    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                      NSF'S OVERSIGHT OF THE NEON PROJECT
                      AND OTHER MAJOR RESEARCH FACILITIES
                     DEVELOPED UNDER COOPERATIVE AGREEMENTS

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

                                 JOINT HEARING

                                   BEFORE THE

                          SUBCOMMITTEE ON OVERSIGHT &

                    SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY

                  COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                FEBRUARY 3, 2015

                                   __________

                                Serial No. 114-4

                                   __________

     Printed for the use of the Committee on Science, Space, and Technology

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

                                     _________

                           U.S. GOVERNMENT PUBLISHING OFFICE

    93-882 PDF                     WASHINGTON : 2015
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                  COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                       HON. LAMAR S. SMITH, Texas, Chair
    FRANK D. LUCAS, Oklahoma             EDDIE BERNICE JOHNSON, Texas
    F. JAMES SENSENBRENNER, JR.          ZOE LOFGREN, California
    DANA ROHRABACHER, California         DANIEL LIPINSKI, Illinois
    RANDY NEUGEBAUER, Texas              DONNA F. EDWARDS, Maryland
    MICHAEL T. McCAUL                    SUZANNE BONAMICI, Oregon
    STEVEN M. PALAZZO, Mississippi       ERIC SWALWELL, California
    MO BROOKS, Alabama                   ALAN GRAYSON, Florida
    RANDY HULTGREN, Illinois             AMI BERA, California
    BILL POSEY, Florida                  ELIZABETH H. ESTY, Connecticut
    THOMAS MASSIE, Kentucky              MARC A. VEASEY, TEXAS
    JIM BRIDENSTINE, Oklahoma            KATHERINE M. CLARK, Massachusetts
    RANDY K. WEBER, Texas                DON S. BEYER, JR., Virginia
    BILL JOHNSON, Ohio                   ED PERLMUTTER, Colorado
    JOHN R. MOOLENAAR, Michigan          PAUL TONKO, New York
    STEVE KNIGHT, California             MARK TAKANO, California
    BRIAN BABIN, Texas                   BILL FOSTER, Illinois
    BRUCE WESTERMAN, Arkansas
    BARBARA COMSTOCK, Virginia
    DAN NEWHOUSE, Washington
    GARY PALMER, Alabama
    BARRY LOUDERMILK, Georgia
                                     ------

                           Subcommittee on Oversight

                     HON. BARRY LOUDERMILK, Georgia, Chair
    F. JAMES SENSENBRENNER, JR.,         DON BEYER, Virginia
        Wisconsin                        ALAN GRAYSON, Florida
    BILL POSEY, Florida                  ZOE LOFGREN, California
    THOMAS MASSIE, Kentucky              EDDIE BERNICE JOHNSON, Texas
    JIM BRIDENSTINE, Oklahoma
    BILL JOHNSON, Ohio
    LAMAR S. SMITH, Texas
                                     ------

                    Subcommittee on Research and Technology

                     HON. BARBARA COMSTOCK, Virginia, Chair
    FRANK LUCAS, Oklahoma                DANIEL LIPINSKI, Illinois
    MICHAEL T. McCAUL, Texas             ELIZABETH ESTY, Connecticut
    STEVEN M. PALAZZO, Mississippi       KATHERINE CLARK, Massachusetts
    RANDY HULTGREN, Illinois             PAUL TONKO, New York
    JOHN MOOLENAAR, Michigan             SUZANNE BONAMICI, Oregon
    STEVE KNIGHT, California             ERIC SWALWELL, California
    BRUCE WESTERMAN, Arkansas            EDDIE BERNICE JOHNSON, Texas
    GARY PALMER, Alabama
    LAMAR S. SMITH, Texas

                                C O N T E N T S

                                February 3, 2015

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

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

                               Opening Statements

    Statement by Representative Barry Loudermilk, Chairman,
      Subcommittee on Oversight, Committee on Science, Space, and
      Technology, U.S. House of Representatives......................     8
        Written Statement............................................     9

    Statement by Representative Eddie Bernice Johnson, Ranking
      Member, Committee on Science, Space, and Technology, U.S. House
      of Representatives.............................................    10
        Written Statement............................................    12

    Statement by Representative Lamar Smith, Chairman, Committee on
      Science, Space, and Technology, U.S. House of Representatives..    13
        Written Statement............................................    14

                                   Witnesses

    Dr. Richard Buckius, Chief Operating Officer, National Science
      Foundation
        Oral Statement...............................................    15
        Written Statement............................................    18

    Dr. James P. Collins, Chairman, National Ecological Observatory
      Network
        Oral Statement...............................................    27
        Written Statement............................................    29

    Ms. Kate Manuel, Legislative Attorney, Congressional Research
      Service
        Oral Statement...............................................    33
        Written Statement............................................    35

    Discussion.......................................................    47

                 Appendix I: Answers to Post-Hearing Questions

    Dr. Richard Buckius, Chief Operating Officer, National Science
      Foundation.....................................................    64

    Dr. James P. Collins, Chairman, National Ecological Observatory
      Network........................................................   117

                Appendix II: Additional Material for the Record

    Prepared statement by Representative Barbara Comstock,
      Chairwoman, Subcommittee on Research and Technology, Committee
      on Science, Space, and Technology, U.S. House of
      Representatives................................................   122

    Prepared statement by Representative Elizabeth Esty, Committee on
      Science, Space, and Technology, U.S. House of Representatives..   123
    Documents submitted by Representative Barbara Comstock,
      Chairwoman, Subcommittee on Research and Technology, Committee
      on Science, Space, and Technology, U.S. House of
      Representatives................................................   124
    Documents submitted by Representative Barry Loudermilk, Chairman,
      Subcommittee on Oversight, Committee on Science, Space, and
      Technology, U.S. House of Representatives......................   127

                      NSF'S OVERSIGHT OF THE NEON PROJECT
                      AND OTHER MAJOR RESEARCH FACILITIES
                    DEVELOPED UNDER COOPERATIVE AGREEMENTS

                                  ----------

                           TUESDAY, FEBRUARY 3, 2015

                      House of Representatives,
         Subcommittee on Oversight and Subcommittee on
                               Research and Technology,
                   Committee on Science, Space, and Technology,
                                                       Washington, D.C.

        The Subcommittees met, pursuant to call, at 10:04 a.m., in
    Room 2318 of the Rayburn House Office Building, Hon. Barry
    Loudermilk [Chairman of the Subcommittee on Oversight]
    presiding.

    [GRAPHIC] [TIFF OMITTED]

        Chairman Loudermilk. The Subcommittee on Oversight and the
    Subcommittee on Research and Technology will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the Subcommittee at any time.
        Good morning. Welcome to today's hearing titled ``National
    Science Foundation's Oversight of the NEON Project and Other
    Major Research Facilities Developed under Cooperative
    Agreements.''
        Without objection, the Chair authorizes the participation
    of Ranking Member Johnson, Ms. Bonamici, Mr. Grayson, Mr. Bera,
    Ms. Esty, Ms. Clark and Mr. Beyer for today's hearing.
        In front of you are packets containing the written
    testimony, biographies, and Truth in Testimony disclosures for
    today's witnesses.
        I recognize myself for five minutes for an opening
    statement.
        Good morning. First, I want to thank our witnesses for
    being here today. I am looking forward to hearing from each of
    you on this very important matter.
        We are here today to discuss the National Science
    Foundation's oversight of the National Ecological Observatory
    Network, also known as the NEON Project, and other major
    research facilities developed under cooperative agreements.
        The NSF funds a variety of large research projects,
    including multi-user research facilities, tools for research
    and education, and distributed instrumentation networks. In
    December, the House Science, Space, and Technology Committee
    held a hearing regarding one of these large research projects,
    the NEON Project, after learning about the mismanagement of
    appropriated funds.
        Specifically, the hearing discussed the findings of two
    financial audits of NEON conducted by the National Science
    Foundation's Office of Inspector General and the Defense
    Contract Audit Agency. One of those audits discovered that NEON
    was allowed to use federal money for explicitly unallowable
    costs, including liquor, lobbying, and a lavish holiday party.
    Both audits of the NEON Project were initiated by the NSF
    Office of the Inspector General due to concerns about the lack
    of NSF's review of costs and accounting financial controls of
    major research facilities prior to entering into cooperative
    agreements. In fact, during its first audit in 2011, DCAA had
    to suspend its audit temporarily as the information supplied by
    NEON was inadequate to complete the necessary financial
    analyses. Of the proposed $433.72 million project cost, DCAA
    identified approximately $102 million of these costs as
    questionable and identified an additional $52 million of
    proposed costs as unsupportable.
        The final version of the first DCAA audit was transmitted
    to the National Science Foundation in 2012, accompanied by an
    NSF Office of Inspector General written alert about the
    excessive costs and accounting deficiencies for major research
    facilities.
        A second audit of the NEON Project, which was completed in
    October of 2014, revealed that NSF approved management fees,
    which included paying $375,000 for lobbying, $25,000 for a
    holiday party, and $11,000 a year for coffee services. In
    addition, according to an October 2014 NSF letter to Senators
    Grassley and Paul, NEON isn't the only cooperative agreement
    receiving such fees. If one project can get away with this, how
    do we know they aren't all frivolously spending hard-earned
    taxpayer dollars?
        As a small business owner and former director of a
    nonprofit, I wholeheartedly understand the importance of
    accountability. The fact that a nonprofit can treat American
    taxpayer dollars as profit without any kind of consequences is
    absolutely inexcusable. What is even more inexcusable is that
    NSF has received warnings about this kind of irresponsible
    spending over the past four years and has not taken adequate
    measures to resolve the matter. I am not only interested in
    learning about how the federal government can and needs to do a
    better job with transparency and accountability, but also how
    we can ensure that this kind of negligence is not occurring
    with other cooperative agreements.
        Taxpayer money should be spent in a responsible way with
    the help of efficient management and oversight. If there are
    loopholes out there allowing this type of unethical spending to
    occur, then we need to get down to the bottom of it and make
    sure that it can no longer happen.
        I look forward to today's hearing, which I anticipate will
    inform us on how these types of questionable expenses were
    charged to the American people. In the end, though, I hope that
    this hearing will inform us on how to provide better oversight
    and management of federally funded research projects to ensure
    that taxpayers can trust us with their money and know that it
    will be spent in the manner intended.
        [The prepared statement of Mr. Loudermilk follows:]

                Prepared Statement of Subcommittee on Oversight
                           Chairman Barry Loudermilk

