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



                  COMPETITION FOR DEPARTMENT OF ENERGY
                     LABORATORY CONTRACTS: WHAT IS
                         THE IMPACT ON SCIENCE?

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON ENERGY

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 10, 2003

                               __________

                           Serial No. 108-24

                               __________

            Printed for the use of the Committee on Science


     Available via the World Wide Web: http://www.house.gov/science


                                 ______

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                          COMMITTEE ON SCIENCE

             HON. SHERWOOD L. BOEHLERT, New York, Chairman
LAMAR S. SMITH, Texas                RALPH M. HALL, Texas
CURT WELDON, Pennsylvania            BART GORDON, Tennessee
DANA ROHRABACHER, California         JERRY F. COSTELLO, Illinois
JOE BARTON, Texas                    EDDIE BERNICE JOHNSON, Texas
KEN CALVERT, California              LYNN C. WOOLSEY, California
NICK SMITH, Michigan                 NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland         JOHN B. LARSON, Connecticut
VERNON J. EHLERS, Michigan           MARK UDALL, Colorado
GIL GUTKNECHT, Minnesota             DAVID WU, Oregon
GEORGE R. NETHERCUTT, JR.,           MICHAEL M. HONDA, California
    Washington                       CHRIS BELL, Texas
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         SHEILA JACKSON LEE, Texas
W. TODD AKIN, Missouri               ZOE LOFGREN, California
TIMOTHY V. JOHNSON, Illinois         BRAD SHERMAN, California
MELISSA A. HART, Pennsylvania        BRIAN BAIRD, Washington
JOHN SULLIVAN, Oklahoma              DENNIS MOORE, Kansas
J. RANDY FORBES, Virginia            ANTHONY D. WEINER, New York
PHIL GINGREY, Georgia                JIM MATHESON, Utah
ROB BISHOP, Utah                     DENNIS A. CARDOZA, California
MICHAEL C. BURGESS, Texas            VACANCY
JO BONNER, Alabama
TOM FEENEY, Florida
RANDY NEUGEBAUER, Texas
                                 ------                                

                         Subcommittee on Energy

                     JUDY BIGGERT, Illinois, Chair
CURT WELDON, Pennsylvania            NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland         JERRY F. COSTELLO, Illinois
VERNON J. EHLERS, Michigan           LYNN C. WOOLSEY, California
GEORGE R. NETHERCUTT, JR.,           DAVID WU, Oregon
    Washington                       MICHAEL M. HONDA, California
W. TODD AKIN, Missouri               BRAD MILLER, North Carolina
MELISSA A. HART, Pennsylvania        LINCOLN DAVIS, Tennessee
PHIL GINGREY, Georgia                RALPH M. HALL, Texas
JO BONNER, Alabama
SHERWOOD L. BOEHLERT, New York
               KEVIN CARROLL Subcommittee Staff Director
         TINA M. KAARSBERG Republican Professional Staff Member
           CHARLES COOKE Democratic Professional Staff Member
                    JENNIFER BARKER Staff Assistant


                            C O N T E N T S

                             July 10, 2003

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Judy Biggert, Chairman, Subcommittee 
  on Energy, Committee on Science, U.S. House of Representatives.    10
    Written Statement............................................    11

Statement by Representative Nick Lampson, Minority Ranking 
  Member, Subcommittee on Energy, Committee on Science, U.S. 
  House of Representatives.......................................    12
    Written Statement............................................    13

Prepared Statement by Representative Jerry F. Costello, Member, 
  Subcommittee on Energy, Committee on Science, U.S. House of 
  Representatives................................................    13

                               Witnesses:

Ms. Robin M. Nazzaro, Director of Natural Resources and 
  Environment, U.S. General Accounting Office
    Oral Statement...............................................    14
    Written Statement............................................    15
    Biography....................................................    23

Mr. Robert Gordon Card, Under Secretary for Energy, Science, and 
  Environment, Department of Energy
    Oral Statement...............................................    23
    Written Statement............................................    23
    Biography....................................................    26

Dr. Paul A. Fleury, Dean of Engineering, Yale University
    Oral Statement...............................................    26
    Written Statement............................................    28
    Biography....................................................    32

Dr. John P. McTague, Professor of Materials, University of 
  California, Santa Barbara
    Oral Statement...............................................    33
    Written Statement............................................    34
    Biography....................................................    37

Discussion.......................................................    37

             Appendix 1: Answers to Post-Hearing Questions

Ms. Robin M. Nazzaro, Director of Natural Resources and 
  Environment, U.S. General Accounting Office....................    60

Dr. Paul A. Fleury, Dean of Engineering, Yale University.........    64

Dr. John P. McTague, Professor of Materials, University of 
  California, Santa Barbara......................................    66

 
COMPETITION FOR DEPARTMENT OF ENERGY LABORATORY CONTRACTS: WHAT IS THE 
                           IMPACT ON SCIENCE?

                              ----------                              


                        THURSDAY, JULY 10, 2003

                  House of Representatives,
                            Subcommittee on Energy,
                                      Committee on Science,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10 a.m., in Room 
2318 of the Rayburn House Office Building, Hon. Judy Biggert 
[Chairwoman of the Subcommittee] presiding.


                            hearing charter

                         SUBCOMMITTEE ON ENERGY

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                  Competition for Department of Energy

                     Laboratory Contracts: What Is

                         the Impact on Science?

                        thursday, july 10, 2003
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

1. PURPOSE

    On Thursday, July 10, 2003, the Energy Subcommittee of the U.S. 
House of Representatives' Committee on Science will hold a hearing to 
examine the Department of Energy's (DOE) management and operations 
(M&O) contracts for its laboratories. Specifically, the hearing will 
focus on DOE's use of M&O contract competition to create accountability 
for scientific and managerial performance, and on whether the 
application of competition as a tool to promote accountability has 
particular implications for the conduct of science at the laboratories.

2. WITNESSES

Mr. Robert Card, Under Secretary for Energy, Science and Environment, 
U.S. Department of Energy. Prior to his DOE employment, Mr. Card was 
President and CEO, Kaiser-Hill Company, LLC. In that role he was 
responsible for the cleanup and closure of the U.S. Department of 
Energy's (DOE's) Rocky Flats site. Mr. Card also served as a Director 
and Senior Vice President at CH2M HILL Companies, Ltd. Prior to the 
Rocky Flats assignment, Mr. Card served as Group Executive, 
Environmental Companies, responsible for the energy and environmental 
business, which was the firm's largest business practice. Mr. Card 
completed the Program for Management Development at Harvard Business 
School, received a M.S. in Environmental Engineering from Stanford 
University, and a B.S. in Civil Engineering from the University of 
Washington.

Ms. Robin Nazzaro, Director of Natural Resources and Environment at the 
General Accounting Office. Since 1993, she has overseen GAO's work on 
federally funded R&D, including responsibility for NIST, NSF and PTO as 
well as a number government-wide R&D programs. In addition, she is 
currently responsible for the Department of Energy's National Nuclear 
Security Administration, Environmental Management, and Waste programs 
as well as general DOE management issues such as security and contract 
management. Ms. Nazzaro has been with GAO since 1979. For several 
years, she worked on tax and financial management issues and later on 
information technology issues. She has also served as an assistant to 
the Deputy Director for Planning and Reporting, where she was division 
focal point for strategic planning and human resources management. Ms. 
Nazzaro received a Bachelor's degree in K-12 education from the 
University of Wisconsin and recently received a senior management in 
government certificate in public policy from the John F. Kennedy School 
of Government at Harvard University.

Dr. Paul Fleury, Dean of Engineering and Frederick William Beinecke 
Professor of Engineering and Applied Physics at Yale University. Prior 
to joining Yale, Dr. Fleury was Dean of the School of Engineering at 
the University of New Mexico, following 30 years at AT&T Bell 
Laboratories. In January 1992, he was chosen as Vice President for 
Research and Exploratory Technology at Sandia National Laboratories, 
where he was responsible for programs in physical sciences, high-
performance computing, engineering sciences, pulsed power, 
microelectronics, photonics, materials and process science and 
engineering, and computer networking. In October 1993, upon termination 
of the contract under which AT&T managed Sandia for the Department of 
Energy, Dr. Fleury returned to Bell Laboratories. He has served on the 
Secretary of Energy's Laboratory Operations Board and the University of 
California President's Council on the National Laboratories, is 
currently a Board member of Brookhaven Science Associates which manages 
Brookhaven National Laboratory, and serves on visiting committees for 
Lawrence Berkeley, Sandia and Los Alamos National Laboratories.

Dr. John McTague, Professor of Materials at the University of 
California, Santa Barbara. From 2001 to 2003, he served as the 
University of California's Vice President for Laboratory Management, 
overseeing management of Los Alamos, Lawrence Livermore, and Lawrence 
Berkeley National Laboratories. Dr. McTague has over a twenty-year 
history of management at the Department of Energy's National 
Laboratories. Beginning in 1982, he was appointed as the first chairman 
of Brookhaven National Laboratory's National Synchrotron Light Source. 
He served on the Board of Overseers of both Argonne National Laboratory 
and Fermilab, where he was also Chairman of the Board. Dr. McTague is a 
founding co-chair of DOE's National Laboratories Operations Board and a 
ten-year member of the Secretary of Energy Advisory Board. In 1999, he 
retired from Ford Motor Company where he spent 12 years as Vice 
President of Research and Vice President of Technical Affairs. Prior to 
joining Ford, he served as Deputy Director and Acting Director of the 
White House Office of Science and Technology Policy and was Acting 
Science Advisor to the President. During the first Bush Administration 
he was a member of the President's Council of Advisors on Science and 
Technology and U.S. chair of the U.S.-Japan High Level Advisory Panel 
of Science and Technology. Dr. McTague graduated from Georgetown 
University and received his Ph.D. from Brown University.

3. OVERARCHING QUESTIONS

    The hearing will address the following overarching questions:

         Can competition of M&O contracts for laboratories 
        deliver management improvements? What criteria should be used 
        to determine if competition is appropriate?

         What criteria should be used for awarding M&O 
        contracts? What are the advantages and disadvantages of 
        competition? What is the likely field of competitors, and is 
        the field large enough to make the effort worthwhile?

         What is the impact of contractor change, or the 
        uncertainty of contractor continuity, on the science programs 
        at the laboratories? What has the result been where contractor 
        changes have occurred?

         What is the best way to structure the relationship 
        between the Federal Government and scientists in a way that 
        ensures accountability for management and performance of top-
        quality science?

4. OVERVIEW

    DOE spends more federal funds on contracts than any other civilian 
agency; the vast majority, over $16 billion per year, goes to 
contractors to manage and operate 28 major facilities. Of this amount, 
nearly $9 billion goes to the operation of the 15 national laboratories 
listed in Table 1 on page five. Unfortunately, the public portrait of 
performance of both DOE and its contractors has often been a source of 
ongoing controversy rather than pride. The popular history of 
laboratory management is characterized by repeated reports of cost 
overruns, credit card abuse, and security lapses. The General 
Accounting Office (GAO) designated DOE contract management as a high-
risk area in 1990, and has reiterated that designation every year 
since.
    The relationship between DOE and its M&O contractors is complex. In 
fact, there are actually numerous relationships, and not all of them 
have been contentious or problematic. For example, the relationship 
with the Stanford Linear Accelerator Center (SLAC) has worked 
remarkably well, with major facilities consistently delivered at or 
below budget. Other contracts, such as that with Associated 
Universities, Inc., at the Brookhaven National Laboratory, were 
terminated due to management failures. Still others, such as the 
contracts with the University of California to operate the Livermore 
and Los Alamos National Laboratories, have been consistently renewed 
despite cost overruns in the billions of dollars at the National 
Ignition Facility at Livermore, and serious management and security 
lapses at Los Alamos. However, most of these criticisms of DOE 
laboratories have centered on management functions rather than the 
mission-related outcomes that the laboratories were created to produce. 
While management functions are important, the evaluation of science 
outcomes is very different from financial reviews in time-scale, 
process and specificity.
    Over the years, numerous critics have observed that it is difficult 
for the Department to carry out its oversight and accountability role 
without some credible means of sanctioning contractors. This is why the 
GAO, the Office of Management and Budget (OMB), and others have 
continually urged DOE to use competitive, performance-based contracts. 
However, competition also has real risks. Opponents of competition 
argue that needless competition can actually increase costs, especially 
if few competent competitors are likely to come forward. More 
importantly, the uncertainty of leadership and the disruption of work 
flow if contractors change, opponents say, can distract scientists from 
their mission and delay important scientific work.
    These issues of laboratory governance recently came to the fore 
because of several decisions at DOE. On April 30, 2003, DOE announced 
that two major laboratories' M&O contracts (that had never previously 
been competed) would undergo competition: the Los Alamos Laboratory and 
the Idaho Laboratory (formerly Argonne National Laboratory (ANL)-West 
and Idaho National Engineering and Environmental Laboratory (INEEL). 
Despite the fact that these two contracts are both slated for 
competition, their situations are not similar. In the case of Los 
Alamos, a new round of problems associated with credit card abuse and 
procurement fraud, prompted extensive discussions with Congressional 
representatives and other stakeholders. These culminated in the 
announcement to compete the M&O contract, two years before to the 
contract expiration. In the case of ANL-West, there had been no 
allegations of mismanagement, and few prior consultations with the 
Congress before the announcement, and little more than a year before 
the contract expired. This extremely inconsistent treatment of two 
major laboratories and contractors brings into question whether DOE had 
a uniform policy or criteria for determining how contracts are 
structured and whether they are competed.
    The next day, on May 1st, DOE answered those questions when it 
formally tasked a Blue Ribbon Commission on the Use of Competitive 
Procedures for Department of Energy Laboratories to recommend 
procedures and criteria for M&O contract competition decision-making. 
The Commission was slated to report by the end of July. The Committee 
believes that the Commission, and ultimately DOE, will need to address 
the important questions that are the focus of this hearing, in 
formulating a competition policy. (The Senate Committee on Energy and 
Natural Resources has also been examining the issue of laboratory 
governance.)

5. BACKGROUND

History of DOE Laboratory Contracting.
    The tradition of the Government Owned Contractor Operated (GOCO) 
structure for DOE laboratories was first established when the weapons 
laboratories were created in the 1940s. While a number of factors 
contributed to the selection of the GOCO approach, the size, scope, and 
expense of the pursuit of nuclear weapons, posed a new challenge. 
Government salaries were insufficient to attract the ``best and 
brightest'' scientists, nor were government procurement rules flexible 
enough to manage work on these issues of urgent national importance. 
The first laboratory contractors were either universities for the more 
science-oriented laboratories (such as Los Alamos and Argonne) or large 
companies with major industrial laboratories, such as AT&T or Union 
Carbide. Direct profit did not appear to be a motive for contractors to 
manage laboratories, e.g., AT&T accepted only $1 per year to manage 
Sandia. Over time, the fees have generally increased, and range from 
zero at SLAC, to up to $34 million per year for INEEL. Fees constitute 
a relatively small percentage of contract revenues, generally less than 
1 percent, with INEEL again having the most generous contract, with 
over 4.5 percent of the INEEL budget dedicated to fees.
    The relationship between DOE and its laboratory M&O contractors has 
evolved considerably since the first contracts were set up decades ago. 
While few observers would deny the success of the science at DOE 
laboratories, it is also difficult to deny that the pursuit of the 
laboratories' missions has sometimes come at the expense of normal 
housekeeping and care taking chores that taxpayers, rightfully, expect 
with the expenditure of their funds. Consequently, the Congress and its 
oversight committees, OMB, the General Accounting Office, and the DOE 
Inspector General increased their scrutiny of DOE. DOE, in turn, 
increased its oversight of laboratory functions, using tools like 
``Tiger Teams'' to attack environmental lapses and contract reforms to 
address financial and managerial shortcomings. Despite increased 
scrutiny, or perhaps because of it, managerial failures continued to 
come to light, causing more intensive efforts by oversight bodies, and 
a proliferation of rules and regulations.
    In response to this increasing regulation, scientists began to 
complain that overhead costs were eating into their science budgets, 
and to complain that paperwork, conflicting regulatory mandates, and 
endless review processes were causing the quality and quantity of the 
scientific product to decline. Dr. Siegfried Hecker, former director of 
Los Alamos National Laboratory, recently commented, ``The net result 
has been to significantly diminish the ability of the laboratories to 
accomplish their missions and to dramatically reduce productivity.''
    Furthermore, due to what Professor Bob Behn of Harvard University 
calls ``the accountability bias,'' the increased scrutiny has tended to 
be on the easily measurable. Behn distinguishes between accountability 
for what he calls ``finances and fairness'' and accountability for 
performance:

        LIf you want to be in the accountability-holding business, it 
        makes more sense to concentrate on process rather than 
        performance. This is because our accountability expectations 
        for finances and fairness are much clearer than they are for 
        performance.. . .the accountability standards for money and 
        equity are much more formal, much more specific, much more 
        detailed, much more objective, much more established and much 
        more accepted.\1\
---------------------------------------------------------------------------
    \1\ Robert D. Behn, ``rethinking democratic accountability'' 
Brookings Institution Press, Washington, DC, p. 12.

    While Behn was commenting on government programs generally, in this 
case the problem of the accountability bias is exacerbated by the 
inherent difficulty of measuring scientific performance. The long-term, 
technically-specialized nature of the science carried out at the 
majority of DOE laboratories does not lend itself to the type of 
specific measures common to many other government programs. Thus, while 
it is important to make sure that accountability mechanisms are in 
place, the design of those mechanisms should reflect programmatic 
context and the type of accountability that we seek.
    Because DOE is a large and diverse organization, with contractors 
tasked with several very different types of missions--science; weapons 
design, production, and stewardship; product engineering; and 
environmental cleanup--it may be necessary to design different 
accountability mechanisms for different missions. It is crucial that 
any redesign of government-contractor relationships, including any 
decision to routinely re-compete contracts, be made in the context of 
these missions.
    For example, the science missions of DOE have benefited by 
relationships to academic institutions over the years. However, it is 
not clear that non-profit institutions have the wherewithal and 
motivation to compete with commercial enterprises every five years. The 
motivations of academic institutions interested in operating 
laboratories could be very different from those of industrial 
organizations, and therefore require different incentives. In addition, 
the types of incentives offered for science M&O contracts could well 
differ from those for other activities. Finally, the effect on 
scientific activities from ongoing uncertainty about management and 
operations leadership, or from a transition from one contractor to 
another, may be different than the effect on other DOE missions.
    This hearing is designed to explore avenues to optimize the 
management and accountability structures at DOE science laboratories 
for both management and scientific performance.






6. WITNESS QUESTIONS

Questions for Under Secretary Card

         What is DOE's current policy toward competition of 
        M&O contracts, and what led the department to reconsider that 
        policy?

         When laboratories have changed contractors in the 
        past, what effect did this have on the operation of the 
        laboratories in question?

         How specific a set of recommendations do you expect 
        to receive from the Blue Ribbon Commission? When do you expect 
        the Commission to report, and what procedures do you expect DOE 
        to use to review and implement its recommendations?

         Why were some decisions made on laboratory M&O 
        contract competitions on the eve of the formation of the Blue 
        Ribbon Commission?

         What are the advantages and disadvantages of 
        competing M&O contracts?
Questions for Ms. Robin Nazzaro

         What public statements has the Department of Energy 
        (DOE) made in response to your recommendations that DOE compete 
        more of its laboratory contracts? Are there any trends with 
        regard to competition for science laboratories run by 
        universities?

         Do your reports provide evidence that competition of 
        management and operations contracts for laboratory management 
        deliver management improvements? Are some laboratories better 
        candidates for competition than others? What are the criteria 
        that matter most in making a competition decision? How should 
        DOE determine the timeframe for contract competition?

         What evidence do you have regarding universities 
        ability to compete successfully with for-profit entities? Do 
        you have estimates of the cost of competition which some have 
        estimated to be as high as $10 million? How many universities 
        are qualified as potential competitors?

         What is the purpose of performance based contracting 
        for laboratory management? What criteria should be used to 
        evaluate proposals--do we even know what makes a good 
        laboratory contractor? How can one make legitimate and unbiased 
        comparisons of competitors? What is the likely field of 
        competitors? Is the field large enough to make the effort 
        worthwhile? Should an incumbent have an advantage if that 
        contractor receives high performance scores?
Questions for Dr. Paul Fleury

         What motivates a contractor to want to operate a 
        Department of Energy (DOE) laboratory? Why did AT&T decide not 
        to renew the management contract for Sandia in 1993?

         What is the impact, if any, on the science programs 
        at the laboratories due to uncertainty of contractor 
        continuity? How does a change of contractor affect science 
        operations? How did Sandia employees react to the management 
        changeover in 1993?

         If DOE decides to compete laboratory management and 
        operations contracts, what criteria should be used to evaluate 
        proposals--do we even know what makes a good contractor? Should 
        an incumbent have an advantage if that contractor receives high 
        performance scores? How can one make legitimate and unbiased 
        comparisons of competitors?

         What is the likely field of competitors? Is it large 
        enough to make the effort worthwhile?

         We frequently hear criticisms of laboratory oversight 
        as being intrusive ``micro-management.'' What do you think the 
        proper review and oversight mechanisms should be? How often do 
        you think reviews should occur?

         Do you believe the current performance-based contract 
        incentives deliver improved management or science results? What 
        should the incentives be for contractors? Should the incentives 
        be different for non-profit versus for-profit entities? What 
        can be done to better align the incentives of science 
        professionals at laboratories with those of the contractors?

Questions for Dr. John McTague

         What motivates a contractor to want to operate a 
        Department of Energy (DOE) laboratory?

         What is the impact on the science programs at the 
        laboratories due to uncertainty of contractor continuity? How 
        does a change of contractor affect science operations?

         If DOE decides to compete laboratory management and 
        operations contracts, what criteria should be used to evaluate 
        proposals--do we even know what makes a good contractor? Should 
        an incumbent have an advantage if that contractor receives high 
        performance scores? How can one make legitimate and unbiased 
        comparisons of competitors?

         What is the likely field of competitors? Is it large 
        enough to make the effort worthwhile?

         We frequently hear criticisms of laboratory oversight 
        as being intrusive ``micro-management.'' What do you think the 
        proper review and oversight mechanisms should be? How often do 
        you think reviews should occur?

