you've ever
seen?
Mr. Friedman. As far as we're concerned, it's the worst
that we've come across in the Department of Energy complex.
Mr. Deutsch. You've also questioned the cost of the entire
internal audit operation because it was not independent as the
contract required. An independent auditor doesn't report to the
people he's auditing, is that correct?
Mr. Friedman. That's correct.
Mr. Deutsch. Has the audit function ever been independent?
Mr. Friedman. There was a period of time, if I recall the
history, in which it may have been independent, but that was
probably 6 or 7 years ago at the earliest; and I can't really
attest to that as I sit here today.
Mr. Deutsch. Did the DOE staff responsible for Los Alamos
know that many planned audits weren't being done and that the
allowable cost audit relied on judgmental sampling techniques
from which results could not be projected?
Mr. Friedman. My understanding is that they were not fully
conversant with the work that was done by the internal audit
group.
Mr. Deutsch. And you mentioned, you know, the issues with
the subcontractor audits. How did the lab get so far behind in
its audits of subcontractors?
Mr. Friedman. Well, there has been some change in the way
that Los Alamos has operated over time in that at this point in
time a huge portion of the money that the Department of Energy
spends through Los Alamos is spent through subcontractors. So
the demand for a subcontract audit certainly has increased, or
at least so it seems to us. There may be staffing problems, a
lack of adequate staffing. There may be a lack of interest in
contract audit function. But, in any case, the backlog was
significant.
Mr. Deutsch. What are you going to do about that, the
subcontracting auditing problems?
Mr. Friedman. What am I going to do about it?
Mr. Deutsch. I mean, what are they going to do about it? I
mean, what's your recommendation in terms of----
Mr. Friedman. My recommendation is that, considering the
fact that there's at least a billion dollars in unaudited
funds--at least there was at the time of our review--that the
university better be very, very aggressive in going after that
money to make sure that those costs are allowable under the
terms of the subcontracts and that the taxpayers' interests are
properly represented.
Mr. Deutsch. I mean, does the lab presently have the staff
to make all of those audits?
Mr. Friedman. I'm sorry.
Mr. Deutsch. Does staff exist to actually do that?
Mr. Friedman. Well, they do have staff there. I don't know
whether it's sufficient in terms of numbers or expertise to do
all of the work.
Mr. Deutsch. The university told our staff recently that it
intended to do a full overhaul of the financial systems. You
found that this initiative was not approved by the DOE as
required by the contract. Has DOE taken any steps to approve or
disapprove this change in the financial system?
Mr. Friedman. I'm not aware of any one way or the other,
Mr. Deutsch.
Mr. Deutsch. Would your impression be the same as ours that
that, in fact, is required under the contract?
Mr. Friedman. That's what we state in our report, and we
believe that to be the case.
Mr. Deutsch. I mean, it just seems that they're doing a
major overhaul, I mean based on these problems; and they're not
even interacting with you at this point about that overhaul.
Mr. Friedman. Well, in fairness, in response to our report
I think the university indicated there was more interaction
than would be suggested. But the fact of the matter is that we
believe the requirements of the contract suggest that approval
of the Department of Energy is required, and that approval
certainly was not obtained.
Mr. Deutsch. Let me just ask one final question. DOE has
given Los Alamos high marks for its protection of classified
material. But you state that you found such weaknesses in the
lab's control of computers used for processing classified data
that you, I'm quoting, do not believe that Los Alamos can
provide adequate assurance that classified, sensitive and
proprietary information is appropriately protected. How do you
reconcile these high marks with your failing grade?
Mr. Friedman. Well, I can't reconcile the position that
anybody else has taken. What I--I think the most--one of the
most important points is that, of the laptop computers that
were used for classified work, two of the computers were not
accredited. And I could go through the definition, but
accreditation seems to us to be extremely important and calls
into question whether the environment, the approved use, the
location was appropriate.
Mr. Deutsch. Thank you.
Mr. Greenwood. The gentleman from Michigan, Mr. Stupak, is
recognized for 10 minutes.
Mr. Stupak. Mr. Chairman, I wonder if I could just pass for
a minute. I just got back. I just want to review a couple of
things, and I'll come right back. Can I pass for now?
Mr. Greenwood. Yes. The Chair failed to recognize the
presence of the gentleman from Oregon. Mr. Walden is recognized
for 10 minutes.
Mr. Walden. All right. Thank you, Mr. Chairman.
Sir, part of the impetus of this committee's work with
regard to Los Alamos was the improper treatment of two
whistleblowers who were terminated from their positions at the
lab, as you know. Your office issued a report on that action in
January of 2003, I believe, where you found the terminations to
be unsubstantiated. Has your office looked at any other recent
whistleblower concerns at Los Alamos? And, if so, what action
are you recommending or taking? And do you have an opinion on
whether or not the whistleblower protection policy of Los
Alamos is sufficient?
Mr. Friedman. Well, I am not aware of any other
whistleblower reviews that we're doing at present. There may be
one or two that I'm not aware of. But I certainly think that
the climate at Los Alamos was unacceptable in terms of
treatment of whistleblowers and the concerns about retaliation.
There have been surveys done of employees there--not
recently, but within the last year or 2--in which a
preponderance of employees have indicated they were concerned
about raising serious issues to management for fear of
retaliation. So I think it's extremely important that the
environment and the climate be one which people feel free to
raise concerns, that concerns are addressed and that there is
no retaliation.
Mr. Walden. Do you think it would be prudent to do a new
survey--given that we're being told that people have been
fired, management is changing, the university has responded
aggressively, would it be prudent now to do another internal
survey, a confidential survey of employees to see if they feel
like the climate's changed?
Mr. Friedman. I--the survey that I referred to was not one
that my office did. It was--someone else had done that. But I
think it is a very interesting idea, and let me think about
that and consider it.
Mr. Walden. Okay. Because it just seems to me--I mean, we
are being told things have changed. It appears they have. I
wonder if internally the culture believes that it's changed or
not, and so I think this would be interesting.
I had a couple of questions, too, off of the Deputy
Secretary's memorandum for the Secretary where they detail out
some of these issues about equipment and purchases and
attempted to make charges and all, some of which has been
refunded without question.
I guess one of them that drew my attention--this article,
it says, questions concerning the adequacy of property
controls. Newspaper revelations indicated the lab was unable to
account for $1.3 million worth of controlled property,
including such pilferable items as computers. Although the most
spectacular allegations--a missing forklift, for example--were
ultimately resolved, substantial amounts of property remain
unlocated.
Can you enlighten me as to what they're referring to and
the size of--what the term ``substantial amounts'' may mean?
Mr. Friedman. Well, I don't know what document you're
referring to or what news article you're referring to. I don't
think I could put bounds on that. I don't know for sure.
Mr. Walden. Just for the record, it is Deputy Secretary
Kyle McSlarrow's memorandum to the Secretary dated April 26.
Mr. Friedman. Okay. I've seen the memo. I have not studied
the memo, so I'm not precisely sure what he's referring to.
But let me give you a sort of a real-time example as we
just completed a review of laptop computers and we found that a
number of unlocated laptop computers were simply written off
the inventory records at the end of the year, and that seems to
be a not uncommon methodology for handling unlocated sensitive
property and nonsensitive property.
Mr. Walden. And how recent is that review?
Mr. Friedman. That review was issued last week.
Mr. Walden. Last week?
Mr. Friedman. Yes.
Mr. Walden. How recent were those computers written off?
Mr. Friedman. That was at the end of the fiscal year, so
within the last 6 months.
Mr. Walden. And how many were written off, do you recall?
Mr. Friedman. I think the number was 20, if I recall
correctly. But I'm not positive. I'd like to provide that for
the record if I could.
Mr. Walden. Certainly. I'd appreciate that.
Mr. Friedman. I want to be precise with you.
Mr. Walden. Of course. And I respect that. You can't be the
repository of every single detail on every issue we raise, I
recognize.
[The following was received for the record:]
The number of computers written off during fiscal years
2001 and 2002 is 22.
Mr. Walden. There's also a reference in this that says, an
audit of firearms control that revealed significant weaknesses
in procedures and accountability, although all firearms were
ultimately located. Have you looked into that issue?
Mr. Friedman. Yeah, that was a report that we issued about
1\1/2\, 2 months ago in which we were ultimately able to
identify all the firearms. The problem was that the master
inventory list that Los Alamos keeps was inconsistent with the
list that the subcontractor maintains, and the subcontractor is
responsible for police functions at the laboratory.
Mr. Walden. And how far apart were those lists? Were they
significant?
Mr. Friedman. Well, 200 out of 1,400 or something like
that. It was a significant number, yes.
Mr. Walden. Of various weapons.
Mr. Friedman. Primarily side arms, protective force
weapons.
Mr. Walden. And can you give me some idea about--were they
just simply in a different place than where one person thought
they were, or had they wandered away and came back?
Mr. Friedman. No. Simply stated, they were--it's a little
more complex, so bear with me for a second. In general, the
system at Los Alamos was such that the arms that were received
from the Department of Energy or through other sources went
directly in some cases to the subcontractor, not through Los
Alamos itself. As a consequence, they were either delayed or
never made it to the master inventory list; and we were
concerned that the university and the laboratory itself ought
to have the comprehensive, complete list of firearms that are
available at the site.
Mr. Walden. So am I correct then in understanding it wasn't
that the weapons disappeared. It's just they weren't on the
inventory list that you thought they should be on.
Mr. Friedman. That is correct. And nobody had taken the
time to reconcile the lists, in which case they would have
identified the problem. It took us to come in and do it.
Mr. Walden. According to a February 5, 2003, memo from you
to Acting Administrator Linton Brooks of the NNSA, your office
encountered, quote, unquote, significant dysfunction at Los
Alamos during your review. Specifically, you note the lab
management failed to comply with your request for information
regarding an April 10, 2002, internal lab memo. In your recent
report on costs claimed, there's more than one occasion stated
where you felt that the lab was not as forthcoming in producing
information and documents to your office as would be expected.
Have you addressed this issue specifically, with NNSA or DOE?
And, if so, what have they pledged to do to alleviate this
problem in the future? Are you getting the cooperation that you
expect and deserve?
Mr. Friedman. Interestingly enough, we have discussed it
with the Department of Energy at both levels. But we discussed
it primarily with the chief auditor of the University of
California, and within hours we received the information that
we had requested. So the University of California stepped in
and immediately overrode the reluctance on the part of the
working-level people at Los Alamos to provide the information
that we needed.
Mr. Walden. When your auditors go in and ask these
questions of the working level at the lab, what are you told?
Why are you told they won't give you the information? Or do
they just--give me the insight there. What do you run into?
Mr. Friedman. I can't really characterize it. It probably--
there's a recognition it may be embarrassing, that it may
reflect negatively upon the lab. I'd be speculating and I hate
to do that because I don't know really what was going on in
these people's minds. What I do think is important, though, was
that we have faced this time and time again, and clearly,----
Mr. Walden. Is it changing though?
Mr. Friedman. Well, as I say, Patrick Reed, the auditor for
the university, stepped in and immediately provided the
information that we were looking for.
Mr. Walden. But do you feel like you're going to have to go
back to the university auditor on a regular basis? Do you feel
like--I guess I'm trying to get at, is the culture really going
to change at the hands-on level in the lab, or do you have to
keep going up to some auditor somewhere above them to get the
culture to change? Because I think that all interacts with
who's controlling the lab and do we have problems still there?
Do we have files disappearing? Do we have lack of cooperation?
Because I've got to tell whoever's out there that is not
cooperating, if they think they're embarrassed because of
revealing information, not revealing, hiding and deceiving or
trying to ignore your investigation is going to cause them a
whole bunch more problems than cooperating. We know there's a
problem. We're trying to get at it and solve it.
Mr. Friedman. Well, I agree with your observation; and if
the experience we've had with Mr. Reed, Vice President Darling
and others is reflective of what's going to happen in the
future, we have solved the problem. But if that's not the case,
they'll be hearing from me, as will the Secretary.