        Good morning. First I want to thank our witnesses for being here
    today. I am looking forward to hearing from each of you on this very
    important matter.
        We are here today to discuss the National Science Foundation's
    (NSF) oversight of the National Ecological Observatory Network, also
    known as the NEON Project, and other major research facilities
    developed under cooperative agreements.
        The NSF funds a variety of large research projects, including
    multi-user research facilities, tools for research and education, and
    distributed instrumentation networks. In December, the House Science,
    Space, and Technology Committee held a hearing regarding one of these
    large research projects, the NEON Project, after learning about the
    mismanagement of appropriated funds. Specifically, the hearing
    discussed the findings of two financial audits of NEON conducted by the
    National Science Foundation's (NSF) Office ofInspector General (OIG)
    and the Defense Contract Audit Agency (DCAA). One of those audits
    discovered that NEON was allowed to use federal money for explicitly
    unallowable costs, including liquor, lobbying, and a lavish holiday
    party.
        Both audits of the NEON Project were initiated by the NSF Office of
    the Inspector General due to concerns about the lack of NSF's review of
    costs and accounting financial controls of major research facilities
    prior to entering into cooperative agreements. In fact, during its
    first audit in 2011, DCAA had to suspend its audit temporarily as the
    information supplied by NEON was inadequate to complete the necessary
    financial analyses.
        Of the proposed $433.72 million project cost, DCAA identified
    approximately $102 million of these costs as ``questionable'' and
    identified an additional $52 million of proposed costs as
    ``unsupportable.'' The final version of the first DCAA audit was
    transmitted to NSF in 2012, accompanied by an NSF OIG written alert
    about excessive costs and accounting deficiencies for major research
    facilities.
        A second audit of the NEON Project, which was completed in October
    of 2014, revealed that NSF approved management fees, which included
    paying $375,000 for lobbying, $25,000 for a holiday party, and $11,000
    a year for coffee services. In addition, according to an October 2014
    NSF letter to Senators Grassley and Paul, NEON isn't the only
    cooperative agreement receiving such fees. If one project can get away
    with this, how do we know they aren't all frivolously spending hard-
    earned taxpayer dollars?
        As a small business owner and former director of a non-profit, I
    wholeheartedly understand the importance of accountability. The fact
    that a non-profit can treat American taxpayer dollars as profit without
    any kind of consequences is absolutely inexcusable. What is even more
    inexcusable is that NSF has received warnings about this kind of
    irresponsible spending over the past four years, and it has not taken
    adequate measures to resolve the matter.
        I am not only interested in learning about how the federal
    government can--and needs to--do a better job with transparency and
    accountability, but also how we can ensure that this kind of negligence
    is not occurring with other cooperative agreements. Taxpayer money
    should be spent in a responsible way with the help of efficient
    management and oversight. If there are loopholes out there allowing
    this type of unethical spending to occur, then we need to get down to
    the bottom of it and make sure that it can no longer happen.
        I look forward to today's hearing, which I anticipate will inform
    us on how these types of questionable expenses were charged to the
    American people. In the end, though, I hope that this hearing will
    inform us on how to provide better oversight and management of
    federally-funded research projects to ensure that taxpayers can trust
    us with their money and know that it will be spent in the manner
    intended.

        Chairman Loudermilk. I now recognize the Ranking Member,
    the gentlelady from Texas, for an opening statement.
        Ms. Johnson of Texas. Thank you, Mr. Chairman. Before I
    begin my formal statement, I simply want to say that as of this
    morning, we have two additional Members assigned to this
    Committee, so we will be able to organize later this week, and
    we will be ready to act as Subcommittees.
        Let me thank you, and I want to start by saying that I join
    all my colleagues in expressing my dismay that NEON used its
    management fee to pay for lobbying and alcohol and employee
    morale. I think we can all agree that we cannot support these
    actions. I also want to recognize NSF and NEON for adopting
    reasonable limits on what their management fee can be spent on
    going forward.
        There is no doubt that some of my colleagues see advantage
    in the negative headlines that have come with the NEON story
    because they can point to those confused claims as evidence
    that NSF is not a careful steward of taxpayers' dollars. This
    situation might even be viewed by some as justifying the
    Chairman's continued effort to question peer-reviewed NSF
    grants for studies that the Chairman thinks sound funny.
        That said, I want us all to fully appreciate where the
    pursuit of NEON may lead. Across the government, management
    fees have always been treated the same as profit--that is, they
    are the company's money. In that regard, I would note that our
    staff contacted GAO when we were seeking a witness because GAO
    is expert on contract matters. However, staff found that when
    it came to fees and their uses, the GAO had nothing to say
    because they do not audit fees or profits. So if we are going
    to move the goal line for NEON and start asking how their fee
    can be spent and who controls it, we are on a path to tackle
    the broader question of what everyone else who does business
    with the federal government does with their fees and their
    profits.
        For example, major defense contractors do the great
    majority of their business with the federal government. These
    same companies spend tens of millions of dollars annually on
    lobbying. The amounts they spend daily on lobbying dwarf the
    amounts that NEON spent in an entire year. If we are serious
    about ending such activities, we would have to introduce a bill
    to put significant restrictions on all companies' federal
    profits and fees. We would adopt such a law if we are serious
    about this issue, but I suspect that our outrage is going to
    begin and end with this one little environmental nonprofit.
        I also want to point out the absurdity of being outraged at
    NEON for using their fee to pay for unallowable costs. That is
    because under the guidance for management fees, OMB makes clear
    that, by definition, fees can only be used for unallowable
    costs. Thus, the idea that NSF and NEON colluded to defraud the
    government into paying for unallowable costs by establishing a
    fee would implicate contracting officers all the way back to
    the Kennedy Administration at agencies across the government.
    Essentially, the NSF Inspector General has made a referral to
    Justice calling for criminal prosecution of NSF and NEON
    employees for doing exactly what the law permits them to do. It
    is hard to see how that represents fraud.
        The management fee represents less than one-half a percent
    of the contract costs of the NEON project. The bigger
    questions--and bigger money--are associated with whether NSF
    has appropriate policies to estimate project costs, including
    contingency costs, and whether these policies are consistent
    with OMB guidance.
        The NSF IG questions the use of contingency and the way the
    cost estimate on NEON--and every other major equipment project
    at NSF--was done. NSF disagrees. As Dr. Buckius will testify,
    they have gone through the extensive audit disposition and
    appeal process as laid out at NSF. Having adopted reforms, they
    feel they are fully consistent with OMB's expectations for how
    to manage risk and estimate costs. A plain reading of OMB's
    updated regulations unambiguously supports NSF's position. Yet
    the IG continues to make every effort to have her views
    adopted.
        To put it mildly, this situation is unfortunate, and it is
    demoralizing to the agency's hardworking staff. But this
    Committee is not equipped to solve any of this today. The
    National Science Board, the Foundation's oversight board, is
    aware of these issues and has a good understanding of them. I
    hope that the Board will consider a careful review of NSF's
    practices and policies with respect to large facilities. If the
    Board identifies legitimate facilities management and oversight
    concerns, I would be happy to join my colleagues in
    appropriately addressing those concerns.
        In the meantime, I intend to send a letter to GAO asking
    for a review of how agencies estimate costs for major R&D
    construction projects and how they set and manage contingency.
    GAO should look first at how NSF does it, and then provide some
    comparison as to how other agencies do the same things. Perhaps
    GAO can help settle the impasse at NSF.
        In closing, I hope we can keep our rhetoric and our actions
    today measured and based on fact, and be clear that the issues
    to be considered, if we are serious, go far beyond one small
    environmental nonprofit's use of their fees.
        And with that, Mr. Chairman, I yield back.
        [The prepared statement of Ms. Johnson of Texas follows:]

       Prepared Statement of Committee on Science, Space, and Technology
                      Ranking Member Eddie Bernice Johnson

        Thank you Mr. Chairman, I want to start by saying that I join all
    my colleagues in expressing my dismay that NEON used its management fee
    to pay for lobbying and alcohol and employee morale. I think we can all
    agree that we cannot support these actions. I also want to recognize
    NSF and NEON for adopting reasonable limits on what their management
    fee can be spent on going forward.
        There is no doubt that some of my colleagues see advantage in the
    negative headlines that have come with the NEON story because they can
    point to those confused claims as evidence that NSF is not a careful
    steward of taxpayer dollars. This situation might even be viewed by
    some as justifying the Chairman's continued effort to question peer-
    reviewed NSF grants for studies that the Chairman thinks sound funny.
        That said, I want us all to fully appreciate where the pursuit of
    NEON may lead. Across the government, management fees have always been
    treated the same as a profit--that is, they are the company's money. In
    that regard, I would note that our staff contacted GAO when we were
    seeking a witness because GAO is expert on contract matters. However,
    staff found that when it came to fees and their uses, the GAO had
    nothing to say because they do not audit fees or profits.
        So if we are going to move the goal line for NEON and start asking
    how their fee can be spent and who controls it, we are on a path to
    tackle the broader question of what everyone else who does business
    with the federal government does with their fees and profits. For
    example, major defense contractors do the great majority of their
    business with the federal government. Those same companies spend tens
    of millions of dollars annually on lobbying. The amounts they spend
    daily on lobbying dwarf the amounts that NEON spent in an entire year.
        If we are serious about ending such activities, we would have to
    introduce a bill to put significant restrictions on all companies'
    federal profits and fees. We could adopt such a law if we are serious
    about this issue, but I suspect our outrage is going to begin and end
    with this one little environmental non-profit.
        I also want to point out the absurdity of being outraged at NEON
    for using their fee to pay for unallowable costs. That is because under
    the guidance for management fees, OMB makes clear that--by definition--
    fees can ONLY be used for unallowable costs.
        Thus, the idea that NSF and NEON colluded to defraud the government
    into paying for unallowable costs by establishing a fee would implicate
    contracting officers all the way back to the Kennedy Administration at
    agencies across the government. Essentially, the NSF Inspector General
    has made a referral to Justice calling for criminal prosecution of NSF
    and NEON employees for doing exactly what the law permits them to do.
    It is hard to see how that represents fraud.
        The management fee represents less than 1/2 a percent of the
    contract costs of the NEON project. The bigger questions--and bigger
    money--are associated with whether NSF has appropriate policies to
    estimate project costs, including contingency costs, and whether these
    policies are consistent with OMB guidance.
        The NSF IG questions the use of contingency and the way the cost
    estimate on NEON--and every other major equipment project at NSF--was
    done. NSF disagrees. As Dr. Buckius will testify, they have gone
    through the extensive audit disposition and appeal process as laid out
    at NSF. Having adopted reforms, they feel they are fully consistent
    with OMB's expectations for how to manage risk and estimate costs. A
    plain reading of OMB's updated regulations unambiguously supports NSF's
    position. Yet the IG continues to make every effort to have her views
    adopted.
        To put it mildly, this situation is unfortunate, and it is
    demoralizing to the Agency's hard-working staff. But this Committee is
    not equipped to solve any of this today. The National Science Board,
    the Foundation's oversight board, is aware of these issues and has a
    good understanding of them. I hope that the Board will consider a
    careful review of NSF's practices and policies with respect to large
    facilities. If the Board identifies legitimate facilities management
    and oversight concerns, I would be happy to join my colleagues in
    appropriately addressing those concerns.
        In the meantime, I intend to send a letter to GAO asking for a
    review of how agencies estimate costs for major R&D construction
    projects and how they set and manage contingency. GAO should look first
    at how NSF does it, and then provide some comparison to how other
    agencies do the same things. Perhaps GAO can help settle this impasse
    at NSF.
        In closing, I hope we can keep our rhetoric and actions today
    measured and based on fact, and be clear that the issues to be
    considered, if we are serious, go far beyond one small environmental
    non-profit's use of its fee.
        With that I yield back.