         Do you believe the current performance-based contract 
        incentives deliver improved management or science results? What 
        should the incentives be for contractors? Should the incentives 
        be different for non-profit versus for-profit entities? What 
        can be done to better align the incentives of science 
        professionals at laboratories with those of the contractors?
    Chairwoman Biggert. I now call the Subcommittee on Energy 
to order.
    I want to welcome everyone to this hearing.
    Today we are focusing on the Department of Energy's 
contracting policies with respect to the management and 
operations of its national laboratories, especially the science 
labs. Why are we holding this hearing? Well, be to quite frank, 
the logic behind a number of the Department's recent 
contracting decisions has been hard to follow.
    Over the course of the last nine months, the DOE has made a 
number of critical decisions to extend or compete management 
and operations, or M&O, contracts at Sandia, Los Alamos, and 
lab facilities in Idaho, including Argonne-West and lab 
facilities--the Idaho National Environmental and Engineering 
Lab, or INEEL. However, these decisions have seriously called 
into question whether the DOE has or ever had a uniform policy 
for determining how contracts are structured and whether or not 
they are competed.
    For instance, the day after the Department announced it 
would compete several lab management contracts, the Department 
then announced a Blue Ribbon Commission to study when, where, 
and how decisions to compete lab management contracts would be 
made. You can't help but wonder if the Department was putting 
the cart before the horse or at least putting the horse after 
the cart.
    While I commend the Department for taking this--a step 
toward establishing a policy to guide future decisions to 
extend or compete contracts. I must confess that I am skeptical 
that the Commission's report alone will enhance accountability 
enough to solve management problems like the many that have 
been exposed at Los Alamos. DOE has ignored or only partially 
implemented advice from previous panels with a similar charge. 
That is why I am particularly eager to hear from DOE about what 
direction it has given the Commission, what it expects from the 
Commission on the specific issue of competition, what other 
measures the DOE will undertake to improve laboratory 
performance and contractor accountability, and how these steps 
will be integrated with the Commission's recommendation to form 
a coherent policy to improve DOE's relationship with its M&O 
contractors.
    As we proceed, let me be clear about one thing: this 
hearing should not be interpreted as supporting a blanket, 
uniform policy of competition. On the contrary, a one-size-
fits-all approach to contracting may not be appropriate given 
the DOE's diverse facilities and mission, including weapons 
design and production, environmental clean-up, product 
engineering, and of course, science.
    Furthermore, the contracts we are discussing today are not 
contracts to operate a cafeteria, to procure a part for a tank, 
or to arrange clean-up services for a contaminated site. No, 
these contracts are to undertake the work of basic science 
research, which, by its very nature, is inherently risky. It 
often involves failure as an element of learning and success, 
and it presents a much greater challenge when it comes to 
measuring performance and results.
    If the DOE, the GAO, and this Congress are serious about 
maintaining strong science programs at our national 
laboratories while improving financial and management 
accountability, we should not simply mandate contract 
competition under the existing M&O contract regime. Rather, we 
should look more broadly at the overall relationship between 
the laboratories, their M&O contractors, and the DOE to 
determine what must be done to bring about full financial and 
management accountability without adversely impacting or 
disrupting the kind of world-class science that we have come to 
expect from our national laboratories. To start, the DOE must 
establish clear criteria to guide decisions to extend or 
compete contracts so that lab managers understand exactly how 
they are to be judged and what the consequences will be should 
they fail to meet expectations.
    There is no doubt that this is a complex issue. I look 
forward to reviewing the Commission's report, as I am sure the 
entire panel does. But in the meantime, there is plenty to 
discuss about the costs and benefits of competition and what 
else can and should be done to ensure accountability at our 
national labs.
    [The prepared statement of Ms. Biggert follows:]

              Prepared Statement of Chairman Judy Biggert

    I want to welcome everyone to this hearing of the Energy 
Subcommittee of the House Science Committee.
    Today we are focusing on the Department of Energy's contracting 
policies with respect to the management and operation of its national 
laboratories, especially the science labs. Why are we holding this 
hearing? Well, to be quite frank, the logic behind a number of the 
Department's recent contracting decisions has been hard to follow.
    Over the course of the last nine months, the DOE has made a number 
of critical decisions to extend or compete management and operation--or 
M&O--contracts at Sandia, Los Alamos, and lab facilities in Idaho, 
including Argonne-West and the Idaho National Environmental and 
Engineering Laboratory (INEEL). However, these decisions have seriously 
called into question whether the DOE has, or ever had, a uniform policy 
for determining how contracts are structured and whether or not they 
are competed.
    For instance, the day after the Department announced it would 
compete several lab management contracts, the Department then announced 
a Blue Ribbon Commission to study when, where and how decisions to 
compete lab management contracts would be made. You can't help but 
wonder if the Department was putting the cart before the horse or at 
least putting the horse after the cart.
    While I commend the Department for taking a step toward 
establishing a policy to guide future decisions to extend or compete 
contracts, I must confess that I am skeptical that the Commission's 
report alone will enhance accountability enough to solve management 
problems like the many that have been exposed at Los Alamos. DOE has 
ignored or only partially implemented advice from previous panels with 
a similar charge. That's why I am particularly eager to hear from DOE 
about:

         what direction it has given the Commission,

         what it expects from the Commission on the specific 
        issue of competition,

         what other measures the DOE will undertake to improve 
        laboratory performance and contractor accountability, and

         how those steps will be integrated with the 
        Commission's recommendations to form a coherent policy to 
        improve DOE's relationship with its M&O contractors.

    As we proceed, let me be clear about one thing: this hearing should 
not be interpreted as supporting a blanket, uniform policy of 
competition. On the contrary, a one-size-fits-all approach to 
contracting may not be appropriate given the DOE's diverse facilities 
and mission, including weapons design and production, environmental 
clean-up, product engineering, and, of course, science.
    Furthermore, the contracts we are discussing today are not 
contracts to operate a cafeteria, to procure a part for a tank, or to 
arrange cleanup services for a contaminated site. No, these are 
contracts to undertake the work of basic scientific research, which, by 
its very nature, is inherently risky. It often involves failure as an 
element of learning and success, and it presents a much greater 
challenge when it comes to measuring performance and results.
    If the DOE, the GAO, and this Congress are serious about 
maintaining strong science programs at our national laboratories while 
improving financial and management accountability, we should not simply 
mandate contract competition under the existing M&O contract regime. 
Rather, we should look more broadly at the overall relationship between 
the laboratories, their M&O contractors, and the DOE to determine what 
must be done to bring about full financial and management 
accountability without adversely impacting or disrupting the kind of 
world-class science that we have come to expect from our national 
laboratories. To start, the DOE must establish clear criteria to guide 
decisions to extend or compete contracts so that lab managers 
understand exactly how they are to be judged, and what the consequences 
will be should they fail to meet expectations.
    There's no doubt that this is a complex issue. I look forward to 
reviewing the Commission's report, as I'm sure this entire panel does. 
But in the meantime, there is plenty to discuss about the costs and 
benefits of competition, and what else can and should be done to ensure 
accountability at our national laboratories.

    Chairwoman Biggert. The Chair now recognizes Nick Lampson, 
the Ranking Minority Member on this Energy Subcommittee, for an 
opening statement.
    Mr. Lampson. Thank you, Madam Chairwoman.
    I want to thank Chairwoman Judy Biggert for calling this 
hearing. I think it is an important topic, and I look forward 
to hearing from our excellent panel of witnesses today.
    The DOE National Labs are world-class laboratories that 
contribute significantly to DOE's major mission areas. DOE 
spends more federal funds on contracts than any other civilian 
agency: over $10.3 billion annually goes to contractors to 
manage and operate the DOE's 21 national facilities.
    The DOE laboratories trace their beginnings to the Nation's 
atomic weapons development program during World War II, the 
Manhattan Project. The government funded the construction of 
lab facilities that used universities and companies with 
existing expertise to carry out the work. This arrangement 
avoided the need for the government to develop its own 
expertise and allowed paying higher rates than generally 
available in federal service. Consequently, the labs have had a 
history of attracting some of the most talented scientific 
workforce in producing world-class science and technology.
    DOE labs are not the only governmental agency to receive 
criticism for contracting issues. We all remember the bad press 
that the Department of Defense received in the '80's about the 
$400 hammers and the $1,000 toilet seats. And it is hard to 
pick up the Washington Post today without reading about 
contracting problems at other federal agencies inside the 
beltway. While I am confident that DOE can work through their 
contracting issues, the work that is being done at the national 
labs is too important to be lost in the controversy of cost 
overruns, credit card abuses, and security lapses. And I am 
committed to work with this--on this committee to address the 
abuses and ensure that science outcomes in the DOE labs remain 
sound.
    So thank you for joining us here today, and I look forward 
to your testimony. And I yield back.
    [The prepared statement of Mr. Lampson follows:]

           Prepared Statement of Representative Nick Lampson

    I would like to thank Chairwoman Judy Biggert for calling this 
hearing. It is an important topic and I look forward to hearing from 
our excellent panel of witnesses today.
    The DOE National Labs are world-class laboratories that contribute 
significantly to DOE's major mission areas. DOE spends more federal 
funds on contracts than any other civilian agency--over $10.3 billion 
annually goes to contractors to manage and operate DOE's 21 national 
facilities.
    The DOE laboratories trace their beginnings to the Nation's atomic 
weapons development program during World War II--the Manhattan Project. 
The government funded the construction of lab facilities but used 
universities and companies with existing expertise to carry out the 
work.
    This arrangement avoided the need for the government to develop its 
own expertise and allowed paying higher rates than generally available 
in federal service. Consequently, the labs have had a history of 
attracting some of the most talented scientific workforce and producing 
world-class science and technology.
    DOE labs are not the only governmental agency to receive criticism 
for contracting issues. We all remember the bad press the Department of 
Defense received in the 1980s for $400 hammers and thousand dollar 
toilet seats. And it is hard to pick up the Washington Post today 
without reading about contracting problems at other federal agencies 
inside the Beltway.
    I am confident that DOE can work through their contracting issues--
the work that is being done at the national labs is too important to be 
lost in the controversy of cost overruns, credit card abuses and 
security lapses. I am committed to work on this committee to address 
the abuses and ensure that science outcomes in the DOE labs remain 
sound.
    Thank you for joining us here today and I look forward to your 
testimony.

    Chairwoman Biggert. Thank you. If there is no objection, 
all additional opening statements submitted by the Subcommittee 
Members will be added to the record. Without objection, so 
ordered.
    [The prepared statement of Mr. Costello follows:]

         Prepared Statement of Representative Jerry F. Costello

    Good morning. I want to thank the witnesses for appearing before 
our committee to examine the Department of Energy's (DOE) management 
and operations (M&O) contracts for its laboratories.
    Earlier this year, DOE announced that two major laboratories' M&O 
contracts, Los Alamos Laboratory and the Idaho Laboratory (formerly 
Argonne National Laboratory-West and Idaho National Engineering and 
Environmental Laboratory) would undergo competition. Los Alamos 
Laboratory has been investigated for mismanagement, fraud, and abuse 
while Argonne National Laboratory-West has had no allegations of 
mismanagement. Despite the fact that these two contracts are both 
scheduled for competition, their situations are vastly different. 
Competing contracts for these two laboratories brings into question 
whether DOE has uniform policies and criteria for determining how 
contracts are structured and whether they are competed.
    Further, I am particularly interested in the external regulation of 
the DOE laboratories. The Office of Science operates numerous 
laboratories, major scientific instruments, and user facilities. Yet, 
the DOE currently regulates itself with regard to nuclear and worker 
safety and has been criticized for weakness in self-regulation at its 
facilities. External regulation by the Nuclear Regulatory Commission 
and the Occupational Safety and Health Administration has been proposed 
as a way to improve ES&H at DOE facilities and provide cost savings. 
Despite nearly a decade of consideration, including advisory group 
evaluations, pilot programs, stakeholder input, and specific direction 
from Congress, the DOE has continued to use stall tactics in developing 
a comprehensive plan for transition to external regulation.
    When the House of Representatives considered comprehensive energy 
legislation, the House Science Committee adopted an amendment, 
sponsored by myself and Mr. Calvert, that would provide for the 
external regulation of nuclear safety and occupational safety and 
health at the DOE civilian labs. Unfortunately, it was not included in 
the text of H.R. 6. Instead, a report detailing transition and cost was 
included in the bill. This provision duplicates information already on 
record in GAO reports and DOE reports submitted to Congress as well as 
cost audits requested by the Energy and Water Appropriations 
Subcommittee. After ten years of studying this issue, we already know 
that external regulation is the right answer; yet, DOE insists that 
more time is needed.
    Accountability for scientific, managerial, and safety performance 
has particular implications for the conduct of science at the 
laboratories. The question of competition as a tool to promote 
accountability will continue to be explored by this committee and I 
look forward to hearing from our witnesses.

    Chairwoman Biggert. At this time, I would like to introduce 
our excellent panel of witnesses. And thank you so much for 
joining us. First in order will be Ms. Robin Nazzaro, Director 
of Natural Resources and Environment at the General Accounting 
Office. Thank you. Second will be Mr. Robert Card, Under 
Secretary for Energy, Science, and Environment, U.S. Department 
of Energy. Third is Dr. Paul Fleury, Dean of Engineering and 
Frederick William Beinecke Professor of Engineering and Applied 
Physics at Yale University. And fourth, Dr. John McTague, 
Professor of Materials at the University of California, Santa 
Barbara.
    So as our witnesses, I am sure, know, the spoken testimony 
is limited to five minutes each, after which Members of the 
Committee will have five minutes each to ask questions. So we 
will try and stick to our five minutes, and if you can stick to 
your five minutes. So we will start with Ms. Nazzaro.

    STATEMENT OF MS. ROBIN M. NAZZARO, DIRECTOR OF NATURAL 
   RESOURCES AND ENVIRONMENT, U.S. GENERAL ACCOUNTING OFFICE

    Ms. Nazzaro. Thank you, Madam Chairman, and Members of the 
Subcommittee.
    I am pleased to be here today to discuss the Department of 
Energy's use of competition and other mechanisms to help ensure 
effective contractor performance in managing and operating its 
research laboratories.
    DOE is the largest civilian contracting agency in the 
Federal Government, relying primarily on contractors to manage 
and operate its sites and to carry out its diverse missions, 
including research. For fiscal year 2003, DOE will spend $9.4 
billion on contracts to operate its 16 research laboratories 
known as Federally Funded Research and Development Centers, or 
FFRDCs.
    Since 1990, GAO has identified DOE's contract management as 
high-risk for fraud, waste, abuse, and mismanagement. In 1994, 
DOE began reforming its contracting practices to, among other 
things, improve contractor performance and accountability. As 
part of that effort, DOE has used competition in awarding 
contracts to better manage and operate its research 
laboratories.
    In this context, my testimony today will focus on, first, 
DOE's rationale for competing a laboratory research contract, 
second, the extent to which DOE has competed these contract, 
and third, the role of competition and other mechanisms in 
improving contractor performance.
    In summary, Madam Chairman, DOE has had three main reasons 
for competing its FFRDC contracts instead of extending them 
non-competitively: one, when the contractor operating the 
laboratory is a for-profit; two, when the mission changes 
warrant a review of the capabilities of other contractors; or 
third, when the incumbent contractor's performance is 
unsatisfactory. DOE guidance on contracting indicates a clear 
preference for competition, in part, as a result of its 
contract reform initiative. While federal statutes and 
regulations give DOE considerable flexibility in deciding 
whether to compete or non-competitively extend an FFRDC 
contract for noncompetitive extensions, DOE guidance requires 
the Department to present a convincing case to the Secretary. 
Among other things, DOE must certify that competing the 
contract is not in the best interest of the government and must 
describe the incumbent contractor's past successful 
performance.
    Of the 16 FFRDC contracts currently in place, DOE has 
competed six. DOE's decision to compete these six contracts is 
consistent with the Department's overall policy on determining 
when competition is appropriate. It has not competed the 
remaining ten contracts since the contractors began operating 
these sites, in some cases, since the 1940's. DOE recently 
decided to compete two of the ten contracts that had never 
before been competed: contracts to manage and operate the Los 
Alamos National Laboratory in New Mexico, and the Argonne West 
Laboratory located at the Idaho National Laboratory. DOE 
decided to compete the Los Alamos contract because of concerns 
about the contractor's performance. The Argonne West contract 
is part of an overall effort to refocus and separate the Idaho 
National Laboratory's nuclear energy research mission from the 
environmental clean-up mission. DOE plans to include the 
activities at Argonne West in the competition for the Idaho 
site's science mission, remove the Argonne West scope of work 
from DOE's existing contract with the University of Chicago to 
operate the Argonne West National Laboratory. DOE believes this 
contract restructuring will help to revitalize the nuclear 
energy mission at the Idaho site and accelerate the 
environmental clean up.
    Regarding the role of competition and other mechanisms in 
improving contractor performance, competition is one of several 
steps DOE can take to address contractor performance problems 
or to strengthen contract management. However, just competing a 
contract does not ensure that contractor performance will 
improve. Other aspects of DOE's contract reform initiative 
intended to improve contractor performance include greater use 
of fixed-price contracts instead of cost-reimbursement 
contracts and establishing or strengthening performance-based 
incentives in existing contracts. In addition, we have reported 
that DOE must effectively oversee its contractors' activities 
in carrying out projects, use appropriate outcome measures to 
assess overall results, and apply lessons learned to 
continually improve its contracting practices. Our recent 
evaluation of DOE's contract reform efforts indicates that DOE 
is still working to put these management practices and outcome 
measures in place.
    Thank you, Madam Chairman and Members of the Subcommittee. 
This concludes my statement. I'd be happy to respond to any 
questions that you may have.
    [The prepared statement of Ms. Nazzaro follows:]

                 Prepared Statement of Robin M. Nazzaro

Madam Chairman and Members of the Subcommittee:

    We are pleased to be here today to discuss the Department of 
Energy's (DOE) use of competition and other mechanisms to help ensure 
effective contractor performance in managing and operating its research 
laboratories. DOE is the largest civilian-contracting agency in the 
Federal Government, relying primarily on contractors to operate its 
sites and carry out its diverse missions. These missions include not 
only conducting research but also maintaining the nuclear weapons 
stockpile, and cleaning up radioactive and hazardous waste. For fiscal 
year 2003, DOE will spend about 90 percent of its total annual budget, 
or $19.8 billion, on contracts, including $9.4 billion to operate 16 of 
its research laboratories.
    For over a decade, we, DOE's Office of Inspector General, and 
others have criticized DOE's contracting practices, including its 
failure to hold its contractors accountable for results. DOE's 
longstanding approach had been to develop a broadly defined statement 
of work, provide considerable direction to the contractor, and 
reimburse virtually all costs. This approach placed limited emphasis on 
cost control or accountability for results. Furthermore, poor 
contractor performance led to schedule delays and cost increases on 
many of the department's major projects. Since 1990, such problems have 
led us to designate DOE contract management--defined broadly to include 
both contract administration and management of projects--as a high-risk 
area for fraud, waste, abuse, and mismanagement.
    In 1994, DOE began its contract reform initiative to improve 
contractors' performance. Through this initiative DOE intended, among 
other things, to strengthen contracting practices, hold contractors 
more accountable for their performance, and demonstrate progress in 
achieving the agency's missions. DOE implemented numerous changes, such 
as performance based-contracts with results-oriented measures and a 
greater use of competition in awarding contracts, including contracts 
to manage and operate its research laboratories known as Federally 
Funded Research and Development Centers (FFRDC). According to the 
Federal Acquisition Regulation, FFRDCs are entities that engage in 
activities sponsored by a government agency or agencies to conduct or 
manage basic or applied research and development. Contracts to operate 
such facilities differ from other contracts because the government 
contemplates a long-term relationship with the FFRDC contractor and the 
contractor has access to government data, employees, and facilities 
beyond that common in a normal contractual relationship.
    My testimony today will discuss (1) DOE's rationale for deciding 
whether to compete a FFRDC contract, (2) the extent to which DOE has 
competed these contracts, and (3) the role of competition and other 
mechanisms in improving contractor performance. Although we have not 
conducted a review solely related to FFRDC contracts, our past work on 
DOE's contract reform initiative, especially our September 2002 
report,\1\ focused in part on DOE's use of competition as a tool to 
improve contractor performance, including the contractors that manage 
and operate DOE's laboratories. My testimony today is based on the 
findings in that report as well as related information we have 
developed as part of our ongoing oversight of DOE's contracting 
activities.
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office, Contract Reform: DOE Has Made 
Progress, but Actions Needed to Ensure Initiatives Have Improved 
Results, GAO-02-798 (Washington, D.C.: Sept. 13, 2002).
---------------------------------------------------------------------------
    In summary we found the following:

         DOE has competed its FFRDC contracts in three main 
        situations: when the contractor operating the laboratory is a 
        for-profit entity, when mission changes warrant a review of the 
        capabilities of other potential contractors, or when the 
        incumbent contractor's performance is unsatisfactory. DOE 
        guidance on contracting reflects a strong emphasis on 
        competition that exists, in part, as a result of its contract 
        reform initiative. Statutes and regulations give DOE 
        considerable flexibility in deciding whether to compete or 
        noncompetitively extend a FFRDC contract. However, for 
        noncompetitive extensions, DOE guidance requires the department 
        to present a convincing case to the Secretary. Among other 
        things, DOE must certify that competing the contract is not in 
        the best interests of the government and must describe the 
        incumbent contractor's past successful performance.

         Of the 16 FFRDC contracts in place, DOE has competed 
        six. It has not competed the remaining 10 contracts since the 
        contractors began operating the sites--in some cases, since the 
        1940s. DOE recently decided to compete 2 of the 10 contracts 
        that had never before been competed--contracts to operate the 
        Los Alamos National Laboratory in New Mexico and the Argonne 
        West Laboratory, located at the Idaho National Laboratory. DOE 
        decided to compete the (1) Los Alamos contract because of 
        concerns about the contractor's performance and (2) Argonne 
        West contract as part of an overall effort to separate the 
        Idaho National Laboratory's ongoing research mission from the 
        environmental cleanup mission at the Idaho site.

         Competing contracts is one of several mechanisms DOE 
        can use to address contractor performance problems or 
        strengthen contract management. However, just competing a 
        contract does not ensure that contractor performance will 
        improve. Other aspects of DOE's contract reform initiative 
        intended to improve contractor performance included greater use 
        of fixed-price contracts instead of cost-reimbursement 
        contracts and establishing or strengthening performance-based 
        incentives in existing contracts. In addition, we have reported 
        that DOE must (1) effectively oversee its contractors' 
        activities in carrying out projects and (2) use appropriate 
        outcome measures to assess overall results and apply lessons 
        learned to continually improve its contracting practices. Our 
        recent evaluation of DOE's contract reform efforts indicates 
        that DOE is still working to put these management practices and 
        outcome measures in place.

Background

    DOE has a large complex of sites around the country dedicated to 
supporting its missions: sites that were used to produce or process 
materials and components for nuclear weapons and laboratories that 
conduct research on nuclear weapons, defense issues, basic science, and 
other topics. These sites and laboratories are often located on 
government-owned property and facilities, but are usually operated by 
organizations under contract to DOE, including universities or 
university groups, non-profit organizations, or other commercial 
entities.
    DOE contracting activities are governed by federal laws and 
regulations. Although federal laws generally require federal agencies 
to use competition in selecting a contractor, until the mid-1990s, DOE 
contracts for the management and operation of its sites generally fit 
within an exception that allowed for the use of noncompetitive 
procedures. Those contracts were subject to regulation that established 
noncompetitive extensions of contracts with incumbent contractors as 
the norm and permitted competition only when it appeared likely that 
the competition would result in improved cost or contractor performance 
and would not be contrary to the government's best interests. In the 
mid-1990s, DOE began a series of contracting reforms to improve its 
contractors' performance. A key factor of that initiative has been the 
increasing use of competition as a way to select management and 
operating contractors for DOE sites. Although DOE initially focused the 
increased use of competition on its contracts with for-profit 
organizations, the laboratories operated by universities and other 
nonprofit organizations have not been completely insulated from these 
changes.
    Contract administration in DOE is carried out by the program 
offices, with guidance and direction from DOE's Office of Procurement 
and Assistance Management. The management and operating contracts at 
DOE's FFRDC laboratories are administered primarily by the National 
Nuclear Security Administration, a semi-autonomous agency within DOE; 
or DOE's Offices of Science, Environmental Management, or Nuclear 
Energy, Science, and Technology.

DOE Has Competed FFRDC Contracts for Three Main Reasons

    DOE has had three main reasons for competing its FFRDC contracts 
instead of extending the contracts noncompetitively: when the 
contractor operating the laboratory is a for-profit entity, when 
mission changes warrant a review of the capabilities of other potential 
contractors, or when the incumbent contractor's performance is 
unsatisfactory. Without one of these conditions, DOE has generally 
extended these contracts without competition.
    DOE has considerable flexibility in deciding whether to compete a 
management and operating contract for one of its FFRDC laboratories. 
Although federal procurement law specifies a clear preference for 
competition in awarding government contracts, the Competition in 
Contracting Act of 1984 provided for certain conditions under which 
full and open competition is not required. One of these noncompetitive 
conditions occurs when awarding the contract to a particular source is 
necessary to establish or maintain an essential engineering, research, 
or development capability to be provided by an educational or other 
nonprofit institution or a FFRDC.
    The Federal Acquisition Regulation, which implements federal law, 
defines government-wide policy and requirements for FFRDCs, including 
the establishment, use, review, and termination of the FFRDC 
relationship. Under this regulation (1) there must be a written 
agreement of sponsorship between the government and the FFRDC; (2) the 
sponsoring governmental agency must justify its use of the FFRDC; (3) 
before extending the agreement or contract with the FFRDC, the 
government agency must conduct a comprehensive review of the use and 
need for the FFRDC; and (4) when the need for the FFRDC no longer 
exists, the agency may transfer sponsorship to another government 
agency or phase out the FFRDC.
    DOE's 1996 acquisition guidance describes the procedures DOE 
program offices must follow to support any recommendation for a non-
competitive extension of any major site contract, including a FFRDC 
contract. This guidance indicates a clear preference for competition 
and requires DOE program offices to make a convincing case to the 
Secretary before a noncompetitive contract extension is allowed. This 
preference for competition is an outcome of DOE's contract reform 
initiative, which concluded that DOE needed to expand the use of 
competition in awarding or renewing contracts. Among other things, the 
1996 guidance specifies that, before a noncompetitive contract 
extension can occur, DOE must provide

         a certification that full and open competition is not 
        in the best interest of the department,

         a detailed description of the incumbent contractor's 
        past performance,

         an outline of the principal issues and/or significant 
        changes to be negotiated in the contract extension, and

         in the case of FFRDCs, a showing of the continued 
        need for the research and development center in accordance with 
        criteria established in the Federal Acquisition Regulation.