Mr. Walden. All right. Thank you Mr. Chairman.
Thank you, sir. Appreciate your work.
And I return the balance of my time.
Mr. Greenwood. The Chair thanks the gentleman.
The gentleman from Michigan--no, the--yes, the gentleman
from Michigan, Mr. Stupak, is recognized for 5 minutes.
Mr. Stupak. Thanks, Mr. Chairman.
Mr. Friedman, are you familiar with the performance
standards set for Los Alamos for fiscal year 2003?
Mr. Friedman. I have seen them. I have not studied them. We
are in the process of looking at them very carefully right now.
Mr. Stupak. Well, let me ask you this, if I may. According
to the document, there is an attachment, Appendix F. In it's an
implementation plan carrying out the scientific mission as the
most important objective of the laboratory; and they go on to
say, procurement and property management, business controls,
financial management, environmental clean-up and control,
security and health and safety are all lumped together in
objective No. 7 of the nine objectives. The implementation plan
was signed by the university on April 13. Does this indicate to
you that the university or DOE are going to give any real
emphasis to fixing the problems that we're discussing here
today?
Mr. Friedman. Well, I'm concerned by the--what appears to
be a relative imbalance in terms of the criteria that have been
established, and I agree with your observation. I--at this
point, though, we're studying the issue. We have not reached
any final conclusion, so I can't give you a definitive answer.
Mr. Stupak. Well, the--and Mr. Walden has mentioned a
little bit about it, the culture that's there. I mean, besides
putting out these mission statements, how do you really change
a culture when you have classified computers missing or a
person can order a Mustang using the credit card--Los Alamos
credit card? How do you change that?
Mr. Friedman. Well, I think it's a complex--it's a simple
question, Mr. Stupak, but it requires a complex answer. But to
put it in a word is ``accountable.'' You have to hold
individuals accountable, and you have to hold contractors
accountable, and you have to be prepared to take severe and
drastic action, both in the case of individuals and in the case
of contractors if their performance does not meet government
standards and they do not understand that they're working for
the taxpayers.
Mr. Stupak. And in your reports, have you seen any
accountability? For instance, the person who ordered the
Mustang--we were out there in January, and that occurred in
September. So it's 4 or 5 months later. They're still there. I
mean, what kind of a message does that send to the rest of the
employees about do whatever you want to do and you're not going
to be held responsible?
Mr. Friedman. That matter is the subject of a current
investigation. I couldn't comment on it in public.
Mr. Stupak. Well, I'm just more asking for a signal. But--
--
Mr. Friedman. Well, if the environment is what you're
referring to, there have been very significant personnel
changes at Los Alamos. They've been described earlier today.
Perhaps more are needed. I don't know. The director has said
he's going to look at those issues as they come about.
Mr. Stupak. But yet you were concerned about the
whistleblowing going on there, that people who wanted to come
forth with serious concerns about what's going on at Los
Alamos, they're afraid to because they didn't feel they'd be
backed up by whether it's the whistleblower protection plan or
by the superiors who are in charge. Isn't that true?
Mr. Friedman. That's correct.
Mr. Stupak. So that--if they're concerned about not being
backed up, whether it is a whistleblower or other serious
concerns that they may bring forward, whose responsibility is
that? Is that the Department's or is that the University of
California who has the contract to manage it?
Mr. Friedman. Well, I think it's a shared responsibility. I
think the University of California has to make a commitment,
which I think they have certainly verbalized over the last
several months, that whistleblowers are--they're going to be
treated with respect, that their concerns are going to be
addressed. I think the Department and the Department handlers
are responsible for ensuring that the university meets that
commitment.
Mr. Stupak. I'm sorry I missed the first part of your
hearing. I had to go up to--I mean, your testimony. I had to go
up for some meetings. But how long have you been doing audits
at Los Alamos?
Mr. Friedman. As an office, the Office of Inspector General
for the last 25 years.
Mr. Stupak. Okay. You personally.
Mr. Friedman. Personally, for the last 20 years.
Mr. Stupak. Have you seen any accountability of people
there? You know, it seems like we had a problem, and no one's
willing to accept responsibility. We've just passed it off. We
come up with a new program every year to change the problems,
and nothing ever gets changed.
Mr. Friedman. Frankly, I have seen no change save what has
transpired in the last 6 to 9 months.
Mr. Stupak. Thank you. I'll yield back. But I can probably
sneak another one in here, too.
Mr. Greenwood. The time of the gentleman has expired.
Mr. Stupak. All right.
Mr. Greenwood. The Chair recognizes the gentlelady from
California for 5 minutes.
Ms. Eshoo. Thank you, Mr. Chairman.
Welcome back, General Friedman. It's good to see you, and
thank you for your public service.
I have three questions. In the 20 years that you have been
doing the work that you've done as you just stated, have you
inspected the Department relative to the contract?
Mr. Friedman. Yes. And----
Ms. Eshoo. And how recently?
Mr. Friedman. We do that regularly.
Ms. Eshoo. And what have you discovered or recommended?
Mr. Friedman. Every year for the past 4 or 5 years we have
identified contract administration, which is the way we
characterize it, contract management. As a management----
Ms. Eshoo. And if you were to issue a report card, is it a
passing grade? Is it a high grade? Is it a low grade?
Mr. Friedman. No. We have treated it as one of the top 10
management challenges facing the Department in which they have
not done an adequate job.
Ms. Eshoo. That they have not done an adequate job.
Mr. Friedman. That's correct.
Ms. Eshoo. And in what area specifically?
Mr. Friedman. Well, every facet of contract administration,
ensuring that you have a governance program in effect in which
Federal managers who are ultimately responsible for the
expenditures of funds know what's going on at the various
contractors and are held accountable for their aspect of
contractor operations.
Ms. Eshoo. So there is a--there are shortcomings inside of
the Department in the responsibility--in the role that they
play relative to the contract.
Mr. Friedman. In my view, yes.
Ms. Eshoo. Thank you. Were you asked by Deputy Secretary
McSlarrow or Ambassador Brooks to evaluate UC's reform measures
at Los Alamos? And, if so, was your assessment reflected in
their report to Secretary Abraham?
Mr. Friedman. Let me be clear answering your question.
There were aspects of the work that we've done over the past 6
or 7 months at Los Alamos that were specifically requested by
the Department. However, I, to the best--if I understand your
question, we have not been asked to evaluate the specific
components of the corrective action plan that have been
proposed.
Ms. Eshoo. So, am I understanding this correctly, the
assessment that you did was not reflected in the report to
Secretary Abraham in the report, your analysis?
Mr. Friedman. I'm sorry.
Ms. Eshoo. The IG's analysis.
Mr. Friedman. We may be confusing your question. We have
analyzed 6 or 7 different programmatic areas in the past
several of months, several of which were specifically requested
by the NNSA.
Ms. Eshoo. I understand the request. But following it down
the road----
Mr. Friedman. I have not, on a stand-alone basis, evaluated
the corrective action plan that the University of California
has proposed and that the Department of Energy has discussed
today.
Ms. Eshoo. So it's not part of Secretary Abraham's
assessment then. Either through your review or anyone else's.
Mr. Friedman. Again, I want to make sure I don't give you
any bad information here. Secretary Abraham, as his
announcement identifies, has used the work that we've done in
part in reaching the decision that he has reached.
Ms. Eshoo. I think the operative phrase here is ``in
part,'' and I just want to move on. Do you think that there's
been adequate time for the reforms to take root at Los Alamos,
and do you--would you suggest that they be examined again in
the next handful of months?
Mr. Friedman. There has not been enough time for them to
take root, and there has not been appropriate time for us to do
an evaluation. And I do think they ought to be--they need to be
reviewed both by the Department and probably by the university
itself over the next period of time.
Ms. Eshoo. Well, I think that's very important. Because if,
in fact, and it's legitimate, that this committee of
investigation and oversight has been highly critical as the
abuses and the mismanagement have been reviewed and hammered,
if, in fact, and we know that they have been put into place,
those reforms really need to be reviewed, both for the good of
the contractor if there is to be--whomever the future
contractor is, as well as the performance of the Department
itself.
When you testified before the committee in February, you
said it was appropriate to evaluate the reforms that UC is
making at Los Alamos. And it hasn't been 6 months yet, and I
just want to set that down for the record. But since you spent
time reviewing the operations at Los Alamos, can you give the
subcommittee your impression so far today that you've made and,
in your determination, are they successful? I know that you
said earlier that they, you know, everything--it's in progress.
But can you give us an interim report, so to speak?
And I have to stop now. But I think that you can answer.
Mr. Friedman. I'm reluctant to do that because we have not
done a comprehensive review.
I will tell you this. It's clear that the university has
taken dramatic sweeping action to change individuals, to change
policies, to change procedures; and we will have to see how
effective that is. Time will tell.
Ms. Eshoo. Thank you, Chairman Greenwood.
Mr. Greenwood. The Chair thanks the gentlelady; and,
General Friedman, we thank you for being with us again.
Before I let you go, you mentioned I think 18 open
investigations. Would you supply the subcommittee with the
details of those investigations, please, in writing subsequent
to today?
Mr. Friedman. Subject to information that may be criminal
activity sensitive, I will do so in writing. Otherwise, I'd
rather do it in a verbal setting. But I will certainly do that
with the assistance of staff.
Mr. Greenwood. Work that out with our staff.
Mr. Friedman. Certainly.
[The following was received for the record:]
At a briefing held for subcommittee staff on May 13, 2003,
those details were provided by John Hartman, Assistant
Inspector General for Investigations.
Mr. Greenwood. We thank you very much for being with us,
and you are excused.
We call forward our third panel consisting of Dr. Richard
C. Atkinson, President, University of California; Mr. Bruce
Darling, Senior Vice President, University Affairs, Interim
Vice President for Laboratory Management at the University of
California; Ms. Anne Broome, Vice President for Financial
Management at the University of California; and Mr. Patrick
Reed, University Auditor at the University of California.
We welcome all of you. Thank you for your patience.
Mr. Atkinson. Mr. Chairman, members of the committee----
Mr. Greenwood. If I can ask you to hold for a second, are
we waiting for Mr. Darling? Okay. I need to put you all under
oath, and so we'll do that all at one time.
Mr. Darling's thinking, I sat here for 2\1/2\ hours. He
chooses the 1 minute that I leave the room.
Mr. Darling. That seems to be my pattern, Mr. Chairman.
Mr. Greenwood. Thank you, sir. I think all of you have
heard me to say to the other witnesses that this is an
investigative hearing and that it's our practice to take
testimony under oath. So I would ask if any of you have any
objections to giving your testimony under oath. Okay.
I should also inform you that, pursuant to the rules of
this committee and the House, you are entitled to be
represented by counsel. Do any of you wish to be represented by
counsel? Okay.
In that case, if you would stand and raise your right hands
please.
[Witnesses sworn.]
Mr. Greenwood. You are under oath.
Dr. Atkinson, you are recognized for your opening
statement.
TESTIMONY OF RICHARD C. ATKINSON, PRESIDENT, UNIVERSITY OF
CALIFORNIA; BRUCE B. DARLING, SENIOR VICE PRESIDENT, UNIVERSITY
AFFAIRS, INTERIM VICE PRESIDENT FOR LABORATORY MANAGEMENT,
UNIVERSITY OF CALIFORNIA; ACCOMPANIED BY ANNE BROOME, VICE
PRESIDENT FOR FINANCIAL MANAGEMENT, UNIVERSITY OF CALIFORNIA;
AND PATRICK REED, UNIVERSITY AUDITOR, UNIVERSITY OF CALIFORNIA
Mr. Atkinson. Mr. Chairman and members of the committee, I
have a formal statement which I'd like to submit for the
record, but I think I'd rather simply summarize that statement
in brief form, and then I will turn to Senior Vice President
Darling to bring the committee up to date on some of the issues
that have been raised in earlier hearings, and then we'll be
open for questions and comments.
