[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





 
 BREATHING FUMES: A DECADE OF FAILURE IN ENERGY DEPARTMENT ACQUISITIONS

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 20, 2003

                               __________

                            Serial No. 108-4

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                             ------------------

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
              Randy Kaplan, Senior Counsel/Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 20, 2003...................................     1
Statement of:
    Friedman, Gregory H., Inspector General, U.S. Department of 
      Energy.....................................................    42
    Nazzaro, Robin M., Director, Natural Resources and 
      Environment, U.S. Department of Energy.....................    20
    Rispoli, James A., Director, Office of Engineering and 
      Construction Management, U.S. Department of Energy.........    10
Letters, statements, etc., submitted for the record by:
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................    74
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     7
    Friedman, Gregory H., Inspector General, U.S. Department of 
      Energy, prepared statement of..............................    44
    Nazzaro, Robin M., Director, Natural Resources and 
      Environment, U.S. Department of Energy, prepared statement 
      of.........................................................    22
    Rispoli, James A., Director, Office of Engineering and 
      Construction Management, U.S. Department of Energy, 
      prepared statement of......................................    13
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................     3


 BREATHING FUMES: A DECADE OF FAILURE IN ENERGY DEPARTMENT ACQUISITIONS

                              ----------                              


                        THURSDAY, MARCH 20, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 11 a.m., in room 
2157, Rayburn House Office Building, Hon. Tom Davis (chairman 
of the committee) presiding.
    Present: Representatives Tom Davis, Duncan, Waxman, 
Maloney, Tierney, Clay, Watson, Van Hollen, Sanchez, 
Ruppersberger, Norton, Cooper, and Bell.
    Staff present: Melissa Wojciak, deputy staff director; 
Ellen Brown, legislative director and senior policy counsel; 
Scott Kopple, deputy director of communications; Teresa Austin, 
chief clerk; Joshua E. Gillespie, deputy clerk; Corinne 
Zaccagnini, chief information officer; Ryan Voccola, assistant; 
Phil Barnett, minority chief counsel; Paul Weinberger, minority 
counsel; Karen Lightfoot, minority communications director/
senior policy advisor; Mark Stephenson, minority professional 
staff member; Earley Green, minority chief clerk; and Jean 
Gosa, minority assistant clerk.
    Chairman Tom Davis. I am going to start by recognizing my 
ranking member, Mr. Waxman, for an opening statement, and then 
I will move ahead. Thank you.
    Mr. Waxman. Mr. Chairman, I would like to begin by thanking 
you for holding this important hearing today. Given the Energy 
Department's long, disturbing history of contract and project 
management, or mismanagement, congressional oversight is 
essential. I hope that the information the Committee learns 
today will help us do a better job monitoring DOE's acquisition 
management.
    DOE has a unique and uniquely challenging mission. Its work 
includes maintaining the country's nuclear weapons stockpile, 
cleaning up environmental contamination, and promoting 
leadership and science. All of these jobs are essential and 
many involve cutting-edge work. There is no doubt that the 
Department has had some success stories. Unfortunately, 
contract and project management have not been among them. In 
fact, the Department's record of overseeing contractors and 
making sure that work gets done on schedule, within the budget, 
and without jeopardizing safety or the environment is 
appalling.
    Take, for example, the Superconducting Super Collider. 
DOE's original cost estimate for the Super Collider grew from 
$5.9 billion to over $8 billion in just 1 year. By the time the 
project was terminated by Congress in 1993, $2 billion had been 
spent and GAO had estimated the total cost at over $11 billion.
    Or consider DOE's Savannah River site in South Carolina, 
which became operational in 1951. Millions of gallons of 
liquids containing highly radioactive waste accumulated in 
storage tanks over the years. The Department and its contractor 
spent 10 years and almost a half a billion dollars before 
deciding that their plan to clean up the contamination at 
Savannah River was a failure.
    And then there is the Paducah Gaseous Diffusion Plant in 
Kentucky, where decades of unsafe and possibly illegal 
contractor practices have resulted in a public health and 
environmental catastrophe. It is still not clear how many 
workers at Paducah have suffered or will suffer serious health 
consequences or even death because they were unknowingly 
exposed to very hazardous, high radioactive substances. I hope 
that today we will be able to find out a little bit more about 
the Department's cleanup efforts at Paducah.
    I could go on. The list of contract failures at DOE is a 
long one. So, unfortunately, is the list of DOE's promises to 
reform itself. Since the mid-1990's, the Department has 
repeatedly pledged to improve the way it designs and manages 
contracts and projects. Today we will learn whether and to what 
extent these reforms are succeeding. So far, however, the 
evidence is not very promising.
    For over a decade, GAO has classified the Department's 
contract and project management as at high risk for fraud, 
waste, abuse, and mismanagement. In 1999, the National Research 
Council reported that DOE's construction and cleanup projects 
take much longer and cost 50 percent more than comparable 
projects at other agencies or in the private sector. And just 
last year the Department admitted that its entire environmental 
management program was a failure. That program manages cleanup 
operations at over 114 nuclear weapons sites covering an area 
of over 2 million acres. In 1998, DOE estimated that the life-
cycle cost for the cleanup program was $147 billion; 4 years 
later, it admitted that the estimate could easily increase to 
more than $300 billion.
    The purpose of today's hearing is not to place blame, 
particularly in cases where DOE has openly admitted its 
shortcomings. It is to make sure that DOE is capable of 
handling its many complex, challenging, and essential projects 
and contracts; and it is to ensure that the public can count on 
the Department and its contractors to get the job done on time, 
on budget, and without jeopardizing the environment or the 
health and safety of workers and the community.
    Thank you, Mr. Chairman, again, for holding this important 
hearing, and I thank the witnesses for appearing on short 
notice.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. Thank you, Mr. Waxman.
    I want to welcome everybody to today's oversight hearing on 
DOE's troubled acquisition management functions.
    The Department of Energy is a unique agency with rare 
challenges. The Department is tasked with diverse missions such 
as assuring that the Nation's nuclear weapons stockpile is safe 
and reliable, cleaning up radioactive and hazardous waste, 
fostering a secure and reliable energy system, and performing 
world-class scientific research. The terror attack of September 
11th and recent energy shortages have further compounded the 
Department's challenges.
    To further complicate matters, DOE depends on contractors 
to operate its sites and carry out its crucial missions. The 