    In November 2000, DOE's Office of Procurement and Assistance 
Management issued additional guidance on how to evaluate an incumbent 
contractor's past performance when deciding whether to extend or 
compete an existing contract. The guidance states that DOE contracting 
officers must review an incumbent contractor's overall performance 
including technical, administrative, and cost factors, and it outlines 
the information required to support the performance review and the 
expected composition of the evaluation team. When reporting the results 
of a performance evaluation, the team should address all significant 
areas of performance and highlight the incumbent contractor's strengths 
and weaknesses. The evaluation team's report serves as the basis for 
determining whether extending a contract is in the best interests of 
the government and is subject to review and concurrence by the 
responsible assistant secretary and DOE's Procurement Executive.

DOE Has Competed or Plans to Compete Half of Its 16 FFRDC Contracts

    In September 2002, we reported that DOE had taken several steps to 
expand competition for its site management and operating FFRDC 
contracts. First, DOE reassessed which sites it should continue to 
designate as federally funded research and development centers. As a 
result of the reassessment, DOE removed 6 of the 22 sites from the 
FFRDC designation. DOE subsequently competed the contracts for two of 
these--the Knolls and Bettis Atomic Power Laboratories in New York and 
Pennsylvania. DOE restructured the other four contracts and, because of 
the more limited scope of activities, no longer regards them as major 
site contracts. The six site contracts that DOE has dropped from FFRDC 
status since 1992 are listed in Table 1.



    For the 16 remaining FFRDC contracts that DOE sponsors, DOE has 
competed 6 of them and is planning to compete two additional contracts 
in 2004 and 2005. The 16 current FFRDC sites and the competitive status 
of the site contract are shown in Table 2.



    DOE's decision to compete the six FFRDC sites shown in Table 2 is 
consistent with the department's overall policy on determining when 
competition is appropriate. For example, DOE competed the contract for 
the Brookhaven National Laboratory in 1997, after terminating the 
previous contract for unsatisfactory performance by the incumbent 
contractor. DOE competed the contract for the National Renewable Energy 
Laboratory in 1998 to incorporate additional private sector expertise 
into the management team for the site. This competition resulted from 
an expanded mission at the site to develop innovative renewable energy 
and energy efficient technologies and to incorporate these technologies 
into cost effective new products. For the remaining four FFRDC 
contracts that DOE has competed, the operator of the laboratory was a 
for-profit entity.
    When DOE has decided not to compete its FFRDC contracts but to 
extend them noncompetitively, its decisions have not been without 
controversy. For example, in 2001, DOE extended the management and 
operating contracts with the University of California for the Los 
Alamos and Lawrence Livermore National Laboratories. The University of 
California has operated these sites for 50 years or more and has been 
the sites' only contractor. In recent years, we and others have 
documented significant problems with laboratory operations and 
management at these two laboratories--particularly in the areas of 
safeguards, security, and project management.\2\ Congressional 
committees and others have called for DOE to compete these contracts. 
Until recently, however, DOE did not compete them. Instead, DOE chose 
to address the performance problems using contract mechanisms, such as 
specific performance measures and interim performance assessments. In 
our September 2002 report, we commented that if the University of 
California did not make significant improvements in its performance, 
DOE may need to reconsider its decision not to compete the contracts.
---------------------------------------------------------------------------
    \2\ For, example, see U.S. General Accounting Office, Department of 
Energy: Key Factors Underlying Security Problems at DOE Facilities, 
GAO/T-RCED-99-159 (Washington, D.C.: Apr. 20, 1999); U.S. General 
Accounting Office, Nuclear Security: Improvements Needed in DOE's 
Safeguards and Security Oversight, GAO/RCED-00-62 (Washington, D.C.: 
Feb. 24, 2000); and A Special Investigative Panel, President's Foreign 
Intelligence Advisory Board, Science at Its Best, Security at its 
Worst: A Report on Security Problems of the U.S. Department of Energy 
(Washington, D.C.: June 1999).
---------------------------------------------------------------------------
    In April 2003, the Secretary of Energy decided to open the Los 
Alamos National Laboratory contract to competition when the current 
contract expires in September 2005. The Secretary made this decision 
based on ``systemic management failures'' that came to light in 2002. 
The management failures included inadequate controls over employees' 
use of government credit cards, inadequate property controls and 
apparent theft of government property, and the firing of investigators 
attempting to identify the extent of management problems at the 
laboratory.
    DOE has also decided to restructure the FFRDC contracts supporting 
work at the Idaho National Laboratory. Currently the laboratory has two 
FFRDC contracts--(1) a site management contract that includes 
activities ranging from waste cleanup to facility operations activities 
and (2) a contract to operate Argonne National Laboratory, which 
includes the Argonne West facility at the Idaho site. DOE plans to 
restructure the two contracts so that one focuses on the nuclear energy 
research mission and the other focuses on the cleanup mission at the 
site. DOE also plans to include the activities at Argonne West in the 
contract competition for the site's research mission and to remove the 
Argonne West scope of work from DOE's existing contract with the 
University of Chicago to operate Argonne National Laboratory. DOE 
believes this contract restructuring will help revitalize the nuclear 
energy research mission at the Idaho Site and accelerate the 
environmental cleanup.
    DOE is continuing to examine the nature of its relationship with 
FFRDC contractors and the implications of that relationship for its 
contracting approach. DOE established FFRDCs in part to gain the 
benefits of having a long-term association with the research community 
beyond that available with a normal contractual relationship. However, 
more recent events are causing DOE to rethink its approach. As 
discussed above, DOE has been criticized for not competing laboratory 
contracts where the contractors are performing poorly. Furthermore, 
annual provisions in the Energy and Water Development Appropriations 
Acts since fiscal year 1998 have required DOE to compete the award and 
extension of management and operating contracts, including FFRDC 
contracts, unless the Secretary waives the requirement and notifies the 
Subcommittees on Energy and Water of the House Committee on 
Appropriations 60 days before contract award.
    Given these concerns, in 2003 the Secretary of Energy commissioned 
an independent panel to determine what criteria DOE should consider 
when deciding whether to extend or compete a laboratory management and 
operating contract. The panel is expected to help DOE determine, among 
other things, the conditions under which competition for laboratory 
contracts is appropriate, the appropriate criteria for deciding to 
compete or extend laboratory contracts, the benefits and disadvantages 
derived from competing laboratory contracts, and whether different 
standards and decision criteria should apply depending on whether the 
contractor is non-profit, an educational institution, an academic 
consortium, or a commercial entity.

Competing Its Contracts Is One of Several Mechanisms DOE Has to Address 
                    Contractor Performance, but Effective Oversight and 
                    Improved Outcome Measures Are Also Needed

    Competing contracts is one of several mechanisms DOE can use to 
address contractor performance problems or strengthen contract 
management. However, competing a contract does not ensure that 
contractor performance will improve. Other steps DOE has taken as part 
of its contract reform initiative to address contractor performance 
issues include changing the type of contract, such as from a cost-
reimbursement to a fixed-price contract, or establishing or 
strengthening performance-based incentives in the contract. For 
example, in September 2002, we reported that DOE now requires 
performance-based contracts at all of its major sites. DOE has also 
increased over time the proportion of contractors' fees tied to 
achieving those performance objectives. However, DOE has struggled to 
develop effective performance measures and continues to modify and test 
various performance measures that more directly link performance 
incentives to a site's strategic objectives.
    Even these changes to DOE's contracts do not by themselves ensure 
that contractor performance will improve. We have reported that DOE 
must also (1) effectively oversee its contractors' activities in 
carrying out projects and (2) use appropriate outcome measures to 
assess overall results and apply lessons learned to continually improve 
its contracting practices. Effectively overseeing contractor activities 
involves, among other things, ensuring that appropriate and effective 
project management principles and practices are being used. Since June 
1999, DOE has been working to implement recommendations by the National 
Research Council on how to improve project management at DOE. In 2003, 
the National Research Council reported that DOE has made progress in 
improving its management of projects but that effective management of 
projects was not fully in place.
    Regarding the use of outcome measures to assess overall results, in 
September 2002, we reported that DOE did not have outcome measures or 
data that could be used to assess the overall results of its contract 
reform initiatives. We recommended that DOE develop an approach to its 
reform initiatives, including its contracting and project management 
initiatives, that is more consistent with the best practices of high-
performing organizations. DOE is still working to put a best-practices 
approach in place.
    As we reported in 2001, improving an organization's performance can 
be difficult, especially in an organization like DOE, which has three 
main interrelated impediments to improvement--diverse missions, a 
confusing organizational structure, and a weak culture of 
accountability.\3\ However, DOE expects to spend hundreds of billions 
of dollars in future years on missions important to the well-being of 
the American people, such as ensuring the safety and reliability of our 
nuclear weapon stockpile. Therefore, the department has compelling 
reasons to ensure that it has in place an effective set of contracting 
and management practices and controls.
---------------------------------------------------------------------------
    \3\ U.S. General Accounting Office, Department of Energy: 
Fundamental Reassessment Needed to Address Major Mission, Structure, 
and Accountability Problems, GAO-02-51 (Washington, D.C.: Dec. 21, 
2001).
---------------------------------------------------------------------------
    Thank you, Madam Chairman and Members of the Subcommittee. This 
concludes my testimony. I would be pleased to respond to any questions 
that you may have.

Contacts and Acknowledgments

    For further information on this testimony, please contact Ms. Robin 
Nazzaro at (202) 512-3841. Individuals making key contributions to this 
testimony included Carole Blackwell, Bob Crystal, Doreen Feldman, Molly 
Laster, Carol Shulman, Stan Stenersen, and Bill Swick.



                     Biography for Robin M. Nazzaro

    Ms. Nazzaro is a Director with the Natural Resources and 
Environment team of the U.S. General Accounting Office (GAO). Since 
1993, she has overseen GAO's work on federally funded R&D, including 
responsibility for NIST, NSF and PTO as well as a number government-
wide R&D programs. In addition, she is currently responsible for the 
Department of Energy's National Nuclear Security Administration, 
Environmental Management, and Waste programs as well as general DOE 
management issues such as security and contract management.
    Ms. Nazzaro has been with GAO since 1979. For several years, she 
worked on tax and financial management issues and later on information 
technology issues. She has also served as an assistant to the Deputy 
Director for Planning and Reporting, where she was division focal point 
for strategic planning and human resources management.
    Ms. Nazzaro received a Bachelor's degree in K-12 education from the 
University of Wisconsin and recently received a senior management in 
government certificate in public policy from the John F. Kennedy School 
of Government at Harvard University. She has received numerous GAO 
honors, including the Comptroller General's Meritorious Service Award 
for sustained leadership and two Assistant Comptroller General's Awards 
for exceptional contributions to strategic planning.

    Chairwoman Biggert. Thank you very much.
    Now we will hear from Mr. Card, DOE. Thank you.

   STATEMENT OF MR. ROBERT GORDON CARD, UNDER SECRETARY FOR 
     ENERGY, SCIENCE, AND ENVIRONMENT, DEPARTMENT OF ENERGY

    Mr. Card. Thank you, Madam Chairman, Members of the 
Subcommittee. GAO has done such an outstanding job of 
summarizing our position that I'm just going to make a few 
quick points.
    First, I just want to reemphasize what you said that the 
Department is very proud of the outstanding science produced by 
its laboratories. These laboratories are creating breakthroughs 
everyday, which will enhance our security, boost our economic 
competitiveness, protect the environment, and improve our 
health. Second, the Department takes its management 
responsibilities for its science program very seriously. With 
an objective to maximize the science contribution to the Nation 
while providing taxpayer value and effective stewardship of 
this $3.5 billion figure enterprise just in the science budget. 
Third, in responding to calls during the late 1980's and early 
1990's for increased contractor accountability and oversight, 
the Department significantly increased competition for 
contracts Department-wide, as you have heard from GAO. This has 
also resulted in increased competition for laboratory 
contracts. Fourth and finally, given the important tradeoffs 
that this committee is concerned about, and so are we, between 
accountability provided for in competition and continuity that 
may be important for the development of a science program.
    The Secretary has sought the advice of Blue Ribbon 
Commission on laboratory contract competition. Its Commission 
expected to complete its work later this year.
    So Madam Chairman, thank you for the opportunity to 
testify. I look forward to your questions.
    [The prepared statement of Mr. Card follows:]

                Prepared Statement of Robert Gordon Card

    Good morning Madam Chairperson and Members of the Subcommittee. It 
is my pleasure to join you to discuss the Department of Energy's 
laboratories and the use of competitive contracting procedures to 
maintain these important scientific research institutions.
    Let me begin by affirming the importance of the Department's system 
of laboratories to our country's national security and its scientific 
leadership. DOE labs are the United States' preeminent institutions for 
the conduct of long-term, often high risk, research and development. 
The labs represent a major capital investment in state-of-the-art 
scientific facilities and technologies which, in many cases, is beyond 
the financial reach of American industry and academia. For over fifty 
years, DOE labs have enhanced the ability of our nation to deter and 
defend against military threats; they have expanded our understanding 
of the origins and physical nature of our world; they have led the way 
in high energy, nuclear, and condensed matter physics; they have helped 
increase the availability of energy supplies, made energy technologies 
more efficient, and supported the discovery and development of 
alternative energy sources; they have expanded our knowledge, skills 
and technologies in dealing with environmental hazards; and they have 
helped to unlock the biologic codes which dictate who and what we are.
    The preservation and enhancement of these critical scientific 
capabilities is a major objective of Energy Secretary Spencer Abraham. 
He is committed to ensuring that the DOE labs continue to provide our 
nation with world class science and that they are managed in a 
conscientious, business-like fashion by our contractors. It is my 
privilege to support him in my role as Under Secretary for Energy, 
Science and Environment.
    You have invited me here today to address the Department's policies 
and practices for the use of competitive procedures in maintaining 
DOE's contractor managed and operated laboratories. Allow me to begin 
with a historical perspective.
    The Department and its predecessor agencies, the Energy Research 
and Development Administration and the Atomic Energy Commission, have, 
since their inception, relied on private sector industrial and academic 
institutions to carry out weapons production, basic and applied 
research, and other mission-critical activities at its government-owned 
sites and facilities located throughout the United States. The 
Department has obtained these services through the use of management 
and operating (M&O) contracts. M&O contracts are contractual agreements 
authorized under DOE's enabling legislation and regulated by the 
government-wide Federal Acquisition Regulation (FAR).
    The FAR characterizes an M&O contract by its special purpose in 
conducting work closely related to an agency's fundamental mission as 
well as by its long-term or continuing nature. The FAR further provides 
that the effective work performance under management and operating 
contracts usually involves high levels of expertise and continuity of 
operations and personnel.
    The Department historically provided for the continuing maintenance 
of its major sites and facilities and their assigned mission 
responsibilities through the use of non-competitive contract 
extensions. The use of competitive procedures for M&Os was relatively 
infrequent, and generally limited to those circumstances where a new 
facility was being established or an incumbent chose not to continue 
its performance at an existing facility. For example, between 1984 and 
1994 when the Department had over 50 M&O contracts, only 3 M&O 
contracts were competed.
    In the mid 1990s, however, DOE's competition policy and practice 
changed significantly. As a result of a comprehensive initiative to 
assess and improve its management of M&O contracts, the Department made 
a policy decision to significantly increase the use of the competitive 
procedures in selecting contractors to manage and operate its 
facilities. At the same time, it significantly reduced the usage of the 
M&O form of contracting coincident with mission changes at certain 
sites and its desire to identify more appropriate forms of contracting 
to fit its needs.
    DOE's new policy, which was introduced in 1994, and formally 
established by regulation in 1996, provided that competition would be 
the norm or default mechanism for selecting an M&O contractor at the 
completion of the contract term. This policy was consistent with the 
statutory principles governing all federal agencies as contained in the 
Competition in Contracting Act of 1984. The policy preserved the 
concept of maintaining a long-term contractual relationship, however, 
by providing for a contract term of up to 10 years: a 5-year initial 
term with a competitively derived option right that the Department 
could exercise for an additional term of up to 5 years. The 
Department's new policy recognized, however, that certain circumstances 
might, nonetheless, support the noncompetitive extension of a contract 
with an incumbent, as specifically authorized by the Competition in 
Contracting Act. To ensure that competition was always considered and 
that noncompetitive procedures were selectively and appropriately used, 
a rigorous process of analysis, review, and approval was established 
with the ultimate authority to approve noncompetitive actions resting 
with the Secretary.
    As a result of the new policy, DOE vigorously applied competitive 
procedures to its M&O contracts as well as to other major contracts 
which were formally M&O contracts. Since 1994 the Department conducted 
26 competitions for its M&O and former M&O contracts, representing over 
$50 billion in contract value. Approximately 75 percent of the 
Department's contract dollars are now awarded competitively as compared 
to its historic norm of less than 20 percent.
    Notwithstanding this major paradigm shift in the way the Department 
manages its programs and places its contracts, certain M&O contracts 
have not been competed. They are a subset of the Department's research 
and development laboratories, which have been officially designated as 
Federally Funded Research and Development Centers (FFRDC). An FFRDC is 
a unique organization that assists the United States Government with 
special long-term scientific research, analysis, and systems 
engineering requirements which cannot be met effectively by other 
means. An FFRDC occupies a special relationship to the government 
organization it serves, having access, beyond that which is common to a 
normal contractual relationship, to government and private data, 
including sensitive and proprietary information, as well as to federal 
employees and facilities. An FFRDC is required to conduct its business 
in the public interest with objectivity and independence and in a 
manner befitting its special relationship. It must remain free from 
organizational conflict of interest, and provide full disclosure of its 
affairs to its sponsoring agency. Government-wide policies and 
procedures governing the establishment and maintenance of FFRDC's are 
promulgated in the Federal Acquisition Regulation. The FAR encourages 
long-term relationships between government sponsors and FFRDCs in order 
to maintain continuity, currency, objectivity, and independence.
    The Competition in Contracting Act of 1984, which provides Federal 
Executive Branch agencies with Congressional policy and procedures for 
the conduct of their contracting activities, recognizes the unique 
position of FFRDCs and specifically authorizes agencies, as an 
exception to the general rule requiring the use of full and open 
competition, to use noncompetitive procedures as necessary to establish 
and maintain FFRDCs.
    As a matter of general practice, most federal agencies that sponsor 
FFRDCs do not use competitive procedures to maintain their FFRDCs upon 
expiration of the contract terms. Indeed, the Department has been able 
to identify only two incidents of competition by other federal 
agencies.
    Consistent with its policies on the use of competition, however, 
the Department of Energy has since 1994 affirmatively considered the 
use of competition for its FFRDCs at the expiration of contract term. 
Although Congress authorized federal agencies to exempt FFRDC contracts 
from competition, the Department has, nonetheless, engaged in 
competition when an identifiable interest presents itself, such as 
where it is dissatisfied with an incumbent's performance or when a 
change of mission or program direction presents an opportunity for 
considering the merits of alternative providers. It has also tended to 
compete in those cases where an FFRDC is run by an incumbent for-profit 
organization as opposed to an academic or non-profit organization. As a 
consequence, the Department has competed or decided to compete FFRDCs 
eight times since 1994. Most significantly, however, the Department has 
demonstrated to its incumbent contractors its willingness to engage in 
competition when necessary so that contractors do not consider their 
continued contractual relationship with the government as a foregone 
conclusion. DOE has used this competitive pressure to ensure that the 
contractors focus on good performance and the Department's needs and 
concerns, as well as to provide leverage to accomplish significant 
changes in contract terms and conditions.
    DOE believes that the changes in policy and practice with respect 
to M&O and former M&O competition have had a generally positive impact. 
Although some performance learning curve and program disruption may be 
experienced if a non-incumbent is selected as a result of competition, 
it has generally been offset by either improved longer-term performance 
of the contractor or the accomplishment of other contract goals during 
the competition such as the use of performance-based contracting 
techniques. Further, the effects of the learning curve of a newly-
selected contractor are offset by DOE's retention of relatively long 
contract terms of up to 10 years. With respect to the FFRDC's, since 
they have typically been competed for cause because of a specific 
objective to be accomplished through the competitive process, DOE has, 
in almost every case, seen improvements in, the operation of the 
laboratory.
    Notwithstanding the changes in DOE policy and the significant 
increase in the use of competitive procedures, generally, the issue of 
competition continues to receive the attention of Congress and the 
General Accounting Office.
    For example, the GAO in its recent report on DOE management 
challenges noted that although the Department had made much progress in 
its overall competitive posture, it continued to noncompetitively 
extend most of its FFRDCs including some that had experienced 
performance problems. GAO concluded that it was unclear in these latter 
cases whether ``. . .DOE can successfully address the performance 
problems using contract mechanisms.'' Further, DOE has, on occasion, 
received different perspectives from Congress regarding the use of 
competition and has received complaints as to lack of clarity in DOE 
policy as to when competition is and isn't appropriate. To help address 
this continuing issue, Secretary Abraham requested the Secretary of 
Energy Advisory Board to establish an independent ``Blue Ribbon 
Commission'' to re-examine the issue of DOE's competition policies and 
practices with respect to its FFRDCs. The Commission is expected to 
assess the Department's competitive policies and procedures to 
determine the circumstances and criteria under which competition can 
best assist DOE in maintaining high quality research and efficient and 
effective operation of its government-owned facilities. Among other 
things, the Commission is expected to advise on whether the FFRDCs 
should be routinely competed and with what frequency, or whether they 
should only be competed for cause. If the former, should there be any 
exceptions? If the latter, under what circumstances should a decision 
to compete be made? Should different standards or decision criteria be 
applied depending on the purpose of the research facility? Should 
different standards or decision criteria be applied depending on 
whether the incumbent is a non-profit or academic institution or a 
commercial, for-profit entity?
    The Commission will also assess the benefits and disadvantages of 
competing the FFRDCs, offer its opinion as to whether FFRDCs should be 
treated differently from other competition decisions, and recommend 
potential criteria for deciding which types of entities should mange 
and operate the various types of laboratories.
    The Commission's analysis and recommendations on these and other 
issues are due by the end of the fiscal year. Its report should provide 
useful information to the Secretary of Energy to make necessary 
improvements to the Department's competition policies and procedures.
    This concludes my testimony, I will be happy to answer any 
questions that you may have or provide any additional information that 
you desire for the record.

                    Biography for Robert Gordon Card

    Mr. Robert Card is the Under Secretary for Energy, Science and 
Environment at U.S. Department of Energy. Prior to his DOE employment, 
Mr. Card was President and CEO, Kaiser-Hill Company, LLC. In that role 
he was responsible for the cleanup and closure of the U.S. Department 
of Energy's (DOE's) Rocky Flats site. Mr. Card also served as a 
Director and Senior Vice President at CH2M HILL Companies, Ltd. Prior 
to the Rocky Flats assignment, Mr. Card served as Group Executive, 
Environmental Companies, responsible for the energy and environmental 
business, which was the firm's largest business practice. Mr. Card 
completed the Program for Management Development at Harvard Business 
School, received a M.S. in Environmental Engineering from Stanford 
University, and a B.S. in Civil Engineering from the University of 
Washington.

    Chairwoman Biggert. And now Dr. Fleury.