Mr. Greenwood. Very well. We appreciate that, Mr. Atkinson.
Mr. Atkinson. Let me begin by taking note that I've read
carefully the report prepared by Deputy Secretary McSlarrow,
and Ambassador Brooks. I am fully in accord with their analysis
of the situation and understand very well the reasons that led
them to the decision that has come from the Department of
Energy, and I accept that decision. In my formal statement I
indicate that I recognize that the university has full
responsibility for the business and management issues at Los
Alamos, and we are committed to dealing with those problems and
restoring the American public's confidence in our management of
the laboratories.
I do want to indicate that I am very proud of the record of
the University of California, the 60-year record of the
university in managing these laboratories. I won't review that
record, but just since 9/11, if one follows those events
carefully, you will see that the work that has flowed from
Livermore and Los Alamos has been absolutely critical to our
response to this Nation's response to those initiatives.
Clearly, along with those accomplishments, we have serious
problems at Los Alamos. I will not review those problems, but
in my testimony I am concerned with why there are such problems
at Los Alamos. In the process of the testimony, I indicate some
of the factors that I believe are responsible for that.
I do want to indicate that between the Vice President, Mr.
Darling, Vice President Broome and the auditor, Mr. Reed, and
particularly--and also the Interim Director, Pete Nanos, that
we are responding and I think responding aggressively to the
issues. I won't go into the details of why I think we have
problems or why those problems arose at Los Alamos. You can
question me on that later if you're so interested in pursuing
that in more detail. Let me just simply say that we are focused
on the issues.
At the end of my testimony I review the issue of whether
the university will choose to compete for the contract when the
end of the contract period occurs. I outline some of the issues
that the university will have to grapple with in making that
decision; and then finally, in my closing remarks, I indicate
that the university--no matter what the decision is on the part
of the university to compete or not compete, I assure the
Congress that for the next 2\1/2\ years the university will be
focused on the issues before us and will do our very best to
resolve the issues.
With that, I turn to the Vice President.
[The prepared statement of Richard C. Atkinson follows:]
Prepared Statement of Richard C. Atkinson, President, University of
California
Good morning, Mr. Chairman, Mr. Deutsch, and members of the
Committee: This is my first opportunity to participate in this
Committee's proceedings on the business and management practices at Los
Alamos National Laboratory.
Let me reiterate Senior Vice President Darling's previous testimony
that the University of California takes full responsibility for these
business and management problems at Los Alamos. As president of the
University, I want to assure you that we remain committed to
strengthening financial controls and to restoring the American public's
confidence in Los Alamos and the University's management of it. This
has been the charge to my senior management team, as well as to the new
leadership at Los Alamos, and it will remain the charge for as long as
the University is entrusted with this responsibility.
The Committee has heard testimony from the University about the
problems at Los Alamos and the range of corrective actions that have
been taken. Rather than retrace those steps, I would like to provide
you with a slightly different perspective that goes to the most
critical question of all, which is how did this happen?
I have been president of the University of California for eight
years. During that time, I have been enormously proud of the
University's continuing contributions to our nation's security through
its management of the national labs. Building on the legacies of Ernest
Lawrence and Robert Oppenheimer, Los Alamos and Livermore have moved
front-and-center in the effort to bolster homeland security, especially
in the areas of counter-terrorism, non-proliferation, and prevention
and preparedness for nuclear, biological, and chemical attacks. These
labs continue as the nation's leader in findings ways to use the most
advanced scientific and computational assets to simulate nuclear
testing and to ensure the continued viability of our nuclear weapons
stockpile. We must never lose sight of those critical contributions to
the nation's security.
Along with its accomplishments, Los Alamos has had problems. It has
been a time of considerable pain to me personally and to the University
as an institution. It has forced us to ask hard questions about our
management and to take strong action. The record will show that the
University has responded quickly and that it has responded well. New
performance provisions have been written into our contracts, and in
every instance we have met or exceeded the new requirements.
Still, the question remains: Why these continuing problems at Los
Alamos? As context, let me remind you that the University is a $15
billion enterprise, larger than many Fortune 500 companies. We employ
160,000 faculty and staff at our ten campuses, five medical centers,
numerous community-based health facilities, an extensive network of
agriculture extension centers and three national laboratories. And we
remain, undisputedly, the world's premier research institution.
By necessity, for a University system so large and geographically
dispersed, our management structure is decentralized. Considerable
authority is delegated to our campus chancellors and laboratory
directors. For the most part, this arrangement has worked well. There
is clear accountability and sound management of our education,
scientific, research and business and finance systems.
So the question again--why the problems at Los Alamos?
The last six months has been dedicated to probing that question at
the very highest levels of the University. I appointed Senior Vice
President Darling as interim vice president for laboratory management
and enlisted the expertise of UC vice president for financial
management Anne Broome and University Auditor Patrick Reed, as well as
numerous other top University officials. They have worked seven-day
weeks since last December, focusing almost solely on laboratory
management issues while still performing their other University
responsibilities. I wish to publicly thank them today for their
invaluable service, not just to the University but also to the nation.
Through their efforts, as well as those of Interim Director Pete
Nanos and his new management team at Los Alamos, we have made
considerable progress in implementing the changes necessary at the
Laboratory. We are also beginning to understand why there was such a
fundamental management breakdown at the Laboratory.
I believe it comes down to two things: First, former Laboratory
senior management did not address the problems in a timely or
appropriate manner. And second, neither the University nor the NNSA
provided adequate oversight to detect problems that should have been
more readily apparent.
Let me focus first on Los Alamos leadership. As President, I
appoint the ten campus chancellors and three laboratory directors. All
are accomplished scholars (among them is a Nobel Prize winner), but
they also must be able managers who can run complex organizations that
require a careful balance between science and research and sound
business management. I rely on the chancellors and laboratory directors
to alert me early to potential problems and to obtain assistance of my
top leadership team in whatever area necessary.
That did not occur at Los Alamos. The former managers of Los Alamos
were slow to inform me about the procurement problems. When I became
aware, I acted quickly, including replacing the top two managers.
But I don't entirely fault Los Alamos management. As part of the
last contract negotiation, we created a new Vice President for
Laboratory Management position to provide better day-to-day management
of the national laboratories. The first vice president was John
McTague, whose leadership and private sector experience led to strong
improvements in management and oversight in a number of key areas,
including security, safety and business efficiency. Under Dr. McTague's
leadership, for example, UC engaged industrial firms to obtain
important expertise in security and project management to reassess and
strengthen the labs' internal systems in these areas.
However, an unintended consequence of the new management structure
was to isolate laboratory management from other Office of the President
functions. Laboratory management did not seek the necessary expertise
of our auditors and financial management team, as it should have when
problems arose at Los Alamos.
For this reason, we are devising a new governance structure that
much more fully integrates the Office of the President into laboratory
management, much as it already is--with great effectiveness--at our
campuses.
There should have been other early warning systems. Among them are
the Department of Energy and the National Nuclear Security
Administration, which have more than 190 employees at Los Alamos and
Livermore issuing numerous audits, reports, and assessments. The NNSA's
steady stream of ``excellent'' ratings suggested to me that laboratory
operations were fundamentally sound. I heartily agree with the
recommendation by Deputy Secretary McSlarrow and Ambassador Brooks that
this rating system be revised, but would add my own recommendation that
it's time to reevaluate the broader DOE and NNSA management structures.
I hope this will be a subject for further discussion.
More change is needed, both at the University and at Los Alamos,
and I pledge these changes will be made. These include implementing the
recommendations from the independent reviews conducted by
PricewaterhouseCoopers and Ernst & Young, acting on the various
Inspector General findings, and enforcing the strong whistleblower
policies already in place.
But perhaps our greatest challenge is to ensure that our reforms
are sustained over time. That said, we are gratified that the Secretary
of Energy has recognized the extent of our efforts and has decided
against termination of the Los Alamos contract.
With the Secretary's announcement yesterday, we are now about to
enter into a new chapter in our 60-year history of managing the
national laboratories as a service to the nation for which the
University receives no financial gain. I am concerned, as we move
forward, that we not lose sight of the broader national security
objectives now at stake at a particularly critical time in our nation's
history.
Those objectives are what drive my answer to the obvious question
before me today--will the University now compete for the contract to
manage Los Alamos National Laboratory? My first instinct is to respond:
``Yes.'' We want to compete--and we want to compete hard--in order to
continue the tradition of excellence in science and innovation that has
characterized our 60 years of managing the national laboratories. We
want to compete in order to maintain the world's premier nuclear design
workforce. And we want to compete because we believe, with every fiber
of our institutional being, that continued UC management is in the
absolute best interests of the nation's security.
But there is another question at stake here, and that is whether
the University of California should compete. The answer to that is less
clear, and it goes to the fundamental nature of these particular
government laboratories and the historical reasons why the University
was first asked to manage them.
Let me hasten to add that I am in the last five months of my
presidency. The decision whether to compete will have to be made by my
successor and by the Board of Regents. In making their decision, they
will have to grapple with a number of critical issues. Among them:
<bullet> First, what will be the conditions of the competition,
including issues of criteria, statement of work, partnership
and organizational structure, and how will these be impacted by
the recommendations to the Secretary by the Blue Ribbon
Commission?
<bullet> Second, is it even appropriate for the University to pursue a
federal business contract? It is one thing to manage the
national weapons laboratories at the request of the federal
government because of the unique scientific capabilities of the
University, and quite another to actively pursue what could now
be interpreted as a business venture. I am not sure our faculty
or the people of California would support such action by the
Board of Regents.
<bullet> Third, what will be the relationship between the Department of
Energy, the National Nuclear Security Administration, the
Federal Bureau of Investigation and the contractor? The current
relationship is clearly not working as effectively as it
should.
<bullet> And finally, our principal contribution over the last 60 years
has been to ensure the science and technological excellence of
Los Alamos. That factor should be a primary consideration in
the future contract, otherwise the University should not
compete.
Our hope is that these questions can be answered in the months
ahead so that the University can make an appropriate decision about
whether or not to compete. We believe we would be a strong competitor
and an even stronger long-term manager of Los Alamos. As the world's
premier research university, the University of California is uniquely
positioned to provide this service to the nation.
In closing, I want to emphasize that the University, for the
remaining term of the contract, will continue to perform our
obligations to the nation even as we continue to resolve the business
and administrative deficiencies at Los Alamos. Our goal remains to
raise the Laboratory business practices to the same level of quality as
the science and weapons programs. We owe this to the American people
whose security is dependent on the Lab.
Thank you for this opportunity to address the Committee. I would be
pleased to answer your general questions, and my colleagues are
available to respond to specifics. Senior Vice President Darling, who
you all know, is overseeing day-to-day management issues at the
Laboratories. With your permission, I would like him to briefly
summarize actions the University has taken since the last hearing.
Mr. Greenwood. Mr. Darling you're recognized.
TESTIMONY OF BRUCE B. DARLING
Mr. Darling. Good afternoon Mr. Chairman, Mr. Deutsch.
Mr. Greenwood. You need to push the button on your
microphone.
Mr. Darling. Thank you.
Good afternoon Mr. Chairman, Mr. Deutsch and members of the
committee. I appreciate the opportunity to appear before you
for the third time, and I would like to inform you about
actions taken by the University of California since your last
hearing on March 12. These are part of our continued efforts to
improve the business and management problems at Los Alamos
National Laboratory.
We have made progress on a number of fronts at Los Alamos,
from nearing completion of the comprehensive property inventory
to addressing the backlog of property identified as missing,
lost or stolen. Let me focus on some of the items that have
been of particular interest to this committee.
In recent weeks, we released the findings from two
independent reviews. After 2 months of work by 20 consultants
from Ernst & Young, we've released 70 reports--excuse me, seven
reports containing 90 recommendations that cover the full range
of Los Alamos business practices, including property
management. The laboratory is already implementing these
recommendations.
