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September 5, 2003

Energy Department to Change Approach to Lab Contracts

In recent years, the national weapons labs have seemed to be enveloped in a constant swirl of controversy. Los Alamos National Laboratory in particular has been the subject of sharp criticism, and in April, the Department of Energy (DOE) announced that for the first time it will compete the next contract it awards for management and operation of Los Alamos when the current contract with the University of California (UC) expires in 2005. Before breaking for the August recess, the House went a step further by adding a rider to an appropriations bill that requires competition for a handful of other DOE labs as well.

A host of problems has brought intense public scrutiny upon the labs. Allegations of espionage, lost hard drives containing classified information, and most recently, accusations of financial mismanagement have hit Los Alamos. Lawrence Livermore National Laboratory, which is also managed by UC, has faced controversy over alleged security lapses and cost overruns during construction of the National Ignition
Facility.

In an attempt to shore up security of classified weapons programs, Congress created in 2000 the National Nuclear Security Administration, a semi-autonomous agency within DOE, to oversee the nation's nuclear weapons complex, including Los Alamos and Livermore. However, the reorganization failed to quell controversy about the labs, and criticism flared up late last year when allegations of financial abuses at Los Alamos prompted the resignation of the lab's director, and management reviews by both UC and DOE.

The origin of the relationship between UC and DOE dates back to 1942, when Los Alamos was founded by J. Robert Oppenheimer, a UC Berkeley physicist who led the Manhattan Project, the secret federal research program to develop an atomic bomb. The following year, UC agreed to manage the facility for the federal government. Thus, a partnership was created to run Los Alamos as a government-owned, contractor-operated (GOCO) laboratory. The partnership allowed the lab to benefit from the university's ability to draw talent, even as it worked on such an inherently governmental function as the development of nuclear weapons. The GOCO model was considered widely successful and adopted at numerous other government labs.

Ever since UC took over Los Alamos in 1943 and Livermore in 1952, the management contracts between the university and the government have always been renewed. But in the aftermath of each scandal, critics have called for opening the contracts up to competition.

"Periodic competition should be normal," said Rep. Billy Tauzin (R-LA), the chairman of the House Energy and Commerce Committee, at a May 1 hearing. "[But] the pressure of competitive bidding, one of the most powerful cleansers of management problems, has never really bore down on those responsible for the [Los Alamos] lab's contract."

Senator Pete Domenici (R-NM), a staunch supporter of the labs, has also expressed recent support for competition. "We all know that the present manner in which the laboratory is managed must change in ways that are inevitable," he said in an April speech at Los Alamos. "… I worry that the attacks on Los Alamos will only intensify if we do not take dramatic action to improve the lab's management and reputation. ... As a result,… I will support an effort by the Secretary [of Energy] to conduct a competition to solicit the very best proposals on how the laboratory could be managed."

Others, however, worry that the uncertainty surrounding competition and the possibility of losing UC's generous employee benefits could lower morale at the lab and cause a wave of retirements, hindering the lab's scientific work. Recognizing these concerns, Domenici said he would only support competing the contract if all current employees, aside from the most senior officials, are retained and current compensation and retirement benefits are kept in place.

On April 30, shortly after Domenici's speech, Energy Secretary Spencer Abraham announced DOE's intention to compete the Los Alamos contract in 2005, while endorsing conditions similar to Domenici's. "Given … the widespread nature of the problems uncovered at Los Alamos," Abraham said, "I intend to open the management of Los Alamos to full competition when the current contract expires. … I direct that any future competition include provisions to retain the existing Los Alamos workforce and to preserve the culture of scientific skepticism and peer review." Abraham also promised to ensure that pension benefits of current employees would be protected.

UC itself has expressed reluctance about participating in the upcoming competition. "We want to compete—and we want to compete hard," UC President Richard C. Atkinson said in written testimony before the Energy and Commerce Committee. "… [W]e believe, with every fiber of our institutional being, that continued UC management is in the absolute best interests of the nation's security. But there is another question at stake here, and that is whether the University of California should compete. The answer to that is less clear, and it goes to the fundamental nature of these particular government laboratories and the historical reasons why the university was first asked to manage them. … It is one thing to manage the national weapons laboratories at the request of the federal government because of the unique scientific capabilities of the University, and quite another to actively pursue what could now be interpreted as a business venture. I am not sure our faculty or the people of California would support such action."

Some observers have expressed concern about the overall health of DOE's GOCO partnerships. Dr. Sig Hecker, a former director of Los Alamos, recently lamented the lack of trust that has grown between DOE and its contractors. Speaking at a June 24 hearing before the Energy and Natural Resources Committee, he said that DOE's "relationship with the laboratories, driven to a large extent by pressure from Congress, [has] changed … from one of partnership to an arms-length government procurement." DOE has appointed a blue ribbon commission to study these concerns, which is expected to issue a report in the coming months.

Thus, when Rep. David Hobson (R-OH), the chairman of the Appropriations Subcommittee on Energy and Water Development, inserted a clause into DOE's fiscal 2004 funding bill (H.R. 2754) regarding lab management, it added a new element to an already complicated debate. The clause requires a competitive bidding process for all DOE contracts that have not been competed in the last fifty years. This would affect several labs, including Los Alamos and Livermore; Lawrence Berkeley, which is also operated by UC; Argonne, which is run by the University of Chicago; and Ames which is managed by Iowa State University.

While the clause appears to be designed primarily to force competition at Livermore, which just celebrated its fiftieth anniversary, the other labs affected have generally received good grades for their operation, and some critics suggest that competing such contracts will cost more money than it will save. In the case of Ames, the lab contract may be unattractive to other potential bidders because it is located on the Iowa State campus. Opponents of Hobson's rider argue that DOE should retain the authority to make competition decisions on a case-by-case basis.

The clause also includes a requirement that no conditions be imposed "that may have the effect of biasing the competition in favor of the incumbent contractor." According to report language accompanying the bill, this provision is intended to prevent Secretary Abraham from requiring that the existing Los Alamos workforce be protected.

Sen. Domenici, who is chairman of the Senate Energy and Water Appropriations Subcommittee, included no such provisions regarding lab contracts in his version of the funding bill, and will likely weigh in with his own views, drawing on his committee's oversight hearings, when the bills go to conference this fall. •••