Department contracts for designing, constructing, and operating 
huge multimillion dollar facilities. The statistics are truly 
amazing. DOE is the largest civilian contracting agency in the 
Government. Approximately $18 billion of DOE's annual 
appropriations of about $21 billion is spent on contracts. Of 
that amount, about $16 billion is expended on contracts to 
manage and operate 28 major DOE sites. The agency has a work 
force of about 16,000 employees. A far larger work force, over 
100,000 contractor staff, actually perform the bulk of the 
Department's work. Thus, it is particularly distressing that 
the Department's acquisition management has been included on 
the GAO's high risk list of government functions susceptible to 
fraud, waste, abuse, and mismanagement, and tops the DOE 
Inspector General's list of seven key management challenges.
    Our hearing this morning will build on the work done by 
both the GAO and the IG on the difficulties experienced by DOE 
in managing its acquisitions and the Department's related 
problems in running its complex and critical programs. For over 
a decade, GAO and the DOE IG have criticized the Department's 
acquisition practices, particularly the Department's inadequate 
contract management and oversight and its failure to hold its 
contractors accountable for results. Poor performance of DOE 
contractors has led to schedule delays and cost increases on 
many of the Department's critical projects.
    The good news is DOE has established a fairly extensive 
acquisition reform program in an attempt to remedy its 
problems. The Department is aiming its reform efforts to three 
key elements of acquisition: (1) alternative contract 
approaches, (2) increased competition, and (3) the use of 
performance-based contracting. The bad news is that, at best, 
the results are mixed. At worst, according to the GAO, the 
Department does not have the objective performance information. 
Thus, the Department may not even know whether its reforms are 
really working.
    How can this rather depressing state of affairs be 
improved? GAO thinks that a good start would be to get a 
genuine handle on exactly where DOE stands in its current 
reform program. Then DOE should apply effective management 
practices used by high-performing organizations to reform 
program. To begin with, DOE should set clearly established 
goals and develop an implementation strategy that sets 
milestones and establishes responsibility.
    Given the critical nature of DOE's programs and the huge 
dollars involved, it is imperative that DOE resolve these 
issues without delay. Today we hope to explore the root causes 
of its perennial acquisition management difficulties, the 
viability of their acquisition reform program and whether it is 
reasonable to expect significant improvement in DOE's 
acquisition management program results in the near future. We 
wonder whether DOE has acquisition professionals with the right 
training and skills to manage its giant portfolio of complex 
contracts. To help us understand the complex issues surrounding 
their contracting, we will hear today from an expert in this 
area from the GAO and from the DOE Inspector General. A witness 
from DOE will give us the Department's side of the story.
    In closing, I want to emphasize the committee will continue 
to follow DOE's efforts to reform its acquisition management. I 
would like to acknowledge my good friend and ranking member of 
this committee, Mr. Waxman, for his keen interest on this 
issue. It is at his suggestion that we are holding this hearing 
this morning.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Tom Davis. I now yield to any other Members who 
may wish to make opening statements.
    Yes, Mr. Ruppersberger.
    Mr. Ruppersberger. Mr. Chairman, thank you for calling this 
hearing today.
    Accountability is the question today: Is the Department of 
Energy holding contractors who do nearly all the work for DOE 
accountable for their work?
    I was a former county executive. In that role, 
accountability was extremely important to me. If you did not 
perform your job, if the subcontractors were not performing, 
they were eventually terminated. If you were not doing your job 
well, we found ways to make sure that you did your job well. We 
have to remember the Government is basically a customer-based 
business. We are in the business of making sure that we provide 
Government services safely and efficiently.
    For the past decade, the Department of Energy has come 
under fire from GAO and the DOE IG Office for Mismanagement. 
Today hopefully we will learn more about what the Department is 
doing to fix these problems, holding our subcontractors 
accountable for performance. Now, more than ever, we have to 
make sure that our energy supply is safe. We have to make sure 
that delivery of energy service is not interrupted and that we 
are properly disposing of waste.
    Again, thank you, Mr. Chairman, for holding this hearing.
    Chairman Tom Davis. Thank you very much.
    Any other opening statements?
    Mr. Duncan. Mr. Chairman, very briefly.
    Chairman Tom Davis. The gentleman from Tennessee.
    Mr. Duncan. Well, first of all, I thank you for calling 
this hearing, because this is a very important topic 
considering the fact that $18 billion out of the $21 billion 
budget of the Department of Energy is done by contractors. But 
I want to read just this one sentence from a briefing paper. It 
says: ``For over a decade, GAO and the DOE IG have criticized 
the Department's acquisition practices, particularly the 
Department's inadequate contract management and oversight, and 
its failure to hold its contractors accountable for results.'' 
And they talk about all sorts of cost overruns and schedule 
delays.
    It is a very, very poor record, and, you know, most people 
across the country just can't understand why the Federal 
Government continues to enter into contracts with contractors 
and not set specific figures, and then to allow all these huge 
cost overruns. We have just heard the testimony about the 
contractor to hire Federal screeners. Of course, that is 
another department, but that contract was supposed to cost $107 
million and it ended up costing over $700 million, a more than 
$600 million cost overrun. And we just can't continue to allow 
these things to go on and on and on and on.
    So I thank you for calling this very important hearing 
today, Mr. Chairman. I yield back the balance of this time.
    Chairman Tom Davis. Mr. Duncan, thank you very much.
    Any other opening statements?
    If not, I would like to move to our panel of witnesses. We 
have James A. Rispoli, the Director of Engineering and 
Construction Management at the Department of Energy; we have 
Robin Nazzaro, the Director of Natural Resources and 
Environment of the General Accounting Office; and Greg 
Friedman, Inspector General of Department of Energy.
    It is the policy of our committee that all witnesses be 
sworn before they testify. Would you please rise and raise your 
right hands? And if you have any other staff that might testify 
with you, they can rise with you.
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much.
    In order to allow time for questions and discussion, we 
would like you to limit your testimony to 5 minutes. We have a 
light in front. When it turns on, you have a minute left; and 
when it turns red your time is up and we would appreciate your 
summing up. We have your whole statements in the record, and 
Members have presumably read it and the staffs have, and we 
have questions crafted on the total testimony.
    Let me start with Mr. Rispoli, followed by Ms. Nazzaro, and 
then Mr. Friedman.
    Thanks for being with us.