        Chairman Loudermilk. So we are honored to have the presence
    of the Chairman of the full Committee with us here today, and
    so I now recognize the Chairman of the Science, Space, and
    Technology Committee, the gentleman from Texas, Mr. Smith, for
    an opening statement.
        Chairman Smith. Thank you, Mr. Chairman, and Mr. Chairman,
    also, congratulations on having the first hearing of the
    Oversight Subcommittee of the year, and I appreciate your
    leadership of the Subcommittee.
        I also want to say to the Ranking Member, I will be happy
    to join her in the letter that she referred to a couple of
    minutes ago.
        Mr. Chairman, this morning's hearing will focus on one of
    the National Science Foundation's largest major research
    facility projects, the National Ecological Observatory Network,
    or NEON Project. We are fortunate to have with us the Chief
    Operating Officer of the NSF, the Chief Executive Officer of
    NEON Incorporated, the nonprofit that manages the NEON Project,
    and a representative from the Congressional Research Service.
    Our witnesses will discuss the process for awarding, managing
    and overseeing this $433 million cooperative agreement between
    the NSF and NEON. Under this cooperative agreement, NSF has
    committed to pay up to $433 million to NEON for design,
    construction and initial operation of a national network of
    ecological sensors. The NEON project is the first of its kind,
    and it is also a huge public investment.
        To assure taxpayer money is spent appropriately and as
    efficiently as possible, NSF and NEON needed to work together
    closely. As we heard at the first NEON hearing, the Inspector
    General's independent audit of NEON's cost proposal identified
    more than $150 million in unsupported or questionable costs.
    Most or substantially all of these costs might have been
    resolved by NSF and NEON, but NSF simply went ahead and made
    the NEON award. A subsequent audit of NEON's accounting system
    revealed a number of inappropriate NEON expenditures, including
    lobbying, parties, and travel, all financed by the management
    fee NSF agreed to pay NEON for ordinary and essential business
    expenses. These expenditures were brought to our Committee's
    attention and to public attention by a whistleblowing auditor
    at the Defense Contract Audit Agency, which did both audits for
    the NSF IG.
        The results of the two independent audits and other
    information show there have been significant lapses in
    communications and financial controls for the NEON project. In
    the testimony we will hear today, NEON acknowledges that it has
    made some serious mistakes. For its part, NSF has already made
    some internal changes and has issued draft regulations to
    prevent expenditure of federal funds on expensive parties and
    other inappropriate activities.
        The basic responsibility of any government agency is to act
    in the national interest. I hope we can develop a solution,
    including the possibility of legislative action, so that this
    misuse of funds does not happen again. We must remember it is
    the people's money, not the government's money.
        This unfortunate situation illustrates the importance of
    adequate Congressional oversight of federal agencies. The NEON
    project's problems may have never been brought to light except
    for the interest and actions our Committee has taken.
        Thank you, Mr. Chairman, and yield back.
        [The prepared statement of Mr. Smith follows:]

       Prepared Statement of Committee on Science, Space, and Technology
                              Chairman Lamar Smith

        This morning's hearing will focus on one of the National Science
    Foundation's (NSF's) largest major research facility projects, the
    National Ecological Observatory Network, or NEON.
        We're fortunate to have with us the Chief Operating Officer of the
    NSF, the Chief Executive Officer of NEON Incorporated, the non-profit
    that manages the NEON Project, and a representative from the
    Congressional Research Service.
        Our witnesses will discuss the process for awarding, managing and
    overseeing this $433 million cooperative agreement between the NSF and
    NEON.
        To be clear, this is a cooperative agreement, not a grant, so the
    NSF and NEON should have worked closely together throughout the
    agreement to prevent what has occurred here.
        The NSF entered into an agreement with NEON to develop, construct
    and operate the project's network of sensors. This agreement was valued
    at over $400 million.
        An audit of NEON's cost proposal identified more than $150 million
    in unsupported or questionable costs. It also indicated that a ``fair
    and reasonable basis'' did not exist for NSF to enter into the
    cooperative agreement with NEON.
        But NSF did not wait for the audit results and went ahead and
    awarded the $400 million agreement to NEON.
        During a second audit of NEON's management, several highly
    questionable expenditures of taxpayer funds were discovered. This
    includes hundreds of thousands of dollars spent on lobbying, lavish
    parties, and liquor for office happy hours.
        Thankfully, Congress and the public were made aware of these
    questionable expenditures when a whistleblower came forward.
        This morning, I hope to hear why NEON concluded, for example, that
    spending $25,000 for a holiday party was an appropriate use of federal
    funds? And why did the National Science Foundation allow this to
    happen?
        The NSF must be held accountable for how they spend millions of
    taxpayers' dollars. Unfortunately, this appears to be another example
    of waste and misuse of taxpayer funds we've seen too often at the NSF.
        The basic responsibility of any government agency is to act in the
    taxpayers' interest. I hope we can develop a solution so that this
    misuse of funds does not happen again. We must remember that it is the
    people's money, not the government's money.

        Chairman Loudermilk. Thank you, Mr. Chairman.
        If there are Members who wish to submit additional opening
    statements, their statements will be added to the record at
    this point.
        At this point I ask unanimous consent that the following
    documents be entered into the record. We have an email, the
    letter to Senators Grassley and Paul as well as the National
    Science Foundation Business Systems Review. Without objection,
    we will have these entered into the record.
        [The information appears in Appendix II]
        Chairman Loudermilk. At this time I would like to introduce
    our witnesses today, and thank you for being here. We
    appreciate your attendance.
        Our first witness is Dr. Richard Buckius. Did I pronounce
    that correctly?
        Dr. Buckius. Perfect.
        Chairman Loudermilk. All right. Thank you. Dr. Richard
    Buckius, who is the Chief Operations Officer for the National
    Science Foundation. Thank you for being here.
        Our second witness is Dr. James Collins, who is the
    Chairman of the National Ecological Observatory Network
    Incorporated. As well, thank you for being here.
        And finally, our final witness is Ms. Kate Manuel. Is that
    right? All right. Who is a Legislative Attorney with the
    Congressional Research Service. Again, thank you for being
    here.
        Pursuant to Committee rules, all witnesses will be sworn in
    before they testify, and I understand that Ms. Martha
    Rubenstein--is that correct--Chief Financial Officer for the
    NSF, will be advising Dr. Buckius in answering questions on the
    record. Ms. Rubenstein, please also stand to be sworn in. So if
    I could have all the witnesses please stand and raise your
    right hand? Do you solemnly swear or affirm that the testimony
    that you are about to give will be the truth, the whole truth
    and nothing but the truth, so help you God? Let the record
    reflect that the witnesses answered in the affirmative. Thank
    you, and please be seated.
        In order to allow for discussion, please limit your
    testimony to five minutes. Your entire written statement will
    be made part of the official record.
        I now recognize Dr. Buckius for five minutes to present his
    testimony.

                   TESTIMONY OF DR. RICHARD BUCKIUS,

                        CHIEF OPERATING OFFICER,

                      NATIONAL SCIENCE FOUNDATION

        Dr. Buckius. Mr. Chair, Ranking Member and Members of the
    Subcommittee, thank you for the opportunity to testify today.
    My name is Richard Buckius. I am the National Science
    Foundation's Chief Operating Officer, a position I assumed just
    in the fall of 2014.
        As you have just been told, Marty Rubenstein, a colleague,
    is the Chief Financial Officer at NSF, and she will be joining
    me later to answer the questions and answers.
        The objective of my oral comments are to address your
    specific questions and to focus on moving forward to improve
    NSF's processes related to our major research facilities.
        To make two important context points before I answer the
    questions you have raised, the National Science Foundation
    supports fundamental research in the frontiers of knowledge
    across all fields of science and engineering primarily through
    financial assistance awards. That is, our grants and
    cooperative agreements. The NSF Act of 1950 expressly focuses
    NSF investments on extramural research, prohibiting direct
    operations of laboratories. It makes us different than some of
    our sister agencies.
        The Federal Grant and Cooperative Agreement Act helps
    determine the mechanisms that NSF uses for its awards. The
    cooperative agreements are used if substantial involvement is
    expected by the awarding agency beyond that of routine
    monitoring and technical assistance. We use this mechanism to
    allow the scientific justifications, designs and specifications
    to be prepared by the science and engineering community to
    permit NSF's involvement in overseeing the scientific progress
    and investments, and to provide NSF the flexibility to address
    emerging needs of science and engineering communities.
        Second, the management of major research facilities such as
    NEON is of critical importance to the Foundation. As you will
    hear from Dr. Collins, this is a one-of-a-kind continental-
    scale research instrument consistent of geographically
    distributed cyber-enabled networks of sensors and biological
    instruments. NSF relies on outside groups such as NEON
    Incorporated to build, manage and operate these unique
    scientific facilities. Management fees allow these groups to be
    viable and are an important tool for the stewardship of
    taxpayers' dollars. Taxpayers, NSF, the scientific community
    and the Nation would be ill served if these groups struggle
    financially or if they fail.
        NSF acknowledges that some of the activities that NEON
    Incorporated engaged in using the management fees showed poor
    judgment even if they are not in violation of any law or
    regulation governing the use of these funds. The Foundation has
    learned a number of lessons about the governance of large
    facilities' management fees due to this event and has put in
    place significantly tighter oversight.
        Now to your questions. First, like all federal agencies,
    NSF embraces organizations only for--excuse me--reimburses
    organizations only for costs incurred under federal awards that
    are determined to be allowable, allocable and reasonable under
    federal cost principles. NSF has controls in place to prevent
    the reimbursement of costs that are unallowable under federal
    cost principles. NSF has strengthened requirements set forth by
    the agency's large facilities manual for prospective large
    facility awardees to provide adequate documentation for cost
    estimates and through gateway reviews of these projects.
        Second, regarding use of management fees, as you have
    heard, GAO has concluded that the use of management fees for at
    least some non-reimbursable expenses incurred by nonprofit
    organizations represent legitimate needs of the organization
    and they benefit the U.S. government. Although the payment of
    management fees has been a longstanding, legally permissible
    practice at NSF and other agencies, guidance on those fees,
    either government wide or at NSF, has not been as clear as we
    need, and enhanced procedures to monitor its use need to be put
    in place. To this end, I have asked our Chief Financial Officer
    to work aggressively to complete new policy implementations
    that will provide specific guidelines on the use of management
    fees and implement controls to monitor the actual management
    fee used by awardees to ensure that it is consistent with the
    intended purposes.
        These proposed new policies have recently been published in
    the Federal Register, and NSF is moving forward with
    implementing their use and evaluating these fee requests.
        And finally, the contingency cost estimates. NSF is fully
    compliant with the Office of Management and Budget guidance on
    the use of contingency fees estimates including when such
    estimates may be included in financial assistance awards. This
    guidance has recently been clarified by OMB and follows
    industry and government best practices on the construction of
    large facilities. NSF's strengthened requirements for cost
    estimates at gateway reviews incorporate these best practices.
        Mr. Chair, although NEON Incorporated used the management
    fees in technically permissible under NSF's awards, NSF shares
    the Committee's concerns on the use of management fees. We have
    used the situation to clarify our policies and procedures in
    awarding the oversight of such fees. It is only through the
    strong support of the IG, our Inspector General, and the
    Congress that complete oversight of taxpayer resources can
    ultimately be achieved, and we appreciate the support.
        Again, thank you for the opportunity to testify. The NSF
    CFO and I look forward to your questions.
        [The prepared statement of Dr. Buckius follows:]