  STATEMENT OF DR. PAUL A. FLEURY, DEAN OF ENGINEERING, YALE 
                           UNIVERSITY

    Dr. Fleury. Madam Chairman, I am grateful for the 
opportunity to share some of my perspectives with you this 
morning on the DOE National Laboratories and on their 
management and operations contracts--concepts.
    The main missions of the DOE multi-program laboratories are 
national security and science. These missions require that the 
labs are necessarily large, complex, and expensive. In order 
for them to deliver the necessary value to the country, they 
must be operated efficiently and effectively. They must be able 
to attract and retain the best scientific and technical talent. 
I believe that over the decades, as a group, the DOE labs have 
done this job better than any other comparable group.
    I believe that much of the credit for this record goes to 
the GOCO-M&O concept and its execution, at least in the early 
years. When the government engaged contractors such as AT&T and 
the University of California in the '40's, those contractors 
took on the job largely out of the sense of public service. In 
fact, President Truman's letter to the then-president of AT&T 
stated that AT&T had an opportunity to render an exceptional 
service and a national interest. And I believe that that 
paradigm has persisted for many of the contractors for many 
years.
    But in recent years, there have been a number of changes in 
the environment that the DOE and the labs face such that he 
GOCO concept has come under increasing scrutiny and, I believe, 
has experienced some serious distortion. For the DOE labs, this 
distortion has meant that the partnership mentality has been 
transformed into one of ever-increasing audits and oversights 
and micromanagement. Contractors have been given more oversight 
and scrutiny and greater liability while having less autonomy 
and less authority.
    When I was at Sandia in the early '90's, I experienced some 
of these effects firsthand following the infamous ``Tiger 
Teams'' visits. I believe that approach resulted in focusing 
more on a mode of compliance than cooperation and has led to 
decreased scientific and technical productivity, increased 
staff dedicated to preparing for audits and policing 
compliance, and confusion about lines of authority and 
accountability.
    I did go through a contract change as part of the AT&T 
disengagement from the DOE in 1993 when that contract was 
competed. It was a long, complex, and expensive process, and it 
was done by mutual agreement, not by any dissatisfaction of the 
DOE with AT&T. Nevertheless, there were considerable impacts, 
at least in the short term, on the staff throughout the 
laboratory.
    As I think you may hear more from John, I won't talk about 
the Lab Operations Board, but I will mention that that was the 
major reaction of the DOE to the Galvin report that took place 
in the mid-'90's to look at the overall management of the suite 
of laboratories. Many of their recommendations seemed to imply 
that there was an opportunity for substantial increase in 
productivity and efficiency in the laboratories. But to date, 
only a fraction of this potential has been realized.
    Let me just turn briefly to the question of competition and 
competing contracts. I do not believe that problems that have 
come up in recent months and years can be fixed by merely 
tweaking the current reactive approach. I believe that there is 
an urgent need for a strong and visible commitment on the part 
of Congress and the Department to restore the GOCO concept to 
its earlier structure and mode of operation. Such a commitment 
will influence substantially all of the contractor-related 
questions that we're discussing here today. If we don't make 
such a commitment, I believe that the result will be a 
restriction in the pool of potential bidders for new contracts. 
It will influence negatively their motivation. It may result 
even in contractors who are willing to operate more in a 
compliance mode, even at the expense of mission completion.
    I, in my written testimony, made some more concrete 
suggestions about what I believe are attributes of a good 
contractor and what some of the initial steps could be--that 
could be taken.
    In closing, let me just say that I believe that competing 
for these contracts should either be the rule or the exception. 
If it is the rule, then I believe you will get into needless 
expense without necessarily a positive outcome. That could lead 
to the evolution of a sham process. If it is the exception, 
then you have to understand what the exception is for. I would 
say that unless the incumbent wants to terminate the 
relationship or the DOE wants them to terminate it, then it 
should not be necessary for re-competing. The primary goals 
should be to have effective management at the labs to enable 
mission accomplishment, not to measure compliance to particular 
rules or regulation.
    Thank you.
    [The prepared statement of Dr. Fleury follows:]

                  Prepared Statement of Paul A. Fleury

National Laboratories Overview

    Madam Chairman, I am grateful for the opportunity to share with you 
some of my perspectives on the DOE National Laboratories management and 
some of the issues raised by the current concern for the status and 
trajectory of the GOCO and M&O contract concept.
    My background and past affiliations with many of these laboratories 
are described in my brief bio attached to these remarks, so let me not 
spend time on that here. Rather let me begin by stating my belief that 
world leadership in research and development is absolutely vital for 
the U.S.; that technology based on the methods, discoveries and laws of 
science is the basis for innovation, productivity enhancement, and 
improvement in the human condition; that the position of the U.S. is 
seriously threatened by a steadily declining competency in our schools 
in the areas of science, math and technology; that the virtual 
disappearance of real research in the U.S. industrial sector adds to 
this threat and puts an increasing burden on our universities and 
national laboratories to fill the resulting gaps.
    The main missions of the DOE multiprogram laboratories are: 
national security and science. The former embraces economic and energy 
security as well as physical security. The latter embraces technology 
development appropriate to the security mission as well as large 
facility based fundamental research. In order to fulfill these vital 
missions, the national laboratories are necessarily large, complex, and 
expensive. Over the past five decades they have become more so. Thus it 
is increasingly important that the labs operate efficiently and 
effectively. I believe that despite some managerial shortcomings at 
virtually all levels the DOE labs as a group have done an outstanding 
job in meeting these challenges. As a group they are superior to any 
other set of FFRDC's.

GOCO-M&O Concept

    Much of the credit for this record goes to the GOCO-M&O concept. As 
Sig Hecker has detailed in his testimony to the Senate Energy and 
Natural Resources Committee on June 24, 2003 the GOCO relationship 
began as a partnership that was deliberate and innovative. For several 
decades it was also quite successful. The Congress and the agency 
[first the AEC and then the DOE] set the missions and strategic 
objectives, and the Management and Operations Contractor was 
responsible for their execution. Motivation for becoming an M&O 
contractor in those days was in large measure related to the 
`opportunity to render an exceptional service in the national 
interest'--to quote from President Truman's letter to the then 
president of the Bell System [AT&T] requesting him to accept the 
management of Sandia National Laboratories. Similar motivation surely 
played a dominant role in the University of California's management of 
its three national laboratories.
    Though conceived and initially implemented for the weapons 
laboratories, the M&O GOCO model was successfully adopted for the DOE's 
science laboratories as well. Aspects of the `inherently governmental 
function' associated with nuclear weapons laboratories--namely long-
term commitment, superb technical judgment, complex science and 
engineering projects, and operation of unique and expensive 
facilities--were and are still also to be found in the DOE science 
laboratories. They house and host facility based fundamental research 
in particle and nuclear physics, in chemical, materials and 
computational science and increasingly in biology. For several decades 
successive generations of large scale science facilities and projects 
have successfully operated under the GOCO-M&O paradigm. Though the 
short-term stakes for the Nation appear higher when it comes to 
effective management of the DOE weapons labs, I believe that the long-
term stakes are equally high for the science labs.
    In the past decade and a half or so there have been numerous 
changes in the technological and geopolitical landscapes with the 
result that the GOCO concept has come under increasing criticism and 
has experienced serious distortion if not complete destruction. Too 
numerous and complex to describe here, these include changes in the 
nature of threats to our national security, expansion of global markets 
and technology bases, shrinkage of U.S. industry supported basic 
research, increasing dependence on foreign technical talent, an 
increase in the litigiousness of our society, and the growth of 
government bureaucracy. For the DOE labs these changes have meant a 
distortion of the partnership mentality which once characterized the 
DOE-contractor relationship into one of a more vendor-supplier 
relationship characterized by ever increasing oversight, audits, 
orders, compliance requirements and micromanagement. Contractors were 
given more oversight and greater liability, while having less authority 
and autonomy.

The Sandia-AT&T Experience

    This distortion has had many negative consequences--several of 
which have been documented in the Galvin Report [Alternative Futures 
for the Department of Energy National Laboratories] of 1995. I 
experienced many of these effects first hand as Vice President of 
Research and Exploratory Technology at Sandia in 1992 and 1993. The 
infamous `Tiger Teams' under then Secretary Watkins had just completed 
their work at Sandia. In their wake was left a seemingly unending set 
of orders, rules, directives and procedures, indicative of an approach 
DOE was to follow for years hence: increased audits and paperwork, a 
mode of compliance rather than cooperation. This approach led to 
decreased scientific and technological productivity, increased staff 
both inside and outside the lab dedicated to preparing for endless 
audits and policing compliance, confusion about lines of authority and 
accountability and a noticeable erosion of the sense of trust and 
teamwork so necessary for a productive partnership.
    I had gone to Sandia expecting renewal of the AT&T M&O contract due 
in October of 1993, only to find soon after my arrival that the DOE and 
AT&T were not going to renew their 45-year-old relationship. AT&T's 
management of Sandia stood out as one of the finest examples of a 
contractor performing `exceptional service in the national interest.' 
But with the DOE's decision not to renew its presidential 
indemnification of AT&T and the increasing replacement of oversight for 
trust, AT&T declined to be considered for a contract renewal. 
Additional factors such as the profound change the corporation itself 
was experiencing as a result of the 1984 break up of the Bell System 
were undoubtedly also involved.
    The contract was thus open to the long, complex, and expensive 
bidding process. As I recall dozens of potential bidders attended the 
first briefings in 1992 and eight eventually went through the entire 
bidding process--at considerable expense to themselves and considerable 
disruption, uncertainty and angst to thousands of Sandians. The bidders 
were down selected to two finalists: Battelle and Martin Marietta [now 
Lockheed Martin], the eventual winner.
    I remained at Sandia until Sept. 30, 1993 and participated in the 
transition before returning to Bell Laboratories. In this case the 
decision to compete the contract was made not out of any concern on the 
part of DOE for the performance of AT&T as M&O contractor [they had 
never collected any fee, despite being a `for profit' corporation, and 
had implemented a very successful management structure and philosophy 
at the labs] but rather out of the vacuum created by AT&T's rejection 
of the dramatically changed ground rules imposed by DOE. In my opinion 
the management staff and laboratory culture within Sandia at that time 
was very strong and competent, so that while there was considerable 
apprehension about the change of contractors, the lab has succeeded 
very well. Lockheed Martin has now managed Sandia for almost ten years, 
and was awarded a renewal of its contract in 1998.

University of California President's Council on the National 
                    Laboratories

    I was given the opportunity for another view of the DOE-contractor 
relationship when I was invited to join the Science and Technology 
Panel of the UC President's Council on the National Laboratories in 
late1996. By then I was Dean of Engineering at the University of New 
Mexico and was serving on technical review committees for divisions at 
both Sandia and Los Alamos [as well as Berkeley and Brookhaven National 
Laboratories].
    For nearly four years I had the opportunity to participate in the 
evaluation of all the technical divisions at the three UC managed 
laboratories. As has been repeatedly stated by others, the dominant 
impression from all of these reviews remains that the quality of the 
technical work at these DOE labs is at least excellent throughout and 
uniquely outstanding in certain key areas. I also observed that the day 
to day style of execution, the management tools and practices, indeed 
the very culture of the laboratories are substantially influenced by 
the contractor. This was as true of Sandia under AT&T as it is of 
Berkeley, Livermore and Los Alamos under UC, and as it was at 
Brookhaven under AUI.
    UC is the longest standing of the M&O contractors in the DOE 
system. They have therefore experienced in the greatest measure changes 
in the operation of the GOCO concept, and I was able to observe that as 
well as some of UC's reactions to them.

Secretary of Energy's Laboratory Operations Board

    The events outlined above were by no means unique, and the DOE 
commissioned a comprehensive study of the management of its entire 
suite of laboratories [perhaps not entirely coincidentally] shortly 
after the demise of the AT&T contract. The DOE's principle response to 
the resulting Galvin Report was the formation by then Secretary O'Leary 
of the Laboratory Operations Board, tasked to advise her on ways to 
implement the Galvin recommendations and to generally improve the 
strategic planning and operations of the DOE Laboratories.
    The Board originally consisted of eight external members and eight 
internal DOE members. Deputy Secretary Charles Curtis and retired Ford 
executive John McTague co-chaired the LOB in its early days. While it 
is difficult to assess the impact of such committees, one clearly 
positive aspect of the LOB was the quarterly convening in the same room 
of a set of external [mostly industry] members with their DOE 
counterparts as a committee together with the Assistant Secretaries 
from all of the DOE headquarters offices. We were told more than once 
that this was a unique collection. We worked hard to change it from a 
collection to a system--but without much evident success.
    Much of our effort in the LOB was aimed at understanding and 
simplifying the relationships between the DOE and its contractors and 
laboratories. In many quarters a strong CYA [cover your anatomy] 
mentality had developed, associated with proliferating audits from the 
OMB, GAO and IG-like organizations. Typically the DOE had responded by 
adding more audits and layers of staff. The sense of partnership with 
the contractors continued to erode. The unbelievably convoluted 
`management chain' involving the DOE HQ, field offices, area offices, 
site officers, contractors, and internal lab management defied rational 
analysis. [For those interested I commend to their attention Figure I-1 
on page I-9 of the Institute for Defense Analysis Paper P-3306 of March 
1997. The paper is entitled ``The Organization and Management of the 
Nuclear Weapons Program''].
    The LOB addressed many concerns, but to me our primary objective 
was to improve the efficiency of laboratory operations so that the best 
efforts of the best technical staffs could properly execute the 
missions of science and national security. To this end we engaged many 
issues, carried out many studies and wrote many reports. These can be 
traced through, for example: Contributions and Value of the Laboratory 
Operations Board-December 7, 2000; White Paper on Performance Based 
Management-Dec.7, 2000; Review of the DOE's Laboratory Directed 
Research and Development Program-Jan. 2000; Analysis of Headquarters 
and Field Structure Issues-September 1997. All are available through 
the website: http://www.seab.energy.gov/publications/pubs.htm.
    I believe there have been some improvements in the subsequent years 
with regard to several of the issues the LOB considered: progress 
toward reducing `stealth overhead'; clarifying lines of authority 
especially with the identification of Principal Secretarial Officers; 
willingness to pilot simplifying reforms at one or two labs prior to 
directing their system wide adoption; restoration of the LDRD ceiling 
to a reasonable level, etc. However, there is still very much to be 
done.
    In my opinion we have barely begun to exploit the increases in 
efficiency envisioned in the Galvin report [30 to 50 percent]. Such 
increases are still possible, but not by continued piling on of more 
rules and compliance checkers, nor by merely trading out one contractor 
for another, possibly more compliant replacement. Rather the 
restoration of the practice of the GOCO concept to its former 
partnership based status is necessary. A high level commission of the 
Galvin type is needed now in my opinion to reverse the negative trends 
that have recently begun to undo the modest progress that was beginning 
to be made and to position the laboratories to execute their 
increasingly vital national missions more efficiently.

Going forward with M&O Contracts

    Let me turn now to some questions related to the competing of M&O 
contracts in today's world. I do not believe the problems can be fixed 
by merely tweaking the current reactive approach that intimidates or 
penalizes an incumbent contractor with the threat of competing their 
contract or by adding more layers of oversight and micromanagement to 
new contracts.
    I believe that in view of the basic soundness of the GOCO concept 
for the management of these laboratories and the deterioration of the 
practical execution of that concept, there is an urgent need for strong 
and visible commitment on the part of Congress and the Department to 
restore it. Such a commitment will influence substantially and, I 
believe positively, all of the contractor related questions with which 
we are concerned here today. Failure to make such a commitment will 
restrict the pool of potential contractors, will influence negatively 
their motivation and may result in new contracts and contractors who 
are willing to operate in a compliance mode, even if that means 
compromising [perhaps as an unintended consequence] the vital missions 
of the laboratories.
    I believe that the attributes of a good M&O contractor include:

        -- Experience in efficiently managing mission oriented, 
        complex technical organizations.

        -- Experience in efficient planning, constructing and 
        operating large, complex scientific research facilities.

        -- Ability to recognize, recruit, retain, and reward the best 
        scientific and technical talent.

        -- Sufficient internal expertise and personnel to provide 
        sustained technical and operational leadership.

        -- Sufficient `clout' to push back on ill conceived directives 
        from the Department.

        -- A true sense of service to the Nation.

        -- Absence of conflict of interest.

    Among the for-profit organizations, it is difficult to imagine a 
company like AT&T or Dupont being interested or willing to bid for a 
DOE M&O contract in today's environment. Defense, aerospace or 
environmental firms might well be willing--certainly they were in 
evidence during the Sandia process in 1993. Issues of management fees, 
reward structure and potential conflict of interest all come strongly 
into play with such candidates. Nevertheless, there is at least some 
evidence that these issues can be managed. There remains, however, at 
least for me a concern for the level of in-house understanding of and 
commitment to science and basic research with such bidders.
    Among universities, there are few if any universities that have the 
breadth of capabilities to match the University of California and none 
that have their experience. Nevertheless there may be some with 
sufficient intellectual, managerial and financial resources to mount 
competitive bids. Partnerships between universities and not-for-profit 
organizations have been forged and are today operating some science 
labs with evident success. So partnerships appear to be an attractive 
option. However, they involve additional interfaces and the need for 
particular attention to delineation of roles and responsibilities which 
may not prove workable for a weapons laboratory.
    It is perhaps worth commenting on the question of laboratory 
culture. This colors significantly the laboratory's approach to 
accountability, efficiency, safety, security, trust between scientist 
and manager and a host of other `soft' issues. Over the decades each 
laboratory has developed its own culture which has been influenced 
noticeably by the M&O contractor. One only has to compare Sandia with 
Los Alamos or Berkeley with Brookhaven to see this. An important goal 
in considering any contractor is in my opinion to ingrain safety, 
efficiency, accountability and security in the modes of mission work 
itself for every employee and to reduce the need for overseers and 
auditors. This is perhaps too idealistic a goal in today's world, but a 
commitment to working in that direction will do a lot for morale of the 
scientists and would expand the pool of potential bidders.
    On the question of what can be done to `better align the incentives 
of science professionals at the laboratories with those of the 
contractors?', I would say that the contract should make clear that 
delivering on the mission is paramount. What is not paramount is 
counting the number of orders complied with or the number of staff 
hired to oversee their compliance. Any contract provisions that put 
process or order compliance at odds with achievement of the science and 
security missions will naturally set the contractor and the scientists 
at odds.
    How can we ensure that those most capable of doing the job will 
actually take it on?
    What should incentives be for contractors? I believe the most 
compelling incentive will be to break the cycle of micromanagerial 
oversight-orders-audits-compliance checking-increasing bureaucracy-
resulting inefficiency-penalties and threats that now exists. Some 
progress had been made in this direction during the latter half of the 
1990's, but we are now slipping back noticeably. Hence my call above 
for a visible commitment from Congress and the department to rectify 
these trends.
    I realize that this can not be done all at once, but some initial 
steps might involve:

        -- Increased focus on mission outcomes rather that process 
        compliance.

        -- Fewer, less redundant and better coordinated audits and 
        reviews of technical and operational performance.

        -- Allowing resources saved by efficiency improvements to be 
        reinvested for more science.

        -- Increasing size of programs managed per manager to reduce 
        stealth overhead.

        -- Reward good performance with less frequent contract 
        recompetes or threats thereof.

        -- Identify steps toward working together to solve a problem 
        [e.g., inappropriate accounting charges] before taking punitive 
        action.

Summary of Main Points

        1. Science and National Security are the main missions of the 
        DOE multiprogram national laboratories.

        2. These vital missions require that these laboratories be 
        large, complex, and expensive.

        3. These attributes require that the laboratories attract the 
        very best technical talent and be operated efficiently.

        4. Changes in the geopolitical, economic and technology 
        landscapes have made the labs more important than ever to the 
        Nation.

        5. The GOCO-M&O concept was well conceived and well practiced 
        for several decades at the national labs, but has been severely 
        distorted by micromanagement and compliance driven approaches 
        that substantially reduced much needed mutual trust.

        6. The Galvin Task Force, the LOB and other committees have 
        identified several aspects of the GOCO breakdown and have 
        suggested solutions which have not been implemented.

        7. Strong commitment by the congress and the DOE to restore to 
        the GOCO-M&O practice its former trust is needed to attract 
        qualified bidders with the requisite commitment to `exceptional 
        service in the national interest.'

        8. It is time for a follow up to the Galvin Task Force in 
        order to give sufficient visibility and clout to the steps 
        needed for reform.

    Thank you for the opportunity to share my thoughts on these 
important matters with you today.

                      Biography for Paul A. Fleury

    Paul Fleury has been Dean of Engineering and Frederick William 
Beinecke Professor of Engineering and Applied Physics at Yale 
University since December of 2000. Prior to joining Yale Dr. Fleury was 
Dean of the School of Engineering at the University of New Mexico from 
January 1996 following 30 years at AT&T Bell Laboratories. His last 
position there was Director of the Materials and Processing Research 
Laboratory in Murray Hill, New Jersey. In January 1992, he was elected 
Vice President for Research and Exploratory Technology at Sandia 
National Laboratories, where he was responsible for programs in 
physical sciences, high performance computing, engineering sciences, 
pulsed power, microelectronics, photonics, materials and process 
science and engineering, and computer networking. In October 1993, upon 
termination of the contract under which AT&T managed Sandia for the 
Department of Energy, Dr. Fleury returned to Bell Laboratories.
    He received his Bachelor of Science and Master of Science degrees 
from John Carroll University, and his doctorate from the Massachusetts 
Institute of Technology all in Physics. He holds five patents and has 
authored more than 130 scientific publications. He is a Fellow of the 
American Physical Society and the American Association for the 
Advancement of Science; and a member of the National Academy of 
Engineering and the National Academy of Sciences. He has received the 
1985 Michelson-Morley Award and the 1992 Frank Isakson Prize of the 
American Physical Society for his research on optical phenomena in 
condensed matter systems. He has served on the Secretary of Energy's 
``Laboratory Operations Board'' and the University of California 
President's Council on the National Laboratories. He is currently a 
Board member of Brookhaven Science Associates which manages Brookhaven 
National Laboratory, and serves on visiting committees for Lawrence 
Berkeley, Sandia and Los Alamos National Laboratories.

    Chairwoman Biggert. Thank you very much. The bell that you 
heard, of course, is we are going to have a vote, but it is 
just one vote. So I think we will continue with Dr. McTague and 
then we will recess for a few minutes to make the mad dash over 
to the Capitol to vote and come back. So Dr. McTague or we will 
miss our vote.
    Dr. McTague. I agree with almost everything----
    Chairwoman Biggert. I don't think you have your mic on.

  STATEMENT OF DR. JOHN P. McTAGUE, PROFESSOR OF MATERIALS AT 
            UNIVERSITY OF CALIFORNIA, SANTA BARBARA

    Dr. McTague. I agree with almost everything that has been 
said so far, so I will try not to be repetitious and to address 
things from a different perspective.
    My experience with DOE labs goes back to 30 years ago this 
month when I spent the summer at Brookhaven National Lab. It 
was a really exciting time and just incredibly electric 
environment, things happening all over the place. One of the 
more exciting things was in the area of subatomic particle 
physics where a group there and a group at the Stanford Linear 
Accelerator, another DOE FFRDC, were competing to characterize 
what has now come to be called the J/Psi particle. Both 
laboratories have researchers that won the Nobel Prize for 
that.
    At the same time, if you looked across all of the other 
federal--FFRDCs, such as Lincoln Lab, other very exciting 
things were going on. At that time, Lincoln Lab had just put up 
there experimental satellites eight and nine, which were the 
first space-based communication satellites. They are still 
flying. If you look around the spectrum of the other FFRDCs, I 
could give you examples all over the place. Their research has 
been superb. If you look today, the same sorts of things are 
happening. At Brookhaven, there is very exciting work going on 
the so-called quark-gluon, a plasma, for example. And at 
Lincoln Labs, they now have a communication satellite up there 
based on lasers, which can communicate directly to airplanes 
flying in the sky and to ships at sea.
    So the track record is superb, and the track record of 
FFRDCs is not just in DOE. A substantial fraction of the FFRDCs 
is outside DOE. Yet somehow, the FFRDCs within DOE receive the 
scrutiny of a microscope but the ones sponsored by other 
agencies, such as DOD, the IRS, FAA, or the National Science 
Foundation are not treated the same way. This should lead to 
the question: what is different about DOE's management, which 
causes such scrutiny? And I think that is an important area to 
take a look at.
    The characteristic of FFRDCs across the spectrum has been 
one of long-term relationships. Of all of the Federal R&D 
centers, I believe only a single one of them where an existing 
contractor was in place and willing to continue was ever 
competed, and I believe that is Oak Ridge National Lab. None of 
the non-DOE FFRDCs, and there are more of them than there are 
in DOE, have ever been competed. Most of them go back to the 
'40's and '50's, including Lincoln Labs or NASA's JPL, for 
example.
    Yet--and the relationships have been stable. This is not 
the case with DOE. There has been a series of more than a 
decade long sets of experimentation with the interaction with 
their laboratories. And I have--can find no way to demonstrate 
that their experimentation with contracting and with 
interactions has improved their situation relative to the other 
successful FFRDCs that we have in this country.
    Yet things will go ahead. There will be changes, I am sure. 
As changes are made, I think we should look at certain 
characteristics, many of which I have put in my testimony. But 
the first one is to take the Hippocratic oath. First, do no 
harm. The mission performance, as you have mentioned, Madam 
Chairman, and as you, Congressman Lampson, have mentioned is 
exceptionally good, and it is the purpose of the laboratories. 
And we must be careful that anything we do doesn't disturb 
that.
    It is also true, as has been noted by many, is that one 
size doesn't fit all. DOE has a lot of so-called GOCOs, some of 
which are research laboratories, yet their missions are 
different and the way they should be interacted with are quite 
different. And indeed, within even the research laboratories 
there is a big difference.
    The core of the FFRDC's success has been that the sponsor 
dictates the mission goals while the contractor specifies and 
implements the methods for carrying these out. Yet over the 
past two decades, DOE has constantly, in one guise or another, 
specified the hows. The results haven't been good.
    As one makes changes, it is important also to note that 
there can be unintended consequences. And I give an example in 
my written testimony of the Harwell Laboratory in Great 
Britain, which has a history similar to Argonne, actually. It 
goes back to the 1950's. It was a very successful research 
laboratory, but it got swept up with other changes occurring in 
the government.
    Chairwoman Biggert. If you could, conclude, because we have 
five minutes left in our vote.
    Dr. McTague. And the changes caused Harwell to be, in 
effect, privatized, and that--results of that have been that 
Harwell no longer has a research capability.
    [The prepared statement of Dr. McTague follows:]