STATEMENT OF JAMES A. RISPOLI, DIRECTOR, OFFICE OF ENGINEERING 
     AND CONSTRUCTION MANAGEMENT, U.S. DEPARTMENT OF ENERGY

    Mr. Rispoli. Good morning Mr. Chairman, members of the 
committee. I am pleased to be here to discuss acquisition and 
project management at the Department of Energy.
    The Department takes the concerns raised by both the 
General Accounting Office and the Office of the Inspector 
General in their recent reports on major management challenges 
very seriously. Frankly, we agree with these independent 
assessments and are taking actions to aggressively address not 
only the management challenges, but all of the challenges 
contained in these reports. In fact, after being briefed by the 
GAO and the IG on these reports, the Deputy Secretary has 
directed his senior executives to develop timely, coordinated, 
and comprehensive action plans to address these challenges. He 
is personally tracking those corrective actions monthly, and 
expects them to be resolved prior to the next series of GAO and 
IG reports on management challenges. The Comptroller General 
and the Department's Inspector General have indicated their 
support for working with us in development of corrective action 
plans to ensure these challenges are resolved once and for all.
    My own focus, I joined the Department 3 years ago from 
industry, in management of engineering and construction, and 
our focus of my office has been in the area of project 
management, one of the key concerns raised by the GAO and the 
IG. I would like to provide a brief overview of where DOE now 
stands with respect to its project management activities.
    Secretary Abraham has identified project management as an 
overarching theme affecting all of its major program 
activities, whether it involves high energy physics, weapons 
maintenance and development, environmental remediation, or 
other energy projects. It is very important, therefore, to 
conduct these projects within a disciplined framework to ensure 
that project goals, including cost, schedule, and performance, 
are monitored and achieved. I would like to now tell you what 
we have done and are doing to accomplish this.
    In October 2000, the Department issued a directive on 
Program and Project Management for the Acquisition of Capital 
Assets. It provides a framework to identify projects based on 
mission need; conduct appropriate acquisition planning; develop 
alternative acquisition approaches; accomplish other essential 
project planning, including risk assessment; establish 
realistic cost and schedule baselines; and track and measure 
the execution of projects to those baselines.
    The Deputy Secretary has directed that all new projects 
must be approved by a designated senior official; that is, all 
projects, $5 million and above, must be approved by either him 
or an Under Secretary or an Assistant Deputy Secretary. Once 
that project is approved, the acquisition strategy and 
evaluation of alternatives must be approved by the same level 
of approval official.
    This is a significant change from what it was before. 
Knowing that a program's strategy will be questioned by senior 
management at that level is driving more thorough analysis, 
consideration of acquisition alternatives, the full range of 
acquisition alternatives, increased risk management, and better 
integration of project and acquisition practices. Cultural 
change is very difficult. We continue to push hard to effect 
these changes.
    Additionally, there are other significant actions we have 
undertaken in the past 2 years, and they include the following: 
each project now contains measurable performance outcomes; 
metrics are provided monthly to the Deputy Secretary and senior 
management officials on every project above $5 million, that is 
the requirement; executive level management reviews of all 
major projects are required quarterly; portfolio performance 
metrics, showing performance and trends by Program Secretarial 
Office, are provided to the Deputy Secretary on monthly basis, 
it focuses senior-most attention on program accountability. The 
Department conducts external reviews to verify cost, schedule, 
and technical performance aspects of all projects above $5 
million before they go in the budget, effective October 2000.
    The Department recently implemented a major new 
developmental program for the improvement of Federal project 
management skills. We will begin certifying project managers 
this year by competency level. This initiative builds on a 
prior program established about 5 years ago for contracting 
officers. With the addition of project managers to that 
program, DOE is one of the very few agencies, outside of DOD, 
to have an umbrella program for certification of both 
contracting officials and project management officials.
    A few other initiatives that we are pursuing. The 
Department has an aggressive target that 85 percent, this year, 
of its projects be performing within 10 percent of cost and 
schedule targets. Two years ago, the Department had no 
capability to track, assess, and report on our project 
portfolio. In fact, we did not have a list of our project 
portfolio. Today we have that list, and we are performing at 74 
percent within those cost and schedule targets as tracked 
against baselines in effect since January 2002.
    We are institutionalizing the requirements of that October 
2000 directive on project management into a more comprehensive 
Project Management Manual. I would like to point out to you 
that the management practices in this manual are strongly 
supported by the National Academy of Science's committee on 
oversight of DOE project management and they implement OMB's 
Capital Programming Guide, which is found in the statute.
    To provide a strong focus on these initiatives, the Deputy 
Secretary, as I mentioned, is doing quarterly reviews with his 
senior management officials. Additionally, the Secretary has 
established a Blue Ribbon Commission to review and recommend 
criteria that can be used in the future to support decisions on 
re-competing or extending laboratory M&O contracts.
    In conclusion, on behalf of Secretary Abraham and his 
management team, allow me to affirm DOE's commitment to build 
on these initiatives and work with this committee to improve 
the overall accomplishment of the Department's missions.
    This concludes my formal remarks. I would be happy to 
respond to your questions.
    [The prepared statement of Mr. Rispoli follows:]

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    Chairman Tom Davis. Thank you very much.
    Ms. Nazzaro.

STATEMENT OF ROBIN M. NAZZARO, DIRECTOR, NATURAL RESOURCES AND 
             ENVIRONMENT, U.S. DEPARTMENT OF ENERGY

    Ms. Nazzaro. Thank you, Mr. Chairman and members of the 
committee. I am pleased to be here today to discuss the status 
of contract and project management at the Department of Energy. 
As we noted earlier, for over a decade, GAO, the IG and others 
have identified problems with DOE's contracting practices and 
contractor performance. Projects were late or never finished, 
and project costs escalated by millions and sometimes billions 
of dollars. It is in this context my testimony today focuses 
on, first, DOE's progress in implementing contract and project 
management reforms; second, the extent to which these reforms 
have resulted in improved contractor performance; and, third, 
observations on DOE's latest improvements.
    In summary, since the mid-1990's, DOE has implemented a 
number of initiatives to improve its contracting and management 
of projects. As you noted, these contract reforms focused on 
developing alternative contracting approaches, increasing 
competition, and using performance-based contracts. However, 
DOE continues to encounter difficulties in implementing these 
reforms. For example, one of the initiatives now requires 
performance-based contracts at all of DOE's major sites. These 
contracts incorporate performance-based statements of work and 
identify performance measures and objectives that DOE will use 
to evaluate the contract's performance. However, some of these 
contracts contained ineffective performance measures. DOE was 
not focusing on high priority outcomes, was loosening 
performance requirements over time without adequate 
justification, and was failing to match appropriately 
challenging contract requirements with fee amounts. Thus, one 
could question whether these reforms have resulted in improved 
contractor performance.
    DOE has developed little objective information to 
demonstrate whether the reforms have improved results. Most of 
DOE's evidence of progress has been anecdotal. On this basis, 
DOE can certainly point to some success. However, our analysis 
suggest that performance problems continue to occur. For 
example, in September 2002, we reported that based on a 
comparison of results of major DOE projects in 1996 and 2001, 
there was no indication of improved performance. In fact, costs 
increased and schedule delays were actually more prevalent in 
2001 than they had been in 1996. Furthermore, problems with 
individual projects and with site operating contracts continue 
to appear. Problems are beginning to emerge at the Hanford site 
in Washington State, where a contract is in place to address 
the high level tank wastes. We learned recently that although 
the baseline for this $4 billion project was established in May 
2002, as of January of this year the project was already 10 
months behind schedule and the contractor was estimating cost 
increases and other adjustments to this contract that could 
total over $1 billion.
    The limited progress to date is discouraging. DOE has a 
long way to go before it can claim that its contracting and 
project management problems are behind it. But we have seen a 
more promising indication that at least a part of DOE has a 
better understanding of its problems. DOE's current 
Environmental Management team has taken encouraging steps that 
could help to foster improvements in contract and project 
management. The scope and magnitude of some of the reforms 
being contemplated indicate to us for the first time that the 
environmental management team has seen and understood the full 
extent of the challenges that DOE faces. These actions are 
encouraging, but making these new policies a matter of practice 
will require strong leadership, clear lines of accountability 
and responsibility, and effective management systems to monitor 
results.
    Thank you, Mr. Chairman. That concludes my statement. I 
would be pleased to respond to any questions you may have.
    [The prepared statement of Ms. Nazzaro follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Friedman.

