Statement of Secretary of Energy Hazel R. O'Leary before the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce U.S. House of Representatives June 30, 1993
Statement Hazel R. O'Leary Secretary of Energy U.S. Department of Energy Before the Committee on Energy and Commerce Subcommittee on Oversight and Investigations U. S. House of Representatives June 30, 1993 INTRODUCTION
Mister Chairman and members of the Committee, I am pleased to appear before you today to address the Department's contract management of the Superconducting Super Collider and the initiatives we are taking to address management problems with the project.
First, let me emphasize the importance of this project. The Super Collider will provide the Nation, and the entire world, with an unprecedented journey of discovery. It is a project that holds immense potential for advancing human understanding of the fundamental principals of nature. Similar advances in the past have led to new technologies that have profoundly affected and improved the quality of our life.
The importance of the project makes it imperative that it be well managed so that we gain the maximum benefit in the most efficient and cost effective manner possible. The importance of sound management was reflected in the June 17, 1993, letter of support for the Super Collider sent by the President to Chairman Natcher of the Committee on Appropriations: "Our support requires making sure that the project is well managed and that the Congress is informed of the full costs and anticipated benefits of the program."
At present, I do not believe that our Administration's standard for management excellence is being met. Moreover, I am not confident that the full costs of the program are being identified and tracked.
In late February 1993, I read the report that the General Accounting Office had completed on the Super Collider. Shortly thereafter, on March 16, 1993, I met directly with senior staff of the General Accounting Office so that I could benefit from their analysis of current and potential problems facing the Super Collider. That meeting left me with the profound impression that the Department must be aggressive and engaged in its management of this large project. Many actions already have been taken in response to issues raised by the General Accounting Office, and additional management initiatives are in the works, as I will discuss shortly.
To avoid any misunderstanding, I have made it clear that I will not tolerate waste and mismanagement in the Super Collider or any other program of the Department of Energy. Specific management deficiencies have been identified in the Super Collider or any other program of the Department of Energy. Specific management deficiencies have been identified in the Super Collider project, they are not acceptable, and I will address them directly and forcefully.
Before discussing the Super Collider in detail, let me review the situation more generally. The Department has been unduly dependent on its contractors for the operations of its facilities, and we have not instituted sufficient oversight and control to ensure that they are fully accountable for the efficient and proper use of the resources entrusted to them. As I stated in my testimony before you on May 26, I am committed to improving the Department's contract management. We will aggressively change the way the Department of Energy conducts its business to ensure that there are clear expectations, accurate performance measurements, and careful contract monitoring. This must be a cooperative effort between the Department and its contractors, aimed at getting the best results in the most cost effective and responsible manner. When this cooperation fails, the Department will take strong action, and take it quickly.
To provide a background for the discussion of management and contracting issues at the Super Collider, let me first briefly review the project and its present status.
THE SUPER COLLIDER PROJECT
The Super Collider will be the largest scientific instrument ever built. When complete, it will address questions that cannot be answered elsewhere. The scientific potential of the Super Collider has generated enormous interest in the high energy physics community, here and abroad, with scientific participation from over 18 countries.
Because of its scale, the Super Collider, has passed significant technical, organizational, and management challenges. Super Collider construction began on a "greenfield" site near Waxahachie, Texas, in August 1990. Before major construction work on the project could begin, roads had to be built, land acquired, power acquired, and a myriad of other infrastructure development tasks completed. Further, the organization, management, procedures, accounting systems, etc., had to be created.
In spite of this, considerable progress has taken place, and with the proper management we believe we can begin operations by the year 2002, consistent with the President's Fiscal Year 1994 budget. By the end of Fiscal Year 1993, the program will be over 20 percent complete. Today, design of systems, equipment, and facilities is almost 75 percent complete, and conventional construction is nearly 25 percent complete. Rights to nearly all of the 15,000 acres of land required have been acquired for the project by the State of Texas. Today, we know of no technical "show stoppers" that would suggest that the project cannot be completed as specified.