        [GRAPHIC] [TIFF OMITTED]

        Chairman Loudermilk. Thank you, Dr. Buckius.
        I now recognize Dr. Collins for five minutes to present his
    testimony.

                   TESTIMONY OF DR. JAMES P. COLLINS,

                               CHAIRMAN,

                NATIONAL ECOLOGICAL OBSERVATORY NETWORK

        Dr. Collins. Distinguished Chairwoman Comstock and Chairman
    Loudermilk, Ranking Member Johnson and Members of the Committee
    on Science, Space, and Technology, my name is Dr. James
    Collins. I serve as Chairman of the Board of Directors of NEON
    Inc., a 501(c)(3) corporation established to implement NEON, or
    the National Ecological Observatory Network Project. The
    project is supported by the NSF. From 2005 to 2009, I served as
    Assistant Director for Biological Sciences at the National
    Science Foundation. Since 2010, I have had no formal
    affiliation with the agency.
        I appreciate the opportunity to come before this Committee,
    which has taken the lead in Congress in ensuring that the
    United States remains the standard-bearer in cutting-edge
    scientific research. We appreciate very much that this
    Committee has been a strong supporter of NEON from its
    inception.
        As many of you know, NEON is an advanced research
    infrastructure for the study and analysis of the biosphere on a
    regional to continental scale. Living systems are experiencing
    some of the greatest rates of alteration caused by multiple
    changes in the environment. These changes affect biodiversity,
    air quality, water resources, agriculture, and other goods and
    services that healthy ecosystems deliver to humans.
    Understanding how these changes impact our natural resources
    requires a fully integrated, multi-scale research
    infrastructure to detect, understand, and forecast changes. The
    data sets collected by NEON will allow us to understand, at an
    unprecedented level of detail, the impacts of large-scale
    environmental changes on our ability to sustainably meet
    society's food, fiber, energy, and water needs.
        Moreover, NEON is not only an essential investment for
    continued U.S. scientific leadership, but it also helps fuel
    our Nation's long-term competitiveness and innovation by
    advancing basic and applied ecological research.
        You have asked that I address three specific topics in my
    testimony. The first two are ``reimbursement for unallowable
    costs'' and ``terms, conditions, and use of management fees.''
    Because I am not a lawyer, I will not attempt to delve deeply
    into the legal issues relating to unallowable costs and
    management fees, which are better addressed by the NSF in any
    event. But let me offer the following.
        My understanding is that, under OMB regulations,
    unallowable costs are those costs of a business that are not
    allowed to be charged either as a direct cost or an indirect
    cost to a federally funded project. These costs generally
    include normal business costs such as fees for termination of
    contracts, late fees, and general advertising costs. Costs
    associated with government outreach, alcohol, and social events
    are also deemed ``unallowable.'' Unallowable costs cannot be
    paid with appropriated funds and must be paid by other funds of
    the organization.
        NEON has received a management fee from the NSF for the
    management of the NEON project since 2009. It is our
    understanding that OMB has long held that fees in the case of a
    nonprofit like NEON or profit in the case of a private business
    are not considered appropriated funds and are outside the scope
    of OMB Circular A-122 and the Byrd Anti-Lobbying Amendment.
        NEON has used management fees to cover a variety of costs
    including those associated with contract termination, late fees
    and other normal business expenses. NEON has also used
    management fees to cover costs associated with government
    outreach, providing amenities including coffee for its
    employees, and meals and social functions that included the
    purchase of alcohol. We are aware that NSF is proposing to
    establish a new policy that would prohibit the use of
    management fees for these aforementioned categories. Let me say
    that we understand the NSF's desire to change its policy
    relative to management fees and we appreciate the Committee's
    concerns with these types of expenditures.
        In retrospect, we could have done better when it came to
    determining how to spend management fees. Moving forward,
    regardless of what the law allows, NEON will not seek
    management fees for the expenses that NSF proposes to prohibit,
    including expenditures for alcoholic beverages and government
    outreach. Indeed, NEON has already implemented the restrictions
    that the NSF has proposed.
        The third issue you asked us to address is ``calculation
    and use of contingency cost allowances.'' NEON is supported via
    a cost-reimbursable assistance award between the NSF and NEON
    Inc., which means that NEON maintains a contingency pool fund.
    NEON developed a contingency cost proposal consistent with the
    NSF's Large Facilities Manual. NSF's guidelines include levels
    of reporting, approval, and review. NSF awarded NEON
    contingency funds consistent with its proposal.
        Let me conclude by pledging going forward to redouble our
    efforts to be good stewards of the taxpayers' funds we receive.
    We owe as much to the American people and will do what it takes
    to retain their trust, and yours.
        Thank you, and I welcome your questions.
        [The prepared statement of Dr. Collins follows:]

        [GRAPHIC] [TIFF OMITTED]

        Chairman Loudermilk. Thank you, Dr. Collins.
        I now recognize Ms. Manuel for five minutes.

                     TESTIMONY OF MS. KATE MANUEL,

                         LEGISLATIVE ATTORNEY,

                     CONGRESSIONAL RESEARCH SERVICE

        Ms. Manuel. Thank you. Chairmen, Ranking Members and
    Members of the Subcommittees, I am Kate Manuel and I am a
    Legislative Attorney with the Congressional Research Service. I
    am honored to be testifying before you today on CRS's behalf
    about certain issues pertaining to the National Science
    Foundation's use of cooperative agreements.
        As requested, my testimony provides background information
    on three topics: when agencies may use cooperative agreements
    and other types of contractual agreement instruments, the
    allowability of costs under government contracts, and the
    traditional distinction between fees and costs.
        First, as to the use of cooperative agreements and other
    types of instruments, under federal law, executive agencies
    generally must use cooperative agreements when their principal
    purpose is to transfer something of value to a non-federal
    entity to carry out a public purpose of support or stimulation
    authorized by federal law, and the agency expects to have
    substantial involvement with the non-federal entity in carrying
    out this activity. Grant agreements have the same principal
    purpose but must generally be used when the agency doesn't
    expect to have substantial involvement with the non-federal
    entity.
        Procurement contracts, in contrast, generally do not have
    the principal purpose of transferring something of value but
    instead are typically used to acquire property or services for
    the direct benefit or use of the federal government. All three
    types of instruments could potentially constitute contracts as
    that term is generally understood. The relevant agreement
    between NSF and NEON appears to have been denominated a
    cooperative agreement.
        Second, as to allowability, allowability is a core concept
    in compensating the government's partners under legal
    instruments that do not involve the payment of solely fixed
    prices or amounts. For a cost to be allowable, it must, among
    other things, be reasonable or not exceed in its nature or
    amount that which a reasonably prudent person would incur under
    the circumstances. It must also be allocable or involve
    supplies or services that are chargeable or assignable to the
    federal award or cost objective in accordance with the relative
    benefits received. In addition, the costs must generally
    conform to certain limitation or exclusions set forth in the
    applicable guidelines or regulations or in the agreement
    itself.
        As to the three main types of cost discussed in relation to
    the NSF Neon agreement, the relevant guidelines and regulations
    provide that the cost of alcoholic beverages are unallowable.
    The cost of entertainment has historically been unallowable but
    now may be allowable in certain narrow circumstances, and the
    cost of specified lobbying activities are unallowable while
    other activities are permitted. However, certain provisions of
    law or policy guidance could be construed to mean that agencies
    may allow particular costs in individual agreements that would
    not necessarily be allowable under the standard guidelines or
    regulations.
        Third, and finally, as to fees, fees are potentially
    distinguishable from costs. Fees are arguably best known in the
    context of federal procurement contracts since the Federal
    Acquisition Regulation, or FAR, expressly authorizes the
    payment of fees as an allowance for profit to contractors
    working under certain types of contracts. The FAR does not
    specifically address the management fees reportedly provided
    for in the NSF NEON agreement. Similarly, there are no
    provisions in the relevant OMB circular or regulations or in
    the NSF's proposal and award policies and procedures guide that
    appear to address management fees in those terms. However, the
    NSF guide does provide the payment of fees or profit generally
    is permissible if expressly authorized by the terms and
    conditions of the award and neither it nor the relevant OMB
    circular or regulations would appear to expressly bar the
    payment of management fees under cooperative agreements.
        As a matter of historical practice, some agencies have paid
    management fees as distinct from costs in the past. However,
    other agencies have expressly indicated they wouldn't provide
    management fees at least to for-profit entities. It should also
    be noted that the characterization of something as fees or
    costs in a contract by the parties would not necessarily be
    dispositive if the overall agreement evidenced a contrary
    intent.
        This concludes my oral statement for today. I appreciate
    the opportunity to appear before you and look forward to
    answering any questions you may have. Thank you.
        [The prepared statement of Ms. Manuel follows:]