   STATEMENT OF GREGORY H. FRIEDMAN, INSPECTOR GENERAL, U.S. 
                      DEPARTMENT OF ENERGY

    Mr. Friedman. Mr. Chairman and members of the committee, I 
am pleased to be here at your request to testify on the 
Department of Energy's contract administration activities.
    The Department, as you pointed out, is one of the most 
contractor-dependent agencies in the Federal Government. 
Currently, approximately 100,000 contract employees, plus 
numerous subcontract employees, support the Department's 
mission at its contractor-operated facilities. In fiscal year 
2002, $15.7 billion, or nearly 75 percent, of the Department's 
budget was spent on facilities management contracts. Clearly, 
it is essential the Department of Energy administer these 
contracts as effectively and efficiently as possible. 
Consequently, the Office of Inspector General has performed 
substantial work in this area.
    Since the 1940's, the Department and its predecessor 
agencies have relied upon facilities management contracts for 
many of its key operations. Through this mechanism, nearly 30 
contractors perform many of the Department of Energy's most 
sensitive missions. This includes maintaining and securing the 
Nation's nuclear weapons capability, remediating environmental 
contamination from past weapons production, and conducting 
leading-edge research and development activities.
    Facilities management contracts differ significantly from 
traditional cost-type contracts. In general, they indemnify the 
contractors for virtually all costs and liabilities incurred; 
are frequently extended noncompetitively; do not require 
submission of traditional invoices for review, approval, and 
payment; and, allow the contractor to draw funds from a letter-
of-credit account as costs are incurred rather than bill the 
Department after the fact.
    Over the past several years, based on criticisms of its 
contracting practices, the Department has initiated a series of 
actions to modify and reform its contract administration 
activities. As you heard earlier, the General Accounting Office 
reported in September 2002 that the Department has made 
progress in certain areas. These included developing 
alternative contract approaches, working to increase 
competition, and making greater use of performance-based 
contracts. In addition, partially as a result of Office of 
Inspector General reviews, the Department has recently 
completed a ``top-to-bottom'' review of its environmental 
management program; modified its field structure to eliminate 
an unnecessary layer of management; and held the University of 
California accountable for procurement and property 
deficiencies of Los Alamos National Laboratory.
    Furthermore, again as you heard earlier, on March 17th, the 
Deputy Secretary formally established a program to confront and 
address broad management challenges facing the Department. 
Despite these efforts, our reviews have indicated that more 
needs to be done. The Department has not always effectively 
monitored contractor performance or held the contractors 
accountable for their actions. Our reviews have disclosed 
continuing weaknesses, including the failure to develop 
quantifiable, outcome-oriented contractor performance measures; 
maintain a system to track critical aspects of contractor 
performance; require strict adherence to contract terms; 
require utilization of a full range of project management tools 
and it has failed from time to time to rate and reward 
contractors commensurate with their performance.
    All of these points, Mr. Chairman, in my full testimony are 
identified with specific reports.
    Failure of the Department to effectively manage certain 
aspects of its contract operations has led to the use of 
taxpayer funds for purposes not intended, wasteful management 
practices, and excessive project costs. Based on the work the 
Office of Inspector General has completed over the years, we 
believe that Department managers must place even greater 
emphasis on efforts to adopt sound contract administration 
practices. Specifically, the Department must develop its own 
realistic expectations of desired outcomes; establish clear 
contractor performance metrics; closely monitor contract 
activities; hold contractors accountable for their performance; 
and work to maximize competition.
    Addressing the challenge of contract administration will 
require the commitment of all parties involved. In this regard, 
the Office of Inspector General will continue to focus on ways 
to help the Department improve operations and specifically its 
contract management practices.
    Mr. Chairman and members of the committee, this concludes 
my prepared remarks, and I will be pleased to answer any 
questions that you may have.
    [The prepared statement of Mr. Friedman follows:]