The Department's Management and Operating Contractor for the Superconducting Super Collider Laboratory is Universities Research Association (URA) which was formed in June 1965 by 34 research universities to provide a nationally based organization to build and manage what is now Fermi National Accelerator Laboratory (Fermilab). URA is now comprised of some 80 members and associate members including two Canadian and one Japanese universities and continues to manage and operate Fermilab for the Energy Department.
In August 1988, DOE solicited proposals for an organization to establish, manage and initially operate the Superconducting Super Collider Laboratory. Although 121 copies of the request for proposal were sent to interested organizations, only one response was received by the November 4, 1988 deadline. In order to remedy corporate weaknesses in construction management, URA proposed a team approach with EG&G, Inc. and a small architect and engineering firm as subcontractors. The URA proposal was reviewed and award was made on January 18, 1989.
PROJECT MANAGEMENT STRUCTURE UNDER PREVIOUS ADMINISTRATION
Early in the Super Collider project, it was decided that the magnitude of the SSC project required a unique oversight and management structure in the Department. A Superconducting Super Collider Project Office was established near the laboratory site in Texas. This office was headed by a Project Manager who was responsible for overseeing the technical health of the project as well as ensuring that progress met scheduled milestones and cost estimates. Unique to this office was that the Project Manager reported not only to the Headquarters Program Director, but directly to the Secretary of Energy as well. This arrangement was established to streamline and facilitate day-to- day activities and to assure that the Secretary had direct oversight of the project during the start-up phase.
In 1990, the SSC Project Office was given full delegation of authority for project management, procurement, and personnel actions. This office has been, in effect, a site office reporting directly to Headquarters. In 1991, the SSC Project Office Director was also named Associate Director of Energy Research for the SSC. The Associate Director maintained direct reporting to the Secretary of Energy as well as to the Director of Energy Research.
This combination of delegation of authorities and the direct reporting relationship to the Secretary created a situation where the project was shielded from normal operations office and headquarters oversight functions. It also clearly diluted the authority of the Director of Energy Research, who might have exercised closer control over the project.
PROJECT MANAGEMENT STRUCTURE UNDER CURRENT ADMINISTRATION
In contrast to how the project previously was structured, I have given full responsibility for all aspects of the Super Collider to the Director of Energy Research. In addition, I have cut formal reporting between the DOE project manager and the Secretary, and also have cut the practice of informal guidance and program directives to the project from the Secretary's office. I do not believe that this project should be run out of the Secretary's office, nor should it be shielded from the normal oversight functions of the Department.
SUPERCONDUCTING SUPER COLLIDER MANAGEMENT ISSUES
Let me now turn to management issues that have been raised by the General Accounting Office, the Department of Energy Inspector General, and your own investigative staff.
I opened my testimony with a discussion of the technical progress being made in the construction of the Super Collider. Tunnels are being dug, magnets are being manufactured, and thousands of dedicated and capable people are pressing forward in the development of what will be a world- class scientific facility. Management of a government project, however, demands more than the achievement of technical milestones. Department of Energy Management and Operating Contractors must demonstrate full commitment to openness and accountability, and I will settle for nothing less. They must also be careful stewards of the public money and the public trust. Let me emphasize that such stewardship extends beyond legalistic compliance with the specifics of contract language to a personal and institutional commitment to spend the taxpayer's money carefully.
Specific management problems identified by the General Accounting Office and Inspector General are listed as an attachment, along with specific actions that the Department is taking to respond to these issues. However, my view is that while these issues are important, they are only symptoms of a more basic problem. A Management and Operating Contract depends for its eventual success on the willing acceptance by the contractor of the values of the Department, and on the Department's trust in the judgment and capability of the contractor. The contract itself provides a basic framework for the expectations of the Department, yet additional, ongoing communication is necessary between the Department and the contractor to ensure that both share a common view for execution of the contract.
It has become painfully clear to me that the level of communication necessary in order to establish a common sense of purpose, values, and expectations between the Department and the contractor does not exist, despite repeated discussions between senior Department officials, laboratory management and the laboratory Board of Overseers. Accordingly, last Thursday I met with Dr. John Marburger, Chairman of the Board of Trustees of the Universities Research Association, and other members of the Board, to express my deep concerns about a pattern of behavior on the part of laboratory management which threatens the success of the project and is incompatible with the openness, responsiveness, and accountability which are required of our management and operating contractors. I asked that Dr. Marburger return to me promptly with a response to my concerns, which he did, as expressed in a latter that has been shared with your staff.