        [GRAPHIC] [TIFF OMITTED]

        Chairman Loudermilk. Again, I thank the witnesses for their
    testimony, and members are reminded that the Committee rules
    limit questioning to five minutes. With that, the Chair
    recognizes myself for five minutes for questions.
        Dr. Buckius, as I mentioned in my opening statement, the
    NSF's letter to Senators Grassley and Paul indicates that 15 of
    your active awards use management fees. The NSF also notes in
    that letter that six of those awardees excluding NEON have
    received almost $5 million in fees.
        I appreciate that you acknowledge that there may have been
    poor judgment used in those fees and that some controls are
    being put into place, but I am wondering how much of that $5
    million for management fees was spent on liquor, lobbying and
    parties and other typically unallowable items.
        Dr. Buckius. So we have written to all of the six that you
    have referred to and asked them to report back to us on their
    use of their management fees, so it is not going to be possible
    for me to answer that question specifically at this particular
    time, although we are going to monitor that.
        Chairman Loudermilk. If NEON has been spending taxpayer
    money under management fees for these type of expenditures--
    liquor, lobbying--without any apparent knowledge or oversight
    from NSF, how are we to know that other awardees are not doing
    the same thing with those? Is that what your report that you
    are looking to find out with the inquiry that you have done to
    these other awardees?
        Dr. Buckius. So as you have just heard from Ms. Manuel,
    these are perfectly legitimate, I would argue poor judgment,
    purchases. We are now writing to them all to figure out exactly
    how they have used it. We just don't have that answer at this
    point in time.
        Chairman Loudermilk. And I appreciate your forthrightness
    there, and as you said, there is a lot of times a difference
    between what is technically legal and what is acceptable or
    right to do.
        Do you anticipate, are there going to be consequences or
    have there been any consequences for those that you are aware
    of?
        Dr. Buckius. Well, because of what you have just been told
    by Ms. Manuel, since they are legal, the only thing we can do
    is not provide the next management fee, which is what we did in
    the case of NEON. Once we found this out, we no longer approved
    their next request, so that is our technique in order to be
    able to manage this.
        Chairman Loudermilk. Further, if the NSF's proposed rule,
    it indicates that NSF is strengthening the controls, as you
    have mentioned that you are doing, it may be necessary to
    ensure that the user fees are consistent with those established
    criteria. The statement presupposes that there were already
    controls in fact in this letter to Senators Grassley and Paul
    when discussing management fees. NSF states, given that the
    fees awarded are discretionary funds, NSF does not require that
    its awardees report how these monies are expended. Thus, we do
    not require that the awardees submit an accounting of how they
    may cover otherwise unallowable costs with the management fee.
        Since we are talking about taxpayer money that the NSF has
    awarded, why in the world would you not require awardees to
    submit an accounting of how they are spending that money?
        Dr. Buckius. So your first statement is exactly correct as
    we wrote to the Senators. We did not ask them to account for
    that for all the reasons that we have just discussed, as Ms.
    Manuel has indicated in the case of such fees. What we do is,
    we ask them at the origination to give us their intent, okay.
    In the case of the NEON project, the intent was very explicit.
    It said meals, it said government outreach, all of which would
    benefit them in their endeavor. So my point is, is that we did
    everything that we could within the restrictions that we had.
        Chairman Loudermilk. With that, and as we have addressed
    already that there may have been some poor judgment used,
    should we be surprised since they did not have to account to
    you for the monies that were expended, are we to be surprised
    that they were used in poor judgment for things such as holiday
    parties?
        Dr. Buckius. So specifically, so let's take the government
    outreach one. In the case of the 2008 management fee
    description, here is what they said. NEON anticipates the need
    to provide education to various government organizations as to
    NEON's mission, strategy and requirements. That is a perfectly
    viable thing to use a management fee for, something that we
    would want them to do. Now, what they did, we thought was in
    very poor judgment, okay? It wasn't consistent with what I
    would have thought that they would have done, but when we gave
    them the management fee, they gave us an indication of what
    they were going to do with it, and we assumed that they would.
        Chairman Loudermilk. Well, to follow up on that, so $25,000
    on a Christmas party was outside of what the NSF would have
    expected NEON to use the money for. Is that what you are
    saying?
        Dr. Buckius. Again, I would say that is poor judgment, and
    to reiterate what I did say, we have posted in the Federal
    Register for comment various items that we think should not be
    included in any future management fees, and we are open to
    listening to folks to provide us this kind of information so
    that we are spending the taxpayers' money in the way that we
    want.
        Chairman Loudermilk. Thank you. The Chair now recognizes
    the gentlelady from Texas, Ms. Johnson.
        Ms. Johnson of Texas. Thank you very much.
        Dr. Buckius, I have listened to your testimony, and I think
    you have answered most of the questions. I am going to ask the
    question for reiteration.
        The IG's recommended methods would also be an acceptance
    within the guidance, I suppose, and so it would seem to me that
    even though this could be labeled poor judgment, there is
    nothing about it that has been illegal.
        Dr. Buckius. That is a true statement.
        Ms. Johnson of Texas. And this appears to be a common
    practice across the government.
        Dr. Buckius. I can't comment on that. I hope not.
        Ms. Johnson of Texas. But--and I know that the IG's
    recommendations or methods, would also be in compliance with
    what you are dealing with now. The IG's seem to differ some,
    but at the end of the day, who sets the policy at NSF? Is it a
    director and the board or is it the Inspector General?
        Dr. Buckius. So I guess officially it would be the
    director. Obviously the way NSF functions, we work very closely
    with the National Science Board, so I would assume that there
    is going to be a give and take to ensure that, but it is the
    agency that sets down these policies. The IG, as we all know,
    ensures and checks to ensure that we are all spending taxpayer
    money the way it should be spent.
        Ms. Johnson of Texas. Can you briefly describe the efforts
    at NSF to accommodate the IG's concerns about the risk in cost
    estimating and contingency?
        Dr. Buckius. Okay. So contingencies can be estimated in a
    number of different ways. The way we chose to do it is based
    upon a broadly accepted cost-estimating methodology. So this is
    not money that can be spent any way that they choose. There is
    a very specific layout of items that can be considered that you
    can't necessarily predict exactly how it is going to come out.
    That the principles that we use.
        The IG would prefer that we use audits, and the audit that
    was referred to earlier was done and we received the
    information after we had made the award. That is a very
    important piece of information. So we made the award, and then
    the audit tells us that we should have done some reviews
    otherwise. Our estimating procedures are just different. I
    would argue as good as but different.
        Ms. Johnson of Texas. Thank you. Now, our research found
    that the federal government that--the practice in federal
    government goes back to the Bell Report in 1962, and to the
    degree that OMB even addresses fees or profit, it appears that
    OMB treats that money as the recipient's funds and not
    government money.
        Dr. Buckius. Correct.
        Ms. Johnson of Texas. My time is limited, but I would like
    you, Dr. Buckius, and Dr. Collins, if you would comment on, are
    you confident that the way the fees were spent by NEON does not
    represent a violation of law?
        Dr. Buckius. Specifically, it does--it is not a violation,
    okay? Again, I would use the words ``poor judgment,'' okay, but
    not a violation.
        Ms. Johnson of Texas. Thank you. Dr. Collins?
        Dr. Collins. That is correct. It is not a violation of the
    OMB circular and guidance that NEON received.
        Ms. Johnson of Texas. Thank you very much.
        Thank you, Mr. Chairman. I yield back.
        Chairman Loudermilk. The Chair recognizes the Chairwoman
    from Virginia, Mrs. Comstock.
        Mrs. Comstock. Good morning. Thank you, Mr. Chairman.
        Certainly, we all want to be and are strong advocates for
    science and scientific research, so the situation today and
    what we are discussing is really our concern about, you know,
    not having problems like this, you know, that are public and
    the taxpayers see how their money is spent and then having that
    concern that it is not going to the very basic research and the
    things that we want it to, so I think--I certainly think my
    colleagues here, we want to have this discussion so that, you
    know, every dollar we are putting towards this important effort
    is going to the vital research that we need, so I appreciate
    while there may not be legal problems, as you all have
    indicated, it is poor judgment, and I appreciate that that has
    been recognized.
        And so I did want to--I had some questions here that we
    wanted to establish for the record that the independent Open
    Secrets website, it said NEON had paid at least $375,000 to
    registered lobbyists between 2010 and 2014. Would you be able
    to confirm that?
        Dr. Buckius. I can't confirm that, but again, for the
    reasons we said, since it is a management fee, it is
    permissible.
        Mrs. Comstock. Okay, you know, and I understand----
        Dr. Buckius. I absolutely agree with everything you just
    said, okay. We need to spend taxpayer dollars on science and
    engineering. That is the goal of the Foundation, and so I
    completely support all of your comments.
        Mrs. Comstock. Okay, and Dr. Collins.
        Dr. Collins. I would have to check for the specific number
    with our financial people but I know that it is in that area.
        Mrs. Comstock. Okay, and we can submit for the record, Mr.
    Chairman, some records from the OpenSecrets.org, which do
    indicate $375,000, but if there is a correction that any of the
    witnesses would like to make, we could also include that in the
    record.
        Could you explain the process in terms of hiring the
    lobbyists and what they were engaged to do?
        Dr. Collins. Well, I was not involved in the hiring of the
    lobbyists as chairman of the board now, was not chairman at
    that particular time, but the engagement had to do, as had been
    described earlier, with retaining a group of individuals who
    could work as far as NEON is concerned to especially help
    educate Congress as far as what the NEON Project was about so
    that you would have the very best information in terms of
    making decisions that you needed to make.
        Mrs. Comstock. I know, and I think that is the concern we
    have because I know in instances when I was in the state
    legislature, we would give money to one body, then they would
    want to spend money on lobbyists to come back and lobby us for
    more money, and so spending taxpayer money to ask us for more
    taxpayer money I think is a frustration here that we have
    instead of having it go to the research because as we are
    evaluating this and giving the money to NSF, it is because we
    do value that research so you can--you know, you can come as an
    entity, others can come, citizens can come inform us of this,
    and that is our responsibility to understand that important
    thing rather than have outside lobbyists come and tell us what
    we are already tasked to do for the taxpayers.
        So I am glad that that policy will be changed and you
    understand that the poor judgment of that, and I do think that
    unfortunately this happens across the government in a lot of
    ways, and I know in the case when we were in the state
    legislature when that came to us, we stopped that and we said,
    please, just come to us, talk to us about this directly, you
    know, we are already your advocates, and we want to be your
    advocates to have more basic research money but you make our
    job more difficult when these kind of things happen and then
    taxpayers look and say well, gee, you took our money but it is
    now going not to that basic research but to the lobbyists.
        So I would appreciate if we could, you know, maybe have any
    of the letters of engagement or information that you could
    provide for what they were tasked with and just sort of what
    the thinking is there so that maybe we can look at other areas
    of research where that kind of thing is going on where we maybe
    want to do what you all are doing now, which is putting a stop
    to that, recognizing that that makes our jobs as advocates more
    difficult.
        So I believe I am running out of time here, Mr. Chairwoman,
    so I will yield back my few seconds here.
        Chairman Loudermilk. The gentlelady has yielded back.
    Chairman Comstock also asked that certain records she
    referenced be added to the official record, and without
    objection, I ask unanimous consent that the documents be added
    to the official record.
        [The information appears in Appendix II]
        Chairman Loudermilk. At this time I recognize the gentleman
    from Florida, Mr. Grayson.
        Mr. Grayson. Thank you, Mr. Chairman.
        Ms. Manuel, stop me if I am wrong, all right? Among
    government contracts, arrangements like this in general, there
    are firm, fixed-price contracts and there are cost-
    reimbursement contracts, correct?
        Ms. Manuel. That is one of the ways, the taxonomies in
    which people talk about contracts, yes.
        Mr. Grayson. All right. And among the types of cost-
    reimbursement contracts, there are cost-plus fixed fee
    contracts and cost-plus other kinds of fee contracts. Is that
    correct?
        Ms. Manuel. As to procurement contracts, yes.
        Mr. Grayson. All right. And the general breakdown, the
    distinction that is made in that case is between costs and fees
    of various types. Is that correct?
        Ms. Manuel. That is correct.
        Mr. Grayson. All right. Now, costs have to be allowable,
    allocable and reasonable, correct?
        Ms. Manuel. That is correct.
        Mr. Grayson. But not fees, right?
        Ms. Manuel. No. If you are talking about the procurement
    contracts, you know, there, specifically, the fees have to be