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    Chairman Tom Davis. Thank you.
    I mean, unfortunately, the problems of DOE are not just 
confined to DOE, it is a problem that is endemic in government. 
It is just that DOE has such a large portion of contracts, such 
a large number, and so many big and cutting-edge areas; it 
becomes even more complex. But this is not brain surgery, when 
you think about it. You need well trained procurement officials 
who are in touch with their customer and giving them the 
appropriate contract vehicles so that they can choose the best 
vehicle. We have had examples where we have tried to do fixed 
price contracts where it doesn't work.
    Let me ask Ms. Nazzaro, what about share and savings 
contracts? Have there been any let here; would that be an 
appropriate vehicle in some of these cases? That certainly cuts 
the downside to the Government.
    Ms. Nazzaro. I am familiar with the use of fixed price 
contracts, but not with that.
    Chairman Tom Davis. OK.
    Anyone else familiar with it? The share and savings 
contract, briefly described, is where a contractor comes in and 
says I can do A, B, C, D for you. To the extent they share 
that, they can share in the savings that the Government 
realizes. To the extent they don't, they end up eating it. For 
the contractor there is a larger upside, potentially. To the 
Government there is a lower downside.
    Yes.
    Mr. Friedman. I am sorry, Mr. Chairman. The contract that 
the Department has entered into, the relatively recent 
contract, Rocky Flats, which is a major environmental 
remediationsite, has many of the same characteristics as you 
just described. So I am not sure it is formally called the 
nomenclature that you have used, but essentially that is the 
way it works.
    Chairman Tom Davis. And you feel you have more control. 
Your downside is certainly limited in a situation like that, 
isn't it?
    Mr. Friedman. Correct.
    Chairman Tom Davis. And ordinarily I am not for eliminating 
downsides, you try to look for how you can save money the best, 
but look, we can talk at length about what the cadre of 
procurement officials is, how much training they are getting, 
what the vehicles that are available to them are, but at the 
end of the day, I was a government contracts attorney for 15 
years for a major company, for a billion dollar company before 
I came. Usually when things went wrong it was a combination of 
a communications issue between the contractor and the 
Government; sometimes oversight, sometimes it is a competence 
issue. But we also have issues where we are just not using the 
right contracting vehicle. And that takes experienced 
personnel.
    My theory of contracting is pretty simple: your procurement 
officials are probably some of the most important officials in 
Government, and you can't pay them enough if it comes in. If 
somebody brings a contract in on schedule or ahead of schedule 
and under budget, there ought to be a reward for that. If they 
bring it in over, there has to be some deterrence. And that is 
not the way the Government operates today. It is not your 
fault, it is the way we write the rules; and maybe we need to 
look at some of those.
    Let me ask Mr. Rispoli. Human capital concerns make 
effective oversight of contract and project management 
activities even more challenging. In its September 2001 5 year 
work force reconstruction plan, DOE included strategies to 
address skill gaps in its acquisition in project managerial 
Federal work forces. Have we made any progress in that area? 
And do you think DOE has the resources to provide adequate 
training for its acquisition and project management work force?
    Mr. Rispoli. Mr. Chairman, yes, we have. In January 2003, a 
few months ago, we rolled out a career development program for 
the Department's project managers at all levels. The program 
builds upon credentials derived from experience, particular 
training. There is, in fact, course work to be done, testing, 
and then a certification process for each of four levels. In 
other words, there is an entry level and there is a top level, 
level four. To attain the top two levels, the certification 
process actually requires an interview by a board of 
professionally qualified people. This is a departmentwide 
program.
    Chairman Tom Davis. What is the pay level for those top?
    Mr. Rispoli. If I may, the pay level for the level four is 
envisioned to be GS-15 and SES. The entry level, level one, is 
not going to be GS-7 or 9, it is at a higher level, typically 
GS-11 or thereabouts. And they would be qualified and certified 
to manage the smaller projects. There is a tiered system. 
Basically to manage a $400 million or above project, you would 
have to be a level four person.
    We have developed a set of courses. There are a total of 16 
courses, of which 4 are core. I am sorry, 12 are core and 4 
would be electives. They include a wide variety of sources. For 
example, some of them are put on by DOE or our contractors. But 
we also go to NASA, to Stanford, to the Construction Industry 
Institute, to the Center for Creative Leadership, and to the 
American Management Association. So we have tried to find best-
in-class courses that fit the appropriate level of 
certification.
    Again, we have rolled this out just in January. People have 
been taking these courses, and the objective is that we would 
get 80 percent of our people certified by the end of the 2-year 
rollout period.
    You asked about resources. The initial cost in the first 2 
years, including all training and cost of tuition, enrollment, 
but not including travel, is just under $2 million. And after 
the first 2 years it will roll down to something like $1.3 
million. That number is, I believe, 0.001 percent of the value 
of a $40 billion project portfolio. We certainly can afford to 
fund $2 million or $1.3 million per year.
    Chairman Tom Davis. Absolutely. Absolutely.
    Mr. Rispoli. And as I mentioned in my statement, we believe 
we are one of the only agencies, if not the only agency, to now 
have a program that falls under the acquisition umbrella set up 
by Clinger-Cohen. So we now have added the project management 
professionals and the integrated project team members into the 
fold of those who could have a career development ladder, as 
the contracting officers already do, so that we can provide a 
more balanced development experience for the entire team, as 
opposed to just those in the contracting community.
    Chairman Tom Davis. Given some of the problems we have had 
in contracts, is there any thought to bringing any of this in-
house, maybe building a more in-house cadre capability of doing 
this?
    Mr. Rispoli. Yes, there is.
    Chairman Tom Davis. Because I don't think you measure 
efficiency by how many employees you have. I mean, some people 
do, but that doesn't tell me if I am saving money if they are 
doing the job. In the case where you have a huge overrun, it 
certainly isn't advantageous.
    Go ahead.
    Mr. Rispoli. Yes, Mr. Chairman, there is. And I didn't 
mention, but some of the courses are in fact offered by Feds, 
if that course will have enough of a demand and we have the 
proper expertise level. The reason we went to others like NASA 
and Stanford and the Construction Industry Institute is because 
they have such a level of expertise, it affords the opportunity 
for cross-fertilization.
    Chairman Tom Davis. Absolutely. And I have no problem with 
that, but let me just ask. Some of the areas that we are 
farming out right now to the private sector within the 
Department and running the labs, any opportunity, any thought 
of bringing some of that in-house, given the experience we have 
had with contractors in trying to build an in-house cadre? And 
if not, why wouldn't you do that? Do you understand what I am 
saying?
    Mr. Rispoli. Perhaps you could rephrase the question?
    Chairman Tom Davis. Well, the fact is most of DOE's work is 
done by contracts.
    Mr. Rispoli. Yes.
    Chairman Tom Davis. It is not done by employees. I am just 
saying is there any of this work that we could take in-house 
and build an in-house bureaucracy to do it and build an in-
house cadre of people that could perform this work instead of 
outsourcing it, when the outsourcing has had overruns and 
delays and has not been very efficient?
    Mr. Rispoli. Yes.
    Chairman Tom Davis. Again, it goes back to my premise that 
I am a great believer in outsourcing, I think it tests the 
marketplace when it is done right. But when things keep going 
badly, sometimes you are better off maybe just bringing it to 
the Government; you limit your liability to some extent. And 
you also keep contractors honest when you have an in-house 
capability.
    Mr. Rispoli. Yes. This training, this entire career 
development program, the whole purpose is intended to raise the 
level of competency of Federal project managers, or people who 
are directly engaged in the management of projects. We will 
open these courses to contractors on a space available basis, 
as do some of the other agencies, but the primary focus for 
this is to raise the competency level of the Federal work 
force, the entire work force on the team. So that would include 
safety people, project management people, technical people, as 
well as the contracting officers. And we have integrated it 
with the contracting community.
    Chairman Tom Davis. Thank you. My time is up.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    I thank the witnesses for their very helpful testimony.
    Ms. Nazzaro, one of the more disturbing statements in your 
testimony was the DOE has little objective information showing 
its reforms have actually worked. You went on to say that the 
evidence you have suggests that contractor performance may not 
have improved. How is it possible that after almost a decade of 
so-called reforms the Department still doesn't have data 
showing it is on the right track in improving contract and 
project management?
    Ms. Nazzaro. Yes. If you will, the reforms that they have 
put in place, if you would refer to them as like a toolbox. 
They now have the tools; the problem is that they haven't 
implemented to use those tools appropriately. We have 
identified shortcomings in the three reforms that we talked 
about today: the developing the alternative contracts, 