                 Prepared Statement of John P. McTague

    Madame Chairman Biggert, Congressman Lampson, and other Members of 
this subcommittee, thank you for inviting me to testify on this 
important subject. I am John McTague, Professor of Materials at the 
University of California at Santa Barbara. I formerly served as Vice 
President for Laboratory Management at the University of California, 
Vice President of Research for the Ford Motor Company, and as Deputy 
and Acting Presidential Science Advisor during the Reagan 
Administration, among many other positions, and have spent much of my 
professional life engaged in federal government science policy issues. 
I am appearing here representing my own views, however, and not those 
of any institution I am or have been affiliated with.
    Thirty years ago this month when I was a young associate professor 
at UCLA, I spent a summer at Brookhaven National Laboratory doing 
research on their unique facilities. The atmosphere was electric. Some 
of the best scientists from around the world were there doing forefront 
research in materials science, biology, and elementary particle 
physics. Indeed, at that time, there was a fierce competition between 
researchers at Brookhaven and the Stanford Linear Accelerator, both DOE 
National Labs, to characterize a new subatomic physics particle, the J/
Psi. A few years later, researchers from both DOE laboratories shared 
the Nobel Prize for this important discovery.
    During this timeframe, exciting and important mission 
accomplishments were in progress at other Federally Funded Research and 
Development Centers (FFRDCs). NASA's Jet Propulsion Laboratory, 
operated by Caltech, was preparing the Viking probes for launch to Mars 
in 1975. JPL was also in the early stages of the Voyager projects whose 
two probes, launched in 1977, have provided us with a quarter of a 
century of fundamental data on the outer planets.
    At Lincoln Lab, a national security FFRDC managed by MIT, was 
focused on two of their satellites, which were the first ``switchboards 
in the sky,'' and which are still flying; and at Lawrence Livermore 
National Laboratory, two of the prime research areas were high 
performance computing and high power lasers.
    Thirty years from now, I suspect that someone looking back on these 
same FFRDCs in 2003 would find the same level of mission 
accomplishment. At Brookhaven, it might focus on the quark-gluon 
research at the Relativistic Heavy Ion Collider (RHIC), a search for a 
fundamentally new state of matter. At JPL, it would be the Mars Rovers. 
At Lincoln Lab, it would be an optical communications satellite, a 
descendant of the 1970s ones, and at Lawrence Livermore, high 
performance computing and the successful turn on of the National 
Ignition Facility, an unprecedented high power laser, once again come 
to mind.
    These specific examples spanning a three-decade time scale 
illustrate what many more comprehensive studies have documented. The 
FFRDCs have a more than half-century track record of continuing 
accomplishment of important national technical missions. There have 
been many systematic studies done over the decades, which more 
comprehensively and uniformly have reached the same conclusion.
    The FFRDC concept has been a superb success in mission 
accomplishment. No other country has had anything like this success 
with its government-sponsored laboratories--not the former Soviet 
Union, not France or Germany, not Great Britain or Japan.
    Yet despite what is in plain sight one subset of the FFRDCs, those 
sponsored by the Department of Energy, have been subjected to the 
scrutiny of a microscope. Sometimes the microscope focuses on something 
really ugly, like an improper travel voucher or an inadequate safety 
document. Sometimes it is somewhat out of focus and may seem to show 
something egregious, like the apparent purchase of a Mustang automobile 
by a laboratory employee using government money. Better focus sometimes 
shows a different picture.
    The accurately identified flaws certainly call out for processes 
for continuous improvement, and sometimes for individual personnel 
actions. We all simply must do better, especially with government funds 
and property. What the sum of the microscope images does not do, 
however, is give a picture of the overall landscape. It does not tell 
us about overall mission accomplishment. It does not tell us about the 
overall safety record or overall operational efficiency.
    To my mind, the fundamental question is: How do we make the 
requisite improvements without deleterious effects on the fundamental 
mission outcomes, and taking into consideration the overall safety, 
environmental, security, and operational performance? A second question 
is: What, if anything, is fundamentally different about the DOE 
management of FFRDCs, which has caused the focus on their labs and not 
on the many other FFRDCs sponsored by other agencies such as NASA, DOD, 
NSF, FAA, and IRS?
    These are complex questions and deserve answers that acknowledge 
this complexity as well as the risk in implementing the wrong 
solutions.
    As former Caltech President and Nixon Science Advisor, Lee 
DuBridge, noted many years ago, ``In a republic many people are 
concerned with the government. On the other hand, few people are 
directly concerned with science. How can the many be made to understand 
the concerns and the problems of the very few? This is a major problem 
in our democracy.''
    One of the first to face up to the DuBridge problem was General 
Leslie Groves, as he directed the Manhattan Project. When Los Alamos 
was being set up in late 1942, it was assumed that it would be a purely 
government laboratory, with the scientists as government employees, 
indeed commissioned military officers. But several key scientists 
refused to join under military hierarchy and bureaucracy. Science, they 
believed, thrived when scientists were free of bureaucratic constraints 
and judged according to their competence.
    In a February 25, 1943, letter to J. Robert Oppenheimer, General 
Groves set the pattern for all future government owned, contractor 
operated FFRDCs. He decreed that Los Alamos would be a civilian 
operation managed by the University of California; what in modern 
parlance is referred to as a Government Owned, Contractor Operated 
(GOCO) entity, or an FFRDC.
    As we look forward to improvement, we should first document where 
we are. What are the salient characteristics of these successful 
FFRDCs? Once again, there are several more comprehensive studies, but 
they all include:

        1. Working in the public interest, FFRDCs operate as long-term 
        strategic partners with their sponsoring agencies.

        2. As private agencies, FFRDCs have greater flexibilities than 
        the government in recruiting and managing a highly skilled 
        technical workforce.

        3. Sponsors conduct comprehensive reviews of their FFRDCs 
        every five years to ensure the quality, efficiency, and 
        appropriateness of the work program.

    What are the principles that should guide us as we aim for 
continuous improvement? Some that come to my mind are:

        1. Take the Hippocratic Oath: First, do no harm. Our existing 
        system is successful, important, and of unknown fragility. 
        Whatever we do should be incremental, not revolutionary, and 
        should be reversible if experience warrants it. Beware of 
        unintended consequences.

        2. The role of universities in managing FFRDCs has led to 
        exceptional quality, especially in personnel (JPL, Lincoln 
        Labs, the National Center for Atmospheric Research, Argonne, 
        LANL, LLNL, LBNL, etc.).

        3. The predictably long-term relationship and commitments by 
        both sponsors and contractors are at the heart of the FFRDCs.

        4. One size does not fit all. The DuBridge observation points 
        out that managing a research laboratory with its long-term 
        relationships is different from, say, the contract for cleanup 
        at Rocky Flats, a finite life government procurement activity, 
        where optimal performance is simpler to define.

        5. The core of the success of the FFRDC concept is that the 
        government sponsor dictates the mission goals (the ``whats''), 
        while the contractor specifies and implements the methods for 
        achieving the goals (the ``hows''). Unlike the sponsors of the 
        other FFRDCs, since its founding as a cabinet department, DOE 
        has had a persistent history of trying to specify the ``hows.'' 
        These have been at several levels. The most egregious was 
        ``management by Directive.'' Others have been ``performance 
        based management,'' with a large series of ``hows'' included. 
        The current fad in DOE is ``your GOCO will have a two-fold 
        management structure.'' Can you picture Ford or IBM, for 
        example, running its laboratories this way? Also, unlike all 
        the other Government FFRDC sponsors, DOE now seems to be 
        devaluing long-term relationships in favor of contract 
        competition.

    DOE should return to the fold of the other sponsors of FFRDCs and 
specify the ``whats,'' and not the ``hows.'' Their own track record is 
the best justification for this recommendation.
    It is fine to have philosophical debates on how to make 
improvements, but implementation is another matter. Here history gives 
us a cautionary guide on unintended consequences.
    The United Kingdom Atomic Energy Authority (UKAEA) was formed in 
1954 with responsibility for developing that nation's civil nuclear 
program and to provide all the associated R&D. The Harwell Laboratory 
played a central role in this UK and, indeed, global research.
    In the early 1980s the UK undertook a revolutionary and very 
successful privatization of many previously governmental activities, 
such as coal mining and telecommunications. Swept up into this was the 
Harwell Research Laboratory, a world class facility comparable to 
Brookhaven or Argonne. The government focused on privatization and 
external competition. It ignored the DuBridge caution that research 
needs separate consideration. The research part (Harwell Lab) initially 
did well, but the profit focus has inexorably killed off almost all of 
its research excellence, and it is now mainly a consulting and modeling 
agency. This particular UK ``goose'' has laid its last ``golden egg.''
    The moral of this story is that DOE, unlike the other FFRDC 
sponsors, has a decade long history of detrimental experimentation with 
the FFRDC concept. It should learn a lesson from this history and 
rejoin the fold of the other FFRDCs. It should reaffirm the efficacy of 
long-term relationships, and it should focus on the ``whats,'' and 
leave the ``hows'' to the contractor partners, as the other agencies 
have done. The Department should then intensely evaluate, on a periodic 
basis, how well the contractor has performed the ``whats.''
    Thank you again for inviting me; I would be happy to answer any 
questions you may have.

                     Biography for John P. McTague

    John P. McTague is Professor of Materials, University of 
California, Santa Barbara, a position he has held since 2001. He has a 
more than twenty year history with management issues at the Department 
of Energy's National Laboratories beginning in 1982 when he was 
appointed as the first chairman of Brookhaven National Laboratory's 
National Synchrotron Light Source. He has served on the Boards of 
Overseers of both Argonne National Laboratory and of Fermilab, where he 
was also chairman of the board. He was also founding co-chair of DOE's 
National Laboratories Operations Board and a ten year member of the 
Secretary of Energy Advisory Board.
    Most recently he has been University of California Vice President 
for Laboratory Management from 2001 to 2003, overseeing UC's management 
for DOE of Los Alamos, Lawrence Livermore, and Lawrence Berkeley 
National Laboratories.
    On January 1, 1999, he retired from Ford Motor Company, where he 
spent twelve years first as Vice President, Research, then as Vice 
President, Technical Affairs. At Ford he was, at various times, 
responsible for worldwide research, environmental and safety 
engineering, technical personnel development, plant engineering, and 
worldwide product and technical planning.
    Prior to joining Ford in 1986, he served as Deputy Director and 
Acting Director of the White House Office of Science and Technology 
Policy, and was Acting Science Advisor to the President. During the 
first Bush administration, he was a member of the President's Council 
of Advisors on Science and Technology and U.S. chair of the U.S.-Japan 
High Level Advisory Panel on Science and Technology.
    A physical chemist, Dr. McTague received his undergraduate degree 
with honors in chemistry from Georgetown University in 1960 and his 
Ph.D. from Brown University in 1965. Brown also bestowed on him an 
honorary Sc.D. in 1997. From 1970 to 1982, he was a professor of 
chemistry and member of the Institute of Geophysics and Planetary 
Physics at UCLA.
    He is a member of the National Academy of Engineering and a Fellow 
of the American Physical Society and of the American Association for 
the Advancement of Science.

    Chairwoman Biggert. Thank you. The Committee will stand in 
recess, which will hopefully be in a short while.
    [Recess.]

