<DOC> [108th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:86608.wais] BREATHING FUMES: A DECADE OF FAILURE IN ENERGY DEPARTMENT ACQUISITIONS ======================================================================= HEARING before the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTH CONGRESS FIRST SESSION __________ MARCH 20, 2003 __________ Serial No. 108-4 __________ Printed for the use of the Committee on Government Reform Available via the World Wide Web: http://www.gpo.gov/congress/house http://www.house.gov/reform ------------------ U.S. GOVERNMENT PRINTING OFFICE 86-608 PDF WASHINGTON : 2003 For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON GOVERNMENT REFORM TOM DAVIS, Virginia, Chairman DAN BURTON, Indiana HENRY A. WAXMAN, California CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland DOUG OSE, California DENNIS J. KUCINICH, Ohio RON LEWIS, Kentucky DANNY K. DAVIS, Illinois JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri CHRIS CANNON, Utah DIANE E. WATSON, California ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER, NATHAN DEAL, Georgia Maryland CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of TIM MURPHY, Pennsylvania Columbia MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee JOHN R. CARTER, Texas CHRIS BELL, Texas WILLIAM J. JANKLOW, South Dakota ------ MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont (Independent) Peter Sirh, Staff Director Melissa Wojciak, Deputy Staff Director Randy Kaplan, Senior Counsel/Parliamentarian Teresa Austin, Chief Clerk Philip M. Schiliro, Minority Staff Director C O N T E N T S ---------- Page Hearing held on March 20, 2003................................... 1 Statement of: Friedman, Gregory H., Inspector General, U.S. Department of Energy..................................................... 42 Nazzaro, Robin M., Director, Natural Resources and Environment, U.S. Department of Energy..................... 20 Rispoli, James A., Director, Office of Engineering and Construction Management, U.S. Department of Energy......... 10 Letters, statements, etc., submitted for the record by: Clay, Hon. Wm. Lacy, a Representative in Congress from the State of Missouri, prepared statement of................... 74 Davis, Chairman Tom, a Representative in Congress from the State of Virginia, prepared statement of................... 7 Friedman, Gregory H., Inspector General, U.S. Department of Energy, prepared statement of.............................. 44 Nazzaro, Robin M., Director, Natural Resources and Environment, U.S. Department of Energy, prepared statement of......................................................... 22 Rispoli, James A., Director, Office of Engineering and Construction Management, U.S. Department of Energy, prepared statement of...................................... 13 Waxman, Hon. Henry A., a Representative in Congress from the State of California, prepared statement of................. 3 BREATHING FUMES: A DECADE OF FAILURE IN ENERGY DEPARTMENT ACQUISITIONS ---------- THURSDAY, MARCH 20, 2003 House of Representatives, Committee on Government Reform, Washington, DC. The committee met, pursuant to notice, at 11 a.m., in room 2157, Rayburn House Office Building, Hon. Tom Davis (chairman of the committee) presiding. Present: Representatives Tom Davis, Duncan, Waxman, Maloney, Tierney, Clay, Watson, Van Hollen, Sanchez, Ruppersberger, Norton, Cooper, and Bell. Staff present: Melissa Wojciak, deputy staff director; Ellen Brown, legislative director and senior policy counsel; Scott Kopple, deputy director of communications; Teresa Austin, chief clerk; Joshua E. Gillespie, deputy clerk; Corinne Zaccagnini, chief information officer; Ryan Voccola, assistant; Phil Barnett, minority chief counsel; Paul Weinberger, minority counsel; Karen Lightfoot, minority communications director/ senior policy advisor; Mark Stephenson, minority professional staff member; Earley Green, minority chief clerk; and Jean Gosa, minority assistant clerk. Chairman Tom Davis. I am going to start by recognizing my ranking member, Mr. Waxman, for an opening statement, and then I will move ahead. Thank you. Mr. Waxman. Mr. Chairman, I would like to begin by thanking you for holding this important hearing today. Given the Energy Department's long, disturbing history of contract and project management, or mismanagement, congressional oversight is essential. I hope that the information the Committee learns today will help us do a better job monitoring DOE's acquisition management. DOE has a unique and uniquely challenging mission. Its work includes maintaining the country's nuclear weapons stockpile, cleaning up environmental contamination, and promoting leadership and science. All of these jobs are essential and many involve cutting-edge work. There is no doubt that the Department has had some success stories. Unfortunately, contract and project management have not been among them. In fact, the Department's record of overseeing contractors and making sure that work gets done on schedule, within the budget, and without jeopardizing safety or the environment is appalling. Take, for example, the Superconducting Super Collider. DOE's original cost estimate for the Super Collider grew from $5.9 billion to over $8 billion in just 1 year. By the time the project was terminated by Congress in 1993, $2 billion had been spent and GAO had estimated the total cost at over $11 billion. Or consider DOE's Savannah River site in South Carolina, which became operational in 1951. Millions of gallons of liquids containing highly radioactive waste accumulated in storage tanks over the years. The Department and its contractor spent 10 years and almost a half a billion dollars before deciding that their plan to clean up the contamination at Savannah River was a failure. And then there is the Paducah Gaseous Diffusion Plant in Kentucky, where decades of unsafe and possibly illegal contractor practices have resulted in a public health and environmental catastrophe. It is still not clear how many workers at Paducah have suffered or will suffer serious health consequences or even death because they were unknowingly exposed to very hazardous, high radioactive substances. I hope that today we will be able to find out a little bit more about the Department's cleanup efforts at Paducah. I could go on. The list of contract failures at DOE is a long one. So, unfortunately, is the list of DOE's promises to reform itself. Since the mid-1990's, the Department has repeatedly pledged to improve the way it designs and manages contracts and projects. Today we will learn whether and to what extent these reforms are succeeding. So far, however, the evidence is not very promising. For over a decade, GAO has classified the Department's contract and project management as at high risk for fraud, waste, abuse, and mismanagement. In 1999, the National Research Council reported that DOE's construction and cleanup projects take much longer and cost 50 percent more than comparable projects at other agencies or in the private sector. And just last year the Department admitted that its entire environmental management program was a failure. That program manages cleanup operations at over 114 nuclear weapons sites covering an area of over 2 million acres. In 1998, DOE estimated that the life- cycle cost for the cleanup program was $147 billion; 4 years later, it admitted that the estimate could easily increase to more than $300 billion. The purpose of today's hearing is not to place blame, particularly in cases where DOE has openly admitted its shortcomings. It is to make sure that DOE is capable of handling its many complex, challenging, and essential projects and contracts; and it is to ensure that the public can count on the Department and its contractors to get the job done on time, on budget, and without jeopardizing the environment or the health and safety of workers and the community. Thank you, Mr. Chairman, again, for holding this important hearing, and I thank the witnesses for appearing on short notice. [The prepared statement of Hon. Henry A. Waxman follows:] [GRAPHIC] [TIFF OMITTED] T6608.001 [GRAPHIC] [TIFF OMITTED] T6608.002 Chairman Tom Davis. Thank you, Mr. Waxman. I want to welcome everybody to today's oversight hearing on DOE's troubled acquisition management functions. The Department of Energy is a unique agency with rare challenges. The Department is tasked with diverse missions such as assuring that the Nation's nuclear weapons stockpile is safe and reliable, cleaning up radioactive and hazardous waste, fostering a secure and reliable energy system, and performing world-class scientific research. The terror attack of September 11th and recent energy shortages have further compounded the Department's challenges. To further complicate matters, DOE depends on contractors to operate its sites and carry out its crucial missions. The Department contracts for designing, constructing, and operating huge multimillion dollar facilities. The statistics are truly amazing. DOE is the largest civilian contracting agency in the Government. Approximately $18 billion of DOE's annual appropriations of about $21 billion is spent on contracts. Of that amount, about $16 