    earned pursuant to the terms that are set forth in the
    contract.
        Mr. Grayson. All right. So when we talk about--when we are
    talking about the allowability of costs, we are talking about
    the allowability of costs, right, not the allowability of fees?
    That is a meaningless term, correct?
        Ms. Manuel. As a general matter, that would be true. I
    mean, I can't say that there could never be a contract that
    purported to blur the two, but in general, that would be the
    distinction.
        Mr. Grayson. All right. But this wasn't one of those blurry
    contracts, right? This contract provided for costs and for a
    fee, right?
        Ms. Manuel. That is my understanding, yes.
        Mr. Grayson. Okay. So we are talking about at this point
    whether $25,000 for a Christmas party, $11,000 for coffee
    services, $3,000 for dinners, $3,000 for tee shirts and other
    apparel, and $112,000 for lobbying contracts could be spent as
    a fee, as part of a fee that the company received, not as part
    of its allowable costs, correct?
        Ms. Manuel. That would appear to be the distinction that
    was made between there were--there were the things that were
    cost and were judged in terms of their allowability and then
    there was a separate management fee, and insofar as that is a
    true fee, that would not be subject to the rules regarding the
    allowability of cost.
        Mr. Grayson. All right. So in essence, there are few, if
    any, restrictions under existing law for what you do with you
    fee. It is money in your pocket, right?
        Ms. Manuel. That would generally be correct, yes.
        Mr. Grayson. Okay, and we don't generally dictate to people
    how they spend their own money, right? It is not a trick
    question. It is pretty basic.
        Ms. Manuel. Well, we are CRS. I am trying to think neutral
    and unbiased. I think that would generally be the case, yes.
        Mr. Grayson. Okay. So are not going to normally engage in a
    war on Christmas here and tell people they can't spend their
    own money on Christmas parties, right?
        Ms. Manuel. Insofar as nothing in the contract, you know--
    it is denominated a fee and nothing in the contract purports to
    restrict or what other law purports to restrict how they use
    their fee.
        Mr. Grayson. Okay. By the say, I am sending this clip to
    Bill O'Reilly, just so everybody is aware.
        Listen, when Boeing gets a fee, Boeing gets a fee under
    many different government contracts, and in fact, earns profits
    under non-government contracts. Is that correct?
        Ms. Manuel. That is correct.
        Mr. Grayson. And have you heard the phrase ``money is
    fungible''? Is that a phrase you have heard before?
        Ms. Manuel. Yes.
        Mr. Grayson. Okay. So what does that mean exactly, money is
    fungible?
        Ms. Manuel. It is going to mean there that once Boeing has
    earned its fee, it doesn't matter whether it was, you know,
    when Boeing is spending it that it was money that it got from
    the government or from some other source.
        Mr. Grayson. All right. So what that means in essence is
    that since money is fungible, when a company, a human being,
    any entity receives cash and it is mixed in with other cash, it
    becomes basically untraceable at that point. Money is money. It
    is all green, correct?
        Ms. Manuel. That is correct.
        Mr. Grayson. All right. So when we try to actually trace
    what happens to fees, we are doing something that is basically
    difficult, if not impossible, because money is fungible, right?
        Ms. Manuel. Insofar as you were talking about a true fee
    and something like the fees under the procurement contracts,
    then yes.
        Mr. Grayson. All right. The reason why I am asking these
    questions and the reason why I am asking this way is because I
    don't want this Committee to become a scold. I don't want us to
    be taking it upon ourselves to investigate whether people drank
    alcohol at specific meals or whether they had a Christmas
    party.
        I have a larger, bigger view of science and technology than
    that. I think of the sky and the stars, and I think of fusion
    power, and I think of all of the magnificent accomplishments
    that science has brought to us as a species, as human beings,
    and I don't want to be dragged down into the point where I am
    looking around and saying I am shocked, shocked that gambling
    is taking place in this establishment like in the movie
    Casablanca. I think we should aim higher than that. Thank you.
        Chairman Loudermilk. The Chair now recognizes the gentleman
    from Ohio, Mr. Johnson.
        Mr. Johnson of Ohio. I thank you, Mr. Chairman, and I thank
    the panel for being with us today.
        What we are talking about today is the responsible use of
    taxpayer dollars. I appreciated my colleague, Mr. Grayson's
    line of questioning. He said--if I am correct, he said we can't
    tell people what to do with their own money. Well, this is not
    their own money. This is the hard-earned tax dollars of
    millions of American people that are filling the coffer and we
    are talking about accountability on the use of that money and
    we are talking about transparency so the American people can
    see how that money is being used.
        Dr. Buckius, in the NSF's proposed rule, it specifically
    lists a number of items including alcohol and non-business
    travel, non-business meals, luxury or personal items, and
    lobbying as examples of expenses that do not benefit NSF.
    Surprisingly, especially given the abuses by NEON, the NSF does
    not prohibit the use of management fees for these federally
    unallowable expenses. In your written statement, you indicate
    that management fees are not to be used for such purposes but
    the NSF proposed rule doesn't explicitly prohibit. Why are
    these expenditures not explicitly prohibited in NSF's proposed
    rule?
        Dr. Buckius. So are you referring to the past or future? So
    you have just been told that it is perfectly legitimate to----
        Mr. Johnson of Ohio. I am not talking about what is legal.
    I am talking about your proposed rule.
        Dr. Buckius. Okay. So what we are going forward with is a
    policy that will ensure that these things----
        Mr. Johnson of Ohio. Does the proposed rule explicitly
    prohibit the use of those things that you have indicated that
    are not appropriate?
        Dr. Buckius. It is proposed, remember. We are still taking
    comment on it.
        Mr. Johnson of Ohio. Does it explicitly prohibit and do you
    think it should?
        Dr. Buckius. Two different questions. I do----
        Mr. Johnson of Ohio. Well, let us answer the second one
    first because that is the easy one.
        Dr. Buckius. I think----
        Mr. Johnson of Ohio. Do you think it should?
        Dr. Buckius. I think it should.
        Mr. Johnson of Ohio. Okay. Well, great. Well, then let's
    discuss accountability for the use of management fees.
        I have here an email from Timothy P. Kashmer of NSF to Tom
    Sheldon at NEON on January 8, 2009, and Mr. Chairman, I would
    ask that that be entered into the record. And Mr. Kashmer says,
    ``There is no rule or requirements for drawing down management
    fees for assistance awards. These are unauditable fees.''
        So do you agree that no one should be surprised that NEON
    used management fees as it did? By deeming the fees unauditable
    and informing NEON that there are no rules for their use, did
    NSF essentially signal NEON that it had carte blanche to use
    the fees in any way that they desired?
        Dr. Buckius. No, that is not true. So they proposed uses
    for the management fees that did not include the things that
    you just referred to, and we provided them management fees to
    do that. They went ahead and used it for things that were not
    in the list.
        Mr. Johnson of Ohio. On what basis do you think then it
    would be appropriate to conclude that the management fee is
    unauditable? I mean, is all NSF funding appropriated by
    Congress?
        Dr. Buckius. I am not a lawyer. I can't answer that one.
    Maybe--I guess the answer is yes.
        Mr. Johnson of Ohio. And is any of the money that is
    appropriated or that Congress gives to NSF, is any of it not
    appropriated?
        Dr. Buckius. I am sorry.
        Mr. Johnson of Ohio. My question is, how then, if this is
    appropriated money, how does it magically turn into non-
    appropriated money that is not subject to be audited?
        Dr. Buckius. Okay, Marty, you're going to have to answer
    this one.
        Mr. Johnson of Ohio. You can't do that by policy, I don't
    think.
        Dr. Buckius. But this is a fee. This is a management fee,
    and it has all of the----
        Mr. Johnson of Ohio. But it is appropriated money, correct?
        Dr. Buckius. Yes.
        Mr. Johnson of Ohio. Okay, and it is my understanding, Ms.
    Manuel, isn't all appropriated money from Congress subject to
    being audited?
        Ms. Manuel. I don't know about auditing per se but I do
    know with federal procurement contracts that contract--it is
    appropriated money that goes out the door in fees, and the
    general rule there has been that it is the contractor's money
    once they have earned the fee.
        Mr. Johnson of Ohio. Okay. All right.
        Dr. Buckius, do you agree that regardless of a loophole in
    the law, that the use of taxpayer money on alcohol--and I think
    you have already said this--entertainment, lobbying is an
    unreasonable and inappropriate waste of taxpayer funds?
        Dr. Buckius. Our policy going forward after we receive
    comment will hopefully tell or have items in it that we would
    not want our grantees to be doing, and they include the things
    that you had previously listed.
        Mr. Johnson of Ohio. Dr. Collins, what do you think?
        Dr. Collins. I would make the same point, that I did not
    agree with the way in which the funds were spent at that time,
    and going forward, we have already put policies in place that
    are consistent with your point.
        Mr. Johnson of Ohio. Okay. Thank you, gentlemen and ma'am,
    for answering my questions.
        Mr. Chairman, I yield back.
        Chairman Loudermilk. The gentleman yields back. The
    gentleman also has documents that he would like entered into
    the official record, and I ask unanimous consent that the
    documents be entered into the official record. Without
    objection, they are entered.
        [The information appears in Appendix II]
        Chairman Loudermilk. I now recognize the gentleman from
    California, Mr. Bera.
        Mr. Bera. Thank you, Mr. Chairman. Thank you Ranking
    Member, and thank the witnesses for being here.
        I think we all agree that one of our core jobs and
    responsibilities as Members of Congress is to make sure we are
    stewards watching the use of taxpayer revenue. I think we agree
    there.
        From my perspective, the conversation here is about proper
    use of management fees versus the program goals of NSF and
    NEON, and I want to be very clear that I think most of us on
    the Science Committee, you know, many of us in the Minority
    clearly value the importance of NSF research and clearly
    understand the importance of programs and projects like NEON,
    which are incredibly important, particularly as the planet is
    changing, as biodiversity is changing. We have to be doing this
    research. I mean, in my home State of California, we are seeing
    rapid change to the environment. We are seeing record droughts
    that are dramatically affecting the biosphere. So again, this
    hearing is not about looking at NSF as a program and the value
    of that science or looking at the importance of programs like
    NEON, so let us be very clear that from my perspective, these
    are incredibly important programs.
        That said, you know, when we--you know, I think in Dr.
    Buckius's opening statement, everyone can acknowledge that
    there may have been some inappropriate use of management fees,
    and on a looking-forward basis, you look back, you audit, you
    get a sense of where may have fees been used inappropriately,
    not breaking the law but perhaps lacking good judgment, and in
    an environment where folks are paying attention to how we are
    using the taxpayer revenue, Dr. Buckius, it is my understanding
    that again looking forward, analyzing how the funds were used
    in the past, NSF is rewriting the rules, rewriting the policy
    on what is appropriate use of management fee versus not
    appropriate use of management fees. Is that correct?
        Dr. Buckius. That is absolutely the case. We want to make
    sure, as I have said a number of times, that the taxpayer
    dollars are serving this country's interest in science and
    engineering and therefore we believe management fees are
    appropriate in order to make these kinds of efforts like NEON
    functional but we don't want them to be done--or to be expended
    in a way that doesn't really directly benefit the outcome of
    the research that we are trying to fund.
        Mr. Bera. And if I play off the testimony of my colleague
    from Florida, Mr. Grayson, NEON is not the only program in the
    federal government that has appropriated funds that also then
    have management fees in there. So as we are looking at a single
    program, is it appropriate--NSF is one of the first agencies
    that is looking at developing policy on the appropriate use of
    management fees versus not appropriate.
        Dr. Buckius. I can't answer for other agencies. I bet they
    are looking at them too. But yes, we are looking through all of
    our large projects like this one in order to make sure that we
    are all again investing in the right way.
        Mr. Bera. So again, as we redefine what is appropriate use
    of the fee, let us not limit this look just to a single agency
    and a single program like NEON. You know, as Mr. Grayson
    pointed out, you know, Boeing, you know, other energy
    companies, et cetera gets lots of appropriated federal dollars,
    and I guess Ms. Manuel, in most of those awards and
    appropriated funds, is it accurate to say that there are
    management fees that are part of this?
        Ms. Manuel. If you are looking at something like Boeing,
    those are generally procurement contracts and they are not
    denominated management fees. They are known as some other type
    of fee.
        Mr. Bera. Okay, but they are fees?
        Ms. Manuel. That is correct.
        Mr. Bera. And there is no federal oversight over how those
    fees are utilized?
        Ms. Manuel. The primary sort of control, if you will, is
    that the contractor has to have earned the fees pursuant to the
    terms of the contract.
        Mr. Bera. Okay. But once they earn those fees, they are
    free to use them however they want?
        Ms. Manuel. That is correct.
        Mr. Bera. Again, what I would suggest is that we don't
    narrow in and focus in on a single agency, but as we are
    looking forward to be the best utilization of taxpayer dollars.
    You know, as NSF is going through their forward-looking
    proposals on how best to utilize those fees as well as what is
    appropriate use of fees, you know, there are probably lessons
    to be learned for other federal agencies and so forth. And you