                               Discussion

    Chairwoman Biggert. The Committee will come to order. It is 
now time for our questions, so we will try and keep those to 
five minutes, but we really want to elicit the responses from 
you. So our--I will yield myself five minutes.
    I think the first question I would like to ask is for all 
of you and that is, first of all, competition has real risks, 
and most people don't go to a new mechanic if they are happy 
with the one that they have just for the sake of enhancing 
competition. So in--to assure that we don't interfere with well 
run, successful programs just for the sake of competition, what 
other mechanisms could we use to ensure accountability in our 
labs? Would anyone like to start with that? Okay. You can turn 
on your mike. Thank you.
    Ms. Nazzaro. I can start. We certainly have identified 
other approaches as well. We see competition as being one tool 
to hold contractors more accountable, but there certainly are 
other mechanisms that could be used as well in that process. 
One: alternative contract approaches that emphasize results, 
having good performance measures and tying them in with some 
incentives based on results. Two: performance based contracts 
where you have a contractor fee or profit potentially at risk. 
And certainly, just having the right people and the right 
skills available. We have talked a lot about leadership and 
management, the right technical skills available. Oversight by 
DOE has been something that is missed a lot of times as far as 
improving contractor performance.
    Chairwoman Biggert. Anyone else? Mr. Card.
    Mr. Card. Yeah, I would agree with GAO's conclusions. The--
I--we are using more performance measures and penalties. There 
are competitive options available. There is competition for 
scope, which is probably a thing the labs worry about a lot 
right now of who gets what mission. And there are stiffer 
exercising contract provisions we already have.
    Chairwoman Biggert. Dr. Fleury.
    Dr. Fleury. I think performance based measures are fine. 
The question is, what is the performance measured against? Is 
it measured against the mission or is it measured against 
regulations and directives? And I emphasize that it has to be 
measured against mission. That means that you have to provide 
an environment where contractors capable of delivering on the 
mission are incented to actually want to be management 
contractors. People who have the ability to attract and retain 
the top technical talent, who have sufficient internal 
expertise and personnel in their own organizations to provide 
leadership. They should have experience in managing large 
facilities in complex technical organizations. In other words, 
where the best business practices, like safety, as well as 
safety and security are ingrained in the daily operations of 
every employee rather than pasted on from the top. And I think 
those are, if you will, levers that can be applied to, and 
against which contractors can be measured that will provide 
alternatives to competing for competition's sake.
    Dr. McTague. I--once again, I am sorry I agree with 
everyone. I should have stayed in Santa Barbara.
    Chairwoman Biggert. Absolutely not. Your testimony was 
outstanding.
    Dr. McTague. Their--in judging the performance of a 
technical operation, there is nothing like the review, the 
qualitative review made by experts, so-called peer review. As 
some of the background material for this hearing has taken note 
of, there is a tendency to evaluate things that are easily 
quantifiable: how many ball-point pens get lost, for example, 
as opposed to has the mission for keeping nuclear weapons safe, 
secure, and reliable been carried out? Carrying that mission 
out really requires people who are expert in that area giving 
an evaluation. Also, as has been mentioned by just about 
everybody, one of the most important things to measure is the 
quality of the technical staffs in these organizations, because 
that is their asset.
    Another important thing in terms of performance-based 
management, which also I believe in, is that the performance 
measured--measures have to have been agreed upon, consented, by 
the contractor and the contractee at a very high level. It 
should not be relegated to a sum of small level issues at lower 
level people. The laboratory or the organization is not the 
arithmetic sum of 100 small organizations--small operations.
    Chairwoman Biggert. It--one mechanism that has been 
proposed to ensure accountability and yet remain faithful to 
the ideal of competition is an occasional review, say every 
seven to ten years and by three panels who would not be allowed 
to collaborate. But these teams would evaluate and rank the 
labs on performance and then only, say, the bottom tier would 
be required to compete. Have you heard about that approach or 
thought about that? Dr. McTague.
    Dr. McTague. I agree. One of the really important 
characteristics of the FFRDCs, in general, has been that there 
is periodic review in depth, not annually, but usually every 
five years, five, seven, ten years. A length of time 
commensurate with the length of the kinds of missions that are 
involved, I think, would be quite helpful. There is no question 
in my mind about that.
    Chairwoman Biggert. My time is expired.
    The Ranking Member is recognized for five minutes. Mr. 
Lampson.
    Mr. Lampson. Thank you, Madam Chairwoman.
    Let me ask Dr. McTague a question of clarification of 
something that you said. And I didn't get it down right, but 
you said something about the differences in management of 
agencies cause a need for different scrutiny. Do you--what you 
said, and can you clarify that for me a little bit, what----
    Dr. McTague. What I was trying to state is that there are 
different types of activities. For example, in the Department 
of Energy, there are a fair number of so-called GOCOs, 
Government Owned, Contractor Operated, entities, some of which 
are research labs, some of which are not. Some of them are 
basically clean-up sites or production facilities. The one-
size-fits-all does not work for DOE. On the other hand--and the 
DOE research labs are much more like the FFRDCs in other 
organizations, the research labs like Lincoln Lab, which is 
managed by MIT for the national security agencies, or the Jet 
Propulsion Lab, which is managed by Cal Tech for NASA. So that 
should be looked at in a similar way, FFRDCs, not just the 
FFRDCs in DOE. We should be looking, I think, at what is 
working in the FFRDCs in other agencies that we can use as best 
practices for DOE. And in fact, Under Secretary Card undertook 
such a look, what was it, last year. And he might want to 
comment on this.
    Mr. Lampson. Please.
    Mr. Card. In trying to figure out how we could reduce the 
bureaucracy that our contractors have to work under, we did 
engage in a bench-marking activity with Jet Propulsion Lab and 
ENCAR, JPL is operated by NASA and ENCAR by National Science 
Foundation. And we actually implemented a number of reforms. I 
can't think of the entire list right now that we put in place 
as a result of that benchmarking effort. We found some positive 
things, and I think they were helped by it as well, so it was a 
good exercise and we intend to do more of it.
    Mr. Lampson. I--they all need, I guess, experience that I--
issue with comes from healthcare and watching the Healthcare 
Finance Administration some years back scrutinize the 
activities of a number of healthcare providers. And that became 
a pretty intrusive activity. It was one that, I think 
ultimately, led to driving an awful lot of people just totally 
away from being interested in offering themselves to perform 
services. So I guess I am concerned a little bit. At that same 
time, it is--it was a cost plus type operation, so let me ask 
this question. With my concern about M&O contractors seeing the 
government as a limitless source of funds and since profit is 
not a factor, spending accordingly with little regard for 
efficiency, do you believe there is a disconnect between 
contractors and expenditure of taxpayer money? Can any of you 
comment on----
    Dr. McTague. There are some reasonably standard measures of 
efficiency, such as percentage of costs, which are related to 
overhead, for example, which are fairly easily documentable. 
And the history of the DOE labs in this area, I think, has been 
a rather good one of improvement, of cutting the fraction of 
costs which are a part of over--which are attributed to 
overhead as opposed to actual mission performance. Over the 
past, what 10 or 15 years, that rate has gone down 
continuously. And it is certainly in a range similar or better 
than many private organizations. So the fact that it is federal 
money ``limitless pockets,'' I don't think that the situation 
is quite that bad. Most people who are running these 
laboratories really have a dedication to the mission. And they 
really want to be efficient. They want the money spent on 
science and research and not on overhead.
    Mr. Lampson. Is that the case with non-profits over 
private? Do you feel that they are doing a more creditable job?
    Dr. McTague. I don't--I am--from--I haven't looked at the 
statistics for the various laboratories most recently, but when 
I used to be co-chair of the National Labs Operations Board for 
DOE, there was no discernible difference between the quality of 
efficiency performance between, say, Sandia and Livermore.
    Mr. Lampson. Thank you.
    Chairwoman Biggert. The gentleman from Maryland, Mr. 
Bartlett, is recognized for five minutes.
    Mr. Bartlett. Thank you very much.
    Ms. Nazzaro, I understand that DOE contract and project 
management remains on GAO's list of high-risk areas that are 
vulnerable to fraud, waste, abuse, and management. Can you 
explain to us the criteria that were used to put them there and 
what they need to do to get removed from that list?
    Ms. Nazzaro. Yes, sir. GAO put DOE on that list, as far as 
high-risk, back in the early '90's. It continues to be on that 
list. Initially, we looked at things such as the fact that 90 
percent of DOE's budget is spent on contractors. They had a 
history of inadequate management and oversight of contractors. 
And there was a failure to hold the contractors accountable. So 
those were the kinds of things. It is a judgment call that we 
make, but there are certain factors that we look at, and we 
reassess those factors each year. And DOE has continued to be 
on that list.
    DOE has taken some of the first steps to get off of that 
list. One of the first things is to have proper management 
attention at the right levels in the organization, and we 
currently see that with DOE. They have tasked each of their 
areas to address all of the management challenges, not only the 
contracting high-risk area. DOE is addressing all of the 
management challenges that GAO has identified and is developing 
corrective actions. That is currently in place.
    Mr. Bartlett. Do the labs have a clear road map as to what 
the problems are and what they need to do to correct those 
problems so that they can get removed from that list?
    Ms. Nazzaro. Right. Our bottom line is to see contracts 
come in on time and within cost. The most recent evaluation 
that we did for that was issued in early 2002, and we have not 
seen that level of attainment yet. We are seeing that they are 
taking some of the right actions to move in that direction but 
yet have not seen the bottom line.
    Mr. Bartlett. Mr. Card, do you think that your people 
understand how they got there and what they need to do to get 
off that list?
    Mr. Card. Well, first let me say I think contracting is a 
very serious issue for DOE, whether we are on somebody's high-
risk list or not. And as GAO identified, when you are 
outsourcing 90 percent of your work, which I think is a good 
model, by the way, it is something that requires paying a lot 
of attention to. I think how we get on or off, I don't know 
that I am personally so concerned of whether we are on or off 
the high-risk list. What I would like to be doing is performing 
well.
    Mr. Bartlett. If you are performing well, shouldn't you be 
off that list? Do you think that their criteria are irrelevant?
    Mr. Card. No, I think GAO's criteria make a lot of sense. 
We may disagree from time to time on exactly how well we are 
doing with regard to the list, but I think cost and scheduled 
performance----
    Mr. Bartlett. Do you have a time schedule for changing what 
you need to change so that you will no longer be on that list?
    Mr. Card. Well, we have been on an aggressive schedule 
since Secretary Abraham came on board. He made this one of his 
very top priorities. And as GAO has mentioned, we have actually 
gone down their list in total and have people tasked 
individually to deal with each of the issues that they have 
raised. So we are taking it very seriously. I don't--am 
reluctant to predict a time, because as was mentioned, it is a 
subjective evaluation. But I think we are making some great 
improvements, and we are taking it very seriously.
    Mr. Bartlett. When you were talking----
    Ms. Nazzaro. If I could just add----
    Mr. Bartlett. Excuse me. Go ahead.
    Ms. Nazzaro [continuing]. The task is something that is 
very difficult to attain. We are not taking this lightly. We 
are recognizing that there are significant challenges here for 
DOE in managing this kind of an environment. It would take 
quite a bit of effort. And it may not all be something within 
their control with some of these issues, but I don't know that 
it is all totally what they do and what kind of time frame, but 
DOE is certainly moving in the right direction as a first step.
    Mr. Bartlett. I wanted to talk for just a moment about 
evaluation of performance. You have got to measure that against 
something. Clearly what the labs are doing today is quite 
different from what they used to do. The labs used to design 
and build and maintain nuclear weapons. Now we no longer design 
and build nuclear weapons, we maintain nuclear weapons. The 
metamorphism from what the labs used to do to what they are now 
doing, I was at Sandia years ago, and I noticed they are very 
focused on nanotechnology. They are very focused on alternative 
energies, and these are both very good things. Was there a 
conscious effort to change the mission, some of the missions of 
the labs? Or did they just kind of wander there? We--you know, 
clearly the focus of the labs has changed, because we no longer 
design and build nuclear weapons. We now have a number of labs 
that are focused entirely on maintaining the stockpile. How did 
we get to where we are now? Was it a conscious directed 
metamorphosis or did we just kind of get there?
    Dr. Fleury. I will give you my opinion that the mission of 
the weapons labs remains principally national security, but it 
is no longer restricted to designing and building nuclear 
weapons, although it includes, very strongly, the assurity of 
the stockpile. And that does require continued attention to, in 
replacing the stockpile components to having to design with 
different processes and different materials and the same type 
of deliverable weapons. Nevertheless, I think with the 
terrorism in the--and the evolution of the threat, the national 
threat since the end of the Cold War, the laboratories have 
consciously evolved their security mission to include a 
different range or a broader range of technologies than they 
did before. This is----
    Mr. Bartlett. My time is up. If there is an opportunity for 
a second round, we can come back to this. Thank you, Madam 
Chairman.
    Chairwoman Biggert. Thank you.
    The gentleman from California, Mr. Honda.
    Mr. Honda. Thank you, Madam Chairman. I appreciate the 
testimony of the experts here.
    Just very quickly to GAO. You mentioned that there are 
examples of content that is--of areas that are not in DOE's 
control. Can you just give us a couple of examples of what is 
not under DOE's control?
    Ms. Nazzaro. Well, when we designate areas as a management 
challenge or a high-risk area, some of it is just inherent by 
the very basic nature of it. And certainly managing----
    Mr. Honda. Such as?
    Ms. Nazzaro [continuing]. Nuclear materials, national 
security, the security of facilities. In light of September 11, 
regardless of what DOE was doing, these kinds of things would 
probably be identified as high-risk, just because of their 
inherent nature. Contract management, with 90 percent of DOE's 
budget, and over 100,000 employees that are carrying out the 
mission for the agency, inherently, is an area that you would 
want to watch closely.
    Mr. Honda. I don't--I still don't understand what you mean 
by inherently. Are you saying that there are certain kinds of 
processes that need to be reexamined in order to provide 
security?
    Ms. Nazzaro. What I am saying is by its very nature, it is 
something that should be kept under a watchful eye. Certainly 
the security area is one area that we have been working with 
DOE on.
    Mr. Honda. Okay.
    Ms. Nazzaro [continuing]. In light of September 11.
    Mr. Honda. I understand what you are saying now. But it 
just seems like there are two kinds of discussions we are 
having here. One is about the mission of the labs and the 
scientists, and the other is oversight.
    Ms. Nazzaro. Correct.
    Mr. Honda. Okay. And in the mission of the labs, has GAO 
made any kinds of conclusions?
    Ms. Nazzaro. We have not assessed the science----
    Mr. Honda. Okay. So what is at--really at stake is the 
mission of these labs and where we want to go with them. And 
what is controlling the whole argument is who is doing it and 
who is responsible for the management.
    Ms. Nazzaro. Correct.
    Mr. Honda. And within this process, is--are there 
mechanisms where folks who are working the labs can sort of 
criticize what is going on without being targeted in such a way 
that there is improvement in the management process? I mean, 
GAO, I mean--are--have you looked at that?
    Ms. Nazzaro. We looked at the internal controls.
    Mr. Honda. Right.
    Ms. Nazzaro. Is that what you are asking?
    Mr. Honda. Right. I mean, if you are looking at management 
efficiency, have you looked for those kinds of things?
    Ms. Nazzaro. We have looked at internal controls in the 
financial area. In fact, we have an ongoing review right now 
looking at the financial management.
    Mr. Honda. Okay. I am looking at the whole management with 
the human resources, too.
    Ms. Nazzaro. We have addressed the issue that there have 
been inadequate resources in some areas from a leadership 
standpoint. We have also talked about the changing mission and 
unclear mission.
    Mr. Honda. And these would be issues whether you contracted 
out to private industry or to the universities and things like 
that? It is all internal, is that correct?
    Ms. Nazzaro. They could be, but I think it is further 
complicated because it is a contract relationship.
    Mr. Honda. Okay. Are there IGs inherent in these kinds of 
processes? You have instructed----
    Ms. Nazzaro. The DOE IG certainly has looked at these 
issues as well, yes.
    Mr. Honda. Are they independent of the Department of 
Energy, or are they part and parcel of the Department?
    Ms. Nazzaro. Well, they report to Secretary Abraham, but 
they are independent of the programs.
    Mr. Honda. But are they independent of the Department of 
Energy?
    Ms. Nazzaro. No.
    Mr. Honda. Like, pretty much----
    Ms. Nazzaro. No, that would be a role that someone like GAO 
would play.
    Mr. Honda. I see. Okay.
    Ms. Nazzaro. But the IG for the Department of Energy is 
within the department.
    Mr. Honda. Okay. So just very quickly, there is a 
bifurcation of our issues that one is the mission of the 
scientists and what we want them to do and the other is the 
administration of the contract by management. And we are mixing 
them up, and I think that I--to throw the baby out with the 
water in the tub.
    The other question I have is have we spoken with the 
employees, this is an open question, to get their feedback as 
to what could improve the process rather than just looking at a 
finite study of a portion of the problem?
    Ms. Nazzaro. Within the course of our reviews, we talk with 
employees, both at the labs and at DOE headquarters. We do 
extensive interviews of these individuals to identify problems 
within the organization and potential corrective actions. 
Anytime we issue a report, we also run it by the agency to get 
their perspective.
    Mr. Honda. The agency is different from employees, is that 
correct?
    Ms. Nazzaro. Well, we would run it by various components 
within the organization. We do what we call exit conference 
where we verify facts and we certainly provide it to the 
agency. And a lot of times, it is the program people who 
comment.
    Mr. Honda. Okay. Okay. And in terms--this is the last 
question. In terms of accountability, what level of 
responsibility does the Department of Energy have in oversight 
of the contracts that they let? I mean, we are focusing only on 
the contractee. And what is going to suffer is going to be the 
mission and the employees, it seems to me. It--you know, and 
the law of ultimate responsibility seems like those who let the 
contracts have a considerable amount of responsibility and 
success of efficiency and bench marking.
    Ms. Nazzaro. I agree. They do have a responsibility. I 
don't know if Mr. Card wants to respond to what you do in that 
regard.
    Mr. Card. Well, I think most people would argue we have a 
very robust oversight, particularly to the contractors, in 
terms of our oversight role. And I think--it wasn't clear to me 
whether you were asking about what the oversight is on the 
people who awarded the contract in the first place or how we 
are managing it. But we have--in addition to the IG, we have an 
independent oversight organization in the Department, and then 
each functional area has its own oversight role, and the 
programs do. So one of my challenges has been to try to knit 
that together so the contractor sees as few different oversight 
incursions into their work as possible. But I believe that 
there is plenty of oversight going on.
    Mr. Honda. Well----
    Chairwoman Biggert. The gentleman's time has expired.
    The gentleman from Washington, Mr. Nethercutt.
    Mr. Nethercutt. Thank you, Madam Chairman. I want to 
welcome all of you. Thank you for your testimony today.
    I want to talk with you for a moment about how effectively 
the Department of Energy manages its contracts currently. It is 
my understanding that by 2005 Department of Energy will have 
competed 1/2 of its Federally Funded Research and Development 
Centers. I am interested to know from each of you what you 
think is the most important criterion that might compel the 
Department of Energy to compete laboratory maintenance and 
operations contracts? Anyone and everyone who wants to answer, 
I am interested in isolating what particular important 
criterion you think are important to compel DOE to compete. 
Yes, sir.
    Dr. McTague. Clearly the most important is are the prime 
missions that have been assigned to those laboratories being 
carried out? Are nuclear weapons safe, secure, and reliable, 
for example, in terms of how Sandia and Los Alamos and 
Livermore perform? That is the first item. And that tends to 
get forgotten in these processes. The secondary aspects are 
those related to the business aspects of how the missions are 
carried out. Are the accounting systems up-to-date? Is there 
excess waste, fraud, and abuse? Are safety, security, and 
environmental standards being adhered to? Those should be the 
secondary--but those should be secondary. And the evaluation of 
a laboratory should not be the arithmetic sum of individual 
items. That is the way it used to be in the past. And what 
could be easily measured, which are the management aspects, 
often was 70 percent of the evaluation of a laboratory. And the 
science and the performance were just sort of over there on the 
side. ``Let us not worry about them.''
    Mr. Nethercutt. Um-hum. So substance over form, right? 
The--I might just parenthetically say there is a shock physics 
lab at Washington State University, which happens to be in my 
District and my alma mater. And they are doing some fabulous 
work on the integrity--determining the integrity of the current 
nuclear stockpile through shock physics. And it is performance 
based. I assume all of the accounting and the mechanical 
requirements of contracts are being met and adequately provided 
and--but yet, I tend to agree with you, sir, with respect to 
the substantive of findings and the value of these M&O 
contracts.
    So does anybody else have a comment or care to discuss what 
criteria are most important?
    Ms. Nazzaro. I don't know that we could identify one 
criteria as being more important than the other. I think the 
science is important, but so is the management. We talk about 
three issues in our report. One, is it in the best interest of 
the Department to also look at contractors' past performance 
and whether the mission of the organization is aligned with the 
work that they are doing. If you have a change in mission or a 
change in scope, there may be a need to realign.
    Mr. Nethercutt. Sir?
    Dr. McTague. I have a separate comment to make, and that is 
that the individual who runs that laboratory at your university 
is a very important advisor to the Lawrence Livermore Lab.
    Mr. Nethercutt. Yogi Guptah.
    Dr. McTague. Yes.
    Mr. Nethercutt. Dr. Guptah is a fabulous person. I have 
great respect for his intellectual capacity as well as his 
experience, so I appreciate you mentioning that. I will pass 
that on to him. I talk with him fairly regularly.
    Dr. Fleury, let me ask you. In your testimony, you 
mentioned that several groups, such as the Galvin Task Force, 
have suggested improvements to the lab management structure 
that have not been implemented. And I am wondering which of 
these suggestions you feel would be the most beneficial, how 
would the implementation of those suggestions ensure that 
accountability is still maintained?
    Dr. Fleury. Well, I think that at the higher level, the 
most important thing is to step back from, or break the cycle 
of compliance, auditing and rules that is this partnership 
sense that I mentioned earlier. I think that there should be an 
increased focus on the mission outcomes rather than the focus 
on measuring process compliance.
    Mr. Nethercutt. Um-hum.
    Dr. Fleury. This is a dichotomy that has already been 
noted, and I think we have to put more emphasis on the former. 
There should be fewer--less redundant and more coordinated 
reviews of both the technical and operational performances. It 
is not unusual for a laboratory to have hundreds of audits or 
reviews in the course of a year, many of which are 
uncoordinated and don't speak to one another. I think that 
allowing some of the savings resulting from increased 
efficiency to be reinvested to improve the science and the 
mission, the technical capabilities of the laboratories, many 
of which have long neglected maintenance problems that can come 
to bear negatively on the mission is another aspect that could 
be addressed.
    So I would say finally to take a posture that identifies 
steps where the Department and the contractor can work together 
to solve problems rather than focusing so soon on taking 
punitive action for shortcomings. And I would tend to say that 
default condition, which puts the threat of competing one's 
contract up as a first resort rather than a last resort is the 
wrong way to go about it.
    Mr. Nethercutt. Thank you all.
    Chairwoman Biggert. The gentleman's time has expired.
    Mr. Nethercutt. Thank you.
    Chairwoman Biggert. The gentlewoman from California, Ms. 
Woolsey, is recognized for five minutes.
    Ms. Woolsey. Thank you, Madam Chairman.
    First of all, I apologize for being here after your 
testimony, so if you have already answered this, I am sorry, 
but I guess you have to answer it again.
    First of all, I hope you acknowledge the interest in this 
subject. It is--these are really busy days for us right now, 
and people are here and they are staying, and they are 
interested, so know how valuable you are to us as our 
witnesses.
    Okay. In discussions of competition for management 
contracts, we usually hear terms like lower costs and/or a goal 
of more efficient operations. And we--absolutely I understand 
that that is necessary, because we are looking for good 
governs, but I am also concerned that we are missing other 
important issues and--that have to do with competition like in 
terms of access to intellectual resources, the best and the 
brightest, employee morale, scientific achievement. I mean, how 
can those of us in Congress and those of us that are 
considering these issues ensure that these other key points are 
considered when--in the proposal process? So let us just start 
at the beginning, and if you can answer me, I would appreciate 
it.
    Ms. Nazzaro. Maybe there is a misunderstanding here. What 
we are looking for is competition as one tool. We have 
mentioned a number of other tools. What we are looking for is 
accountability. And we just don't see that that would preclude 
world-class science by making them accountable. We are all for 
the world-class science and having the best and brightest. But 
all we are asking for is that there is some accountability for 
the taxpayer dollar.
    Ms. Woolsey. Dr. Fleury.
    Dr. Fleury. Well, again, I come back to accountability in 
what sense. There is accountability in operational efficiency, 
which is, as several people have mentioned, relatively easy to 
measure and sometimes difficult to achieve, but I think 
progress can be made. I think there is a lot of focus in the 
whole lab system, at least in my nearly two decades of 
interactions with it, on accountability toward the mission. 
There are, as John McTague mentioned, substantial, frequent and 
deep reviews, peer reviews, by scientists from around the 
country who serve, usually, pro bono, on review committees who 
are experts in the technical fields and in the content parts of 
the mission. And I believe that while some of these things may 
be more difficult to measure than strictly accounting measures, 
those reviews are taken seriously and are used to refine the 
practice within the laboratories. I don't think that that has 
been neglected at all. I think it is a very serious and ongoing 
responsibility that the system is actually taking and working 
seriously.
    Ms. Woolsey. Dr. McTague, I haven't heard your voice since 
I got here, so I am going to ask for your voice.
    Dr. McTague. Thank you.
    Once again, I agree with my colleagues here. But you--I--
one aspect of your question, I think, is very interesting and 
that is in looking at, let us say, contract proposals. If there 
is a competition, how do you evaluate within different 
proposals the likelihood that this will improve, for example, 
the ability of the organization to successfully perform? And 
that rests in very large measure, in main measure, on the 
quality of the technical staff. And the question is, will--can 
you, in meeting a contract proposal from Proposer A and 
Proposer B, as compared to the present contractor, get anything 
out of that contract proposal which will give you really 
substantive information on that? And I personally can not think 
of such. Therefore, I think there really should be a bias 
toward maintaining contractors unless their performance is 
egregious, because the risk you take of damaging the quality of 
the technical staff is of unknown proportion. And we can't make 
a mistake there.
    Ms. Woolsey. So tried and true versus going out and 
experimenting with something new without being able to--so, can 
I ask the fourth witness to respond, Madam Chairman?
    Chairwoman Biggert. [No response.]
    Ms. Woolsey. Thank you.
    Mr. Card.
    Mr. Card. Well, I think your question, and many of them 
here, are focused on the crux of the matter of how do we either 
combine or separate the science from the management. I would 
say my personal view is that the labs across the board are 
producing excellent science, and I can't think of but a small 
handful of cases where we might be disappointed in the science 
performance. What we see is that the management issues, in 
fact, having the most significant determinate on the labs' 
performance, because the expectations by people in this body 
and across the aisle and across the Capitol and in other 
constituencies with the Department of Energy, for whatever 
reason, have developed very high expectations on management. 
Those are one of these things where we can probably influence 
it, but I doubt that we can control it. And so we are eager to 
seek direction of where do we strike the compromise on how to 
decide which is more important or how to weight the science and 
management performance. And I think if you look at our 
competitions in the science laboratories, they have 
overwhelmingly been driven by management issues, rather than 
science issues.
    Ms. Woolsey. Thank you.
    Chairwoman Biggert. Thank you.
    The gentleman from Michigan, Dr. Ehlers.
    Mr. Ehlers. Thank you, Madam Chair. And I also have to 
apologize for missing your testimony. I was at another hearing 
in trying to control the escalating cost of higher education. 
And if you think you have got problems, you should listen to 
the other--listen to the students.
    I am probably unique on this panel. I think I am the only 
one here who has worked at not one, not two, but three federal 
laboratories, National Laboratories, all DOE. And so I may have 
a slightly different perspective. But in my experience, not 
only at the DOE labs, but other labs where I have worked, by 
far, the best management from the bench scientist perspective 
is invisible management. They don't give two hoots about the 
management and how they run it as long as they get their 
equipment, they get their time on the computers or accelerators 
or reactors or whatever they need, and they are not bothered by 
administrative details. And I have noticed a dangerous trend in 
my visits to--not only to DOE labs, but to other labs during 
the last decade, that more and more the bench scientists are 
being asked to perform managerial tasks, which some of them 
perform it very well and others have no taste for it and no 
desire to do it. And that may be part of the problem.
    But that was--that is the background for my question. The 
scientists are there to do science. The problems that I 
generally hear about from my colleagues and from the press 
don't very often involve the scientists. They involve support 
staff, management, and so forth. And if we are talking about 
changing contractors, I would have a great concern about what 
is the impact on the science programs if you do what I consider 
rather a draconian step of changing contractors. And I agree 
with, I think it was either Dr. Fleury or Dr. McTague that said 
that shouldn't be the first recourse. That should be--Dr. 
Fleury. There should be other steps that can be taken before 
that.
    But what has happened in the cases where you have changed 
contractors? What--has there been any measurable impact on the 
science that it performed in that laboratory? Would you have 
gone through a change of contractors? Is it, indeed, draconian? 
Does it cause problems with the morale and the science that is 
done? Or do the scientists just take this in stride and keep on 
with their work? I would like to ask all of you to respond. And 
let us go right to left this time instead of the usual pattern. 
Dr. McTague.
    Dr. McTague. There has been only one--let us see. 
Recently--let me put it this way. The one laboratory where a 
contractor was removed for poor performance and a new one was 
put in was Brookhaven National Laboratory. The quality of the 
staff, as far as I can tell, is as good now as it was then, but 
I am not certain of that. But the point is is that I haven't 
seen any egregious effects. On the other hand, I don't know if 
that would be the same thing at another organization. At that 
particular organization, the contractor, in fact, was a 
consortium of the university, so there was no particular 
identification of the staff at that laboratory with University 
A or University B. Their association--their identity was with 
each other.
    Mr. Ehlers. I suspect that is generally true.
    Dean Fleury.
    Dr. Fleury. Yes. Actually, the Brookhaven situation was one 
where the AUI, Associated Universities, was a loose collection 
of faculty from northeastern universities and was the 
contractor. Their principal focus was on the science and not so 
much on the management, and as a result, they were dismissed. 
We could get different opinions as to whether that was the 
right thing to do at that time, but that is what happened. They 
were replaced by a partnership between Batelle, a not-for-
profit, and Stony Brook plus six other universities, of which 
mine is one. And so I sit on the Board--the Brookhaven Science 
Associates Board at the moment. I would say that in that case, 
the change, as John has indicated, was not discontinuous or 
disruptive, but a lot of--there was a lot of that continuity 
provided by, at least on the academic and science content side, 
by those six core universities that had formerly been--formerly 
but less formally involved in AUI.
    The other case in which I am familiar is where a contractor 
wasn't replaced but where it was a mutual parting of the ways 
when AT&T left Sandia in '93. And there, I think, there was a 
bit more disruption because it had been a long-standing 
relationship and they were taken over by a for-profit 
contractor, now Lockheed Martin. By I believe that after some 
initial concern on the part of the staff and so forth, that 
that has worked out reasonably well as well.
    So it isn't inherently disruptive, but I think it really 
depends on the style and capabilities of both the contractor 
that is being replaced and the one that is replacing them that 
determines how disruptive it is to the science.
    Mr. Ehlers. Mr. Card.
    Mr. Card. Just a grain of salt for all of these answers is 
that the sample that you have proposed have all got one thing 
in common: either the contractor withdrew, there was visibly 
bad performance, or a change in missions. So you pretty much 
needed to do it. But I would say that in each case where we 
have competed based on performance, there has been an 
improvement, from our perspective in this--the technical and 
business relationship of the lab, because in the end the 
business relationship, when it becomes an issue of public 
visible concern, affects the science and affects the mission of 
the lab. So we think that those were successful. I don't know 
that you would apply that across the board.
    Mr. Ehlers. Ms. Nazzaro.
    Ms. Nazzaro. There are the two examples we have seen here. 
There are not many examples of what has happened when you 
change the contractor of a science laboratory.
    Mr. Ehlers. Wasn't Oak Ridge also--didn't Oak Ridge also go 
through?
    Ms. Nazzaro. Yes, Oak Ridge was also re-competed. At 
Brookhaven we have some indication of the effect. The 
Brookhaven Science Associates have won their fees since the 
changeover, so we would assume DOE is happy with the science 
that is coming out of the laboratory. We have more experience 
with other organizations, such as the environmental management 
area. There we have seen it is mostly management that turns 
over, and there isn't a significant change in scientists.
    Mr. Ehlers. All right. Thank you.
    Just--I think those three cases that I am familiar with 
was--either has a--they may have withdrawn or there were 
serious breaches of faith, I believe, between DOE and the 
contractor. Without throwing any stones, they were problems. 
But I would agree with Dean Fleury that this is something to be 
used very, very carefully and very, very rarely. There should 
be intermediate steps, if necessary, put into the contract to 
punish contractors who are not performing well.
    But I would also have to comment, as a scientist, whatever 
you do, be careful not to disrupt the scientists. And I am very 
concerned with what I have seen and the amount of time that 
bench scientists are having to spend on administration. I mean, 
these are people who tend to work 60 hours a week, at least, 
without being prodded to do it, as long as you leave them alone 
and give them a meaningful task. The accountability has to be, 
I think, just in looking at the overall mission rather than 
examine each detailed aspect of it. But the problems of the 
labs, I think, have been primarily in the management of the 
non-technical employees, or at least the non-scientific 
employees. And that clearly has to be addressed. And that 
requires very good management.
    Dean Fleury, were you trying to say one last thing?
    Dr. Fleury. I just wanted to comment on the point you made 
about invisible management becoming intrusive management. This 
takes the form of what I call ``stealth overhead,'' that 
scientists from the ground up are spending more and more of 
their time trying to find sponsors for their individual work, 
so it doesn't appear as--necessarily as adding managers. But it 
does reduce the efficiency of the process. And that is one of 
the things I suggest in my written testimony that we should 
take a look at: the scope of management of program managers in 
the labs. I think it has been creeping in the wrong direction.
    Mr. Ehlers. Thank you.
    Chairwoman Biggert. Thank you. And Dr. Ehlers, if I just 
might comment on that and--what you have brought up. I think 
one of the reasons for this hearing is the fact that perhaps we 
are--that DOE is looking at, and there is the Blue Ribbon 
Commission that might come up, that would suggest that all labs 
be competed. And I think, you know, we have got 16 labs, and 
just with the three that you have talked about, that this could 
be a real change in our labs. And so we want to make sure that 
we know exactly, you know, what the criteria is for competition 
and how that will occur. And I think that is what we are trying 
to get at.
    Thank you.
    The gentleman from Tennessee, Mr. Davis, is recognized for 
five minutes.
    Mr. Davis. Thank you, Madam Chairman.
    I represent an area that--several people work in the area 
around the Oak Ridge National Lab. And obviously there has been 
a change in contractors during the last three or four years. 
Under Secretary Card, the question I want to ask, when you make 
a decision to competitively bid a contract currently, in 
today's atmosphere, how do you--what process do you go through? 
How do you evaluate that? How would you look at the 
contractors, say, at Oak Ridge National Lab today and decide 
that there should be competitively bidding two, four, six, 
eight years down the road? And if you have a good contractor, 
who is doing an excellent job that has had excellent ratings, I 
know there are several labs that have been operated that have 
not had competitive bidding for as much as 50 or 60 years. If 
you have someone doing the job, managing well within budget, 
operating well, what induces the Department of Energy to ask 
for a competitive bid for that particular lab that will be 
operated for the next few years?
    Mr. Card. I can answer on how we have done it, but not how 
we would do it yet until we get the results from the Blue 
Ribbon Commission and the Secretary makes a policy decision on 
that. How it occurred in the past, we would look at the 
stewardship of the contractor over the laboratory asset, which 
is both the intellectual aspect, that has been discussed, and 
the physical asset and how they are--how well they are 
protecting the, what I will call, mission viability of the 
laboratory. And the--in the case of Oak Ridge, some of the 
improvements we noted is we are noticing improvements in the 
intellectual and physical infrastructure and on project 
performance, particularly of the flagship project, which is 
Spallatia Neutron Source, which, in my opinion, was not doing 
well and was probably the catalytic event that created the 
desire on DOE's part, I wasn't here at the time and part of the 
decision, but I was in the community, to compete that contract. 
And that project is, in my opinion, a benchmark project now in 
its--both its technical performance and its safety performance. 
And it--just let me reemphasize that while safety may not be 
science, the lack of events on Spallatia Neutron Source has, in 
fact, saved the taxpayer a lot of money by allowing that 
project to proceed smoothly, as it is doing.
    Mr. Davis. Well, I certainly applaud the contractors there 
today and what they are doing and how the process has worked 
and continues to work. And the reason I ask the question that I 
am somewhat concerned if we--about competitive bidding two, or 
three, or four years down the road, and my hopes are that as 
you look at labs throughout America, if the job is being done 
on budget, on target, then the process of having competitive 
bidding, obviously, just for competitive bidding is not 
something that I would recommend or advise to do.
    But on the other hand, when there is a need or when there 
are needs for a change, and it is obvious with all of the 
different reviews that you have that--the auditing process that 
you go through, when you ask for a new bid, what kind of talent 
pool do we have? How many different contractors do we have in 
this country today that are capable that--of actually bidding 
to do management and operations over labs? Do we have a pretty 
good--are they shrinking? Are we seeing bidders grow? Is it 
usually one or two people who bid for competition? More than 
two? Generally, could you give me an idea of how many bidders 
we have when that decision is made to actually competitively 
bid the operation in management?
    Mr. Card. Well, it depends on the lab and what--how big it 
is and what its mission is and where it is and a number of 
issues. But typically, what will happen is there will be half a 
dozen potential contenders. They usually congeal into two or 
three bidders, and we have--we can give you, for the record, 
statistics, but I believe in all but a couple competitions, we 
have had more than one bidder. And in fact, I am familiar with 
one that was not a science contract, but it was pretty obvious 
that it had been competed just to compete it. And so the other 
bidders understood that and didn't bid. But we haven't had 
trouble getting competition, but these gentlemen associated 
with prominent universities might know better how their 
institutions would look at such a situation.
    Mr. Davis. Would you respond, please?
    Dr. McTague. If one looks at the--at history, there were 
two science labs that were competed. At, namely, Oak Ridge and 
Brookhaven, each one of them had two bidders. It is easier to 
get bidders for more engineering-oriented operations, things 
that are more similar to what a BWXT kind of company does. It 
is not so easy to find organizations that are willing and able 
to manage mainly scientific laboratories.
    Mr. Davis. So what you are saying is if through the 
auditing process the job was getting done, then there can be a 
continuity of contracting from the current contractors? That is 
an assumption.
    Dr. McTague. Almost all of the laboratories have had fairly 
continuous relationships with contract--with the organization. 
The University of California runs three laboratories: one of 
them for 50 years, one for 60, one for 70 years. The 
different--and if you look at the other FFRDCs outside DOE, 
such as Lincoln Labs, which is managed by MIT for the national 
security agencies of the government, they have run that 
laboratory without bidding since it was established when--it 
actually grew out of the radiation lab during World War II. 
Every single FFRDC, outside of DOE, has never been competed. 
Never.
    Mr. Davis. Thank you. I yield back the rest of my time.
    Chairwoman Biggert. The gentleman from Oregon, Mr. Wu.
    Mr. Wu. Thank you, Madam Chair.
    Mr. Under Secretary, welcome to the Science Committee. Are 
you familiar with this GAO report dated April 2002, Department 
of Energy Weapons Laboratory's actions needed to strengthen 
oversight is a report requested by Eddie Bernice Johnson and 
me? And in the report, there appears to be some differences by 
contractor of--in terms of women and minorities promotions, 
personnel actions, percentages of workforce in the different 
energy laboratories. And what is interesting and relevant to 
this hearing is that there appear to be differences by 
contractor. Are you familiar with that report, Mr. Under 
Secretary.
    Mr. Card. I am familiar with the report, although its 
focus, as I believe, was on NNSA, which is the other part of 
DOE that I am not responsible for. And do you want me to----
    Mr. Wu. Now it--I believe that the report was focused on 
three laboratories: Sandia, Los Alamos, and Lawrence Livermore. 
And you are not responsible for those three facilities?
    Mr. Card. Not as of when I left for the hearing.
    Mr. Wu. Well, you never know. The--what is of concern to me 
is that, as part of the DOE's response to the report, there was 
a commitment on the part of the Department of Energy to work 
with this Congress and other departments in addressing the 
disparities found in the various laboratories and as between 
contractors. And since we are talking about the contracting 
process now, I am--since the Department made a commitment to 
move forward with this. And I--my understanding is that I have 
a commitment from Secretary Abraham and his predecessor, 
Secretary Richardson, to work on these issues, we have not done 
the oversight process in public or by news release. I think 
that we have been more than patient in addressing some of these 
issues. I am curious as to whether those commitments to work 
with--to work on these disparities continue to be good.
    Mr. Card. I can tell you that it is very important to the 
Secretary personally. I know it is important to Administrator 
Linton Brooks. He spends a lot of time on this issue. I spend a 
lot of time on the issue any time we have a big group of 
managers together. It is on the agenda, so I can assure you 
that we take those issues very seriously. And we would be glad 
to provide an update for the record for you as well.
    Mr. Wu. Thank you very much, Mr. Under Secretary. And I 
will take your answer as a reaffirmation of the Department's 
commitment, is that correct?
    Mr. Card. Absolutely. And my part of the Department as well 
as NNSA.
    Mr. Wu. Thank you very much. And I just wanted to 
underscore before I turn to Dr. McTague here, that you know, 
there are a couple of different aspects of national security, 
and we want, very much, to protect those aspects of national 
security, which we can do so by keeping secrets. But one of the 
things that challenges America constantly is we live in an open 
society. And one of the ways that we also provide for national 
security is by inventing new things that other people don't 
have. And the only thing--the only way that we can do that is 
by recruiting the best and brightest and providing them with an 
environment in which they can best exert their creative 
energies and focus on their job rather than deal with some of 
these other distracting and negative issues, which I believe 
are identified in this GAO report. And so I view this very much 
as part of this two-pronged approach to national security. And 
I look forward to working with the Department on that. Doctor?
    Dr. McTague. I guess I can speak from experience in that 
for the last two years, up until January of this year, the 
Livermore Laboratory and Los Alamos, two out of the three 
laboratories reported to me at the University of California. 
And from examining DOE's attitude, in particular that of 
General Gordon and of Ambassador Brooks, the two heads of NNSA 
during that time period, they had very strong personal 
commitments in this area. And indeed, General Gordon spent a 
large amount of time going around doing focus groups at the 
laboratories, browbeating the lab directors, et cetera.
    But has there been improvement? I don't have the----
    [PA Malfunction.]
    Dr. McTague. At Livermore, the main problem probably was in 
the area of Asian Americans and Pacific Islanders, not in terms 
of the numbers in the laboratory, but----
    [PA Malfunction.]
    Dr. McTague. One of the actual results are----
    [PA Malfunction.]
    Dr. McTague. But they are positive. That being said, these 
are areas that require continuous attention from the top 
levels, the directors of the lab, the undersecretaries and the 
director--and the assistant secretaries within the Department 
of Energy and the highest level in the contractors themselves.
    Mr. Wu. Well, I welcome your comment. I think it is a 
forward step in addressing this issue, but what I found rather 
striking in the statistics that I saw was that it was rather 
counterintuitive of----
    [PA Malfunction.]
    Mr. Wu [continuing]. In California to be----
    [PA Malfunction.]
    Mr. Wu [continuing]. At the numbers, it seemed like the 
private sector contractor----
    [PA Malfunction.]
    Mr. Wu [continuing]. Perhaps statistically did a better job 
on some of these issues than the university did and I hope the 
universities are working on that. And----
    [PA Malfunction.]
    Dr. McTague. I think you are absolutely right. And my 
perception of what was the problem was that the university did 
not face up to this issue in a systematic way. And once they 
started looking at it systematically, progress took place.
    [PA Malfunction.]
    Mr. Wu [continuing]. The Department and contractors, 
potential contractors----
    [PA Malfunction.]
    Mr. Wu. Thank you very much.
    Chairwoman Biggert. Thank you.
    Just one quick question, Mr. Card, if I may. You expect 
that the Blue Ribbon Commission----
    [PA Malfunction.]
    Mr. Card. The process for the report, we would expect in 
that time frame that the Commission itself may finish its work. 
But for it to be complete, it will have to be reported to us 
from the Secretary of Energy Advisory Board. So it would be 
some time after that before we would have a--we would expect to 
finish our process by the end of the calendar year.
    Chairwoman Biggert. And then when do you think that you 
will announce whether the recommendations have been accepted or 
that you intend to implement?
    Mr. Card. Well, I would assume by the end of the calendar 
year. Of course, that will be the Secretary's decision, and he 
is, I can assure you, very personally engaged in this issue.
    Chairwoman Biggert. Is there a timetable, then, for 
implementation?
    Mr. Card. Well, the implementation could be quite rapid, 
because we have--the transaction that need to be made are 
known, and we have--we are fairly far along on thinking through 
how we would deal with those, depending on what the policy 
would be.
    Chairwoman Biggert. The question came up that as far as the 
cost of bidding, and certainly if there are at least two bids, 
do you think that this will then be more like----
    [PA Malfunction.]
    Chairwoman Biggert [continuing]. Bidding for some of these 
contracts rather than the universities----
    [PA Malfunction.]
    Chairwoman Biggert. And it is a cost to the taxpayer, but 
what about the bidder that loses out on it, because they do 
spend quite a sum----
    Mr. Card. Well, the costs of bidding are substantial. And 
the--few to several million dollars. Clearly, if the--in my 
opinion, if the Department----
    [PA Malfunction.]
    Mr. Card [continuing]. Were to adopt a more aggressive 
competition strategy, we would have to take a serious look at 
the fee structure of the resulting contract to see that the 
people investing in a bid would have an opportunity to recover 
their bid cost.
    Chairwoman Biggert. Thank you.
    The gentlewoman from California.
    Ms. Woolsey. Madam Chairman, witnesses, Representative 
Jerry Costello could not make it. He was trying throughout the 
entire process to get here. But he will provide questions, and 
he--we would ask your cooperation in responding to his 
questions. Thank you very, very much.
    Mr. Ehlers. [Presiding.] Yeah, I want to follow up just a 
little bit on the questions I asked earlier, and particularly 
Dr. Fleury. You administer or manage--try to manage, and Dr. 
McTague, you have experience in the industrial area. Just 
looking at this, and instead of going out for new contractors, 
what intermediate steps do you see as being very useful in the 
case of non-performance? How would you handle it based on your 
administrative experience? And we will start with you, Dean 
Fleury.
    Dr. Fleury. Well, I think that there should be regular and 
deep dialogue between the Department and the contractor, not 
just in the question of assessing compliance at the small scale 
level, but if there are changes or impending areas of concern 
that these be addressed in a sense of teamwork rather than in a 
punitive way, as I mentioned before. It could be that contracts 
in the future might have provisions for evolution during the 
period of the contract so that rather than go or no go in 
certain areas, or what they used to call off ramps on some of 
these contracts. For example, I think the Appendix O that was 
in the Los Alamos contract, which was stuck in--or put in to 
deal with certain aspects of some of the problems that occurred 
up there in the last couple of years is one example. So I would 
say that there--it would be from a sort of scientific 
description, more of an adiabatic, continuous process rather 
than a bunch of discontinuous and hopefully non-punitive steps.
    Mr. Ehlers. Well, in terms of punitive, can you think of 
small steps in conjunction with an adiabatic approach?
    Dr. Fleury. Well, I think one of the things is to look at 
the composition of the top management team, whether there 
should be removal or reassignment of people for not adequately 
performing rather than throwing out the entire baby and the 
bath water at the same time, as happened, say, at Brookhaven, 
for example. That is one type of punitive approach that is 
graded.
    Mr. Ehlers. What about financial penalties?
    Dr. Fleury. For--you know, for non-profits and for not-for-
profits, I don't know that that is particularly effective. I 
think that a positive incentive of--as was said before, 
improved efficiency--being able to result in returned funds to 
the laboratories that could be invested in improving their 
performance of the mission is a better way to go. To me, 
punitive steps are a sign of failure rather than a sign of 
teamwork, so I prefer to focus on rewards rather than 
punishments. Sometimes it is necessary, and in that case, I 
think replacement of people in key positions rather than going 
for the jugular of the entire contract is the way to go.
    Mr. Ehlers. Well, I am primarily referring to cases where 
there is--such as Los Alamos where there was specifically--
where there was money wasted. Should the contractor bear part 
of the cost of that?
    Dr. Fleury. Well, I think the contractor has, and my 
understanding is that where that has occurred that those costs 
were reimbursed to the government by the contractor.
    Mr. Ehlers. Okay.
    Dr. Fleury. And I think that the actual--some of these even 
was--occurred at the--in the case where there was still dispute 
as to whether those costs were allowable or not allowable----
    Mr. Ehlers. I see.
    Dr. Fleury [continuing]. But the university went that way.
    Mr. Ehlers. Dr. McTague.
    Dr. McTague. Well, first I want to endorse everything that 
Paul Fleury has said. The most important thing is to deal with 
small problems before they become big problems. And when I was 
Vice President for Laboratory Management at the University of 
California, the Under Secretary of the NNSA and I, about a year 
ago, put in place a system for three times a year meetings at 
the highest level, that is to say, the undersecretary and the 
assistant secretaries, our lab directors, and myself, to 
discuss what are the big issues, how can we solve these things 
together, how are we doing, by the way, on what we said we were 
going to do at the beginning of the year, and how do we need to 
readjust? I think that process is continuing. And I think that 
is the kind of thing that should be occurring, not just an 
assessment five years down the road on, ``Gee whiz, wasn't that 
terrible?''
    The second thing on, sort of, intermediate steps, I agree 
with Paul. Managers have to be held accountable personally. And 
I know that that has happened in several cases with lab 
directors. I don't want to get into names or laboratories, but 
that has happened. And it does happen continuously at lower 
levels. There was an announcement recently, for example, at 
Sandia in the security area.
    One of them that is also very effective with organizations 
that do these things for public service is public shame, 
because these organizations do do the--do care about their 
reputations. They are not in this for the money. They are in it 
as a national service, and if it is being pointed out that they 
are not doing a good job at national service, they react. No 
question about it. It is more valuable than money.
    Mr. Ehlers. I might just comment that the one concept that 
Congressmen are very familiar with is public shame. And indeed, 
it is very effective. Generally--frequently, it results in loss 
of employment, too.
    Well, thank you. Those comments have been very insightful. 
I am sorry I couldn't hear the entire testimony, but I 
certainly appreciate what I have heard during my time here. I 
certainly thank you for being here. It has been very, very 
helpful testimony and certainly useful to me as a Member, and I 
am sure to the entire Committee and to their staff.
    One thing I will be asking the staff for, and they may in 
turn have to ask you, Mr. Card, I personally want to see a list 
of all of the National Laboratories that are under contract, 
who the contractors are, who the administrators are, et cetera. 
And that is some basic knowledge I don't have, which I should 
have, and should have had before the hearing, but I don't. So 
you may get a request from that if the staff doesn't have it on 
hand.
    Thank you. Thank you very, very much for participating. I 
truly appreciate it. And with that, I declare the hearing 
adjourned.
    [Whereupon, at 12:05 p.m., the Subcommittee was adjourned.]