billion is expended on contracts to manage and operate 28 major DOE sites. The agency has a work force of about 16,000 employees. A far larger work force, over 100,000 contractor staff, actually perform the bulk of the Department's work. Thus, it is particularly distressing that the Department's acquisition management has been included on the GAO's high risk list of government functions susceptible to fraud, waste, abuse, and mismanagement, and tops the DOE Inspector General's list of seven key management challenges. Our hearing this morning will build on the work done by both the GAO and the IG on the difficulties experienced by DOE in managing its acquisitions and the Department's related problems in running its complex and critical programs. For over a decade, GAO and the DOE IG have criticized the Department's acquisition practices, particularly the Department's inadequate contract management and oversight and its failure to hold its contractors accountable for results. Poor performance of DOE contractors has led to schedule delays and cost increases on many of the Department's critical projects. The good news is DOE has established a fairly extensive acquisition reform program in an attempt to remedy its problems. The Department is aiming its reform efforts to three key elements of acquisition: (1) alternative contract approaches, (2) increased competition, and (3) the use of performance-based contracting. The bad news is that, at best, the results are mixed. At worst, according to the GAO, the Department does not have the objective performance information. Thus, the Department may not even know whether its reforms are really working. How can this rather depressing state of affairs be improved? GAO thinks that a good start would be to get a genuine handle on exactly where DOE stands in its current reform program. Then DOE should apply effective management practices used by high-performing organizations to reform program. To begin with, DOE should set clearly established goals and develop an implementation strategy that sets milestones and establishes responsibility. Given the critical nature of DOE's programs and the huge dollars involved, it is imperative that DOE resolve these issues without delay. Today we hope to explore the root causes of its perennial acquisition management difficulties, the viability of their acquisition reform program and whether it is reasonable to expect significant improvement in DOE's acquisition management program results in the near future. We wonder whether DOE has acquisition professionals with the right training and skills to manage its giant portfolio of complex contracts. To help us understand the complex issues surrounding their contracting, we will hear today from an expert in this area from the GAO and from the DOE Inspector General. A witness from DOE will give us the Department's side of the story. In closing, I want to emphasize the committee will continue to follow DOE's efforts to reform its acquisition management. I would like to acknowledge my good friend and ranking member of this committee, Mr. Waxman, for his keen interest on this issue. It is at his suggestion that we are holding this hearing this morning. [The prepared statement of Chairman Tom Davis follows:] [GRAPHIC] [TIFF OMITTED] T6608.003 [GRAPHIC] [TIFF OMITTED] T6608.004 Chairman Tom Davis. I now yield to any other Members who may wish to make opening statements. Yes, Mr. Ruppersberger. Mr. Ruppersberger. Mr. Chairman, thank you for calling this hearing today. Accountability is the question today: Is the Department of Energy holding contractors who do nearly all the work for DOE accountable for their work? I was a former county executive. In that role, accountability was extremely important to me. If you did not perform your job, if the subcontractors were not performing, they were eventually terminated. If you were not doing your job well, we found ways to make sure that you did your job well. We have to remember the Government is basically a customer-based business. We are in the business of making sure that we provide Government services safely and efficiently. For the past decade, the Department of Energy has come under fire from GAO and the DOE IG Office for Mismanagement. Today hopefully we will learn more about what the Department is doing to fix these problems, holding our subcontractors accountable for performance. Now, more than ever, we have to make sure that our energy supply is safe. We have to make sure that delivery of energy service is not interrupted and that we are properly disposing of waste. Again, thank you, Mr. Chairman, for holding this hearing. Chairman Tom Davis. Thank you very much. Any other opening statements? Mr. Duncan. Mr. Chairman, very briefly. Chairman Tom Davis. The gentleman from Tennessee. Mr. Duncan. Well, first of all, I thank you for calling this hearing, because this is a very important topic considering the fact that $18 billion out of the $21 billion budget of the Department of Energy is done by contractors. But I want to read just this one sentence from a briefing paper. It says: ``For over a decade, GAO and the DOE IG have criticized the Department's acquisition practices, particularly the Department's inadequate contract management and oversight, and its failure to hold its contractors accountable for results.'' And they talk about all sorts of cost overruns and schedule delays. It is a very, very poor record, and, you know, most people across the country just can't understand why the Federal Government continues to enter into contracts with contractors and not set specific figures, and then to allow all these huge cost overruns. We have just heard the testimony about the contractor to hire Federal screeners. Of course, that is another department, but that contract was supposed to cost $107 million and it ended up costing over $700 million, a more than $600 million cost overrun. And we just can't continue to allow these things to go on and on and on and on. So I thank you for calling this very important hearing today, Mr. Chairman. I yield back the balance of this time. Chairman Tom Davis. Mr. Duncan, thank you very much. Any other opening statements? If not, I would like to move to our panel of witnesses. We have James A. Rispoli, the Director of Engineering and Construction Management at the Department of Energy; we have Robin Nazzaro, the Director of Natural Resources and Environment of the General Accounting Office; and Greg Friedman, Inspector General of Department of Energy. It is the policy of our committee that all witnesses be sworn before they testify. Would you please rise and raise your right hands? And if you have any other staff that might testify with you, they can rise with you. [Witnesses sworn.] Chairman Tom Davis. Thank you very much. In order to allow time for questions and discussion, we would like you to limit your testimony to 5 minutes. We have a light in front. When it turns on, you have a minute left; and when it turns red your time is up and we would appreciate your summing up. We have your whole statements in the record, and Members have presumably read it and the staffs have, and we have questions crafted on the total testimony. Let me start with Mr. Rispoli, followed by Ms. Nazzaro, and then Mr. Friedman. Thanks for being with us. STATEMENT OF JAMES A. RISPOLI, DIRECTOR, OFFICE OF ENGINEERING AND CONSTRUCTION MANAGEMENT, U.S. DEPARTMENT OF ENERGY Mr. Rispoli. Good morning Mr. Chairman, members of the committee. I am pleased to be here to discuss acquisition and project management at the Department of Energy. The Department takes the concerns raised by both the General Accounting Office and the Office of the Inspector General in their recent reports on major management challenges very seriously. Frankly, we agree with these independent assessments and are taking actions to aggressively address not only the management challenges, but all of the challenges contained in these reports. In fact, after being briefed by the GAO and the IG on these reports, the Deputy Secretary has directed his senior executives to develop timely, coordinated, and comprehensive action plans to address these challenges. He is personally tracking those corrective actions monthly, and expects them to be resolved prior to the next series of GAO and IG reports on management challenges. The Comptroller General and the Department's Inspector General have indicated their support for working with us in development of corrective action plans to ensure these challenges are resolved once and for all. My own focus, I joined the Department 3 years ago from industry, in management of engineering and construction, and our focus of my office has been in the area of project management, one of the key concerns raised by the GAO and the IG. I would like to provide a brief overview of where DOE now stands with respect to its project management activities. Secretary Abraham has identified project management as an overarching theme affecting all of its major program activities, whether it involves high energy physics, weapons maintenance and development, environmental remediation, or other energy projects. It is very important, therefore, to conduct these