Procurement practices were the subject of a separate review
conducted by the external review team chaired by former DOE
Inspector General John Layton and assisted by forensic
accountants from PricewaterhouseCoopers. The external review
teams report identified internal control weaknesses in
laboratory procurement and recommended a number of corrective
actions which are being implemented. In addition, I should say
these are in addition to corrective actions that were already
under way at the lab in advance of receiving this report. The
external review team identified $14,530 in potentially
inappropriate transactions out of a total of $2.3 billion in
procurement. This information has been brought to the attention
of the DOE Inspector General.
Los Alamos management is also investigating five lists of
transactions that required additional documentation and review.
In the last week we've responded to two Inspector General
reports on the allowable costs audit. We believe that the
majority of the costs claimed for business meals and travel
reimbursement are allowable under the contract and Federal
guidelines. However, even so, we will review our guidelines
with the National Nuclear Security Administration and make
appropriate policy revisions after that consultation.
The Inspector General also criticized the performance of
the Los Alamos Audits and Assessments Office. As you've heard
in previous testimony, the internal audit function is one that
we have pursued very aggressively. As a result, the
recommendations contained in the report are already being
implemented.
The Inspector General's most recent interim report was on
internal controls over personal computers. We agree that the
administrative processes that account for classified computers
are flawed in ways that make verification difficult. The
laboratory is correcting those problems. But I do wish to
emphasize one important point. Los Alamos has verified that
every single classified computer has been properly secured and
that at no time was classified information compromised or at
risk as a result of these records deficiencies.
At the last hearing, I was questioned about specific
whistleblower cases at Los Alamos and Livermore National
Laboratories. In response, I sent a letter to Chairman
Greenwood addressing the university's whistleblower policies
which we also reviewed in prior hearings as well as the cases
in question. My letter also addresses a practice related to
reimbursement for legal costs, and the reports that I've seen
show no evidence to support the assertion of a culture of
retaliation against whistleblowers. On the contrary, the
university has redoubled its efforts to insure that employees
know about our comprehensive whistleblower policies; and they
are encouraged to express concerns without fear of retaliation.
In addition, I've personally met with attorneys for a
number of the whistleblowers whose cases were brought to my
attention; and I've arranged for those attorneys to meet with
the university's general counsel to discuss possible ways to
settle the cases through alternative dispute resolution.
We're also working to resolve a number of outstanding
personnel matters. You will recall that on the date of the last
hearing the university attorneys were meeting with the U.S.
Attorneys Office in Albuquerque to obtain crucial information
on the so-called Mustang case. We also hoped the meeting might
provide other valuable information. However, the U.S. Attorneys
Office did not wish to engage in substantive discussions at
that time. The university will, however, continue to pursue
this as soon as the U.S. Attorneys Office is willing to do so.
Similarly, in regard to the Mustang case, the U.S. Attorney
is not pursuing prosecution of the matter; and the FBI has
closed its investigative file on the matter. Yesterday, the FBI
denied our Freedom of Information Act request for the FBI
investigative file so that we could further pursue the matter.
Our attorneys are now reviewing the basis for that denial to
determine what steps we should take next to bring the matter to
a satisfactory conclusion.
Finally, I do wish to mention that at its next meeting the
university board of regents will approve additional audit
procedures for the national laboratories. The purpose is to
expand the scope of the external auditors review of the three
UC-managed national laboratories to include a more in-depth
review of the labs' financial controls. We want to be sure that
the financial controls are functioning effectively going
forward.
Unrelated to Los Alamos but of critical concern to the
university and already mentioned this morning are the recent
indictments in an FBI case that revealed the association of a
Lawrence Livermore National Laboratory employee with one of the
individuals indicted. In response, the lab and the university
moved quickly to deny the employee access to his offices, to
place him on investigative leave, to relieve him of his
laboratory badge, to deny him physical and computer access to
the laboratory, to change the locks on his office, and seal
those offices so that the offices, the files and the computers
were immediately secured. In addition, we requested the
suspension of the individual's clearance, which DOE acted on
immediately.
We've also initiated a classified administrative inquiry
which is now under the direction of the National Nuclear
Security Administration. The lab and university are providing
full support and cooperation to that review; and, as you know,
the employee has since resigned.
Mr. Chairman, that concludes my remarks. Vice President
Broome, University Auditor Reed and I will be happy to address
these issues in greater detail or answer any other questions
you may have.
[The prepared statement of Bruce B. Darling follows:]
Prepared Statement of Bruce B. Darling, Senior Vice President,
University of California
Good morning, Mr. Chairman, Mr. Deutsch, and members of the
Committee: I appreciate the opportunity to once again report to you on
actions the University of California has taken since the last hearing
to address the business and management problems at Los Alamos National
Laboratory.
In recent weeks we have released the findings from two independent
reviews. They include seven reports on core business practices and
internal controls at Los Alamos by Ernst & Young. Twenty consultants
spent two months examining the organization, business systems and
practices, and the required skills of the Laboratory's Business
Division. Ernst & Young provided us approximately 90 recommendations
that cover the full range of LANL business practices, including
property management. The Laboratory is in the process of implementing
these recommendations.
Laboratory procurement practices were the subject of a separate
extensive review conducted by the External Review Team chaired by
former DOE Inspector General John Layton and assisted by forensic
accountants from PricewaterhouseCoopers. In their report, the team
identified various internal control weaknesses and deficiencies that
increased the Lab's vulnerability to fraud, waste and abuse.
The External Review Team recommended a number of corrective
actions, including an evaluation of staffing needs across all
procurement functions; new controls in the Just-in-Time program; and
safeguards to limit purchases under Local Vendor Agreements. These
recommendations are in the process of being implemented in addition to
a number of corrective actions that already were underway at the Lab.
These include reducing both the number of individuals allowed to make
Local Vendor Agreement purchases and the number of property
distribution sites, known as ``drop points.'' All drop points are now
secured except for 45 that will be secured or eliminated in the near
future.
In addition, the External Review Team identified $14,530 in
potentially inappropriate transactions out of a total of $2.3 billion
in procurement transactions during a two-year period. This information
has been brought to the attention of the Inspector General. In
addition, five lists of transactions were submitted to Los Alamos
management for additional documentation and review. We are in the
process of investigating these transactions and thus far we have not
uncovered any fraudulent activity, although some may be determined to
be unallowable due to the lack of a clear policy governing the purchase
of required clothing items.
In the last week we have also responded to two Inspector General
reports. On the allowable costs audit, we believe that the majority of
costs claimed for business meal reimbursement are allowable under the
contract. Even so, we will review our guidelines with NNSA and make
appropriate policy revisions. We also believe the majority of travel
claims questioned by the Inspector General are consistent with the
applicable Federal Travel Regulation guidelines and are allowable
costs. Los Alamos has researched and resolved 100 percent of the sample
items on which the Inspector General based its ``projected questioned
costs.''
The Inspector General also criticized the performance of the Los
Alamos Audits and Assessments organization. As you have heard in
previous testimony, the Internal Audit function has been one of the
areas UC has pursued very aggressively. As a result, the IG report
recommendations have already been implemented and are the subject of
ongoing corrective efforts.
In regard to the Inspector General's most recent interim report on
internal controls over personal computers, we agree that the
administrative processes associated with the accounting of classified
computers are flawed in ways that made verification of accountability
difficult. The Laboratory is correcting these procedures. But let me
stress one very important point: Los Alamos has verified that all
classified computers have been properly secured and at no time was
classified information compromised or at risk as a result of these
problems.
At the last hearing, I was questioned about specific whistleblower
cases at the Los Alamos and Livermore national laboratories. In
response, I sent a letter to Chairman Greenwood addressing the
University's whistleblower policies and the cases about which I was
asked. My letter also addresses our practice related to reimbursement
for legal costs and it reiterates my testimony at the last hearing that
I have seen no evidence to support the assertion of a culture of
retaliation against whistleblowers. On the contrary, the University has
redoubled its efforts to ensure that employees know that comprehensive
whistleblower policies are in place and that they are encouraged to
step forward with concerns without fear of retaliation.
I have met with representatives for a number of the whistleblower
cases at the two Labs to hear their perspectives on those cases and the
underlying causes. In addition, I have arranged for meetings with the
University's General Counsel to discuss possible ways to settle the
cases rather than through ongoing litigation, such as through our
alternative dispute resolution efforts.
We are also working to resolve a number of outstanding personnel
matters. You will recall that on the date of the last hearing, the
University's Deputy General Counsel and the former U.S. Attorney in San
Diego were meeting with representatives of the U.S. Attorney's Office
in Albuquerque. The purpose of the meeting was to obtain crucial
information about the ``Mustang case'' from the U.S. Attorney's meeting
with the Los Alamos Lab's Principal Deputy Director and Laboratory
Counsel, as well as to better understand the past working
relationship--and to improve the future working relationship--of the
Laboratory and the U.S. Attorney's Office. We also hoped that the
meeting might provide valuable information about a pending personnel
action. At the meeting, however, the U.S. Attorney's Office deferred a
substantive discussion of these issues.
Similarly, in regard to the ``Mustang case,'' we have sent on two
separate occasions a team of University investigators to visit the
owner of AllMustang.com in Phoenix to obtain additional documents that
could enable us to establish who made the attempted purchase of the
Ford Mustang. It is our understanding that the U.S. Attorney is not
pursuing prosecution of this matter and the FBI investigation has been
closed. We have served a Freedom of Information Act request of the FBI
investigative file, but we were denied a copy of the file by the FBI
yesterday. Our attorneys are reviewing the basis for the denial in
order to determine the next course of action. We are, however, still
pursuing the matter vigorously and we hope to bring the matter to
conclusion soon.
On the TA-33 matter, the FBI case is continuing. The lab has
inventoried all of the equipment and supplies improperly acquired, and
has recovered all but approximately $50,000 of more than $300,000. The
merchandise has been put into use by the Lab's major service
subcontractor. PricewaterhouseCoopers has been engaged to assist in
reviewing records of purchasing from the vendor from whom the TA-33
purchases were made. The Lab intends to pursue recovery from the vendor
for any residual amounts not otherwise recovered.
Additionally, the Laboratory continues to work on the backlog of
property identified as missing, lost or stolen. All open cases have
been investigated with no findings of significant cases of theft. Those
regarded as suspicious have been referred to the Inspector General.
As you know, the Laboratory initiated a comprehensive property
inventory, known as a ``wall-to-wall'' inventory. I am pleased to
report that the Lab continues to be well ahead of schedule and to date
has accounted for 97 percent of the total inventory value.
Finally, I want to make you aware that at the next meeting of our
Board of Regents on May 14 and 15, the Board will take action to
approve additional audit procedures for the national laboratories. The
purpose will be to expand the scope of the external auditors' review of
the three UC-managed national laboratories to include a more in-depth
review of the labs' financial controls to assure the leadership of the
University that the financial controls are functioning effectively.
Unrelated to Los Alamos, but of critical concern to the University
is the recent indictment in an FBI case which revealed the association
of a Lawrence Livermore National Laboratory employee, who was formerly
a senior FBI agent, with one of the individuals indicted. In response,
the Lab and the University moved quickly to deny the individual access
to his offices; to place him on investigative leave; to relieve him of
his Laboratory badge; to deny him physical and computer access to the
Lab; to change the locks on his offices and seal them so that his
offices, files and computers were immediately secured; and to request
the suspension of his clearance, which DOE acted on immediately. The
University also initiated a detailed classified ``administrative
inquiry,'' which is now under he direction of the National Nuclear
Security Administration with the Lab and the University providing full
support and cooperation. The employee resigned prior to completion of
this inquiry.
That completes my introductory remarks. Vice President Broome,
University Auditor Reed and I will be happy to speak to each of these
issues in greater detail as well as to answer your questions.
Mr. Greenwood. Thank you, Mr. Darling. You've been very
helpful at all of our hearings, and I appreciate it.
Let me address a question to you, Dr. Atkinson. You
indicated that the university has not made a decision as to
whether to compete for this contract or not. What, in your
mind, will be the criteria that the university uses to make
that decision?