                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions

Responses by Robin M. Nazzaro, Director of Natural Resources and 
        Environment, U.S. General Accounting Office

Questions submitted by Republican Members

Q1. LThe Department of Energy (DOE) has been accused of both lax 
oversight and micromanagement. Can both these things be true 
simultaneously? This suggests that there is effective oversight that we 
need more of and ineffective oversight that we should reduce. Does it 
matter who is doing the oversight and on what schedule? Does it matter, 
if there is more than one overseer--how coordinated and consistent they 
are? What specific steps should DOE take to ensure that oversight is 
done effectively and at the appropriate level? What proportion of DOE's 
reform efforts should be directed to contracting reforms and what 
proportion to administrative steps to rationalize day-to-day oversight?

A1. DOE spends almost $20 billion each year so that contractors can 
carry out DOE's missions and operate its facilities. Because of this 
relationship, DOE needs to have adequate oversight to ensure that 
mission work is done safely and effectively. In addition, DOE has a 
fiduciary responsibility to the taxpayers to guard against the 
possibility of fraud, waste, abuse and mismanagement in its contracting 
activities.
    Determining the appropriate level and frequency of oversight is 
DOE's responsibility, since the department is ultimately accountable 
for what goes on at its sites and facilities. In addition, DOE is not 
generally subject to external regulation for safety, including nuclear 
safety at its facilities. Therefore, the department must ensure that 
workers, the public, and the environment are protected.
    Prior to implementing performance-based contracts in the mid-
1990's, DOE's traditional approach to its M&O contracts was to provide 
broadly defined statements of work and provide considerable direction 
to the contractors as to how that work should be performed. With 
performance-based contracts, DOE generally uses a results-oriented 
statement of work and gives the contractor more latitude on how to 
accomplish those results. The amount of oversight necessary may vary 
depending on the nature of the work to be performed and the performance 
level of the contractor.
    The extent and frequency of oversight may vary depending on the 
risks involved in an activity. Certain activities at DOE sites are 
subject to oversight by more than one organization. For example, the 
Defense Nuclear Facilities Safety Board can raise concerns about the 
safety of nuclear facilities and operations, or the Environmental 
Protection Agency and state regulators approve DOE's plans for cleanup 
of hazardous or radioactive wastes. In these cases, DOE is still the 
single point of contact for oversight and coordinates with these 
agencies in providing feedback or direction to the contractors.

Q2. You cite, as a reason for non-competitive extensions of lab 
management and operations (M&O) contracts, ``the benefits of having a 
long-term association with the research community beyond that available 
with a normal contractual relationship.'' Are there any other reasons 
not to compete M&O contracts?

A2. The Federal Acquisition Regulation (FAR) Part 35.017 sets out 
federal policy regarding the use, review, and termination of Federally 
Funded Research and Development Centers (FFRDCs). According to this 
policy, a FFRDC must meet a special long-term research or development 
need that cannot be met as effectively by existing in-house or 
contractor resources. Long-term relationships between the government 
and FFRDCs are encouraged under this policy in order to provide the 
continuity that will attract high-quality personnel.
    The Competition in Contracting Act of 1984 (CICA), which 
established ``full and open competition'' as the federal norm, 
contained seven specific statutory exceptions that authorize the use of 
``other than'' full and open competition in certain situations, 
including when an agency has the need to ``establish and maintain an 
essential engineering, research, or developmental capability to be 
provided by an educational or other nonprofit institution or a 
federally funded research and development center.''
    Even though DOE is not required to compete its FFRDC contracts 
under this exception in CICA, the department's 1996 acquisition 
guidance describes the procedures that DOE program offices must follow 
to support any recommendation for a non-competitive extension of any 
major site contract, including a FFRDC contract. The guidance specifies 
that, before a noncompetitive contract extension can occur, DOE must 
provide (1) a certification that full and open competition is not in 
the best interest of the department, (2) a detailed description of the 
incumbent contractor's past performance, (3) an outline of the 
principal issues and/or significant changes to be negotiated in the 
contract extension, and (4) in the case of FFRDCs, a showing of the 
continued need for the research and development center in accordance 
with criteria established in the FAR.
    DOE's practice for competing FFRDC contracts has been to non-
competitively extend those contracts provided that the 1996 guidance 
has been followed and there is no compelling reason to compete the 
contract--that is, if the mission has not changed and the performance 
of the incumbent contractor is satisfactory.

Q3. In a recent Senate hearing on DOE laboratory contracts, former Los 
Alamos National Laboratory Director Sig Hecker testified that 
``numerous governmental audits and investigations by offices such as 
the GAO or the Inspector General. . .consistently fault the DOE for 
lack of sufficient oversight'' but fail to note that efforts to 
increase oversight reduce ``trust and flexibility'' and create an 
environment in which ``we cannot get our work done productively.'' Is 
this a fair characterization of GAO's reports?

A3. It is true that GAO and Office of Inspector General audits have 
criticized DOE for either not having sufficient qualified staff to 
provide oversight or not providing adequate oversight of major 
projects. However, we do not agree with Mr. Hecker's view that efforts 
to increase oversight automatically reduce trust and flexibility or 
create an environment in which work cannot get done. We know of no 
evidence that would show that effective oversight is detrimental to 
accomplishing an agency's mission. In fact, we believe that effective 
oversight is essential to ensuring that an agency's mission is 
successfully accomplished.
    DOE has a fiduciary responsibility to provide adequate oversight of 
the contractors that carry out its missions, including basic research 
and other activities. Federal oversight is necessary to ensure that 
mission requirements are being met and to provide a reasonable level of 
assurance that work is carried out safely and efficiently. This is 
especially true when the work done by contractors has substantial 
inherent risks--such as NASA's space shuttle missions or DOE's nuclear 
weapons research and stockpile stewardship efforts.

Q4. Is it fair to say that GAO has not subjected other agencies' non-
competitive contracts to the same level of scrutiny as DOE's? Why or 
why not?

A4. GAO has designated contract management as a high-risk area that is 
vulnerable to fraud, waste, abuse, and mismanagement in three 
agencies--DOE, the Department of Defense, and NASA. GAO continues to 
review contracting activities and monitor any corrective actions taken 
by these three agencies.
    Competition for contracts has been an issue at DOE because prior to 
the mid-1990's, competing DOE's M&O contracts was the exception rather 
than the norm. As part of its contract reform efforts begun in 1994, 
DOE has increased the percentage of its major site contracts that are 
competitively awarded and has changed its procurement regulations to 
establish competition as the norm.

Q5. Both DOE and GAO cite three reasons for M&O contract competitions 
at DOE: mission change, unsatisfactory performance, and if a commercial 
entity was the operator. While this may explain the three most recent 
decisions, does GAO see this as a consistent practice on the part of 
DOE? Given this policy, do DOE's decisions over the last two years fit 
this pattern?

A5. DOE has described three main reasons for competing its Federally 
Funded Research and Development Centers (FFRDCs) instead of extending 
the contracts non-competitively: when the contractor operating the 
laboratory is a for-profit entity, when mission changes warrant a 
review of the capabilities of other potential contractors, or when the 
incumbent contractor's performance is unsatisfactory. Without one of 
these conditions, DOE has generally extended these contracts without 
competition.
    Over the past decade, it appears that DOE has consistently followed 
these guidelines. Of the six FFRDC contracts that have been competed 
since 1993--for Brookhaven National Laboratory, Idaho National 
Engineering and Environmental Laboratory, National Renewable Energy 
Laboratory, Oak Ridge National Laboratory, Sandia National Laboratory, 
and the FFRDC at the Savannah River Site--DOE's decision to compete 
those contracts was consistent with the department's overall policy on 
determining when competition is appropriate. For example, DOE competed 
the contract for the Brookhaven National Laboratory in 1997, after 
terminating the previous contract for unsatisfactory performance by the 
incumbent contractor. DOE competed the contract for the National 
Renewable Energy Laboratory in 1998 to incorporate additional private 
sector expertise into the management team for the site to reflect an 
expanded mission. For the remaining four FFRDC contracts that were 
competed, the operator of the laboratory was a for-profit entity.
    DOE's decisions over the last two years also fit this pattern. The 
decision to open the Los Alamos National Laboratory contract to 
competition when the current contract expires in September 2005 was 
based on ``systemic management failures'' at the laboratory under the 
incumbent contractor. In addition, the decision to restructure the M&O 
contracts for the Idaho National Laboratory and include the Argonne 
West scope of work in one of the new contracts was based on a change of 
mission and direction at the Idaho site.

Q6. Please comment in detail on the proposal to ensure excellence in 
science and remain faithful to the ideals of competition by means of an 
occasional review (say, once every seven to ten years). As currently 
discussed, three panels that are not allowed to collaborate would do 
these reviews. The teams would evaluate and rank the labs on 
performance, and only the bottom tier would be required to compete. 
What are the important considerations for setting a timeframe for such 
a review process? Do you think such an approach would be workable?

A6. Peer review panels such as those discussed in the above proposal 
are not new to DOE research laboratories. Such peer review panels are 
already used to evaluate the science and technology work performed by 
some of the contractors at DOE laboratories as part of the overall 
assessment of the contractors' performance. It appears that the panels 
in the proposal would also be evaluating and ranking the labs on 
performance in the science and technology area. However, there are 
other important aspects of contractor performance including safety, 
security, and sound financial management that should also be assessed. 
Furthermore, the quality of contractor performance is only one of the 
reasons to compete a contract for a DOE research laboratory. Other 
reasons to compete a contract could include when the mission of the 
laboratory changed significantly and different expertise was needed, or 
when an incumbent contractor decided not to continue, which happened at 
Sandia National Laboratory in the early 1990's.
    If DOE used peer review panels to evaluate contractors' 
performance, the final decision on whether to compete a contract should 
remain with the department. DOE cannot delegate such a responsibility 
to independent review panels, but could use the panels in an advisory 
capacity.

Questions submitted by Democratic Member Questions

Q1. Looking back through GAO reports on lab management for the last 
decade, how does the performance of university, non-profit, or profit-
seeking institutions compare in managing contracts? What are the 
relative merits of each and which type (or combination thereof) is 
proving to be an ideal contractor? Is the pool of potential lab M&O 
contract bidders growing or shrinking? Why?