During my meeting yesterday with Dr. Marburger and other members of the Board of Trustees, we discussed the need for establishing a specific set of standards against which the Department and the Super Collider contractor jointly believe the management team should be judged. We also discussed a range of other actions needed to help restore public confidence in the management of this project, foremost of which is improved communication between the Department and the Universities Research Association Board of Trustees. Dr. Marburger informed me that this level of communication had not occurred in the past, and was clearly necessary on a project of this magnitude.
I also recommended to Dr. Marburger that the members of his organization's Boards seek regular, independent briefings from outside bodies, including investigative groups such as the General Accounting Office, so that they can hear concerns about the project from multiple perspectives. During the past several days, I have solicited guidance from the General Accounting Office and the Inspector General on what actions would be appropriate for the Department to take at this time. In response, I have developed the following six-point action plan.
Determine Whether Contract Relationship and Model is Best for Project. I have initiated an immediate and expedited review of contractual options available to the Department. This review will assess options including termination of the existing contract, renegotiation of the existing contract in order to strengthen the Department's policy and oversight role in the program, and breaking the scope of project work into two contracts: one for design and scientific work; another for conventional construction. This group will report to me within 30 days.
Development of Corrective Action Plan. In connection with the contract review, I will initiate a comprehensive evaluation of the existing management structure, including both the Departmental and contractor components. I am examining how to structure this review so that it will include individuals with outstanding expertise in the management of large projects. I will instruct the review group to draw from the work already conducted by the General Accounting Office, the Inspector General, and your staff. This review is not intended to replicate work that already has been done, but rather will be to carry that work to the next step of defining a comprehensive plan for corrective action. This group will work closely with the contract review team, and I expect a report by September 30, 1993.
Strengthen the Department's On-Site Management Capabilities In order to enhance the ability of the Department to identify and address management problems at their earliest stages, I am taking immediate steps to increase the strength of the Department's management team on-site. Specifically, I will detail employees with cost estimating, contract administration, and project management expertise in order to assist the Department's Superconducting Super Collider project manager with his assigned responsibilities. In order to identify the full needs of the project, an advance team will be at the site next week. In addition, I expect that the management review of the project will address the longer term staffing needs of the Project Office, and how it fits into the Department's management structure.
Cost Estimates and Control. Serious questions have been raised concerning unreported cost growth in the project, and we have acted to control some of the specific examples of cost growth raised by auditors. Nevertheless, we are not able to fully measure whether we are meeting our cost and schedule objectives without a fully functioning Cost and Schedule Control System at the laboratory, which the contractor has been woefully delinquent in putting into place. The laboratory is currently revising the project cost and schedule baseline to reflect the changes in the project funding profile in the President's FY 1994 budget, and I know that you, Mr. Chairman, have concerns that this new cost estimate be as accurate and comprehensive as possible. I share those concerns, and commit to work with you and your staff to ensure the best numbers possible-- numbers that have integrity. I expect this effort to capture all costs associated with construction of the Super Collider, including those items traditionally outside the Department of Energy's definition of total project costs. The American public, and more specifically, the Congress, need a complete accounting of the past and future costs of this project, and we intend to honestly respond to that need.
Assess Laboratory Leadership. For a variety of reasons, which may include personnel problems and confusion about the Department's expectations, the Super Collider Laboratory has lacked the leadership and consistent good judgment which I believe are necessary for success of this project. What troubles me the most is the negative, adversarial relationship that has been exhibited toward the Department by contractor personnel. It is not simply the General Accounting Office, Inspector General, and your Committee that have experienced difficulties in getting timely access to accurate program information; the Department itself has experienced continued frustrations in this regard. This project does not have the sort of team relationship and project leadership that exists in other Departmental construction projects, and which I expect from a contractor. I have now made my expectations known clearly and directly to the contractor, and served notice that these expectations shall be met or else management changes will be required.