Mr. Atkinson. Well, Mr. Chairman, the Secretary has a blue
ribbon panel examining the issue of what competition should
look like, the criteria that should be included. Senator
Domenici will be holding a series of hearings on this issue
over the course of the summer. I will want to see just what
their conclusions are and how those conclusions are represented
in the document.
Second, there is the issue that the university has never
competed for this contract. We've always viewed it as a
national service. We were asked by the Federal Government to do
this. I would say that for the first 50 or 45 years of the 60
years we had a marvelous relationship between the university
and the Federal Government. Incredibly productive. And I think
the results speak for themselves. The last 10 years have been
complicated years. And I must say that when I look to the
future, I would want to be--I would like to see a different
kind of relationship established between the university and the
Department of Energy.
When I last signed the contract, I spoke to a group of
about 30 senior members in the Department of Energy; and I said
that if the relationships between the Department and the
university continued as they had in the recent past--and this
is now several years ago--that I would not be signing the
contract.
Mr. Greenwood. What was it that you didn't like about that
relationship?
Mr. Atkinson. Mr. Greenwood, that question was asked at the
time. I don't think I want to go through all the details. I
think one has to have a--this is a very special laboratory.
It's a science laboratory. It's a one-of-a-kind laboratory. The
recruitment of--you really want me to get into all the details?
Mr. Greenwood. Well, I don't want you to take 7 hours to do
it. But I just would like to know in general, what--I mean, we
have to decide. The Federal Government has to decide, the
Congress has to oversee the operation of this laboratory for
the foreseeable future, and we want to contemplate who's likely
to compete for this and what would motivate them to compete or
not to compete. And since the University of California has had
the contract for all of these years, it would be helpful for us
to know how satisfactory it has been or it has not been for the
contractor here to have this contract. So if you could shed
some light on what caused you at the last signing of the
contract to be less than thrilled with the relationship that
you had with the Federal Government, I think it would be very
helpful to us.
Mr. Atkinson. And the university, when it entered into this
arrangement entered into it with a view that it would be a
cooperative relationship, there'd be an effort on the part of
the Federal Government to work closely with the university to
identify and resolve problems, and that was the relationship
that evolved and I think was a very successful relationship. In
the last decade, I think that relationship has changed. It's
changed in many different ways.
Mr. Greenwood. And let me understand what that means. Do
you mean that the Department has been hands off? In other
words, you said that it was--you wanted a cooperative, close
working relationship and that has changed. Has that changed in
that the Department has not been aggressively involved in
identifying issues of concern and helping to resolve them? Have
they been hands off? Have they been meddling too much? Have
they been quarrelsome?
Mr. Atkinson. Mr. Chairman, it's a range of issues. I'm not
going to--I can't--again, I don't think I want to identify
specific individuals.
Mr. Greenwood. I'm not asking you to.
Mr. Atkinson. What I'm saying is that we have not had a
cooperative relationship and in many different areas, and I
think there's been--although I have said that I thought the
report that was delivered to the Secretary was an excellent
report and a very fair report, I agree with that remark. On the
other hand, there are a number of events that do disturb me.
When I became president there were a number of issues--this
is 8 years ago--that I focused on with regard to the
laboratories. I must say that the business area was not one of
them because I had thought at the time that was in good shape.
I certainly observed with interest year by year the various
reports from the Department of Energy that we were in--being
ranked very highly. So I would like a view to be established
that there is a joint responsibility for some of the problems.
But that may be asking too much. But I think I was trying to
respond to your question as to whether or not we would bid for
the contract. I think I pointed out that we've done this as a
national service.
Mr. Greenwood. Well let me ask you about that, because
I've--you said that a moment ago, and Mr. Darling has said
that. When you say that, do you mean that you felt that it's
your view that having this relationship, having this contract
has not been a benefit to the university?
Mr. Atkinson. Mr. Chairman, you can get any answer to that
question from anyone one you would like.
Mr. Greenwood. I'd just like your answer.
Mr. Atkinson. I do not, in total, believe--first of all, I
believe the university has lost considerable money running this
laboratory; and I can give you specifics of that. I think that
there's certainly been benefit for our scientists to interact
with the scientists at Los Alamos, and I think that's been
wonderful for the country and for the scientists at Los Alamos.
But I think they would have had that access if someone else
were running the laboratory. So I think we've carried a heavy
burden in running these laboratories. We've done it as a matter
of national service.
Mr. Greenwood. Well, what do you think would--it would seem
to me that if you're sitting here today saying we lose money, a
lot of money, we have an uncooperative relationship with the
Department of Energy, and our scientists could probably have
this experience regardless of who managed it, I can't see any
reason for you to want to bid on this.
Mr. Atkinson. Well, I think that's an interesting
conclusion you have come to.
Mr. Greenwood. Well, is it a conclusion to which you have
come?
Mr. Atkinson. No, it's not. I haven't come to that
conclusion yet. I mean, this is very important. It's important
for the country. The future of this country is going to be very
much dependent on what happens at those laboratories, and we're
conscious of our responsibility. We're conscious of our
historical commitment. And we're going to maintain a great
concern about the future. And, you know, I'm willing to
tolerate a great deal of problems running those laboratories if
I think it's productive for the country; and that is the
overriding factor. If you----
Mr. Greenwood. It seems to me that what we should have here
is a situation in which, whoever manages the contract, whether
it's your university, another university or private company,
doesn't lose money, has a cooperative relationship with the
Department that is productive for both, on both parts and that
the contractor feels that the contractor gets some benefit,
that it's a good thing to have this contract.
Mr. Atkinson. I agree with you totally.
Mr. Greenwood. And so--because no one's going to compete
for a contract--and I wouldn't compete for a contract in which
it looked like it was all an unpleasant burden that I just do
out of a need for service, and then I become embarrassed when
things go wrong, because that's always your reputation at the
university.
Mr. Atkinson. Mr. Chairman, we agree totally with you.
Mr. Greenwood. Okay, so it seems to me what we ought to be
about and what we would certainly need your help with and
hopefully between now and when the contract is bid that you
would help the Department think through how it would design a
process by which whoever bids would feel entirely differently
about this, would not lose money, would feel happy with the
relationship and would feel that they're getting some benefit
out of the relationship.
Mr. Atkinson. Mr. Chairman, in my testimony, I pledge that
for the next 2\1/2\ years that we will do all that we possibly
can to insure the future success of those laboratories.
Mr. Darling. And, Mr. Greenwood, I would just add to Mr.--
to the President's remarks that I have had those discussions
with the Department of Energy and with the National Nuclear
Security Agency and I have begun a process of doing exactly
that for the very reason that you outlined in your earlier
comments.
Mr. Greenwood. Okay. I'm interested in your comment about
losing money. Generally, how does it happen that the university
loses money here? Because it's been my understanding that
essentially that the operation was one in which all costs were
recovered.
Mr. Atkinson. Well, I'll just give you one example. In the
long history of this relationship, we have a policy whereby the
sons and daughters of scientists or staff at the laboratory can
attend the University of California as in-State residents,
paying in-State residents fees and receiving financial aid
which, for the University of California, is quite significant.
We do work very hard at financial aid. We've never been
reimbursed for that. We've never sought the reimbursement for
that. Over the years, that's been a huge amount of money.
Mr. Greenwood. Well, that sounds like it's probably not a
good idea for the next contract then.
Mr. Atkinson. Well, that's not the way I view it. I mean,
those are the sorts of things that I don't want to have in the
contract.
Another example----
Mr. Greenwood. But, I mean, the employees--it's not been my
experience, looking at the numbers, that the employees of the
laboratory are particularly underpaid. They're paid quite well.
So to provide to them a benefit of free college education for
their sons and daughters is an expensive proposition and in
that a new contractor may not want to take that on.
Mr. Atkinson. Well, that may well be. But part of the
relationship here is the relationship of the university with
the scientists of the laboratory, trying to maintain a very
close relationship. Once someone goes to the laboratory and
focuses their long-term career in the laboratory, they're in a
certain sense isolated from the larger scientific community.
Their association with the University of California is
extremely important to them. And part of this is to really
assure them that we want their children at the university, that
they are indeed full members of the university. And if you look
across the laboratory particularly of the senior scientists
you'll see that their children often have 2 or 3 degrees from
the University of California.
I think it is a very important thing that we do. I am very
proud of what we do.
The outreach efforts in northern New Mexico. We've put a
great deal of effort into outreach efforts in the K through 12
schools and the like in this area. We don't--we have some mild
reimbursement for that. But we don't have the full range of the
reimbursement that's associated with all the efforts of the
University of California to develop K through 12 preschool
programs.
So I'm not complaining. I'm not saying that we've--that I'm
complaining about the loss of money. I'm proud of the fact that
we've done these things. But I think they're extremely
important. I'm proud of them. And I just want to point out that
we've not--I mean, a number of people think we've gained from
this financially. We surely do not gain. No one would argue
that.
Mr. Greenwood. I don't think any of the members of this
committee have ever made such a statement.
Mr. Atkinson. Well, I'm not saying you did but certainly a
number of people think that's the case.
Mr. Greenwood. Okay. My time has expired, and I would
notify the witnesses that I have to leave for another
commitment, and Mr. Radanovich will be chairing the balance of
the hearing. Thank you for your cooperation this morning.
The Chair recognizes the ranking member, Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman.
I'm going to ask unanimous consent that a letter from
attorneys representing, I guess, whistleblowers that was
referred to in your testimony be submitted for the record and--
just so we have it available.
Ms. Broome, in an interview with committee staff, you
indicated that the current Los Alamos business operation staff
was inadequate for that task and that new people have been--or
new people would be hired. Can you tell us why new people with
new ideas and better skills should come to Los Alamos after
what happened to individuals including Mr. Wobb, Mr. Dorn with
their new ideas and better skills?
Ms. Broome. Well, that's not a simple question. I would
hope that the opportunities at Los Alamos would be sufficient
to attract new staff. As we've indicated, it's probably the
most exciting area in terms of science, we feel; and I feel
very confident that we are going to be able to improve. We have
already improved a number of the business practices at Los
Alamos.
This would be a very challenging position, for instance, to
senior financial officers to come in and to be able to make the
improvements. So I am confident that we will be able to attract
people.
We've done a number of things in that connection already.
For instance, one important thing that we have started is a
program of internships for MBAs and for business students
within the New Mexico area. We think it's important to grow our
own people so that we don't have to bring people in on a
massive scale. But we'll be able to bring people along.
Mr. Darling. And, Mr. Deutsch, if I just might add, I think
your question was, given the past, why should they come for the
future. And I think if you look at the changes we've made in
personnel, in systems, in policies and procedures, the
commitment that we have made to the laboratory from a new
director through the entire organization, I think that people
should see that there's a new tone being set and I hope we can
recruit them to be part of accomplishing what we should be
accomplishing for the United States.
Mr. Deutsch. You know, one of the--I guess a follow-up
question to that is, really, how long are you going to be
there? I mean, how long do you expect the management or the new
systems to be in place, the new people to be in place to insure
that there is, in fact, a new day where the main goal is not
seeing how quickly cosmetic changes are there, can be made, so
that, you know, that DOE auditor doesn't see anything wrong at
the next point in time?
Mr. Darling. Mr. Deutsch, I would urge you to remain
skeptical. I would urge you to remain skeptical until you see
the kind of actions that cause you to be otherwise.
And I would just say that we have--as I have said before,
we've changed 18 senior management at the laboratory, beginning
with the director and others. We have committed over $5 million
of the university's money for which we will not seek
reimbursement for the government to carry out the kind of
reforms and changes that admittedly should have been made
earlier, were not but are being made now. And so I would say
that there is a real tone change not in just individuals but in
practices and policies, in systems.
Mr. Deutsch. One of the questions that I raised earlier and
I think a number of other members raised as well is, I guess
having sat through several of these hearings we are in this
culture at Los Alamos which says don't make waves. What's going
to happen if these new employees make waves?