A1. GAO's past work on contract management has not generally involved 
comparing the performance of contractors based on the for-profit or 
non-profit status of the contractor. However, there are some 
indications that there have been performance problems with each type of 
contractor. For example, in a 1999 report on DOE's nuclear safety 
enforcement program, GAO presented information on the enforcement 
actions taken against contractors who violated DOE's nuclear safety 
rules and were assessed civil penalties under the Price-Anderson 
Amendments Act of 1988. Of the nine enforcement actions with assessed 
civil penalties exceeding $100,000, four of those involved non-profit 
contractors. In addition, from 1996 through 1998, only two of the 33 
enforcement actions were for severity I violations, the most serious--
the contractors involved represented one for-profit and one non-profit.
    In a September 2002 report on DOE's contract reform efforts, GAO 
reported on the cost and schedule performance of 16 major projects 
(those with a total project cost greater than $200 million). Although 
we did not specifically name the contractors associated with each of 
the projects with cost and schedule overruns, both for-profit and non-
profit contractors were represented in the sample. Regardless of these 
indications and examples, we are not in a position to address the 
relative performance or merits of different types of contractors, or 
whether there is an ``ideal'' contractor. Furthermore, GAO has done no 
work on the pool of potential lab M&O contract bidders, so cannot 
address whether such a pool is growing or shrinking and the reasons for 
such differences, if any.

Q2. Given the difficulty of establishing concrete performance metrics 
for basic and applied science, should other evaluation mechanisms be 
employed to facilitate decisions on contracts? For instance can metrics 
be developed for activities in technology transfer, patents or 
intellectual property to evaluate a laboratory's performance? Are there 
lessons learned from other agency M&O contract-type situations that can 
be applied to DOE M&O contracts? How do performance metrics for basic 
science play into the administration and competition for M&O contracts? 
How do they pertain to fees awarded to the contractor?

A2. Developing performance measures for basic science and research has 
long been a challenge. It is difficult to determine the long-term 
impact of basic science, since many factors are involved in a 
successful transition from basic to applied research and to product 
development and economic impact. This is a recognized problem across 
the federal government. For example, the President's Management Agenda 
for Fiscal Year 2002 included better research and development (R&D) 
investment criteria as one of the challenges, and tasked DOE to work 
with the Office of Management and Budget to solicit input from other 
R&D agencies and experts to develop objective investment criteria. 
Regarding lessons learned from other agencies that can be applied to 
DOE M&O contracts, we have not conducted such an assessment. Even 
within the DOE research laboratories, the missions and science can be 
very different and there is no one measure that could be applied to all 
situations.
    An acceptable alternative to outcome-oriented objective performance 
measures for basic science has been the peer review process. DOE's 
laboratory contractors already use this technique to evaluate 
performance in the science and technology areas. Administrative 
controls are necessary to ensure that the peer review of science is 
done in a timely manner and that the members of the peer review panel 
are independent of the research being evaluated.
    The evaluation of science and technology at the laboratories--
regardless of whether performance is assessed by peer review panels or 
some other method--is just one of the activities that should be 
included in an overall evaluation of the contractor's performance. 
Other activities that should be evaluated include nuclear safety, 
security, worker safety and health, and financial controls over areas 
such as procurement and property management. What impact that 
evaluation has on the fees awarded to the contractor varies depending 
on the fee structure in the individual contract. For example, some 
contracts include base fee amounts that are not tied to performance 
measures. The amount of fee ``at-risk'' can be allocated to individual 
performance measures or to an overall area, such as science and 
technology or mission support.

Q3. Should contractors be subject to more or less oversight and 
regulation by DOE? In what areas should DOE governance be improved? In 
what areas should the Department give the contractors more autonomy?

A3. DOE needs to exercise sufficient oversight to ensure that 
contractors are carrying out the department's missions effectively and 
safely. The specific level of oversight for a contractor or subject 
area could be determined using a risk-based approach. For example, 
above some minimum level, the extent of oversight on mission support or 
administrative functions could vary depending on whether the contractor 
was performing these functions satisfactorily. In addition, major 
projects involving substantial investment by the government may require 
more oversight to ensure that these projects meet cost, schedule, and 
technical baselines. Furthermore, in areas such as nuclear safety, 
environmental protection, and national security, DOE needs to ensure 
that contractors meet certain standards.

Q4. What are the merits of shorter contracts (five yrs.) compared to 
longer contracts (10+ yrs.)? Are we allowing lessons to be learned 
before jumping into another contract competition prematurely? Should 
there be a DOE policy to compete lab contracts on a periodic basis? If 
so, what time period would be appropriate?

A4. We are not aware of an ideal contract length for DOE's research 
laboratory contacts. DOE's acquisition regulations generally allow a 
contract period that consists of an initial term up to five years with 
options to extend the contract provided that the total contract period 
does not exceed ten years. For the contracts to operate DOE's FFRDCs, 
competition is not required by law. Nevertheless, DOE guidance requires 
that these contracts be evaluated prior to approving a non-competitive 
extension.
    Having a DOE policy that requires competing contracts for the 
research laboratories on a periodic basis is not necessarily a solution 
to all problems. The department needs to consider competition as just 
one of the mechanisms available to deal with contractor performance 
problems. Deciding when it is appropriate to compete a contract for a 
research laboratory depends on a number of factors, including the 
stability of the mission, the benefits of a long-term relationship with 
the contractor, and whether the incumbent contractor is performing at 
an acceptable level.
                   Answers to Post-Hearing Questions
Responses by Paul A. Fleury, Dean of Engineering, Yale University

Q1. Your written testimony seems to indicate that you do not believe 
competition is the appropriate way to create accountability in 
Department of Energy (DOE) laboratories. However, in answer to a 
question during the hearing, you found little impact at the labs with 
which you were familiar, Brookhaven and Sandia National Laboratories. 
If this is the case, then why are you so adamant that the labs should 
not be competed without cause? Is there something unique about Sandia 
or Brookhaven that made the change of contractor less harmful than it 
otherwise would have been? Is there a negative impact prior to the 
contractor change due to distraction of upper laboratory management for 
extended periods, increased retirement and turnover of staff 
scientists; an increase in confusion, anxiety and lowering of morale 
throughout the laboratory? Does the prospect of competition affect the 
ability of the contractor to hire an outstanding Director?

A1. First, I believe that there are many ways to achieve accountability 
in the DOE laboratories that are less disruptive and more effective 
than the threat of competing M&O contracts. I believe that contracts 
should be competed only for cause [such as failure to perform on the 
laboratory mission or decision by an incumbent contractor to withdraw]. 
The process of competing a contract is both costly and disruptive. The 
financial and managerial costs to the bidders is substantial. The work 
of the laboratory and the attention of laboratory management at all 
levels is seriously distracted during the process and during the 
transition. Focus on the laboratory mission is diffused during the 
process and for sometime afterwards especially if the competition 
results in a change in contractor.
    All of these factors were in evidence at both Sandia in 1993 when 
AT&T withdrew and at Brookhaven following the cancellation of the AUI 
contract. Both of those cases met the criteria I outlined for a 
justified competition. But the costs and disruptions ensued 
nonetheless. I believe that these examples support the position that 
contract competition for multi-program national laboratories should be 
done as a last resort only and not as the `default condition.' Both 
Sandia and Brookhaven have survived the change in contractor and appear 
to be functioning well. But both have now had several years to digest 
and accommodate the changes. And both experienced staff uncertainty and 
I believe some increased turnover during the period of bidding, 
selection and transition.
    As for the prospect of competition affecting the hiring of an 
outstanding Lab Director, I observe that identifying the Director is an 
integral part of any bid and so must be secured by the bidder as a 
member of their team before any contractor change. So I do not think 
the prospect of competition per se would affect a contractor's ability 
to identify and attract an outstanding Director. Rather, the quality of 
the contractor organization and its relationship with the DOE [whether 
cooperative or antagonistic] would be more likely to influence the 
attractiveness of the Director position for likely candidates.

Q2. In answer to a question about Brookhaven, you suggested that when 
a contractor is a consortium of universities, contractor change has 
less of an impact than when the contractor is a single university. How 
else does the management of a laboratory by a single university differ 
from that of a consortium including universities and the private 
sector? Do you feel there is anything lacking in the labs where these 
partnerships are currently the managing contractor? Will increased 
competition tend to force more universities to form partnerships with 
commercial enterprises to be able to compete with for-profit 
institutions?

A2. I did not mean to suggest that there is any inherent difference 
between a single university and a consortium when it comes to impact on 
the laboratory accompanying a contractor change. I do believe that in 
general, relative to a consortium the lines of authority, 
communication, and decision-making are clearer in the case of a single 
entity. In that sense a single university is preferable, in general, to 
a consortium. However, a properly constructed partnership involving 
multiple members can work well also. I believe that the current 
Brookhaven situation is one such example. The university partners bring 
special experience and familiarity with research and the scientific 
community while the industrial or commercial partner often brings 
experience and familiarity with business operations and management 
processes. In my experience it is rare that the university sector alone 
can bring all the necessary elements together. If any university system 
can do it, UC with its size, breadth and national lab experience should 
be the one. Were they not in the picture, I believe that competing for 
M&O contracts in the future will tend to encourage more partnerships 
between the universities and other organizations, or leave the field in 
the hands of `for-profit' organizations.

Q3. Please comment in detail on the proposal to ensure excellence in 
science and remain faithful to the ideals of competition by means of an 
occasional review (say, once every seven to ten years). As currently 
discussed, three panels that are not allowed to collaborate would do 
these reviews. The teams would evaluate and rank the labs on 
performance, and only the bottom tier would be required to compete. 
What are the important considerations for setting a timeframe for such 
a review process? Do you think such an approach would be workable?

A3. The premise of the question, I believe, is faulty because it 
implies that some fraction of the M&O contracts will always have to be 
competed. I would address the issue in two parts: the review process 
and the consequence of the review process.
    I believe that for some years now, all of the laboratories have 
been subject to too many uncoordinated, detail-oriented reviews every 
year. These number in the many tens, if not hundreds, for large 
laboratories. What is needed is not ultra-long intervals between 
reviews, but better coordination among the reviews themselves and more 
emphasis on using the results to evaluate and improve mission 
performance rather than to impose penalties or meaningless `grades'. 
Properly conducted annual reviews [or at the most biennial reviews] are 
essential to keep track of the performance against the mission in the 
areas of science and national security. These reviews also should cover 
management practices and operations as affect these missions.
    However, I do not support the notion of separate, independent 
reviews of the same laboratory, each giving grades or rankings that 
would be used to determine which laboratory's contract is to be 
competed. Like every scheme, this one could easily be `gamed'. 
Furthermore, it would entail costly and redundant efforts on the parts 
of all involved. The proposal to compete the X percent of the most 
lowly graded lab contracts also sends the wrong message. This implies 
that there is no such thing as good performance across the entire set 
of all the laboratories, whereas that should be very much the goal of 
the entire system. Alternatively, it could be the case that all the 
laboratories are performing below standard--in which case every 
contract should be competed, not merely the most poorly graded. On the 
other hand, if every laboratory is performing at an acceptable level, 
no laboratory contract should be competed in that period.
    The important considerations for setting a timetable such reviews, 
I believe, are to be found in the nature of the work and the mission. 
For fundamental research work where one is attempting to address 
fundamental questions, annual review or even biennial review is 
sufficient. In the case of more deliverable oriented applied work and 
engineering projects, frequent project reviews such as is done in 
industry are appropriate. Finally, overall M&O contract performance 
could be reviewed on a less frequent basis than annually, but not 
anywhere near as long as seven to ten years. At least twice during the 
contract period is a reasonable compromise if the review is done in a 
sufficiently comprehensive manner and it is free of fictitious grading 
requirements.

                   Answers to Post-Hearing Questions

Responses by John P. McTague, Professor of Materials, University of 
        California, Santa Barbara

Questions submitted by Republican Members

Q1. Your written testimony seems to indicate that you do not believe 
competition is the appropriate way to create accountability in 
Department of Energy (DOE) laboratories. However, in answer to a 
question during the hearing, you found little impact at the labs with 
which you were familiar, Brookhaven and Sandia National Labs. If this 
is the case, then why are you so adamant that the labs should not be 
competed without cause? Is there something unique about Sandia or 
Brookhaven that made the change of contractor less harmful that is 
otherwise would have been? Is there a negative impact prior to the 
contractor change due to distraction of upper laboratory management for 
extended periods, increased retirement and turnover of staff 
scientists; an increase in confusion, anxiety and lowering of morale 
throughout the laboratory? Does the prospect of competition affect the 
ability of the contractor to hire an outstanding director?

A1. Competition is at the heart of the success of the U.S. scientific 
enterprise. I hope it will always remain so. We need to support the 
best and the brightest and encourage risk taking in the pursuit of new 
ideas, while ensuring that ongoing missions are effectively 
implemented.
    Historically, we have done these aspects extremely well. The secret 
of our success has been the competition for the best ideas and for the 
best means for implementation. Peer review has served us very well. For 
example, if SLAC has a better idea for a fundamental particle facility 
than Fermilab, then the community backs SLAC. Our system is very 
effective at placing work with the best provider, be it SLAC or 
Fermilab, Los Alamos, or Livermore, Argonne, or Oak Ridge. A lab grows 
or shrinks based on its technical ideas and capabilities, and that is 
as it should be.
    Competition for management is an entirely different matter, and 
here one size does not fit all, as was pointed out in the testimony of 
Dean Fleury. Some laboratories, such as Fermilab or Brookhaven, were 
historically managed by associations of universities or boards with 
essentially no assets and no purpose other than such management. 
Others, such as Ames, SLAC, LBNL, LANL, LLNL, Lincoln Lab, JPL, and 
NCAR have grown integrally from their university sponsors. Indeed, 
Ames, SLAC, and LBNL reside on university land. In all these cases, lab 
employees are, and consider themselves to be, employees of their 
respective universities.
    Other laboratories grew up as separate entities, often initially 
managed by corporations. Examples include Sandia, PNNL, and Oak Ridge.
    These three classes are quite different and should be treated 
differently. In particular, those laboratories which have grown out of 
university campuses (Ames, SLAC, LBNL, LANL, LLNL) have some of the 
characteristics of campuses in complex university systems. Several 
states (e.g., California, New York, Texas) have multi-campus 
enterprises. When a management problem occurs on an individual campus, 
it is addressed by the central system. It is not ``competed'' to a 
rival institution.
    Whether an announcement of competition causes significant problems 
in terms of laboratory function (recruitment, retirement, etc.) is not 
well known, because competing of FFRDCs has been so rare. In 
particular, no university managed FFRDC has ever been competed. Note, 
however, that this year, the University of California, in a deviation 
from custom, did not do an open recruitment process for the recently 
appointed director of LANL. Also, the UC Vice President for Lab 
Management position has gone for more than half a year without a 
permanent occupant.

Q2. One of the explicitly stated intentions in creating federally-
funded research and development centers was to facilitate long-term 
relationships with research institutions. However, you correctly note 
in your testimony that the trend at DOE laboratories has been to 
compete contractors, and consequently, to signal that the relationship 
(at least in relative terms) is expected to be shorter than in the 
past. What is the ideal length of a relationship with a research 
institution? If regular competition becomes a requirement for 
management and operations (M&O) contracts, what would be an appropriate 
review period?

A2. I believe that the ongoing assumption for management of research 
FFRDCs, including DOE National Labs, should be for a continuing 
relationship unless the contractor withdraws or is no longer able to 
perform effectively in terms of mission results or of malfeasance. 
Continuous rebalance of workloads among the competing laboratories is 
an effective and minimally disruptive means of encouraging mission 
performance and efficiency. It is the best form of competition.
    I do not believe that there should be any ``normal'' time period 
for laboratory management competition. Rather, one should look to the 
way universities traditionally handle evaluation. It is common for 
university presidents and chancellors, and indeed, laboratory 
directors, to be comprehensively evaluated at five-year time periods. 
The overall quality of our research universities suggests that this 
time scale is appropriate.
    A similar time scale, five to seven years, might be adopted for 
government evaluation of overall performance of FFRDCs, including DOE 
National Labs. Criteria might include appropriateness of mission 
balance, effectiveness of exploratory research, quality of staff, and 
quality and efficiency of operations.
    Only in the case of a ``failing'' evaluation where improvement 
measures appear inappropriate should termination occur. In this case, I 
believe termination should be announced and a new competition, 
excluding the incumbent, or laboratory closure should occur.
    The notion of competition as a norm seems to devalue public service 
as a motive for managing FFRDCs, including DOE National Laboratories. I 
believe the Nation would not be served well by a system which would 
cause universities to withdraw from lab management.

Q3. In general, Americans believe that competition is a good thing, 
because it prompts innovations, can solve past problems, and lowers 
costs. Indeed, this hearing is focused on the question of whether 
competition for M&O contracts for science laboratories is a proper tool 
to ensure scientific results as well as financial and managerial 
accountability. In your testimony, you mention that when you arrived at 
Brookhaven as an associate professor, ``there was a fierce competition 
between researchers at Brookhaven and the Stanford Linear Accelerator 
Center.'' This implies that, due to rivalry between the laboratories, 
at least some of the benefits we seek from competition are produced in 
scientific results. If this competition is sufficient to produce the 
results we want on the science side, how do we ensure the fiscal and 
managerial accountability that Americans expect and deserve without 
competing M&O contracts for the laboratories?

A3. The U.S. system for ``competition of ideas'' has surely served us 
well as a nation. The ongoing challenge has been how to ensure that the 
``business of science'' is handled as well.
    All too often, the business aspect has been treated as a ``second 
class citizen.'' We simply must do better, even though I am unaware 
that the environmental, safety, financial, security, personnel, etc. 
operations of FFRDCs are poorer than those of commercial enterprises or 
defense contractors.
    What is missing, however, is transparency to enable confidence in 
and to improve practices. Here, the recent DOE initiatives to implement 
private best practices are encouraging. Focusing on, and auditing, 
process as opposed to transactions and comparison with best practices 
can be quite helpful.
    Such audits should be independent, credible, and published for all 
to see. The light of day is an effective disinfectant. For instance, I 
believe that the financial and other management systems of FFRDCs 
should be audited by nationally-recognized organizations who specialize 
in this area (e.g., Price Waterhouse, Cooper).

Q4. Please comment in detail on the proposal to ensure excellence in 
science and remain faithful to the ideals of competition by means of an 
occasional review (say, once every seven to ten years). As currently 
discussed, three panels that are not allowed to collaborate would do 
these reviews. The teams would evaluate and rank the labs on 
performance, and only the bottom tier would be required to compete. 
What are the important considerations for setting a timeframe for such 
a review process? Do you think such an approach would be workable?

A4. I strongly support competition within our FFRDCs, including DOE's 
national labs. This competition occurs every working day, as a federal 
manager decides to place a program at laboratory X instead of 
laboratory Y, or to terminate funding for a particular project. This 
form of competition is effective and efficient, especially as it 
utilizes peer or expert evaluation.
    That being said, it is valuable from time-to-time to step back and 
get a broader perspective. At a given laboratory, is the whole greater 
than the sum of its parts? Does the laboratory as a whole address 
important agency missions? Are business operations being accomplished 
efficiently, effectively, and ethically?
    It would be helpful to have such a long-term, broad review of the 
laboratory system. The goal should be to rebalance the agency portfolio 
as a whole and to improve management practices as a whole. If the 
legislative and executive branches could have the discipline to carry 
out such a program, it would be helpful. History, however, is replete 
with examples of short-term reactions to the latest real or perceived 
outrage, ignoring long range perspectives.
    Nevertheless, we should try once more to focus on the big picture 
and the long term. The focus of this long-term, broad review should be 
on a rebalancing the agency's portfolio. This may require shifting 
programs, closing laboratories, opening new ones, and utilizing best 
business practices across the complex, or selective re-competition of 
M&O contracts. It should not, however, focus primarily on the latter, 
nor should there be an arbitrary target on the number of research lab 
M&O contracts to be competed, if any.

Questions submitted by Democratic Members

Q1. It's been said that ties between National Laboratories and 
Universities should be strong and weak relationships suffer in the 
quality of science they produce. Do you believe a strong relationship 
with the University community is essential for a laboratory to produce 
good science? If so, how should a laboratory be involved with the 
University community?

A1. The United States is unique in the close, complementary ties of 
their University researchers and their national laboratories. National 
laboratories have many unique facilities, such as the high-energy 
accelerators at Fermilab and SLAC, which are user facilities for the 
broader community. Indeed, almost every DOE national lab has one or 
more such facilities that create research synergy. I believe all labs 
also have guest researcher programs, and often joint appointment 
programs with Universities.
    Our DOE national labs all have mission responsibilities in areas 
such as national security, energy, environment, and fundamental 
science. As large as these laboratories are, the total world research 
enterprise is much larger. By budget, the DOE national labs are almost 
two percent of world research. Thus, close interaction and 
collaboration with the other 98 percent of industry and University 
researchers is essential for the labs to fulfill their missions.
    The importance of University ties has been acknowledged for over a 
half century, with many FFRDCs, including the DOE national 
laboratories, being integral parts of a University system. Examples 
include Ames Lab at Iowa State, Lincoln Lab and MIT, LLNL, LBNL, and 
LANL within the UC complex, UCAR and the University of Colorado, JPL 
and Cal Tech, etc.
    My own knowledge is closest for the UC managed labs, LBNL, LANL, 
and LLNL. Here fully 25 percent of all published papers from each of 
these labs have a UC faculty member as a co-author. Clearly, the record 
of accomplishment shows the effectiveness of these collaborative 
relationships. Our challenge is to preserve it. It works like no other 
on the planet.

Q2. Incumbent contractors have agreed that re-competing and changing 
contractors has a detrimental effect on the science personnel at the 
labs. Given the modern environment where people switch jobs all the 
time, how important is continuity of employers for science personnel, 
especially if their jobs do not change? How does that answer differ 
from industrial contractors compared to University contractors? Do 
changes in contractors adversely affect the culture of the lab? Does a 
change in contractors result in turnover or retirement of senior 
scientist?

A2. Clearly the quality of the staff, particularly the scientist and 
engineers, is at the heart of the ability of laboratories to accomplish 
the missions that agencies assign to them. It is true that in many, 
even most commercial areas, the connection of employees with their 
organization has weakened resulting in significant migration even of 
professionals. The situation in our FFRDCs, including DOE's national 
labs, is quite different, and hopefully will remain so.
    For example, the two nuclear weapons laboratories, LANL and LLNL, 
managed by UC, have individuals with unique experience, which cannot be 
replaced, by the general technical job pool. Their loyalty to their 
organization and its mission is very important to national goals.
    As pointed out earlier by both Dean Fleury and me, there are very 
different historical groups of labs with different cultural connections 
between the contractor and employees. They need to be treated 
differently.
    Many FFRDCs, including some DOE national labs, grew integrally from 
University sponsors. These include Ames, SLAC, LBNL, LANL, LLNL, JPL, 
Lincoln lab, and NCAR. Here, employees rightly consider themselves to 
be integral parts of their Universities.
    Some laboratories, such as Fermilab or Brookhaven, have been 
managed by consortia, whose main purpose has been this relationship and 
who have essentially no asset or other purpose.
    A third class is labs, which grew up as separate entities, often 
managed by corporations as national trusts. Some of these have been 
taken over by more traditional defense contractors.
    Potential changes in contractors are likely to have different 
effects in the three classes. The greatest unknown, and the greatest 
risk, is in the group managed by Universities, where the lab employee 
identification with the contractor is the closet. Since none of these 
has ever been competed, we don't know the consequences. Do we want to 
learn it by doing the experiment?

Q3. How do University, non-profit, or profit-seeking institutions 
compare in managing contracts? What are the relative merits of each and 
which type (or combination thereof) is proving to be an ideal 
contractor?

A3. Who manages FFDRCs, including DOE national labs, best? A good 
question.
    First, it is important to ask whether the missions have been well 
served by the labs and whether there is an observed difference in 
performance, given the character of task.
    Recall that several major U.S. corporations, among them AT&T, Union 
Carbide, and Dupont, once agreed to manage labs as a national service. 
That is no longer the case.
    From a practical point of view, the present pool of actual and 
potential for profit contractors excludes most corporations, with 
exception of traditional government (mainly defense) contractors.
    This group probably should include Battelle, which for tax purposes 
is not for profit, but which has a goal to raise funds for certain 
charitable purposes.
    This group of contractors has historically focused on laboratories 
with a more systems engineering role and has done well here. Sandia is 
a prime example.
    At the other extreme is the single purpose lab, such as SLAC, 
Fermilab, Jefferson. Here, it is difficult to imagine that anything 
other than a University or University consortium would be the most 
appropriate manager.
    Then there are the large numbers of labs that have grown as 
integral parts of University systems (Lincoln Lab, NCAR, LANL, LLNL, 
JPL, etc.). It seems quite risky to wrench such labs from their present 
culture.
    Perhaps the real question is how, within each class, to ensure 
optimal management.
    The answer may differ for each class. I have tried to approach 
these issues in many of the earlier questions, but I don't have 
definitive answers and only hope that whatever is done, reinforces the 
tremendous success of our present system and acknowledges the uncertain 
fragility to change.
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