Strengthen Departmental Oversight The laboratory has been shielded from many of the standard Departmental oversight reviews. I am directing that these standard reviews, and in particular the Annual Appraisals of the laboratory to be conducted as they are for other Departmental laboratories.
CONCLUSION
Mr. Chairman, as I mentioned above, the Department has discussed these proposed actions directly with Vic Rezendez of the General Accounting Office and with John Layton, the Inspector General. Both have responded that this package of measures seems appropriate, responsive, and necessary. I value the input of these oversight bodies, as well as of your Committee, and look forward to working with you to ensure that this project carries the public trust necessary for success.
GAO REPORT
"Super Collider is Over Budget and Behind Schedule" Major findings: - The prime contractor has still not implemented a fully functioning Cost and Schedule Control System.
DOE concurs in this finding and has pressed hard to get the system in place. DOE certification is in process and will be completed this summer.
- Known cost increases have offset recognized savings.
DOE concurs and recognizes that contingency will have to be allocated to cover the shortfall.
- Cost Growth on Work in Progress
Aggressive action was taken to get cost growth under control. The Conventional Construction Contract has been renegotiated and is currently underrunning the new target price. Cost growth is affordable within available contingency.
- DOE Following a Build-to-Cost Strategy
This is true for the detectors, but there are technical specifications that must be met as well as cost targets. Changes in specifications that affect top-level requirements require approval by the Deputy Secretary.
IG RECOMMENDATIONS/DOE ACTIONS
Finding #1 Recommendations
1. Require that the SSC Laboratory Director:
a. expedite the appointment of a permanent head of the Procurement Department;
DOE Action: Complete. A permanent head has been appointed.
b. emphasize continuity in assignments of procurement personnel so that the same buyer or subcontract administrator retains continuing responsibility for procurement actions throughout the life cycle of the subcontract;
DOE Action: Action plan will be completed by July 1, 1993.
c. establish a central pint for control and oversight on contract audits;
DOE Action: Action plan will be complete by July 1, 1993
d: Implement controls to ensure that items to be purchased are needed and justified, and that items will not be purchased before they are needed;
DOE Action: In process. Action plan will be complete by July 1, 1993.
e: provide budget distributions on a timely basis; and
DOE Action: By July 1, 1993 the Laboratory will be directed to provide budget distributions no later than 80 days after contract funding ceiling is established each fiscal year.
f: expedite full implementation of a cost and schedule control system.
DOE Action: Complete. Cost Schedule Control System validation is in process.
2. Initiate a Departmental rule making on the issue of what constitutes reasonable cost under contractual terms, including discretionary expenditures under any management allowance.
DOE Action: Concur with recommendation. Upon completion of rule making, the contract will be modified.
Findings #2 Recommendations
1. Establish policy and procedures for procurement actions which provide for:
a. cost/price reasonableness determinations;
b. limiting such actions to items not obtainable from private commercial sources at less cost;
c. fully justified actions appropriately documented;
d. standardized agreements outlining requirements such as statements of work, breakdown structure and baseline accounting, invoicing, progress reporting, disposition of equipment and materials, and overall responsibilities;
e. adequate equipment accountability controls;
f. adequate fund control, to include detailed invoices, cost performance reps, and uniform accounting procedures that provide an adequate audit trail for tracking purposes; and,
g. modifications to agreements that are fully described, justified, and documented.
DOE Action: The DOE Office of Procurement Assistance and Program Management is taking steps to establish appropriate policy and procedures.
2. DOE require that the SSC Laboratory Director:
a. implement policy and procedures to be established for MPO's and,
b. verify compliance with policy and procedures by conducting periodic internal audits of the MPO process.
DOE Action: Upon issue of policy from the DOE Office of Procurement and Assistance the contract will be modified to reflect the new policy.
In Addition:
- The government has been reimbursed for expenditures for Christmas card and party items. - Charges for coffee has been disallowed as of August 1993.
- Flowers have been determined to be an unallowable cost.
- Charges for Double-rent have been reimbursed.
- Excessive Bid and Proposal cost are being recovered.
- SSC Laboratory Director has committed to discontinue contractor maintenance of plants.