projects within a disciplined framework to ensure that project goals, including cost, schedule, and performance, are monitored and achieved. I would like to now tell you what we have done and are doing to accomplish this. In October 2000, the Department issued a directive on Program and Project Management for the Acquisition of Capital Assets. It provides a framework to identify projects based on mission need; conduct appropriate acquisition planning; develop alternative acquisition approaches; accomplish other essential project planning, including risk assessment; establish realistic cost and schedule baselines; and track and measure the execution of projects to those baselines. The Deputy Secretary has directed that all new projects must be approved by a designated senior official; that is, all projects, $5 million and above, must be approved by either him or an Under Secretary or an Assistant Deputy Secretary. Once that project is approved, the acquisition strategy and evaluation of alternatives must be approved by the same level of approval official. This is a significant change from what it was before. Knowing that a program's strategy will be questioned by senior management at that level is driving more thorough analysis, consideration of acquisition alternatives, the full range of acquisition alternatives, increased risk management, and better integration of project and acquisition practices. Cultural change is very difficult. We continue to push hard to effect these changes. Additionally, there are other significant actions we have undertaken in the past 2 years, and they include the following: each project now contains measurable performance outcomes; metrics are provided monthly to the Deputy Secretary and senior management officials on every project above $5 million, that is the requirement; executive level management reviews of all major projects are required quarterly; portfolio performance metrics, showing performance and trends by Program Secretarial Office, are provided to the Deputy Secretary on monthly basis, it focuses senior-most attention on program accountability. The Department conducts external reviews to verify cost, schedule, and technical performance aspects of all projects above $5 million before they go in the budget, effective October 2000. The Department recently implemented a major new developmental program for the improvement of Federal project management skills. We will begin certifying project managers this year by competency level. This initiative builds on a prior program established about 5 years ago for contracting officers. With the addition of project managers to that program, DOE is one of the very few agencies, outside of DOD, to have an umbrella program for certification of both contracting officials and project management officials. A few other initiatives that we are pursuing. The Department has an aggressive target that 85 percent, this year, of its projects be performing within 10 percent of cost and schedule targets. Two years ago, the Department had no capability to track, assess, and report on our project portfolio. In fact, we did not have a list of our project portfolio. Today we have that list, and we are performing at 74 percent within those cost and schedule targets as tracked against baselines in effect since January 2002. We are institutionalizing the requirements of that October 2000 directive on project management into a more comprehensive Project Management Manual. I would like to point out to you that the management practices in this manual are strongly supported by the National Academy of Science's committee on oversight of DOE project management and they implement OMB's Capital Programming Guide, which is found in the statute. To provide a strong focus on these initiatives, the Deputy Secretary, as I mentioned, is doing quarterly reviews with his senior management officials. Additionally, the Secretary has established a Blue Ribbon Commission to review and recommend criteria that can be used in the future to support decisions on re-competing or extending laboratory M&O contracts. In conclusion, on behalf of Secretary Abraham and his management team, allow me to affirm DOE's commitment to build on these initiatives and work with this committee to improve the overall accomplishment of the Department's missions. This concludes my formal remarks. I would be happy to respond to your questions. [The prepared statement of Mr. Rispoli follows:] [GRAPHIC] [TIFF OMITTED] T6608.005 [GRAPHIC] [TIFF OMITTED] T6608.006 [GRAPHIC] [TIFF OMITTED] T6608.007 [GRAPHIC] [TIFF OMITTED] T6608.008 [GRAPHIC] [TIFF OMITTED] T6608.009 [GRAPHIC] [TIFF OMITTED] T6608.010 [GRAPHIC] [TIFF OMITTED] T6608.011 Chairman Tom Davis. Thank you very much. Ms. Nazzaro. STATEMENT OF ROBIN M. NAZZARO, DIRECTOR, NATURAL RESOURCES AND ENVIRONMENT, U.S. DEPARTMENT OF ENERGY Ms. Nazzaro. Thank you, Mr. Chairman and members of the committee. I am pleased to be here today to discuss the status of contract and project management at the Department of Energy. As we noted earlier, for over a decade, GAO, the IG and others have identified problems with DOE's contracting practices and contractor performance. Projects were late or never finished, and project costs escalated by millions and sometimes billions of dollars. It is in this context my testimony today focuses on, first, DOE's progress in implementing contract and project management reforms; second, the extent to which these reforms have resulted in improved contractor performance; and, third, observations on DOE's latest improvements. In summary, since the mid-1990's, DOE has implemented a number of initiatives to improve its contracting and management of projects. As you noted, these contract reforms focused on developing alternative contracting approaches, increasing competition, and using performance-based contracts. However, DOE continues to encounter difficulties in implementing these reforms. For example, one of the initiatives now requires performance-based contracts at all of DOE's major sites. These contracts incorporate performance-based statements of work and identify performance measures and objectives that DOE will use to evaluate the contract's performance. However, some of these contracts contained ineffective performance measures. DOE was not focusing on high priority outcomes, was loosening performance requirements over time without adequate justification, and was failing to match appropriately challenging contract requirements with fee amounts. Thus, one could question whether these reforms have resulted in improved contractor performance. DOE has developed little objective information to demonstrate whether the reforms have improved results. Most of DOE's evidence of progress has been anecdotal. On this basis, DOE can certainly point to some success. However, our analysis suggest that performance problems continue to occur. For example, in September 2002, we reported that based on a comparison of results of major DOE projects in 1996 and 2001, there was no indication of improved performance. In fact, costs increased and schedule delays were actually more prevalent in 2001 than they had been in 1996. Furthermore, problems with individual projects and with site operating contracts continue to appear. Problems are beginning to emerge at the Hanford site in Washington State, where a contract is in place to address the high level tank wastes. We learned recently that although the baseline for this $4 billion project was established in May 2002, as of January of this year the project was already 10 months behind schedule and the contractor was estimating cost increases and other adjustments to this contract that could total over $1 billion. The limited progress to date is discouraging. DOE has a long way to go before it can claim that its contracting and project management problems are behind it. But we have seen a more promising indication that at least a part of DOE has a better understanding of its problems. DOE's current Environmental Management team has taken encouraging steps that could help to foster improvements in contract and project management. The scope and magnitude of some of the reforms being contemplated indicate to us for the first time that the environmental management team has seen and understood the full extent of the challenges that DOE faces. These actions are encouraging, but making these new policies a matter of practice will require strong leadership, clear lines of accountability and responsibility, and effective management systems to monitor results. Thank you, Mr. Chairman. That concludes my statement. I would be pleased to respond to any questions you may have. [The prepared statement of Ms. Nazzaro follows:] [GRAPHIC] [TIFF OMITTED] T6608.012 [GRAPHIC] [TIFF OMITTED] T6608.013 [GRAPHIC] [TIFF OMITTED] T6608.014 [GRAPHIC] [TIFF OMITTED] T6608.015 [GRAPHIC] [TIFF OMITTED] T6608.016 [GRAPHIC] [TIFF OMITTED] T6608.017 [GRAPHIC] [TIFF OMITTED] T6608.018 [GRAPHIC] [TIFF OMITTED] T6608.019 [GRAPHIC] [TIFF OMITTED] T6608.020 [GRAPHIC] [TIFF OMITTED] T6608.021 [GRAPHIC] [TIFF OMITTED] T6608.022 [GRAPHIC] [TIFF OMITTED] T6608.023 [GRAPHIC] [TIFF OMITTED] T6608.024 [GRAPHIC] [TIFF