increasing the competition, and certainly using the 
performance-based contracts. There are shortcomings in all of 
those, and so it is really an issue of not identifying 
additional reforms, but appropriately implementing those using 
best practices.
    Mr. Waxman. Well, what should the Department be doing to 
measure the success of its reforms?
    Ms. Nazzaro. One, they need data on what currently is going 
on at the Department. Just this morning Mr. Rispoli was 
informing me of some of the recent efforts now to try to gather 
data. Up to this point, they don't even know how many projects 
they are managing, much less what the results of those projects 
are. And if you don't know the status and what is going on, you 
have no way to keep them on track.
    Mr. Waxman. Well, if they are making some progress in 
implementing some of these new tools, these reforms, even 
without all the data, why are there still so many projects with 
delays and cost overruns? How do we explain this?
    Ms. Nazzaro. Specifically on the use of performance-based 
contracts, for example, they have put this provision in the 
contracts, but they haven't identified appropriate measures. 
They are measuring process rather than results.
    Another example would be in using these performance-based 
contracts, often they are changing the baseline, you know, 
without justification. So, again, you are not measuring it from 
what your first costs were, but you are changing it and now 
they are saying, you know, they met their objectives. Well, 
they met revised objections, they didn't meet their baseline 
objectives. So, again, it is the use of these performance 
measures that need to be improved.
    Mr. Waxman. Are there other factors beyond the contract and 
project management problems you have identified that explain 
the persistent acquisition management failures?
    Ms. Nazzaro. There are many functions that contribute to 
the acquisition problems, and they are at a number of different 
levels within the organization. So, yes, beyond just the 
project management level, DOE has systemic problems that we 
have reported on in the past, some being they are changing 
missions; you know, the fact that they have multiple missions; 
they have a confusing organizational structure. So there are 
systemic issues, certainly, that contribute to these problems 
as well.
    Mr. Waxman. I would like to ask you about some of the 
cleanup projects you singled out in your testimony. You 
mentioned a $4 billion waste retrieval and treatment project at 
Hanford, WA, which after less than a year is apparently 10 
months behind schedule and subject to huge cost increases. Can 
you talk about the Hanford project and its problems, and 
explain why the Department's contract management there appears 
to be so unsuccessful?
    Ms. Nazzaro. I don't have any specifics as to why that is 
any different than any other project. That is relatively new 
data that we just found out that this is occurring. We do have 
ongoing work looking at this project; however, these are 
systemic problems that occur, it is not just project-specific, 
that one is any different than the others.
    Mr. Waxman. Well, what about the cleanup plan for Paducah, 
KY? As I mentioned in my opening statement, Paducah is a public 
health and environmental catastrophe, the extent of which is 
still unknown. Is GAO taking steps to ensure that the long-
overdue Paducah cleanup plan is on track?
    Ms. Nazzaro. We do have a legislative mandate that was just 
included in the omnibus appropriation bill for us to look at 
Paducah, so that will be a project that we will be undertaking 
very shortly.
    Mr. Waxman. Mr. Rispoli, could you tell us what the 
Department is doing to ensure the effectiveness of the Hanford 
and Paducah cleanup operations?
    Mr. Rispoli. Mr. Waxman, I can tell you that in general, 
including Hanford and Paducah, we now have an industry standard 
set of performance measures that give us a monthly health check 
on all projects of the Department; those are but two. The 
Hanford project is one of those which surfaced last May as 
being a difficult challenge for the Department, for specific 
example. We have done several independent reviews at Hanford 
since then to try to assist the responsible line organization 
to improve its management. We believe that the latest 
indicators are that the problems are being quantified and 
addressed in an appropriate way.
    I would have to take the rest of that question on Hanford, 
in particular, for the record since, as you know, environmental 
management actually manages the site.
    Mr. Waxman. My time is up, but I would hope that you would 
be able to provide details about both of these cleanup efforts. 
And I would like to ask if you would agree to brief the 
committee about your operations at those sites so that we can 
get into more of the details about them.
    Mr. Rispoli. Yes, sir.
    Mr. Waxman. Thank you.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Who is next with questions? Mr. 
Tierney.
    Mr. Bell, any questions?
    Mr. Ruppersberger.
    Mr. Ruppersberger. He is far senior.
    Mr. Bell. Thank you very much for your testimony here 
today. I want to try to get a handle on how this situation has 
evolved and followup on some of Mr. Waxman's and the chairman's 
line of questioning.
    Ms. Nazzaro, based on your testimony, the Inspector 
General's Office and GAO reported these problems long ago; 
these were not recent findings. Is that accurate?
    Ms. Nazzaro. Yes, that is. For example, on the issue of 
technical expertise, our work goes back to the 1980's in 
identifying problems, and we have had work as recent as 2002 
where we reported on the National Ignition Facility. We talked 
there about the reason for the cost overruns and the schedule 
delays, and attributed that in part to technical expertise 
issues. And the National Research Council has recently done 
work along the same line, as far as training.
    Mr. Bell. Now, I assume, after the problems were first 
reported, that certain reforms were implemented. Is that fair?
    Ms. Nazzaro. These reforms that we referred to today?
    Mr. Bell. No, other reforms. Was any action taken after the 
complaints were first raised or the problems were first pointed 
out?
    Ms. Nazzaro. Certainly after the mid-1990's I am told that 
they implemented a program to update the expertise of all of 
their staff. This came out after a body of work that we did on 
major systems acquisitions in 1996.
    Mr. Bell. And is it safe to assume, based on the testimony 
we are hearing today, that whatever reforms were implemented 
were not successful?
    Ms. Nazzaro. That is what we are seeing, that in 2000 we 
found problems. The National Research Council recently found 
problems. You know, it is our understanding that DOE is still 
working to put in place the appropriate training for their 
employees and the expertise to manage these projects.
    Mr. Bell. And, Mr. Rispoli or Ms. Nazzaro on this, I mean, 
you have talked about a number of things that will be in place 
now, but how can we have any assurance that we won't be back 
here in a couple of years talking about the same problems?
    Mr. Rispoli. May I?
    Mr. Bell. Sure.
    Mr. Rispoli. I think it is important to note that the 
directive that set out the new requirements was issued in 
October 2000, and although we don't at all disagree with GAO's 
findings in 2001 and the National Academy of Science's findings 
in 2001, there had not really been a chance to have projects 
under construction that had already complied with the 
requirements.
    For example, we now send a baseline to the Congress only 
after my office does an independent review. Well, none of those 
projects that were assessed by either of those two, the GAO or 
the National Academy's committee in 2001, were projects that 
had that validated baseline. Additionally, that baseline, if it 
is broken and we have to come back to the Congress, the Deputy 
Secretary must approve that new decision personally if that 
decision will involve a breach of more than $5 million.
    So we have installed a very tight set of controls, but 
those controls were not in place when the projects looked at in 
2001 were generated in the years before, in the budget years. 
Those controls were put in place only since October 2000. And 
now we are beginning to build a body of data where we can go 
back to assess, look for common causes, reasons projects 
succeed, reasons they fail. We are about to do that this year, 
now that we have about 2 years under our belt, to find what are 
the common causes, the best management practices for success, 
and what are the things that cause failure; and we are doing 
that this year, now that we have a couple of years of history 
available to us.
    Mr. Bell. And the data would be available.
    Mr. Rispoli. The data is now available, and that was not 
available before for projects under the new processes.
    Mr. Bell. Also, I want to go back to something the Chair 
was asking about as far as outsourcing and moving more 
functions in-house. And you talked about project managers, but 
is that the only function that you all are really focusing on 
as far as bringing more in house?
    Mr. Rispoli. Our main focus in my office is the entire 
project management process. Our belief is that if you don't 
have qualified Federal staff, you can cover that either of two 
ways, depending upon your time demands. One is to get your 
people certified through our new program, but also we have 
successfully used consultants who are not part of the M&O 
community, when needed, to help with things like cost control, 
configuration control, the installation of this earned value 
management system, which is a national standard that we now 
mandate as the standard metric for success.
    The monthly reports are based upon a nationwide industry 
standard that is an ANSI standard. And we have had some trouble 
implementing that because our people were not used to it. So we 
either train Feds to know how to do it or we bring in special 
consultants to help the Feds to be able to do that.
    Mr. Bell. Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Mr. Ruppersberger.
    Mr. Ruppersberger. First thing, I thank you all for being 
here. I know this has been a long-term problem, and sometimes 
it amazes me how long a problem can go until we really get to 
