[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
       
       
                                 _________
                                 
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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
                      
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                 Submitted by Subcommittee on Oversight
                       Chairman Barry Loudermilk
                       
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