OMITTED] T6608.025 [GRAPHIC] [TIFF OMITTED] T6608.026 [GRAPHIC] [TIFF OMITTED] T6608.027 [GRAPHIC] [TIFF OMITTED] T6608.028 [GRAPHIC] [TIFF OMITTED] T6608.029 [GRAPHIC] [TIFF OMITTED] T6608.030 [GRAPHIC] [TIFF OMITTED] T6608.031 Chairman Tom Davis. Thank you very much. Mr. Friedman. STATEMENT OF GREGORY H. FRIEDMAN, INSPECTOR GENERAL, U.S. DEPARTMENT OF ENERGY Mr. Friedman. Mr. Chairman and members of the committee, I am pleased to be here at your request to testify on the Department of Energy's contract administration activities. The Department, as you pointed out, is one of the most contractor-dependent agencies in the Federal Government. Currently, approximately 100,000 contract employees, plus numerous subcontract employees, support the Department's mission at its contractor-operated facilities. In fiscal year 2002, $15.7 billion, or nearly 75 percent, of the Department's budget was spent on facilities management contracts. Clearly, it is essential the Department of Energy administer these contracts as effectively and efficiently as possible. Consequently, the Office of Inspector General has performed substantial work in this area. Since the 1940's, the Department and its predecessor agencies have relied upon facilities management contracts for many of its key operations. Through this mechanism, nearly 30 contractors perform many of the Department of Energy's most sensitive missions. This includes maintaining and securing the Nation's nuclear weapons capability, remediating environmental contamination from past weapons production, and conducting leading-edge research and development activities. Facilities management contracts differ significantly from traditional cost-type contracts. In general, they indemnify the contractors for virtually all costs and liabilities incurred; are frequently extended noncompetitively; do not require submission of traditional invoices for review, approval, and payment; and, allow the contractor to draw funds from a letter- of-credit account as costs are incurred rather than bill the Department after the fact. Over the past several years, based on criticisms of its contracting practices, the Department has initiated a series of actions to modify and reform its contract administration activities. As you heard earlier, the General Accounting Office reported in September 2002 that the Department has made progress in certain areas. These included developing alternative contract approaches, working to increase competition, and making greater use of performance-based contracts. In addition, partially as a result of Office of Inspector General reviews, the Department has recently completed a ``top-to-bottom'' review of its environmental management program; modified its field structure to eliminate an unnecessary layer of management; and held the University of California accountable for procurement and property deficiencies of Los Alamos National Laboratory. Furthermore, again as you heard earlier, on March 17th, the Deputy Secretary formally established a program to confront and address broad management challenges facing the Department. Despite these efforts, our reviews have indicated that more needs to be done. The Department has not always effectively monitored contractor performance or held the contractors accountable for their actions. Our reviews have disclosed continuing weaknesses, including the failure to develop quantifiable, outcome-oriented contractor performance measures; maintain a system to track critical aspects of contractor performance; require strict adherence to contract terms; require utilization of a full range of project management tools and it has failed from time to time to rate and reward contractors commensurate with their performance. All of these points, Mr. Chairman, in my full testimony are identified with specific reports. Failure of the Department to effectively manage certain aspects of its contract operations has led to the use of taxpayer funds for purposes not intended, wasteful management practices, and excessive project costs. Based on the work the Office of Inspector General has completed over the years, we believe that Department managers must place even greater emphasis on efforts to adopt sound contract administration practices. Specifically, the Department must develop its own realistic expectations of desired outcomes; establish clear contractor performance metrics; closely monitor contract activities; hold contractors accountable for their performance; and work to maximize competition. Addressing the challenge of contract administration will require the commitment of all parties involved. In this regard, the Office of Inspector General will continue to focus on ways to help the Department improve operations and specifically its contract management practices. Mr. Chairman and members of the committee, this concludes my prepared remarks, and I will be pleased to answer any questions that you may have. [The prepared statement of Mr. Friedman follows:] [GRAPHIC] [TIFF OMITTED] T6608.032 [GRAPHIC] [TIFF OMITTED] T6608.033 [GRAPHIC] [TIFF OMITTED] T6608.034 [GRAPHIC] [TIFF OMITTED] T6608.035 [GRAPHIC] [TIFF OMITTED] T6608.036 [GRAPHIC] [TIFF OMITTED] T6608.037 [GRAPHIC] [TIFF OMITTED] T6608.038 [GRAPHIC] [TIFF OMITTED] T6608.039 [GRAPHIC] [TIFF OMITTED] T6608.040 [GRAPHIC] [TIFF OMITTED] T6608.041 [GRAPHIC] [TIFF OMITTED] T6608.042 [GRAPHIC] [TIFF OMITTED] T6608.043 [GRAPHIC] [TIFF OMITTED] T6608.044 [GRAPHIC] [TIFF OMITTED] T6608.045 [GRAPHIC] [TIFF OMITTED] T6608.046 [GRAPHIC] [TIFF OMITTED] T6608.047 Chairman Tom Davis. Thank you. I mean, unfortunately, the problems of DOE are not just confined to DOE, it is a problem that is endemic in government. It is just that DOE has such a large portion of contracts, such a large number, and so many big and cutting-edge areas; it becomes even more complex. But this is not brain surgery, when you think about it. You need well trained procurement officials who are in touch with their customer and giving them the appropriate contract vehicles so that they can choose the best vehicle. We have had examples where we have tried to do fixed price contracts where it doesn't work. Let me ask Ms. Nazzaro, what about share and savings contracts? Have there been any let here; would that be an appropriate vehicle in some of these cases? That certainly cuts the downside to the Government. Ms. Nazzaro. I am familiar with the use of fixed price contracts, but not with that. Chairman Tom Davis. OK. Anyone else familiar with it? The share and savings contract, briefly described, is where a contractor comes in and says I can do A, B, C, D for you. To the extent they share that, they can share in the savings that the Government realizes. To the extent they don't, they end up eating it. For the contractor there is a larger upside, potentially. To the Government there is a lower downside. Yes. Mr. Friedman. I am sorry, Mr. Chairman. The contract that the Department has entered into, the relatively recent contract, Rocky Flats, which is a major environmental remediationsite, has many of the same characteristics as you just described. So I am not sure it is formally called the nomenclature that you have used, but essentially that is the way it works. Chairman Tom Davis. And you feel you have more control. Your downside is certainly limited in a situation like that, isn't it? Mr. Friedman. Correct. Chairman Tom Davis. And ordinarily I am not for eliminating downsides, you try to look for how you can save money the best, but look, we can talk at length about what the cadre of procurement officials is, how much training they are getting, what the vehicles that are available to them are, but at the end of the day, I was a government contracts attorney for 15 years for a major company, for a billion dollar company before I came. Usually when things went wrong it was a combination of a communications issue between the contractor and the Government; sometimes oversight, sometimes it is a competence issue. But we also have issues where we are just not using the right contracting vehicle. And that takes experienced personnel. My theory of contracting is pretty simple: your procurement officials are probably some of the most important officials in Government, and you can't pay them enough if it comes in. If somebody brings a contract in on schedule or ahead of schedule and under budget, there ought to be a reward for that. If they bring it in over, there has to be some deterrence. And that is not the way the Government operates today. It is not your fault, it is the way we write the rules; and maybe we need to look at some of those. Let me ask Mr. Rispoli. Human capital concerns make effective oversight of contract and project management activities even more challenging. In its September 2001 5 year work force reconstruction plan, DOE included strategies to address skill gaps in its acquisition in project managerial Federal work forces. Have we made any progress in that area? And do you think DOE has the resources to provide adequate training for its acquisition and project management work force? Mr. Rispoli. Mr. Chairman, yes, we have. In January 2003, a few months ago, we rolled out a career development program for the