Mr. Darling. That is a troubling issue for us. And as I
testified at the earlier hearings, this is something we are
focusing on to change dramatically. Since interim Director
Nanos has arrived, since Vice President Broome took over the
business operations, since Auditor Reed took over the audit
operations, we have received a flood of complaints, concerns,
and other issues that reflect that there was indeed a pent-up
desire to speak out but a fear of doing so. I think with that
flood of comments, e-mails, letters, personal remarks, we are
beginning to see in the employees of the laboratory a sincere
belief that the new management is open to those concerns and
now it's our responsibility not to let them down and to uphold
those changes.
Ms. Broome. Can I add to that? In connection with the
business process improvement work that we have done that
hopefully I will have an opportunity to tell you about, we made
the employees a very significant part of the improvement. In
fact, in addition to all the external reviews, we had the
internal financial management conduct self-assessments so that
we could get their views and make them part of the solution to
correct these problems. They are very much a part of this
solution. We have a very open policy in dealing with people. I
listen to numerous people with regard to what they think is the
problem and how we might fix it. I'm a big believer that the
people who do the work know a great deal more about the
problems than somebody sitting at a higher position.
Mr. Darling. I would also like to ask the auditor to talk
about the new whistle-blower policies and the changes that are
being made in that regard as well.
Mr. Reed. Thank you for the opportunity to comment. The
first step I think in changing the culture is giving the people
the confidence to come forward. Then it is up to us how we
treat them and how we treat their issues going forward.
As you're aware, I believe in late January or early
February, we instituted a Pinkerton hotline service to create a
new avenue for employees to come forward with increased
confidence of confidential treatment. We received 13 phone
calls so far on the Pinkerton hotline, almost all of them in
the first few weeks of that service, with the last call being
March 17. We have received a flood of letters, e-mails, phone
calls, that Vice President Darling alluded to. I have been
approached in the parking lot. I have advertised my e-mails and
telephone number. The volume of whistle-blower complaints in
our fraud, waste, and abuse inventory that we're investigating
in my internal audit unit has grown by sixfold since the first
of December. I think it's a positive thing, I think it signals
employees willing to come forward and talk to us and I think
the fact that we have seen a continued influx of calls but less
use of the Pinkerton hotline signals to me that people are
willing to come forward to us. As I said, that's a start,
getting them to feel confident to come forward.
Now, how we treat them and how we treat their issues is
critical. We are implementing the university's new whistle-
blower policies which create a process for managers to
recognize when a whistle-blower complaint is being made, how to
funnel those into a central process where they are worked and
handed off to the right investigators, communications back to
the whistle-blowers so they get a closed loop, and, at the same
time, the whistle-blower retaliation policy which protects
people from retaliation is being implemented.
I think that there is a change being made, although I
understand fully that it would take a long time before the
workforce is confident that there is a change and that they can
come forward without fear of retaliation.
Mr. Deutsch. There's no question that the lab has done
great things. No one has ever questioned that. And I would
agree, Dr. Atkinson, a very unique role in American history in
the world of science. And clearly that didn't occur without a
culture of discussion and critique and--you know, in terms of
science. And one of the things we talked about is clearly the
lab at the same time, you know, there's an expectation that
it's run within a business practice model and I guess, you
know, can--in terms of--I don't want you to spend as much time
running the lab as a business, as a science. That's clearly the
higher goal.
I think what we have talked about it becomes problematic at
so many levels. And I guess is there anything we can do on the
business model side to encourage some of this robust discussion
that exists, just to get some of that from management, from
employees to really have that? Is there anything that you can
focus in to do that? I assume in other branches of the
university, you are much more successful at it than you are at
this location.
Mr. Atkinson. Mr. Deutsch, in a certain sense you have
already done it. The committee's investigation here has really
focused our attention. Clearly we were not focused carefully
enough. We should have identified these problems. There's
reasons for our failure to identify them, but those are not
satisfactory reasons. And there's no question we will be fully
focused on them in the remaining 2\1/2\ years as we serve as
the contractor.
Mr. Darling. As we commented in prior hearings, you're
right. We have 10 campuses. The university is a $15-billion-a-
year enterprise, larger than all but 125 companies on the
Fortune 500 list. We have not experienced these problems at our
10 campuses or at the other two labs. We clearly had serious
problems at this lab and I hope we have shown you some sense of
our desire to get on top of these issues and improve them in
the last few months.
Mr. Deutsch. Thank you.
Mr. Radanovich [presiding]. Thank you, Mr. Deutsch.
Regarding your request to submit for the record, I ask
unanimous consent for without any objection that might be to
include this in the record. There being no objection, so
ordered.
Thank you and welcome to the panel. It's good to see you
again.
Let me start off by asking a couple of questions. Dr.
Atkinson, regarding I guess a more recent situation several
weeks ago, apparently it was disclosed by auditors at Los
Alamos that employees were selling proprietary computer
programs and using the proceeds from the sale to purchase
computers and equipment outside of the Los Alamos procurement
system. And apparently there was either a division of--a
division supervisor who knew and allowed these sales to
continue for several years. Can you tell me the current status
of this investigation and whether you can state with any
confidence that these foreign sales did not contain classified
information and how the University of California intends to
address this situation? Apparently there was some thought that
there was even foreign sales going on.
Mr. Darling. I would like to make a few brief comments.
This is a case in which a scientist at the laboratory became
frustrated with the technology transfer mechanism in the
laboratory which allows an individual to take an invention or
discovery, license it to an outside company, and then use the
proceeds to benefit the laboratory and the science and thereby
also benefit the American economy by creating jobs and new
companies. This individual, upon becoming frustrated, decided
to take this matter into his own hands and basically entered
into a licensing agreement with companies without the
laboratory or the university's knowledge. And indeed we have
heard there were licenses made to companies in foreign
countries.
I would just reiterate that it is unclassified. We are
investigating this matter seriously. The individual is fully
cooperating. And I would like my colleagues to give you more
information about it.
Mr. Reed. The issue arose in mid-February and we
immediately engaged PricewaterhouseCoopers to assist us in the
investigation. As Senior Vice President Darling has said, the
software involved is unclassified software and the individuals
are cooperating. We have disclosed the matter to the Inspector
General's office since day one. We have communicated daily with
them on this matter, and yesterday delivered a draft report to
both Ralph Erickson at the contract office and the Inspector
General's office. That draft report concludes that there was
diversion of revenue, that there was avoidance of university
and lab policies, that there were export control violations.
But as was stated, the software is unclassified. In 1996,
Commerce Department approval to license the software was
granted. Some of the sales occurred before that date. None of
the sales occurred to prohibited countries, but there are still
very much policy issues and issues of export control that
officers at the laboratory are looking at.
Mr. Radanovich. Mr. Reed, can you tell me the status of the
employees that were guilty of this? Are they still employed?
Mr. Reed. The employees, because of their cooperation, have
been left in the employ of the lab and are not on
administrative leave, but we will be issuing a final report in
the next several days, and lab management and the Department of
Energy Inspector General will proceed with their own courses of
action.
Mr. Radanovich. Apparently in the draft report--and I don't
know if you could illuminate what the policy is between acting
during the time that the draft report is out to the time that
the final report is out--but apparently the division manager
knew about this and was already included in the draft report.
Mr. Reed. There were a number of people at the laboratory
who knew of this over the years. The beginning of the sale of
the licensing occurred in the mid-1990's, so this has been an
ongoing event for a number of years. People who knew and either
had the same belief that the engineer--software engineer who
developed the code knew that the technology transfer program
did not serve them well, and this was justified in some fashion
because they were trying to bring the money back into the labs.
I think there was some justification. And there are others who
knew who may not have had the specific knowledge of the
mechanisms by which funds were flowing. It is problematic that
a division director knew, and that's got to be dealt with as a
separate personnel matter.
Mr. Radanovich. You'll act on that once the final report is
in?
Mr. Reed. We'll refer our findings to management for their
action.
Mr. Radanovich. There's an issue regarding the pension fund
that I want to ask and I'll leave it up to you, Doctor, or
anybody else who wants to address it. There is a very generous
pension plan for Los Alamos employees, apparently not as good
at other national laboratories. And there's an issue as to what
happens to that pension plan once--if this goes up to bid and
somebody else is the bid winner. Can you--is it in your
opinion--let me read this question: Other national laboratories
across the Nation don't have pension plans nearly as generous
as that as the University of California.
Do you believe it is essential to effectively manage Los
Alamos, that future contractors offer an equivalent pension
plan for future Los Alamos employees?
Mr. Atkinson. Let me just say that the laboratory's pension
plan is the University of California's pension plan. I don't
consider it particularly generous. It is the case that the
regents have been remarkably effective in the investment of the
pension plan, and as a result we have not been having to ask
employees to pay into the pension plan for some period of time.
In terms of the termination of the contract, there would be
no problem of separating out the funds that are identified for
laboratory employees and the rest of the university. So I see
that as no obstacle to dealing with a termination of the
university. The issue of what another contractor should do in
terms of benefits, I don't have anything hard on that.
Mr. Darling. Mr. Radanovich, I might just add, because no
employee of the university nor the university, or, in this case
the Federal Government, has had to make a payment to that
pension plan for the last 10 years, the University of
California saved nearly $1 billion in pension payments over
this period of time. That is a large amount of money due to the
outstanding investment of those funds by the university. And I
don't know if you can say that about any another DOE
contractor.
Mr. Radanovich. Thank you. In the event of a change in
contract, how does the university intend to treat the surplus
in the pension fund for Los Alamos employees?
Mr. Atkinson. There's absolutely no problem there. The
legal grounds for separation are very clear. Whatever the
proportion of the funds are that relate to the employees of Los
Alamos, those will go to the employees. It's not an issue. As I
understand the way the contract is written, if there's a
deficit in the pension plan, the Department of Energy is
obliged to make up that deficit at the time of segregation of
the lab employees from the university. If there is a surplus,
that surplus would travel with the laboratory employees to the
new contractor.
As you heard this morning, Ambassador Brooks made the
statement that one of the conditions for the new contract
competition will be that any new contractor would be obliged to
provide the pension plan to new--to the employees of that new
contractor.
Mr. Radanovich. Can you answer--and let us move on. I am
very concerned if a contract left U.C. And went to someone else
that--the potential loss of talent that might be accompanied
with that. So--and again, I'll leave it to you, Doctor, and
anybody else who wants to respond to this, but other national
labs, for example, Sandia or Brookhaven, have changed their
management contractors and not suffered a loss of scientific
talent.
Can you explain why this is not the case with Los Alamos? I
need to get that into the record clearly.
Mr. Atkinson. It's a judgment as to whether they've lost
any in their scientific work. Different people have differing
opinions about that. And I think you would find a number of
people who feel that the work of a number of the laboratories
has gone down in recent years. Now, what was the question?
Mr. Radanovich. Why is U.C. At Los Alamos different than
other research laboratories in that if the contract were to
change, my fear is that we are going to lose a lot of talent.
Mr. Atkinson. I'm not sure how to answer that. Are you of
the view you will lose talent?
Mr. Radanovich. It's suspected if the contract were to
leave U.C. And go to somebody else, there would be a brain
drain of the talent in U.C., that some might retire early.
Perhaps Mr. Darling.
Mr. Darling. It's intriguing, while the hearings have been
going on over the past few months, the Department of Defense
has been facing a very serious problem. The Department of
Defense manages a number of Department of Defense laboratories
to serve the military needs of the Nation. Those laboratories
are, in the judgment of the Defense Science Board, the highest
policy adviser to the Secretary of Defense not achieving their
mission for the United States defense. One of the reasons is
that, because they are Federal employees, they have adopted a
civil service employment system which is not able to recognize
scientific talent, not able to recruit scientific talent or
reward it. So if you read the Defense Science Board report
which goes back over a 10-year period, the Defense Science
Board is actually recommending that the Department of Defense
no longer manage those laboratories but, rather, have private
sector contractors or preferably universities take over those
so that the missions can be better met. So that is setting the
context about this.