the point where we are here now in an attempt to fix it.
    And I know that Mr. Rispoli, you know, you have inherited 
this problem, and I think if you look at how we work in this 
Government and how we resolve these issues, I think it has got 
to come from the top. And I think when the top, when the 
secretary has a responsibility and then he gives that 
responsibility to whoever is going to perform or who is going 
to have oversight, that there has to be accountability. And I 
applaud you for having the Assistant Secretary, if that is 
going to be the job, and I don't know. Do you think the 
Assistant Secretary will be able to change this culture and to 
make sure that the people involved trying to resolve the 
problem, the oversight on the contracts, will that be able to 
deal with the problem?
    Mr. Rispoli. Sir, I believe so. It is actually even much 
higher than the various Assistant Secretaries. Our senior-most 
acquisition official is our Deputy Secretary, Kyle McSlaro; and 
he is the one who has put out the policy, he is the one who has 
demanded that the reports be submitted monthly on metrics. He 
is the one who has initiated quarter reviews. He has reporting 
to him two Under Secretaries, of course, the Administrator of 
the NNSA and the Under Secretary for Environment, Science, and 
Engineering, Mr. Bob Cart. And so it emanates from the very 
top; it embraces the whole organization.
    And, yes, I think that this is the appropriate level. When 
people in the field know that the Deputy Secretary is looking 
at the status of their projects on a monthly basis, which ones 
are within the bounds and performing well and which ones are 
not, I can guarantee you that there is a much greater level of 
interest in getting on with the improvements as opposed to 
paying them lip service.
    Mr. Ruppersberger. Well, those are the basic fundamentals 
of management.
    Mr. Rispoli. Yes, sir.
    Mr. Ruppersberger. Giving someone their mission, holding 
them accountable.
    Now, also with management, it is the issue of giving people 
the resources to do the job; training. Also, do we have the 
people that can do the job? If not, do we have training in 
progress, or are we going to go out and seek those individuals 
that can do this type of job? Because a lot of it, it seems to 
me, has to do with up-front planning.
    Mr. Rispoli. Yes, you are absolutely correct again. I think 
that, to answer parts of your question, it is mixed. I believe 
that some of our project locations have the adequate Federal 
staff to provide the oversight. We would like to think that 
they are qualified, but, you know, we have provided this career 
development program to give them access to training at no cost 
at their level; we would pay for that training, essentially. 
Again, it is only $2 million a year to do this entire program. 
So I think that the mix of numbers of people and qualifications 
of the people can be improved as we go through this process.
    Mr. Ruppersberger. Let me ask you this. Has there been a 
time, throughout this process, when the performance has been 
low, that the Department has terminated a contractor? Sometimes 
you need to send a message. Has that been done? And I think it 
is something we need to look at, the termination. Or is it 
because we don't want to terminate because we can't get anybody 
else to do the job?
    Mr. Rispoli. I am not personally familiar with the 
termination, but you mentioned earlier the up-front planning. 
We do require an evaluation of acquisition alternatives, and I 
can tell you that the performance of the M&O is considered 
during that evaluation of alternatives. So when you are looking 
at adding a project, let us say a $100 million project or $200 
million, where it could either go to the M&O or directly to 
another contractor, I can answer you directly that, yes, I am 
familiar with cases where it is not going to the incumbent M&O 
but, rather, going to another contractor because the evaluation 
of performance was part of that evaluation of alternatives.
    Mr. Ruppersberger. Have you considered in your planning 
competition contracts?
    Mr. Rispoli. I might clarify that my purview does not 
include the selection of the contractors but, rather, the 
performance in the project arena, the performance metrics and 
the proper management of the projects.
    Mr. Ruppersberger. The reason for a lot of my questioning 
is basically there is a problem. We need to dissect what is 
going on and make sure that we have the right people and the 
right resources, also the right systems, and to make sure that 
at the very top, that the Secretary takes care of this issue. 
$16 billion is a lot of money to be mismanaged, and I think it 
is time that we have to really focus on this. And I hope Mr. 
Chairman and our ranking member will continue to focus on this, 
because we have to deal with it; and it should be. There are 
other agencies in this Government that are doing well, and GAO 
is identifying it and you are making recommendations.
    OK, thank you. That is it.
    Chairman Tom Davis. Thanks for your questions.
    Mr. Rispoli, you have done very well for today's 
preparation. You have done a good job, I think, trying to 
explain the Department. You know, this is a lot of money, when 
you take a look. It is a lot of money. And I don't think these 
problems are just in the Department of Energy, I think a lot of 
them are systemwide, but because of the fact that you are the 
largest non-defense agency to contract out, and because you 
have had some very notable and high-profile contracting 
failures, we thought we would kind of use you as an example 
here of what has gone wrong and how do you correct it. But it 
is a lot of money that could be spent a lot more efficiently.
    I am going to turn to Ms. Nazzaro and ask her a few 
questions.
    Your testimony makes the point that implementing contract 
and project management reforms is not a good measure of the 
results of those reforms. Could you elaborate on that a little 
bit?
    Ms. Nazzaro. Yes. The reforms themselves, as I referred to 
with Mr. Waxman, are the tools by which DOE could better manage 
their contracts and their project management. Where we have 
seen the downfall is in the implementation of those reforms. 
And it is not an issue of that we feel that DOE doesn't have 
the capability to do it, it is more do they have the will to do 
it; and that is where we have seen the change of late, that we 
really feel that there is a difference in the attitude.
    It is really an issue over, you know, measuring process, 
which is all these reforms are, versus results. And what we are 
really saying is we want to see the results of the reforms; and 
that is where there has been a problem and that there is very 
little data to show us the results, are the projects now coming 
in on time and within cost.
    Chairman Tom Davis. Why do these things go bad? I mean, is 
it lack of appropriate oversight; is it lack of appropriate 
training to understand before the product comes through? 
Sometimes these things get so far down the line and they are 
just out of hand and it is hard to pull them back. Is there a 
coziness or reluctance to question a contractor when they come 
before you?
    Ms. Nazzaro. On the project basis, we have identified a 
number of problems historically. One certainly is with up-front 
planning. Another is the use of an approach that DOE calls a 
concurrent design and build, that they start building the 
project while they are still designing the project. The other 
has to do with the technical complexities of some of these 
projects. Technical designs are incorporated into the plan 
before they have reached maturity or have been fully developed. 
So on a project basis it is those kinds of things.
    Chairman Tom Davis. And in theory, I guess, they think you 
could speed it up if it works up, but if it doesn't, if the 
design ends up not being what they thought it was, it just gets 
more expensive.
    Ms. Nazzaro. Correct. And we have seen instances where, you 
know, they have had to undo things.
    Chairman Tom Davis. And we end up paying for both, right?
    Ms. Nazzaro. Yes.
    Chairman Tom Davis. And that is the difficulty. That is 
where you need contracting vehicles that limit the Federal 
Government's exposure when a contractor comes and says, hey, I 
can do A, B, C.
    Now, sometimes we don't tell them exactly what we want, and 
that is a different issue, and that goes to training and also 
closeness to the customer.
    Mr. Rispoli, do you want to respond to that?
    Mr. Rispoli. Yes, Mr. Chairman. I agree with Ms. Nazzaro, 
especially on her point about the up-front planning. We have 
put a lot of emphasis on this.
    I should tell you that up until the new directive was 
issued in 2000, October 2000, and there was a chance to 
implement it, our commitments with Congress were made based 
upon no design. That is a generalization, but that is 
absolutely true. One of the recommendations of the National 
Academy of Science is that we ought to move more toward DOD 
modeling, where they have an engineering design, they call it 
preliminary design, finished before we give the Congress that 
commitment. We implemented that in the budget. We now are in 
our third year of doing that.
    If we don't do the up-front planning right, the evaluation 
of alternatives and the definition of scope and cost and 
performance up front, before the commitment is made to you, 
then it is a recipe for failure because you have based it on 
nothing. It would be like trying to build a house without even 
having a drawing.
    So now we do have processes in place. As I mentioned, we 
are in our third year of using a dedicated design fund that is 
in the budget for these projects such that by the time the 
project data sheet comes to the Congress with the commitment, 
we have preliminary engineering accomplished. That is the new 
norm for the Department, but it is only in place for the past 
three budget cycles, including the current one.
    So, again, when I say that we didn't have enough experience 
yet to the other Congressman's question, we are just now 
getting enough to be able to do this.
    Chairman Tom Davis. OK.
    Let me just ask Ms. Nazzaro. I mean, there are a lot of 
causes, obviously, for a contract gone awry. I mean, for the 
most part, where do you fix the blame proportionally, the 
Government for lack of oversight or maybe not giving the 