Department's project managers at all levels. The program builds upon credentials derived from experience, particular training. There is, in fact, course work to be done, testing, and then a certification process for each of four levels. In other words, there is an entry level and there is a top level, level four. To attain the top two levels, the certification process actually requires an interview by a board of professionally qualified people. This is a departmentwide program. Chairman Tom Davis. What is the pay level for those top? Mr. Rispoli. If I may, the pay level for the level four is envisioned to be GS-15 and SES. The entry level, level one, is not going to be GS-7 or 9, it is at a higher level, typically GS-11 or thereabouts. And they would be qualified and certified to manage the smaller projects. There is a tiered system. Basically to manage a $400 million or above project, you would have to be a level four person. We have developed a set of courses. There are a total of 16 courses, of which 4 are core. I am sorry, 12 are core and 4 would be electives. They include a wide variety of sources. For example, some of them are put on by DOE or our contractors. But we also go to NASA, to Stanford, to the Construction Industry Institute, to the Center for Creative Leadership, and to the American Management Association. So we have tried to find best- in-class courses that fit the appropriate level of certification. Again, we have rolled this out just in January. People have been taking these courses, and the objective is that we would get 80 percent of our people certified by the end of the 2-year rollout period. You asked about resources. The initial cost in the first 2 years, including all training and cost of tuition, enrollment, but not including travel, is just under $2 million. And after the first 2 years it will roll down to something like $1.3 million. That number is, I believe, 0.001 percent of the value of a $40 billion project portfolio. We certainly can afford to fund $2 million or $1.3 million per year. Chairman Tom Davis. Absolutely. Absolutely. Mr. Rispoli. And as I mentioned in my statement, we believe we are one of the only agencies, if not the only agency, to now have a program that falls under the acquisition umbrella set up by Clinger-Cohen. So we now have added the project management professionals and the integrated project team members into the fold of those who could have a career development ladder, as the contracting officers already do, so that we can provide a more balanced development experience for the entire team, as opposed to just those in the contracting community. Chairman Tom Davis. Given some of the problems we have had in contracts, is there any thought to bringing any of this in- house, maybe building a more in-house cadre capability of doing this? Mr. Rispoli. Yes, there is. Chairman Tom Davis. Because I don't think you measure efficiency by how many employees you have. I mean, some people do, but that doesn't tell me if I am saving money if they are doing the job. In the case where you have a huge overrun, it certainly isn't advantageous. Go ahead. Mr. Rispoli. Yes, Mr. Chairman, there is. And I didn't mention, but some of the courses are in fact offered by Feds, if that course will have enough of a demand and we have the proper expertise level. The reason we went to others like NASA and Stanford and the Construction Industry Institute is because they have such a level of expertise, it affords the opportunity for cross-fertilization. Chairman Tom Davis. Absolutely. And I have no problem with that, but let me just ask. Some of the areas that we are farming out right now to the private sector within the Department and running the labs, any opportunity, any thought of bringing some of that in-house, given the experience we have had with contractors in trying to build an in-house cadre? And if not, why wouldn't you do that? Do you understand what I am saying? Mr. Rispoli. Perhaps you could rephrase the question? Chairman Tom Davis. Well, the fact is most of DOE's work is done by contracts. Mr. Rispoli. Yes. Chairman Tom Davis. It is not done by employees. I am just saying is there any of this work that we could take in-house and build an in-house bureaucracy to do it and build an in- house cadre of people that could perform this work instead of outsourcing it, when the outsourcing has had overruns and delays and has not been very efficient? Mr. Rispoli. Yes. Chairman Tom Davis. Again, it goes back to my premise that I am a great believer in outsourcing, I think it tests the marketplace when it is done right. But when things keep going badly, sometimes you are better off maybe just bringing it to the Government; you limit your liability to some extent. And you also keep contractors honest when you have an in-house capability. Mr. Rispoli. Yes. This training, this entire career development program, the whole purpose is intended to raise the level of competency of Federal project managers, or people who are directly engaged in the management of projects. We will open these courses to contractors on a space available basis, as do some of the other agencies, but the primary focus for this is to raise the competency level of the Federal work force, the entire work force on the team. So that would include safety people, project management people, technical people, as well as the contracting officers. And we have integrated it with the contracting community. Chairman Tom Davis. Thank you. My time is up. Mr. Waxman. Mr. Waxman. Thank you, Mr. Chairman. I thank the witnesses for their very helpful testimony. Ms. Nazzaro, one of the more disturbing statements in your testimony was the DOE has little objective information showing its reforms have actually worked. You went on to say that the evidence you have suggests that contractor performance may not have improved. How is it possible that after almost a decade of so-called reforms the Department still doesn't have data showing it is on the right track in improving contract and project management? Ms. Nazzaro. Yes. If you will, the reforms that they have put in place, if you would refer to them as like a toolbox. They now have the tools; the problem is that they haven't implemented to use those tools appropriately. We have identified shortcomings in the three reforms that we talked about today: the developing the alternative contracts, increasing the competition, and certainly using the performance-based contracts. There are shortcomings in all of those, and so it is really an issue of not identifying additional reforms, but appropriately implementing those using best practices. Mr. Waxman. Well, what should the Department be doing to measure the success of its reforms? Ms. Nazzaro. One, they need data on what currently is going on at the Department. Just this morning Mr. Rispoli was informing me of some of the recent efforts now to try to gather data. Up to this point, they don't even know how many projects they are managing, much less what the results of those projects are. And if you don't know the status and what is going on, you have no way to keep them on track. Mr. Waxman. Well, if they are making some progress in implementing some of these new tools, these reforms, even without all the data, why are there still so many projects with delays and cost overruns? How do we explain this? Ms. Nazzaro. Specifically on the use of performance-based contracts, for example, they have put this provision in the contracts, but they haven't identified appropriate measures. They are measuring process rather than results. Another example would be in using these performance-based contracts, often they are changing the baseline, you know, without justification. So, again, you are not measuring it from what your first costs were, but you are changing it and now they are saying, you know, they met their objectives. Well, they met revised objections, they didn't meet their baseline objectives. So, again, it is the use of these performance measures that need to be improved. Mr. Waxman. Are there other factors beyond the contract and project management problems you have identified that explain the persistent acquisition management failures? Ms. Nazzaro. There are many functions that contribute to the acquisition problems, and they are at a number of different levels within the organization. So, yes, beyond just the project management level, DOE has systemic problems that we have reported on in the past, some being they are changing missions; you know, the fact that they have multiple missions; they have a confusing organizational structure. So there are systemic issues, certainly, that contribute to these problems as well. Mr. Waxman. I would like to ask you about some of the cleanup projects you singled out in your testimony. You mentioned a $4 billion waste retrieval and treatment project at Hanford, WA, which after less than a year is apparently 10 months behind schedule and subject to huge cost increases. Can you talk about the Hanford project and its problems, and explain why the Department's contract management there appears to be so unsuccessful? Ms. Nazzaro. I don't have any specifics as to why that is any different than any