I should comment, at Los Alamos and at Livermore, the
number of retirements in the first 4 months of this year is
double the period in prior years and we have seen a huge spike
upwards in the month of April as this--as the decision by the
Secretary was looming. I cannot tell you, since the decision
was made yesterday, whether that will continue or whether it
will settle down. I hope indeed that it will settle down, and
so we'll have to wait and see over the next few weeks and
months.
Mr. Radanovich. Can you tell me, too, Mr. Darling, most of
the people that would qualify for what is considered an awfully
good pension, can you tell me the difference between those who
might want to retire, say, people that are in their fifties and
what might be the difference between employees there in their
fifties and, say, in their twenties.
Mr. Darling. One of the big concerns we have, the Nation
has a very limited number of individuals--I'll be very direct--
11 at Los Alamos, 16 at Livermore--that comprise the only
individuals who have ever designed a nuclear weapon for this
country--excuse me, headed a team that designed a nuclear
weapon and then had an opportunity to test that weapon to make
sure that it will do what is required of it should the
President be required to use nuclear weapons. With that in
mind, the median age of those individuals is 57 years old. Many
of them have been at the laboratory for their entire careers.
And under the university's pension system they could retire
today with their retirement very close to their current
salaries. They have indicated--many of them have said they are
not prepared to go through a change in contractor. I hope, and
deeply and personally hope that that is not the case, and we
will do everything we can to assure them so that that does not
take place, but that is a very serious risk to this country.
Mr. Radanovich. Thanks, Mr. Darling. My time is up. I would
like to ask a couple more questions, though. I would like to
recognize Mr. Stupak.
Mr. Stupak. Thank you. Dr. Atkinson, in your statement
here, I am looking at the first page, paragraph number 5.
Mr. Atkinson. I will need to get a copy of the statement.
Mr. Stupak. You say: Ask hard questions about our
management and take strong action. Record will show that the
university has responded quickly and has responded well. New
performance provisions have been written into our contracts,
and in every instance we have met or exceeded the new
requirements.
How do you know you have met or exceeded the new
requirements?
Mr. Darling. President Atkinson also makes the point a
little later on in his opening remarks that the Department of
Energy has the responsibility to evaluate that. And one of the
troublesome aspects of this whole episode, Mr. Stupak is that
the laboratory was receiving excellent ratings in all of these
areas. We did not--let me back up and say--first of all, we are
not making any excuses.
Mr. Stupak. I just want to know, have you done something,
evaluations or audits or something to back up these words?
Everyone is saying all these things are going great. I haven't
heard anyone say we had this audit and we passed this and did
that. That's what I am trying to ask.
Ms. Broome. Would you like me to address the audits?
Mr. Stupak. I just want someone to answer my question. We
have had earlier testimony that the last 4 to 6 months, things
have been better there. How do you know it? How do you know
it's better?
Ms. Broome. I think by the controls we're putting in and
the testing of these controls. As an example, the largest
problems we had were in the area of procurement, and we
developed a whole procurement quality assurance function and we
instituted audit procedures to be--to ensure that procurement
procedures are being followed. The initial results of those
audit procedures show that the appropriate procurement
techniques are being followed.
Mr. Stupak. Who did that review to make sure things were
being followed?
Ms. Broome. That is being done by the staff at Los Alamos,
under my direction.
Mr. Stupak. Let me ask then, and go Mr. Darling, to the
computers. You were talking about the computers and I believe
you said computer problems have been corrected and they're all
secured. Is that basically what you said?
Mr. Darling. If I may, there are 164 classified laptop
computers at Los Alamos National Laboratory. The DOE Inspector
General's interim report raised question about four of those
classified computers. We have located all of them.
Mr. Stupak. You located those four?
Mr. Darling. We have those four. They have been secured and
in a proper place at all times. This is a further reflection of
the improper administrative procedures at the laboratory that
did not have a complete inventory of those, and I would be
happy to walk through each and every one of those four.
Mr. Stupak. I don't want to take all my time on these
computers. He says there are 22 unlocated laptop computers and
this report is April 24, so it's about 8 days old. So in the
last 8 days, the four classified ones you said have been found?
Mr. Darling. Four classified ones were never lost. They
were simply not on the inventory that the DOE Inspector General
consulted in order to track them. We've had a procurement
property management in a number of areas, some very serious
problems in not having items appropriately at the lab show up
on the data bases for recordkeeping. That is what we had here.
The Inspector General just consulted the property management
report. Did not look at the list of classified computers where
those computers show up.
Mr. Stupak. They show up, but they have been physically
found?
Mr. Darling. They do exist and they are in a secured area.
Mr. Stupak. What about the 10 that he claims that are
stolen?
Mr. Darling. One of the problems that we do have, sir, and
we have acknowledged this in prior hearings in which you were
not in attendance, is that there has been a lax set of
procedures for handling missing, lost, or stolen property.
Individuals have not been held responsible and the lab has not
pursued those so-called unlocated computers or other property
to see what they are. We are now putting in place procedures to
do that. We are embarrassed by it and we intend to make sure
that this does not happen again.
Mr. Reed. If I might add.
Mr. Stupak. Of these 18 or these 22, 4 have been found.
Let's say there's 18 out there. In your testimony, the
computers that have been secured----
Mr. Darling. I was referring to the classified computers.
Mr. Stupak. From this day forward, you're saying they're
secured.
Mr. Darling. I'm saying they were secured and they're
presently secured.
Mr. Stupak. How about the hard drive that was missing when
I was out there in January? Has that been found?
Mr. Darling. There was a hard drive carrier that was
properly located in a secured area. There was not a hard drive
in it. There is no----
Mr. Stupak. But your inventory report shows a hard drive
with a hard drive in it.
Mr. Darling. That's correct--well, I can't recall that.
Your memory is better than mine. We have no evidence to believe
that there was a hard drive. We don't know whether there is.
That remains unresolved.
Mr. Stupak. And everyone's clear now at Los Alamos that if
a computer is missing you have to report it to somebody, right?
Mr. Darling. Before you do, Pat, I just want to refer to
other so-called classified removable electronic media, which is
what the hard drive is. We are trying to move away from having
hard drives used for classified information because of the
concerns you raised. So the laboratory has begun to move--at
the Nicholas Metropolis Center where Mr. Greenwood, and I
believe you may have visited as well, in January--toured a new
environment where you don't have a removable media used for
classified material. We have instituted procedures whereby
there will be at the exit of a classified building--I guess the
best analogy would be like when you leave a library or store,
there is a device that lets you know when you are exiting the
building. We have instituted a number of highly increased rate
of randomized checks to make sure that individuals' briefcase
and other materials are looked at on a regular basis. So we are
trying to, in every way we possibly can, make sure that
classified material is accounted for, as you would expect us
to.
Mr. Stupak. Mr. Reed, you mentioned about the Pinkerton,
your confidential line there. You have had 13 calls, right?
Mr. Reed. Yes, sir.
Mr. Stupak. Have you verified those complaints in those 13
calls?
Mr. Reed. Well, those 13 calls represent one intake source.
Mr. Stupak. Just answer my question. Thirteen calls, what
did you do with the information?
Mr. Reed. All the complaints that come in to us, I can't
tell you precisely on those 13 which are closed or open. But we
have not found any significant theft of property from those
complaints or the--or other significant investigation.
Mr. Stupak. Of these 13 calls, were they about thefts of
property and things like that?
Mr. Reed. They range from thefts of property to----
Mr. Stupak. Let's say theft of property. Did you check, and
was in fact property stolen based on that call?
Mr. Reed. We have had 104 intakes.
Mr. Stupak. I am just talking about the 13 now.
Mr. Reed. Those come into the process and all complaints
come into the process. We have worked all the missing property
cases; 35 are closed, 69 are still open.
Mr. Stupak. How about just these 13? I am only dealing with
stolen property.
Mr. Reed. I would have to get you the information.
Mr. Stupak. See, the point I am trying to make: You put up
this confidential line, change the tone and tenor of this
place, and you have this confidential line and people call in;
they trust it for a minute here, and if you're not getting back
to them and if you're not verifying what's going on, they just
think oh, hell, it's the same thing that went on before.
Mr. Reed. I'm sorry to have confused you. We are working on
each one of these cases. I am having difficulty as we sit here
pulling the Pinkerton cases out from those who reported these
matters to a different channel.
Mr. Darling. And Mr. Stupak, if I may add, one of the
features of the anonymous whistle-blower hotline is that an
individual can call anonymously, can report an event, they are
then given a case number. We are then obliged, or obliging
ourselves to then call back the outside hotline to inform what
the progress is so the individual can still anonymously call in
and check up on the progress of that case by case number
without revealing their----
Mr. Stupak. I understand all that and I am trying to figure
out if you're doing it, because you are never going to restore
the confidence unless they know what's going to happen.
Mr. Darling. I completely agree with you.
Mr. Stupak. This division manager that the Chairman asked
about, on this software that had been going outside the system
that has been going on for a long time, you indicated in the
preliminary report no disciplinary action has been taken. Maybe
OIG might do something. But my impression is the university is
not going to do anything.
Mr. Reed. Not to confuse you again, the report has just
been provided to management in draft form as of the day before
yesterday. The decision not to put the--I will call it the
perpetrator of the licensing scheme--was made back in February
because of their cooperation. The report disclosed 2 days ago
was the first disclosure of who had an awareness of what was
going on. Mr. Darling. We have terminated 18 individuals. Every
individual that has been brought to our attention involved in
theft where the investigation has been concluded--the auditor,
the deputy director, the director, the head of security, the
deputy head of security, the chief financial officer, the head
of the procurement program, the head of the purchase card
program--all of those individuals have either been terminated
or removed from the laboratory or reassigned for the very
reasons you mentioned. Persons must be held personally
accountable for their actions and we intend to do so.
Mr. Radanovich. Your time is up.
Mr. Stupak. I just wanted to ask him about the Mustang
case. No decision on that one yet?
Mr. Darling. The Mustang case is one of the ones that we
had hoped to obtain additional information from the U.S.
Attorney in Albuquerque. Because we did not do so because the
FBI refused our Freedom of Information Act request to obtain
information, we have sent two individuals out to the vendor in
Phoenix to obtain additional documentation that might tie that
purchase to a specific individual. Mr. Reed can comment
further, but we are not where we would like to be in that
investigation.
Mr. Stupak. You don't have to wait for law enforcement to
take any internal action.
Mr. Darling. Yes. In accordance with our contract when
there is a theft, we are first obliged to notify the Department
of Energy Inspector General or Federal law enforcement
officials. They then take possession of the case. We put the
individual on investigative leave. We were not allowed to take
any actions whatsoever in the case until they had handled it.
It was only at the last hearing where they relinquished the
authority and where we could for the very first time begin to
pursue our own investigation.
We have pursued personnel action and that action is
pending. So we have not--we have been pursuing it aggressively
since we were given the authority to do so.
Mr. Radanovich. I'm afraid the time is up. We will be going
up for another round of questions. So if anybody has any
further questions they want to ask, there will be the
opportunity, but I would like to recognize Ms. Eshoo.
Ms. Eshoo. President Atkinson, Vice President Darling, Mr.
Reed and Ms. Broome, welcome. It's good to see you. When
Chairman Greenwood was asking--and I would like to set this
down for the record--about the dollars that the university has
expended over the years and in terms of a benefit for in-state
tuition for employees, I would like to just highlight and
underscore what that means. If any of us had as a benefit that
our children would have a deeply discounted reduced tuition to
Harvard or to Yale, we wouldn't spend a nanosecond to struggle
to come to the conclusion that that is a great, great benefit.
And so I think that needs to be appreciated here. That isn't
anything that is insignificant.
And if I might say, the University of California has in its
combined 10 campuses, has duly earned the reputation of being
the greatest public university in the world. It is not without
her problems and certainly some of them is what has brought us
here today. But I would think if anyplace is going to recognize
what a great university's role is in terms of our Nation and
the betterment of our Nation, certainly the Congress should
recognize that as we review both the contract, the problems
that have occurred, and the longtime stewardship of the
university.