requirements appropriately or communication; the contractor for 
kind of overselling, buying in, saying what they want to keep 
it going?
    I don't want to go back to the days where we would have 
regulations that apply to every contract. I want to trust the 
buyers out there, the procurement officers, and give them a 
whole stable full of contracting vehicles and find the right 
vehicle to get the best value for the Government. Ideally, that 
is what works. And we will still have failures; people are 
going to make mistakes, and we have to understand that, but it 
is more efficient in the long-term. But when you see these, it 
kind of makes you wonder.
    If you could proportionally fix fault on these.
    Ms. Nazzaro. I don't know that you can proportionally fix 
fault. We certainly have identified problems at both the DOE 
management level as well as with the contractors as far as lack 
of accountability.
    Chairman Tom Davis. And if you would just indulge me one 
more question. We have rules right now. When a contractor has a 
bad contract, they can face everything from given consideration 
in the next contract to debarment, depending on what happens. 
We have a range of issues. When a contractor doesn't perform, 
that word gets out, how is that handled so that everybody is 
warned that they have failed once or twice? And is that taken 
into account when we give them another job?
    Ms. Nazzaro. I mean, I can respond in one of the more 
recent examples now with the University of California. In this 
case, they are managing federally funded research and 
development centers. They have held the contract for over 50 
years, and they have been the only contractor to ever hold that 
contract. Those contracts are not competed, you know, they are 
just extended.
    Chairman Tom Davis. Any problems with it?
    Ms. Nazzaro. Certainly after Los Alamos, which is one of 
the areas in which they manage, as well as Lawrence Livermore, 
but certainly the recent issues with Los Alamos.
    Chairman Tom Davis. I mean, that is, again, competition 
sometimes will get you a better result, even if you give it to 
the same people. They have to retool it and come back. That is 
why we use competitive sourcing in Government.
    Mr. Waxman.
    Mr. Waxman. Mr. Friedman and Ms. Nazzaro gave us, I think, 
excellent testimony in raising serious concerns about DOE's 
contract and project management. It is easy to blame the DOE, 
but Congress has some responsibility for doing our oversight to 
see that the Department makes sure that its contract reforms 
are on track.
    Are there particular ongoing projects or contracts that the 
committee should monitor as part of its oversight mission, Ms. 
Nazzaro or Mr. Friedman?
    Ms. Nazzaro. There are a number of ongoing projects that we 
would certainly put into that category, one being the Hanford 
vitrification program; another would be Yucca Mountain; and a 
third the development of the separation technologies at 
Savannah River.
    Our reason for identifying these as possible candidates 
would be they are all large projects, they have all had 
problems in the past, they continue to have problems, and 
particularly with Hanford, it is one of these, under the 
example that I gave to Mr. Davis, where they are using the 
concurrent design and build approach to it.
    Mr. Waxman. Well, I hope that Chairman Davis will join us 
in ensuring that the committee takes an active role in 
monitoring the projects you have mentioned, with the assistance 
of GAO. To that end, I am going to ask my staff to sit down 
with the majority staff and see if they can come up with an 
oversight plan we can all agree on.
    Mr. Rispoli, can you assure us that the Department will 
work with this committee by providing documents and information 
as we try to monitor the success of DOE's ongoing contract 
management reforms?
    Mr. Rispoli. Yes, Congressman Waxman, we would be very 
pleased to work with your staff to share what we are doing, to 
take suggestions. We believe that we are well on the way, but 
we would appreciate consulting with them to show and share what 
we are doing.
    Mr. Waxman. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    I haven't had a shot at Mr. Friedman yet. He is sitting 
there patiently.
    Mr. Friedman. I feel, Mr. Chairman, like I have just gotten 
a call from my dentist to say the root canal therapy is not 
going to happen today, it will happen sometime in the future. 
But go right ahead.
    Chairman Tom Davis. Many of your reviews of individual DOE 
projects finds problems with adhering to cost, schedule, 
technical baselines. Based on your experiences with these 
reviews, are these problems due to unrealistic estimates in the 
project baselines, inadequate oversight by project managers, or 
is it possible that the technical complexities of these 
projects is such that it is just nearly impossible to develop 
accurate baseline estimates?
    Mr. Friedman. Well, frankly, I think the answer to your 
question is all of the above. There is no question that in many 
respects, especially in the environmental remediation arena and 
some of the leading-edge technologies, some of the projects 
undertaken by the Department are challenging, very challenging 
from a technology point of view. So I think it is, frankly, all 
of the above. But we do find significant problems in terms of 
baselining and change control systems as the projects proceed.
    Chairman Tom Davis. OK. Over the past several years, DOE 
has taken steps to identify skill gaps in its acquisition and 
project management work forces, and we have had this 
conversation. In your opinion, have these efforts led to the 
development of an adequate training program to give these work 
forces proper skills or not?
    Mr. Friedman. Well, one historical note, if I can. 
Ironically, in the 1950's, 1960's, and 1970's, the Department 
of Energy, in part under the Atomic Energy Commission, had the 
gold standard in terms of internships and programs to bring 
along Federal managers into the management arena, and, 
unfortunately, there was a 15, 20-year gap in which that has 
not taken place, and the Department has suffered as a result of 
it.
    In 2001, we identified human resources as a significant 
management challenge, and we dropped it in the 2002 management 
challenge report because we think progress has been made, and 
you have heard some of the aspects today. There have been a 
number of intern programs that have been developed, so we think 
we are making progress and on the right track.
    Chairman Tom Davis. We passed legislation in the last 
Congress on the tech corps. I don't know if you are familiar 
with this, but this would allow people from Government to go 
out into industry for a year or two, get some up-to-date 
training on some of the latest innovations technically and come 
back into Government. For the extent they go out, they owe 
additional time to the Government, and vice versa.
    Is this the kind of program that could be helpful sometimes 
in getting people trained and understanding leading-edge 
technologies? Any thoughts on that?
    Mr. Friedman. Well, I think it is a perfect example of what 
could be done, frankly. One of the things that we found over 
time is that frequently the Federal managers, very well 
intentioned, do not have an entrepreneurial mind-set and do not 
completely understand how the business world works, in a sense. 
So I think the sort of interchange that you are referring to 
might in fact give Federal project managers the opportunity to 
see the process from the other side, might help them actually 
in the long-term in their Federal responsibilities.
    Chairman Tom Davis. From both sides. The other thing is we 
are never going to pay Federal employees enough and comparable 
to what they are getting on the outside, but the ability to be 
the best at what you do and to go out and get training on the 
leading edge of these things is an exciting thing.
    Mr. Friedman. It is.
    Chairman Tom Davis. And I think it adds to morale, as well.
    Anything else anyone wants to add?
    Mr. Rispoli. Yes, sir, if I may, Mr. Chairman.
    Chairman Tom Davis. Yes, please.
    Mr. Rispoli. Again, we agree with the comments that Mr. 
Friedman just made. Our career development program, I couldn't 
give you a complete summary.
    Chairman Tom Davis. Do you like the Tech Corps too? That 
was my bill.
    Mr. Rispoli. But it does include a 1-year rotation with 
industry and it does provide for up to a 15 percent annual 
increase in pay for those who are in the Corps and performing 
well.
    Chairman Tom Davis. Good.
    Mr. Rispoli. So we have tried to address those things.
    Chairman Tom Davis. I like that. OK, thank you very much.
    Mr. Rispoli. Yes, sir.
    Chairman Tom Davis. Mr. Waxman, any additional questions?
    Mr. Waxman. No.
    Chairman Tom Davis. I want to thank Mr. Waxman again for 
calling this to our attention. This has been helpful to us. 
Obviously we are going to keep close eyes on it.
    I want to thank the GAO, as always, for their good work in 
this area. We have a number of other areas we are going to work 
with you on these procurement areas.
    Mr. Friedman, thank you for your work on this.
    Mr. Rispoli, you have responded quickly for not having a 
long time to work on it and up-to-date.
    But, as you know, it is a long way from having the program 
as we talked about to implementing it and getting the final 
results, and so we are going to continue to monitor this 
closely.
    If anyone has anything they would like to add in the next 2 
weeks, before the close of the hearing, please feel free to 
supplement it.
    I just want to thank all of you for attending today's 
important oversight hearing. I want to thank our witnesses and, 
again, Congressman Waxman and other Members for participating. 
I apologize we don't have anyone else from our side, but, as I 
said, they are in a mandatory conference right now. They are 
getting beat up on the budget, so I came here.
    I want to thank my staff and Mr. Waxman's staff for 
organizing this. I think it has been very productive.
    And these proceedings are adjourned.
    [Whereupon, at 12:20 p.m., the committee was adjourned, to 
reconvene at the call of the Chair.]
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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