other project. That is relatively new data that we just found out that this is occurring. We do have ongoing work looking at this project; however, these are systemic problems that occur, it is not just project-specific, that one is any different than the others. Mr. Waxman. Well, what about the cleanup plan for Paducah, KY? As I mentioned in my opening statement, Paducah is a public health and environmental catastrophe, the extent of which is still unknown. Is GAO taking steps to ensure that the long- overdue Paducah cleanup plan is on track? Ms. Nazzaro. We do have a legislative mandate that was just included in the omnibus appropriation bill for us to look at Paducah, so that will be a project that we will be undertaking very shortly. Mr. Waxman. Mr. Rispoli, could you tell us what the Department is doing to ensure the effectiveness of the Hanford and Paducah cleanup operations? Mr. Rispoli. Mr. Waxman, I can tell you that in general, including Hanford and Paducah, we now have an industry standard set of performance measures that give us a monthly health check on all projects of the Department; those are but two. The Hanford project is one of those which surfaced last May as being a difficult challenge for the Department, for specific example. We have done several independent reviews at Hanford since then to try to assist the responsible line organization to improve its management. We believe that the latest indicators are that the problems are being quantified and addressed in an appropriate way. I would have to take the rest of that question on Hanford, in particular, for the record since, as you know, environmental management actually manages the site. Mr. Waxman. My time is up, but I would hope that you would be able to provide details about both of these cleanup efforts. And I would like to ask if you would agree to brief the committee about your operations at those sites so that we can get into more of the details about them. Mr. Rispoli. Yes, sir. Mr. Waxman. Thank you. Thank you, Mr. Chairman. Chairman Tom Davis. Who is next with questions? Mr. Tierney. Mr. Bell, any questions? Mr. Ruppersberger. Mr. Ruppersberger. He is far senior. Mr. Bell. Thank you very much for your testimony here today. I want to try to get a handle on how this situation has evolved and followup on some of Mr. Waxman's and the chairman's line of questioning. Ms. Nazzaro, based on your testimony, the Inspector General's Office and GAO reported these problems long ago; these were not recent findings. Is that accurate? Ms. Nazzaro. Yes, that is. For example, on the issue of technical expertise, our work goes back to the 1980's in identifying problems, and we have had work as recent as 2002 where we reported on the National Ignition Facility. We talked there about the reason for the cost overruns and the schedule delays, and attributed that in part to technical expertise issues. And the National Research Council has recently done work along the same line, as far as training. Mr. Bell. Now, I assume, after the problems were first reported, that certain reforms were implemented. Is that fair? Ms. Nazzaro. These reforms that we referred to today? Mr. Bell. No, other reforms. Was any action taken after the complaints were first raised or the problems were first pointed out? Ms. Nazzaro. Certainly after the mid-1990's I am told that they implemented a program to update the expertise of all of their staff. This came out after a body of work that we did on major systems acquisitions in 1996. Mr. Bell. And is it safe to assume, based on the testimony we are hearing today, that whatever reforms were implemented were not successful? Ms. Nazzaro. That is what we are seeing, that in 2000 we found problems. The National Research Council recently found problems. You know, it is our understanding that DOE is still working to put in place the appropriate training for their employees and the expertise to manage these projects. Mr. Bell. And, Mr. Rispoli or Ms. Nazzaro on this, I mean, you have talked about a number of things that will be in place now, but how can we have any assurance that we won't be back here in a couple of years talking about the same problems? Mr. Rispoli. May I? Mr. Bell. Sure. Mr. Rispoli. I think it is important to note that the directive that set out the new requirements was issued in October 2000, and although we don't at all disagree with GAO's findings in 2001 and the National Academy of Science's findings in 2001, there had not really been a chance to have projects under construction that had already complied with the requirements. For example, we now send a baseline to the Congress only after my office does an independent review. Well, none of those projects that were assessed by either of those two, the GAO or the National Academy's committee in 2001, were projects that had that validated baseline. Additionally, that baseline, if it is broken and we have to come back to the Congress, the Deputy Secretary must approve that new decision personally if that decision will involve a breach of more than $5 million. So we have installed a very tight set of controls, but those controls were not in place when the projects looked at in 2001 were generated in the years before, in the budget years. Those controls were put in place only since October 2000. And now we are beginning to build a body of data where we can go back to assess, look for common causes, reasons projects succeed, reasons they fail. We are about to do that this year, now that we have about 2 years under our belt, to find what are the common causes, the best management practices for success, and what are the things that cause failure; and we are doing that this year, now that we have a couple of years of history available to us. Mr. Bell. And the data would be available. Mr. Rispoli. The data is now available, and that was not available before for projects under the new processes. Mr. Bell. Also, I want to go back to something the Chair was asking about as far as outsourcing and moving more functions in-house. And you talked about project managers, but is that the only function that you all are really focusing on as far as bringing more in house? Mr. Rispoli. Our main focus in my office is the entire project management process. Our belief is that if you don't have qualified Federal staff, you can cover that either of two ways, depending upon your time demands. One is to get your people certified through our new program, but also we have successfully used consultants who are not part of the M&O community, when needed, to help with things like cost control, configuration control, the installation of this earned value management system, which is a national standard that we now mandate as the standard metric for success. The monthly reports are based upon a nationwide industry standard that is an ANSI standard. And we have had some trouble implementing that because our people were not used to it. So we either train Feds to know how to do it or we bring in special consultants to help the Feds to be able to do that. Mr. Bell. Thank you, Mr. Chairman. Chairman Tom Davis. Thank you very much. Mr. Ruppersberger. Mr. Ruppersberger. First thing, I thank you all for being here. I know this has been a long-term problem, and sometimes it amazes me how long a problem can go until we really get to the point where we are here now in an attempt to fix it. And I know that Mr. Rispoli, you know, you have inherited this problem, and I think if you look at how we work in this Government and how we resolve these issues, I think it has got to come from the top. And I think when the top, when the secretary has a responsibility and then he gives that responsibility to whoever is going to perform or who is going to have oversight, that there has to be accountability. And I applaud you for having the Assistant Secretary, if that is going to be the job, and I don't know. Do you think the Assistant Secretary will be able to change this culture and to make sure that the people involved trying to resolve the problem, the oversight on the contracts, will that be able to deal with the problem? Mr. Rispoli. Sir, I believe so. It is actually even much higher than the various Assistant Secretaries. Our senior-most acquisition official is our Deputy Secretary, Kyle McSlaro; and he is the one who has put out the policy, he is the one who has demanded that the reports be submitted monthly on metrics. He is the one who has initiated quarter reviews. He has reporting to him two Under Secretaries, of course, the Administrator of the NNSA and the Under Secretary for Environment, Science, and Engineering, Mr. Bob Cart. And so it emanates from the very top; it embraces the whole organization. And, yes, I think that this is the appropriate level. When people in the field know that the Deputy Secretary is looking at the status of their projects on a monthly basis, which ones are within the bounds and performing well and which ones are not, I can guarantee you that there is a much greater level of interest in getting on with the improvements as opposed to paying them lip service. Mr. Ruppersberger. Well, those are the basic fundamentals of management. Mr. Rispoli. Yes, sir. Mr. Ruppersberger. Giving