On page 7 of the recommendations to Secretary Abraham,
there is a footnote. And what I would like to do is just to
highlight that again, Mr. Chairman, as you pursue the questions
relative to pensions, and I do have some questions on that. But
that footnote talks about the prospect of termination already
having an adverse effect.
Now, we are talking about a benefit that accrues to our
country relative to the role of the contract and what happens
with the science. As of April 8, 266 Los Alamos employees, 68
with critical skills--and maybe someone from the panel would
like to identify what a critical skill is--have applied for
retirement. In contrast there were only 177 retirements during
all of 2002. Retirement requests at Livermore are currently
running at roughly twice the 2002 rate. So I think that good,
bad, or whatever is in between, that this is all having an
effect.
My question to you is, No. 1--and I know that it's
difficult to look down the road, but, President Atkinson, as
you described the relationship over the years--as I said
earlier, I was 4 months and 1 day old when the first contract
was entered into and I am not suggesting that you were around
then doing this--do you believe, and the problems that you have
I think pretty frankly alluded to--do you believe that U.C.
Will recompete for this contract as it becomes available in
2005?
Mr. Atkinson. It is just too early for us to make a
statement on that. There are a lot of factors that have to be
taken into account and I think it will take about 6 months. As
I said, we'll have to see the report from the blue ribbon
committee. I hope there are people on that committee who
thoroughly understand the issues of nuclear weapons and
research related to nuclear weapons, and we'll have to wait and
see the outcome of Senator Domenici's hearings. And I think it
will be very interesting to see what the judgment is of people
on just how this should be competed. I have no problem with the
issue of competition if that's the direction in which the
country wishes to go. There has been some worry that it will be
very costly for the university to compete.
Ms. Eshoo. The $25 million figure I have seen, is there any
credence to that?
Mr. Atkinson. Of course there is. You heard the Ambassador
speak about that. It might be high, it might be low, but it's
going to be a very significant amount. But of course those
moneys are returned to the contractor as part of the overhead
whether they win or lose over the course of a series of
contracts. For the University of California, though, I don't
worry about that. The fact is we're not going to compete in
that mode. We're not going to go out and hire special writers
or special film crews. We can put a proposal together in 2 or 3
weeks with 10 or 12 people, and that will be the investment
that we make in the proposal.
We will stand by our record. Clearly our record in the area
of business practices at Los Alamos in the last period of
time--and that may go back 7 or 8 years--has been abysmal and
it has to be corrected. I hope by the time the 2\1/2\ years is
up, we will have corrected it. And I hope that the record will
clearly indicate where the university stands as a competitor in
the process. But I do not like the idea of the word
``competition.'' The university has never sought this contract.
We were asked to do this and we did it as a national service.
We're very proud of our national service. And if the country
has come to the view that it should be done in some other way,
we will happily bow out.
Ms. Eshoo. Explain, if you would, the scenario of change.
Big science has been referred to more than once during this
hearing today. Big science calls for big minds. Certainly there
are not big salaries that go with this. But we need to retain
this intellectual property, as it were, for our Nation's
security. What happens? What exactly happens with a change of
contract? Is it simply that the big minds that relate to the
big science become employees of someone else? Is that
overstated? Is that understated?
Mr. Darling. Straightforward answer is we have no
experience with this because of the nature of the university's
relationship with DOE. I am sure there are defense contractors
or other laboratories that can give you answers to those. Those
are some of the issues we have to look into. The figure of $25
million came from Admiral Nanos, who is the current interim
Director of Los Alamos. He was before in charge of the Navy's
Sea Systems Command, and before that the entire U.S. And U.K.
Nuclear weapons program. He said, in his experience letting
large contracts with U.S. Defense contractors, that is what
they would typically spend to put in a proposal for a contract
the size of Los Alamos National Laboratory.
Ms. Eshoo. Well, Mr. Chairman, I don't have that much time
left. I don't know when the next hearing is, if there are going
to be future hearings. I think in fairness to investigation and
oversight, the issues that have not only been uncovered but
reviewed by the INO subcommittee or the full committee, that in
my view we should come back and revisit the progress that the
university is making and have the committee make a further
determination if in fact there is progress. I believe that it
is early on, but there have been important steps taken.
To the University of California, as a Californian, as an
American, I think the university is a great university. This
has been a very, very difficult, embarrassing chapter in the
life of the university.
I would say to the committee and to my colleagues in the
Congress that with the toughness of the questions and the
review and the oversight, that we continue to keep in mind that
through this oversight that we have pressed for and are making
progress relative to the business management of Los Alamos. I
have not heard once where our national security has been
impaired as a result of the university's work on this project.
So I hope that we will come back and revisit it and review the
progress of what the university has put into place, the
sustaining of the reforms. And I hope that at the end of this
process, whatever the determination of the university is, to
continue on with the contract or to bring to a close its
service to the Nation, that we will end on a note of great
dignity.
So I thank you, Mr. Chairman, for again extending this
legislative courtesy to me. And I thank the university's
representatives, the president, the vice president and those
that have accompanied them here today in the Congress.
Mr. Radanovich. Thank you. I concur with your remarks. I
want to start off by saying that I have confidence in the high
quality and scientific and technical work at Los Alamos that
has been performed by the University of California.
Let me ask this question. I think that--and recognizing the
long service that U.C. Provided to the national security
interests of the United States over many, many years--if the
issue does come up, and since the Secretary of Energy said that
this will come up to competitive bid--and this doesn't make
money, why would the University of California--assuming that
the University of California were to bid, which you know is an
assumption, why would the university, assuming that, want to
keep the contract?
Mr. Atkinson. Well, I think I said before that we view this
as a service to the Nation and we had a unique contribution to
make here and I am very proud of that contribution. And you
know, if we continue in the future, it will be--I won't view it
as a competition, let me simply put it that way. I will view it
as the university's record is there. We are happy to write a
proposal. It will not be, as I said, a $25 million proposal.
And the Department of Energy can make its decision. I just hope
that knowledgeable people are involved in making that decision.
Mr. Radanovich. Again, continuing to have confidence in the
high quality of work the University of California has given at
Los Alamos, I also believe that the lab recognizes that the
business administrative practices of the lab need to be
revamped so they will rise to the level of quality--similar to
the quality of the science of the lab.
In that regard, what corrective actions, Mr. Darling, does
the U.C. Plan to take in the future to strengthen financial
controls and restore the American public's confidence in Los
Alamos and the university's management of it?
We have a vote. We will wind this thing up in about 10
minutes.
Mr. Darling. Mr. Radanovich, I think what we're going to do
is build on the changes that we have begun to make, but not
stop there. We will continue in a relentless way to understand
the problems, the issues, and the opportunities at the
laboratory. We will implement all the recommendations that have
come from our own reviews as well as from the reviews of the
outside groups we have brought in, such as
PricewaterhouseCoopers and Ernst and Young, and then we will
assess our performance over time. We will invite the Department
of Energy to do so and involve outside reviewers in doing so,
and I would invite you to do the same.
Mr. Radanovich. Ms. Broome, I do have a question for you
regarding business operations. What plans does U.C. Have to
review the business operations at its other DOE facilities,
which are of course Lawrence Livermore and Lawrence labs at
Berkeley?
Ms. Broome. Currently we have a review going on at the
Lawrence Livermore laboratory by Ernst and Young, the same firm
which reviewed all the business processes at Los Alamos. We
will be receiving a report from them probably by next week,
initial report. We invited them obviously in to get--also an
independent view of our business practices, though while as was
testified earlier, we believe that those business practices
don't have the issues that we have at Los Alamos, but we wanted
an independent.
Mr. Radanovich. To make sure.
Mr. Darling. I would just add to that, the moment we
returned from Los Alamos on November 25, where a group of us
went out to look at the business problems, we made available
our report, its nine recommendations, to the two other
laboratory directors. Mr. Reed engaged the auditors of those
two laboratories in reviewing the very issues, and we continued
in that pattern up to this very day. Every issue that comes up,
we informed other laboratories to assess whether there are
similar problems. We have not seen the extent of those problems
at the other two laboratories.
Mr. Radanovich. Mr. Darling, while we are engaged here, can
you give me an idea of what's termed as wall-to-wall inventory
and the progress of that initiative?
Mr. Darling. This was addressed briefly by Ambassador
Brooks. The so-called wall-to-wall inventory is a comprehensive
inventory of every piece of property at the laboratory that is
known as control. That means it has a value in excess of $5,000
or is otherwise a sensitive item of property that could
disappear easily, such as a computer, cell phone, or other such
items. The last one that was done was 1998. This is the first
time it is done. It is about 97 percent complete at this point
in time. And I know Vice President Broome could provide more
details about it.
Mr. Radanovich. If you could briefly, too. I want to
accommodate Mr. Stupak.
Ms. Broome. I would like to assure you that the lab is 10
weeks ahead of schedule. We brought in Pricewaterhouse to do a
complete review of all the procedures and controls surrounding
the taking of this physical inventory, and they will actually
be doing test checks as well to verify the results of this
inventory.
Mr. Radanovich. In closing, my last remarks may not require
an answer but I do want to put on the record my concern for the
fact that this was put up to bid in the first place, because
there are many other national laboratories in the United States
that are not for various reasons. And my big concern is the
loss of talent that's there that's able to apply for pensions
and leave some expertise that may not be found anywhere else in
the United States.
Thank you. Mr. Stupak.
Mr. Stupak. Just a couple of questions still bugging me on
the audits.
Mr. Reed, would you agree that the Inspector General's
evaluation of the audit function at Los Alamos--would you agree
that the evaluation was a rather negative evaluation?
Mr. Reed. I agree there are problems and I agree that there
were problems with independents, with performance.
Mr. Stupak. You're the university's auditor.
Mr. Reed. That's correct.
Mr. Stupak. Why didn't you know the condition of the Los
Alamos function before these events occurred then?
Mr. Reed. If I could address those individual components.
The independent issue, I think, is one of professional and
individual objectivity. It's not structure. We have changed the
structure. But the structure that was in place in that
laboratory was the same as Livermore up until we decided to
conform it.
Mr. Stupak. Wouldn't you get the audit reports that were
done internally?
Mr. Darling. Mr. Stupak, I testified about this at earlier
hearings. I want to say as directly as I said then, the auditor
of Los Alamos National Laboratory did not fully provide the
information to the university and indeed rebuffed the
university when the university made attempts to find it out.
Mr. Stupak. Didn't the university ask?
Mr. Reed. Let me also say that--because I thought about
that question a lot. If there is one concept that I personally
feel like I bought in too much is that they had so much DOE
oversight that the university was redundant. I am not blaming
the DOE, but I think it was the lab keeping us at bay to some
extent.
Mr. Stupak. What's the plan to get credible audits done on
time? Because they say internally they're understaffed.
Mr. Reed. Well, we have a lot of resources to help us. As
of yesterday, we had completed the backlog of all that follow-
up work. All 280 follow-up items have been completed. We have
hired additional staff on a temporary basis to help us put
together a plan to have the subcontractor audits caught up to
date by September 30. We have submitted--myself as university
auditor--a plan for next fiscal year's audit program that will
be submitted to the regents in 2 weeks for approval that meets
my full expectation.
Mr. Stupak. Is it really a good business practice to have
auditors reporting to the people they audit?
Mr. Reed. No.
Mr. Stupak. Why did it happen at Los Alamos then?
Mr. Reed. The way that we mitigated that was to have a
dual-reporting structure in place so the auditor there also
reported to me. But again I think in this case that was not an
effective reporting channel.
Mr. Stupak. Your new structure, is that going to be
temporary or permanent?
Mr. Reed. Permanent.
Mr. Radanovich. I want to thank the panel for being here.
Forgive me for closing this so shortly, but we have to get out
to vote. Appreciate your testimony and also the performance of
University of California over the last 50 years. Thank you very
much.
[Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
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