    know, again, I applaud the fact that there is acknowledgement
    that there was poor judgment used and that NSF has taken
    proactive measures going forward to make sure that we can't
    dictate how someone uses their judgment but we can put in
    policies and procedures to minimize misuse of funds.
        With that, I will yield back.
        Chairman Loudermilk. The gentleman yields back, and the
    Chair recognizes the gentleman from Florida, Mr. Posey.
        Mr. Posey. I thank you very much, Mr. Chairman.
        At the usual risk of being vilified as anti-science for any
    desire whatsoever to have some accountability and some
    transparency and be a little bit of a watchdog over taxpayers'
    money, I think it is appalling to many of us that so many
    employees at the agencies obviously look at the federal budget
    and taxpayers' money as some kind of big pinata. When you see
    them spending $150,000 on liquor, parties, lobbyists, I mean,
    that is the conclusion that my constituents back home would be
    drawing, and they would say what are we doing about that, and
    so my question, have you recovered any of the money that
    apparently obviously clearly was inappropriately spent?
        Dr. Buckius. So let me agree with you as a taxpayer that I
    want our dollars to benefit this country, but as we have been
    told, these expenditures or management fees on these kinds of
    things is perfectly acceptable. I argue poor judgment. I intend
    to try to make this change going forward. But so far, they are
    perfectly legal.
        Mr. Posey. And so NEON apparently shamelessly defends them?
        Dr. Collins. As I have said in my testimony, the
    individuals involved in making these decision could have used
    better judgment, and going forward from here, we put in place
    policies that----
        Mr. Posey. I heard you say that, but if I ripped you off, I
    would expect that you would say hey, I want my money back, and
    I think you have ripped off the National Science Foundation and
    I think the honorable thing to do would be to say hey, we are
    going to give you your money back.
        Dr. Collins. Well, to reiterate Dr. Buckius's point, and as
    Mr. Grayson explained, your characterization that NEON had
    ripped off NSF would not accord with the fact that these fees
    were provided in a way that were not restricted, and we may
    disagree with how they were used when in fact they were used in
    a way that was consistent with OMB 122.
        Mr. Posey. Well, that is pure doubletalk. I don't think we
    would be here if it was appropriate behavior of any kind. On
    the one hand, you are saying it is appropriate. On the other
    hand, you are saying it is inappropriate, we are not going to
    do it again. I mean, I am just shocked by the answer, so----
        Dr. Collins. I don't want to characterize it as
    appropriate, as I have said. I don't think it was invested in
    the right way but it was consistent with----
        Mr. Posey. Well, if you spent money that the government
    entrusted to you do to thing A and you did it on thing B, which
    was totally a selfish personal indulgence for which it was
    never intended, should not have been intended and you admit it
    should not future ever be intended, don't you think it would be
    appropriate to pay the money back? I mean, just as a matter of
    fair play. Forget the political doubletalk, the bureaucratic
    doublespeak, just in fairness, in the real world.
        Dr. Collins. Well, as I said, I am not a lawyer and I don't
    have the expertise to characterize that, but the way in which--
    --
        Mr. Posey. I am not asking for legal opinion. I am just
    talking, if you were one of my constituents, you would say hey,
    if they spent the money like they weren't authorized to spend
    it and it was inappropriate, I mean, who could possibly think
    the National Science Foundation gave you 150,000 bucks to spend
    on liquor, parties and lobbyists. I mean, does anyone in your
    agency believe that that is the correct use of the money?
        Dr. Collins. At this point, no.
        Mr. Posey. Okay. So don't you think in all fairness you
    just give the money back to begin with?
        Dr. Collins. Well, the funds were invested in a way that
    were consistent----
        Mr. Posey. That is not invested. Invested in liquor,
    parties and lobbyists, and I love your explanation of lobbyists
    to--what did you say, to help educate Congressmen on the
    validity of your agency? I think the first thing if you wanted
    Congress to be respectful of your agency is give the government
    back the money you cheated them out of.
        Dr. Collins. Well, again, just to repeat, I don't feel that
    the government was cheated out of the money.
        Mr. Posey. Well, if was of no benefit to the government. We
    have established that. It was never intended to be spent on
    liquors, parties and lobbyists. We have established that. So
    you got the money. If you planned to do that in the beginning,
    you took it under false pretenses. If you--otherwise it was
    just a matter of deception and misuse of money, of taxpayers'
    money that was entrusted to you to do public good.
        Dr. Collins. It would be important to stick with the
    distinction that Mr. Grayson has made and Ms. Manuel has made
    in terms of the way in which the fees, management fees, can be
    used as opposed to appropriated funds, and the management fees
    came without specific stipulation. Now, going forward we have
    put very clear stipulation on the way in which those funds can
    be used that are absolutely consistent with the spirit that you
    are trying to bring forth here, and I agree with the spirit
    that you are bringing forth here.
        Mr. Posey. Well, you don't agree with the spirit I am
    bringing forth because you don't have advocate repaying the
    government for the money.
        Dr. Collins. Well, I don't think the agency is in the
    position to pay back that money because in fact the funds have
    been expensed and they were used in a way that was consistent
    with the policy at the time.
        Mr. Posey. At the time, because there really was no policy.
    Is that what you are saying?
        Dr. Collins. There was not the guidance that went down to
    the specific level that you have been----
        Mr. Posey. And everybody thinks you should be able to spend
    taxpayers' money on liquor, parties and lobbyists, right? That
    is a pretty common perception. Is that a common perception in
    your agency?
        Dr. Collins. It is not a common perception in NEON, and as
    I said, it is not my perception and it is not the decision I
    would have taken, but it was the decision that was taken at the
    time.
        Chairman Loudermilk. The gentleman's time is expired. The
    Chair now recognizes the gentleman from Virginia, Mr. Beyer.
        Mr. Beyer. Thank you, Mr. Chairman. Thank you, witnesses.
        I think it is important to recognize the worthiness of the
    NEON Project and, you know, the climate is changing quickly and
    dramatically in ways that are affecting or will affect our
    lives, and the NEON project offers the capability to give us
    the data we need to make wise decisions for the American
    people. So I am happy that NSF and NEON are already taking
    concrete steps to implement the audit's findings.
        But Dr. Collins, we have heard about some of the
    controversial expenses paid out of NEON's management fee
    account. What are some of the less headline-grabbing expenses
    you charged to the management fees and do you have other
    sources of income? For example, if you wanted to pay back the
    $150,000 for the party and the lobbying, could you? And in
    paying for the lobbying, what was the purpose of hiring
    lobbyists? How does that help the mission of NEON and the
    American public?
        Dr. Collins. Well, as I said, to take your last question,
    in terms of the lobbying, it helps the mission as far as
    providing an explanation for the importance of this sort of
    investment and this sort of facility.
        Now, the other kinds of things in which the fees are used
    would be, for example, on helping to pay for visas for leading
    scientists who would come to the country and work in this NEON
    Project.
        The other detail that you raised as far as other sources of
    funds, there are membership fees that come from universities
    that are members of the NEON Incorporated, the corporation
    overseeing the NEON project.
        Mr. Beyer. Could you in theory use those membership fees
    from universities to repay the liquor bills for the board
    meetings?
        Dr. Collins. I am not a financial expert and I honestly do
    not know whether those funds, again, to use a phrase that came
    up earlier, are completely fungible.
        Mr. Beyer. How many employees does NEON have?
        Dr. Collins. 350 right now with a variable group that comes
    on in the summer of about 100 to 150 temporary employees.
        Mr. Beyer. Is it not an important part of management
    leadership to create a culture within an organization where
    people work together and are mutually supportive of and
    committed to larger goals?
        Dr. Collins. I would argue that it is extremely important
    in any group and especially one as large as NEON.
        Mr. Beyer. Do holiday parties sometimes help with that
    function?
        Dr. Collins. It has been my experience in 25-some-odd years
    of administration that holiday parties can help with that.
        Mr. Beyer. And if you didn't pay for the holiday party out
    of the management fee, how would you pay for it?
        Dr. Collins. Well, there would be no way by which the
    corporation could pay for it. You would have to do it by
    contributions from individuals.
        Mr. Beyer. If I can address Ms. Manuel for a minute, is
    there a legal difference in the ability of agencies to set
    limits on how fees are managed by nonprofits as opposed to how
    the profits are spent by other procurement agencies--the Boeing
    you mentioned earlier? And will we ever have a right to ask how
    Boeing spent their profits on holiday parties and lobbying?
        Ms. Manuel. I think a distinction potentially could be made
    insofar as you are talking about different types of agreements
    and it is very clear with procurement contracts what types of
    fees are allowed and what has to be done by the contractor to
    earn them. It is much less clear when you are talking about
    management fees under a cooperative agreement what determines
    the amount of the fee and what makes it payable to the
    contractor.
        Mr. Beyer. Is the profit that a major for-profit contractor
    like Boeing makes, is that taxpayer money?
        Ms. Manuel. It is.
        Mr. Beyer. I yield back, Mr. Chairman.
        Chairman Loudermilk. The gentleman has yielded back. The
    Chair now recognizes the gentleman from California, Mr. Knight.
        The gentleman has no questions. I recognize the gentleman
    from Michigan, Mr. Moolenaar. No questions.
        I believe that is the extent of the questions that we have.
    First, I want to thank the witnesses for their testimony. I
    think it has been enlightening and will help this Committee as
    we go forward.
        As I indicated earlier, we have a higher responsibility in
    the positions that you and I and those that are on this panel
    have because we are not just dealing with money, we are dealing
    with the dollars that taxpayers have sent to us and we have a
    higher fiduciary responsibility to use those in a wise and
    reasonable fashion that actually affects the outcome of the
    purpose of which the taxpayers have sent us the money, and if
    there are loopholes, which I think we have identified that
    there may be--the expenditures have been identified as poor
    judgment, $25,000 on holiday parties that was from taxpayers,
    that--I apologize for that. If there are loopholes which we
    have identified that there clearly may be loopholes, then it is
    the requirement of Congress, the people have sent us here, to
    make sure that those loopholes are closed and that taxpayer
    monies are spent in a responsible fashion.
        The record will remain open for two weeks for additional
    comments and written questions from Members, but before the
    Members are excused, I have been advised that Mr. Moolenaar
    does want to ask a question. The gentleman is recognized for
    five minutes.
        Mr. Moolenaar. Thank you, Mr. Chairman. My apologies. I had
    a budget meeting that I needed to attend and was not able to
    hear some of the testimony, but I appreciate you being here,
    and I have been listening to some of the discussion, and I
    guess my question is for Dr. Buckius.
        There is a--NASA and OMB have a policy that indicates that
    it always that costs under federal awards must be reasonable,
    allocable and allowable, and NASA indicates that paying
    business expenses, costs that are not reimbursable through a
    management fee would be circumventing the OMB guidelines and
    therefore inappropriate, and I just wonder how you would
    reconcile your position with the position of those agencies.
        Dr. Buckius. So other agencies do not have the same
    practices that we do. As I started off in the testimony, there
    are different attributes of the various agencies. Ours is one
    where we support extramural research. We don't have physical
    facilities. So we have reviewed many of the other agencies'
    practices and we are going to adjust ours as we go forward, but
    that doesn't mean we will necessarily do exactly as they do
    simply because we are just a different agency, we have
    different functions.
        Mr. Moolenaar. Do you think that those policies make sense
    from their standpoint?
        Dr. Buckius. I can imagine in their case where they might
    come to that conclusion, and we have talked about our posting
    in the Federal Register so we are taking input right now and
    so--and we are going to close in a couple of weeks so that we
    can actually then consider all these options.
        Mr. Moolenaar. Do you see any problem with the policies
    that they have?
        Dr. Buckius. For the reasons that we have talked a little
    bit, management fees do serve a very important function for
    activities of nonprofits like NEON, and so curtailing,
    restricting, zeroing will cause a lot of inflexibility that we
    see could give us some problems but we do want to take a look
    at what other people do to ensure that we have got all sides of
    that.
        Mr. Moolenaar. Thank you, Mr. Chairman. I yield back.
        Chairman Loudermilk. The gentleman yields back.
        I just want to make sure every Member has ample opportunity
    to ask questions in this first and final round of questioning.
        Again, I have made a closing statement but I will
    reemphasize how important it is that we be extra cautious and
    transparent with the expenditures of taxpayer money.
        I want to again thank the witnesses for your valuable
    testimony, Members of the Committee for attending, and your
    questions, and at this point the witnesses are excused and the
    meeting is adjourned.
        [Whereupon, at 11:24 a.m., the Subcommittees were
    adjourned.]
                                   Appendix I