someone their mission, holding them accountable. Now, also with management, it is the issue of giving people the resources to do the job; training. Also, do we have the people that can do the job? If not, do we have training in progress, or are we going to go out and seek those individuals that can do this type of job? Because a lot of it, it seems to me, has to do with up-front planning. Mr. Rispoli. Yes, you are absolutely correct again. I think that, to answer parts of your question, it is mixed. I believe that some of our project locations have the adequate Federal staff to provide the oversight. We would like to think that they are qualified, but, you know, we have provided this career development program to give them access to training at no cost at their level; we would pay for that training, essentially. Again, it is only $2 million a year to do this entire program. So I think that the mix of numbers of people and qualifications of the people can be improved as we go through this process. Mr. Ruppersberger. Let me ask you this. Has there been a time, throughout this process, when the performance has been low, that the Department has terminated a contractor? Sometimes you need to send a message. Has that been done? And I think it is something we need to look at, the termination. Or is it because we don't want to terminate because we can't get anybody else to do the job? Mr. Rispoli. I am not personally familiar with the termination, but you mentioned earlier the up-front planning. We do require an evaluation of acquisition alternatives, and I can tell you that the performance of the M&O is considered during that evaluation of alternatives. So when you are looking at adding a project, let us say a $100 million project or $200 million, where it could either go to the M&O or directly to another contractor, I can answer you directly that, yes, I am familiar with cases where it is not going to the incumbent M&O but, rather, going to another contractor because the evaluation of performance was part of that evaluation of alternatives. Mr. Ruppersberger. Have you considered in your planning competition contracts? Mr. Rispoli. I might clarify that my purview does not include the selection of the contractors but, rather, the performance in the project arena, the performance metrics and the proper management of the projects. Mr. Ruppersberger. The reason for a lot of my questioning is basically there is a problem. We need to dissect what is going on and make sure that we have the right people and the right resources, also the right systems, and to make sure that at the very top, that the Secretary takes care of this issue. $16 billion is a lot of money to be mismanaged, and I think it is time that we have to really focus on this. And I hope Mr. Chairman and our ranking member will continue to focus on this, because we have to deal with it; and it should be. There are other agencies in this Government that are doing well, and GAO is identifying it and you are making recommendations. OK, thank you. That is it. Chairman Tom Davis. Thanks for your questions. Mr. Rispoli, you have done very well for today's preparation. You have done a good job, I think, trying to explain the Department. You know, this is a lot of money, when you take a look. It is a lot of money. And I don't think these problems are just in the Department of Energy, I think a lot of them are systemwide, but because of the fact that you are the largest non-defense agency to contract out, and because you have had some very notable and high-profile contracting failures, we thought we would kind of use you as an example here of what has gone wrong and how do you correct it. But it is a lot of money that could be spent a lot more efficiently. I am going to turn to Ms. Nazzaro and ask her a few questions. Your testimony makes the point that implementing contract and project management reforms is not a good measure of the results of those reforms. Could you elaborate on that a little bit? Ms. Nazzaro. Yes. The reforms themselves, as I referred to with Mr. Waxman, are the tools by which DOE could better manage their contracts and their project management. Where we have seen the downfall is in the implementation of those reforms. And it is not an issue of that we feel that DOE doesn't have the capability to do it, it is more do they have the will to do it; and that is where we have seen the change of late, that we really feel that there is a difference in the attitude. It is really an issue over, you know, measuring process, which is all these reforms are, versus results. And what we are really saying is we want to see the results of the reforms; and that is where there has been a problem and that there is very little data to show us the results, are the projects now coming in on time and within cost. Chairman Tom Davis. Why do these things go bad? I mean, is it lack of appropriate oversight; is it lack of appropriate training to understand before the product comes through? Sometimes these things get so far down the line and they are just out of hand and it is hard to pull them back. Is there a coziness or reluctance to question a contractor when they come before you? Ms. Nazzaro. On the project basis, we have identified a number of problems historically. One certainly is with up-front planning. Another is the use of an approach that DOE calls a concurrent design and build, that they start building the project while they are still designing the project. The other has to do with the technical complexities of some of these projects. Technical designs are incorporated into the plan before they have reached maturity or have been fully developed. So on a project basis it is those kinds of things. Chairman Tom Davis. And in theory, I guess, they think you could speed it up if it works up, but if it doesn't, if the design ends up not being what they thought it was, it just gets more expensive. Ms. Nazzaro. Correct. And we have seen instances where, you know, they have had to undo things. Chairman Tom Davis. And we end up paying for both, right? Ms. Nazzaro. Yes. Chairman Tom Davis. And that is the difficulty. That is where you need contracting vehicles that limit the Federal Government's exposure when a contractor comes and says, hey, I can do A, B, C. Now, sometimes we don't tell them exactly what we want, and that is a different issue, and that goes to training and also closeness to the customer. Mr. Rispoli, do you want to respond to that? Mr. Rispoli. Yes, Mr. Chairman. I agree with Ms. Nazzaro, especially on her point about the up-front planning. We have put a lot of emphasis on this. I should tell you that up until the new directive was issued in 2000, October 2000, and there was a chance to implement it, our commitments with Congress were made based upon no design. That is a generalization, but that is absolutely true. One of the recommendations of the National Academy of Science is that we ought to move more toward DOD modeling, where they have an engineering design, they call it preliminary design, finished before we give the Congress that commitment. We implemented that in the budget. We now are in our third year of doing that. If we don't do the up-front planning right, the evaluation of alternatives and the definition of scope and cost and performance up front, before the commitment is made to you, then it is a recipe for failure because you have based it on nothing. It would be like trying to build a house without even having a drawing. So now we do have processes in place. As I mentioned, we are in our third year of using a dedicated design fund that is in the budget for these projects such that by the time the project data sheet comes to the Congress with the commitment, we have preliminary engineering accomplished. That is the new norm for the Department, but it is only in place for the past three budget cycles, including the current one. So, again, when I say that we didn't have enough experience yet to the other Congressman's question, we are just now getting enough to be able to do this. Chairman Tom Davis. OK. Let me just ask Ms. Nazzaro. I mean, there are a lot of causes, obviously, for a contract gone awry. I mean, for the most part, where do you fix the blame proportionally, the Government for lack of oversight or maybe not giving the requirements appropriately or communication; the contractor for kind of overselling, buying in, saying what they want to keep it going? I don't want to go back to the days where we would have regulations that apply to every contract. I want to trust the buyers out there, the procurement officers, and give them a whole stable full of contracting vehicles and find the right vehicle to get the best value for the Government. Ideally, that is what works. And we will still have failures; people are going to make mistakes, and we have to understand that, but it is more efficient in the long-term. But when you see these, it kind of makes you wonder. If you could proportionally fix fault on these. Ms. Nazzaro. I don't know that you can proportionally fix fault. We certainly have identified problems at both the DOE management level as well as with the contractors as far as lack of accountability. Chairman Tom Davis. And if you would just indulge me one more question. We have rules right now. When a contractor has a bad contract, they can face everything from given consideration in the next contract to debarment, depending on what happens. We have a range of issues. When a contractor doesn't perform, that word gets out, how is that handled so that everybody is warned that they have failed once or twice? And is that taken into account when we give them another job? Ms. Nazzaro. I mean, I can respond in one of the more recent examples now with the University of California. In this case, they are managing federally funded research and development centers. They have held the contract for over 50 years, and they have been the only contractor to ever hold that contract. Those contracts are not competed, you know, they are just extended. Chairman Tom Davis. Any problems with it? Ms. Nazzaro. Certainly after Los Alamos, which is one of the areas in which they manage, as well as Lawrence Livermore, but certainly the recent issues with Los Alamos. Chairman Tom Davis. I mean, that is, again, competition sometimes will get you a better result, even if you give it to the same people. They have to retool it and come back. That is why we use competitive sourcing in Government. Mr. Waxman. Mr. Waxman. Mr. Friedman and Ms. Nazzaro gave us, I think, excellent testimony in raising serious concerns about DOE's contract and project management. It is easy to blame the DOE, but Congress has some responsibility for doing our oversight to see that the Department makes sure that its contract reforms are on track. Are there particular ongoing projects or contracts that the committee should monitor as part of its oversight mission, Ms. Nazzaro or Mr. Friedman? Ms. Nazzaro. There are a number of ongoing projects that we would certainly put into that category, one being the Hanford vitrification program; another would be Yucca Mountain; and a third the development of the separation technologies at Savannah River. Our reason for identifying these as possible candidates would be they are all large projects, they have all had problems in the past, they continue to have problems, and particularly with Hanford, it is one of these, under the example that I gave to Mr. Davis, where they are using the concurrent design and build approach to it. Mr. Waxman. Well, I hope that Chairman Davis will join us in ensuring that the committee takes an active role in monitoring the projects you have mentioned, with the assistance of GAO. To that end, I am going to ask my staff to sit down with the majority staff and see if they can come up with an oversight plan we can all agree on. Mr. Rispoli, can you assure us that the Department will work with this committee by providing documents and information as we try to monitor the success of DOE's ongoing contract management reforms? Mr. Rispoli. Yes, Congressman Waxman, we would be very pleased to work with your staff to share what we are doing, to take suggestions. We believe that we are well on the way, but we would appreciate consulting with them to show and share what we are doing. Mr. Waxman. Thank you very much. Thank you, Mr. Chairman. Chairman Tom Davis. Thank you very much. I haven't had a shot at Mr. Friedman yet. He is sitting there patiently. Mr. Friedman. I feel, Mr. Chairman, like I have just gotten a call from my dentist to say the root canal therapy is not going to happen today, it will happen sometime in the future. But go right ahead. Chairman Tom Davis. Many of your reviews of individual DOE projects finds problems with adhering to cost, schedule, technical baselines. Based on your experiences with these reviews, are these problems due to unrealistic estimates in the project baselines, inadequate oversight by project managers, or is it possible that the technical complexities of these projects is such that it is just nearly impossible to develop accurate baseline estimates? Mr. Friedman. Well, frankly, I think the answer to your question is all of the above. There is no question that in many respects, especially in the environmental remediation arena and some of the leading-edge technologies, some of the projects undertaken by the Department are challenging, very challenging from a technology point of view. So I think it is, frankly, all of the above. But we do find significant problems in terms of baselining and change control systems as the projects proceed. Chairman Tom Davis. OK. Over the past several years, DOE has taken steps to identify skill gaps in its acquisition and project management work forces, and we have had this conversation. In your opinion, have these efforts led to the development of an adequate training program to give these work forces proper skills or not? Mr. Friedman. Well, one historical note, if I can. Ironically, in the 1950's, 1960's, and 1970's, the Department of Energy, in part under the Atomic Energy Commission, had the gold standard in terms of internships and programs to bring along Federal managers into the management arena, and, unfortunately, there was a 15, 20-year gap in which that has not taken place, and the Department has suffered as a result of it. In 2001, we identified human resources as a significant management challenge, and we dropped it in the 2002 management challenge report because we think progress has been made, and you have heard some of the aspects today. There have been a number of intern programs that have been developed, so we think we are making progress and on the right track. Chairman Tom Davis. We passed legislation in the last Congress on the tech corps. I don't know if you are familiar with this, but this would allow people from Government to go out into industry for a year or two, get some up-to-date training on some of the latest innovations technically and come back into Government. For the extent they go out, they owe additional time to the Government, and vice versa. Is this the kind of program that could be helpful sometimes in getting people trained and understanding leading-edge technologies? Any thoughts on that? Mr. Friedman. Well, I think it is a perfect example of what could be done, frankly. One of the things that we found over time is that frequently the Federal managers, very well intentioned, do not have an entrepreneurial mind-set and do not completely understand how the business world works, in a sense. So I think the sort of interchange that you are referring to might in fact give Federal project managers the opportunity to see the process from the other side, might help them actually in the long-term in their Federal responsibilities. Chairman Tom Davis. From both sides. The other thing is we are never going to pay Federal employees enough and comparable to what they are getting on the outside, but the ability to be the best at what you do and to go out and get training on the leading edge of these things is an exciting thing. Mr. Friedman. It is. Chairman Tom Davis. And I think it adds to morale, as well. Anything else anyone wants to add? Mr. Rispoli. Yes, sir, if I may, Mr. Chairman. Chairman Tom Davis. Yes, please. Mr. Rispoli. Again, we agree with the comments that Mr. Friedman just made. Our career development program, I couldn't give you a complete summary. Chairman Tom Davis. Do you like the Tech Corps too? That was my bill. Mr. Rispoli. But it does include a 1-year rotation with industry and it does provide for up to a 15 percent annual increase in pay for those who are in the Corps and performing well. Chairman Tom Davis. Good. Mr. Rispoli. So we have tried to address those things. Chairman Tom Davis. I like that. OK, thank you very much. Mr. Rispoli. Yes, sir. Chairman Tom Davis. Mr. Waxman, any additional questions? Mr. Waxman. No. Chairman Tom Davis. I want to thank Mr. Waxman again for calling this to our attention. This has been helpful to us. Obviously we are going to keep close eyes on it. I want to thank the GAO, as always, for their good work in this area. We have a number of other areas we are going to work with you on these procurement areas. Mr. Friedman, thank you for your work on this. Mr. Rispoli, you have responded quickly for not having a long time to work on it and up-to-date. But, as you know, it is a long way from having the program as we talked about to implementing it and getting the final results, and so we are going to continue to monitor this closely. If anyone has anything they would like to add in the next 2 weeks, before the close of the hearing, please feel free to supplement it. I just want to thank all of you for attending today's important oversight hearing. I want to thank our witnesses and, again, Congressman Waxman and other Members for participating. I apologize we don't have anyone else from our side, but, as I said, they are in a mandatory conference right now. They are getting beat up on the budget, so I came here. I want to thank my staff and Mr. Waxman's staff for organizing this. I think it has been very productive. And these proceedings are adjourned. [Whereupon, at 12:20 p.m., the committee was adjourned, to reconvene at the call of the Chair.] [The prepared statement of Hon. Wm. 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