                                  ----------

                       Answers to Post-Hearing Questions

                       Answers to Post-Hearing Questions

    Responses by Dr. Richard Buckius

    [GRAPHIC] [TIFF OMITTED]

                                  Appendix II

                                  ----------

                       Additional Material for the Record

                Prepared Statement Submitted by Subcommittee on
              Research and Technology Chairwoman Barbara Comstock

        Thank you Chairman Loudermilk, for convening this hearing, and let
    me congratulate you on your chairmanship and on your first hearing on
    this very important topic.
        While I was not here for the first NEON hearing the Committee held
    in December, I have reviewed the testimony from that hearing and
    familiarized myself with the relevant issues in preparation for this
    hearing. The independent audit findings and other information about
    management of the NEON project show some taxpayer funds that were
    intended to support scientific research were diverted to problematic
    activities.
        The National Science Foundation and the National Ecological
    Observatory Network have a Cooperative Agreement in the neighborhood of
    $433 million. A relatively small amount of that amount - several
    hundred thousand dollars - has been diverted to pay for things that
    don't support or strengthen the project: for instance, gourmet coffee
    service, tens of thousands of dollars for at least one lavish Christmas
    party, and additional hundreds of thousands of dollars for lobbying
    expenses.
        Our national debt exceeds $17 trillion. Annual budget deficits of
    several hundred billion dollars per year are driving up the national
    debt at a fast clip.
        Support for basic research is one of the most important areas of
    federal discretionary spending. Maintaining American leadership in
    science and innovation is the key to our nation's future economic
    prosperity and security. Basic research is about good jobs and a secure
    future. But in the current budget environment, just maintaining the
    current level of basic research support is a big challenge.
        Our Committee authorizes funding for groundbreaking research
    financed by grants through the National Science Foundation. We have a
    constitutional obligation and a responsibility to ensure every dollar
    earmarked for scientific research is spent as effectively and
    efficiently as possible.
        We want to be strong advocates for science, but the situation we
    will discuss today makes it more difficult to build and maintain
    support for science funding. We want to be strong advocates for federal
    support of basic research that advances science and the national
    interest. But that advocacy is made more complicated when our
    constituents learn of taxpayer dollars diverted to parties and
    lobbying.
        It may be that nothing illegal has occurred, but taxpayer money has
    been spent (very) inappropriately. I look forward to hearing from NSF
    and NEON representatives about what went wrong and, even more, about
    what steps, including new legislation and new regulations, must be
    taken to ensure these problems never happen again.
        Thank you Mr. Chairman, I yield back.
                Prepared Statement Submitted by Subcommittee on
                 Research and Technology Member Elizabeth Esty

        Thank you, Chairman Loudermilk and Chairwoman Comstock, and Ranking
    Member Johnson, for holding this hearing on the National Ecological
    Observatory Network (NEON). I also want to recognize and thank our
    witnesses from the National Science Foundation (NSF), NEON, and the
    Congressional Research Service (CRS) for their time and expertise.
        In the last two months we have had two hearings on NEON and NSF's
    oversight of the project. We heard from five witnesses, including NSF
    Inspector General Allison Lerner, and the chairman of NEON, Dr. James
    Collins. These experts discussed the NEON Project's successes and
    struggles since its creation in 2008. Although they were called to be
    witnesses to discuss concerns regarding NSF's oversight of cooperative
    agreements, the witnesses made clear that NEON has done groundbreaking
    ecological sciences work, and the program will continue to inform our
    understanding of large-scale ecological systems. I look forward to
    working with the Committee to learn more about ecological sciences
    advancements, both at NEON and across the NSF.
              Submitted by Subcommittee on Research and Technology
                          Chairwoman Barbara Comstock

    [GRAPHIC] [TIFF OMITTED]

                     Submitted by Subcommittee on Oversight
                           Chairman Barry Loudermilk

    [GRAPHIC] [TIFF OMITTED]
                                     [all]