Mr. DEMBLING. I am not an expert. It is 6 months after the schedule that ERDA has provided. So it is not 6 months after the announcement of any particular item. It is 6 months slippage in the schedule as we read it. We were concerned with the 6 months' provision and primarily because of one large item, the core catcher. If it were necessary to include, it would probably take longer than 6 months after the schedule as it presently exists. We felt that rather than try to reopen and try to renegotiate the entire contract, that some provision be made by the committee by soliciting the views of the industrial participants. In my prepared statement I have made that suggestion, if that is a matter of concern. Senator MONTOYA. Specifically what is GAO's position on the acceptability of the proposed amendments to the contract? Do they protect the interests of the Government? Mr. DEMBLING. I think we had some concern with the way they might be interpreted. We had some concern with the language. We recognized that any contract of this kind or any contract has compromising lanaguage. If one had to do it oneself one might use different language. But considering the entire modification that has been agreed to, we feel that in the circumstances that the contract is acceptable. Senator MONTOYA. Are there any further questions? Representative Moss. Mr. Chairman, I have just been handed a letter from Senator Tunney. He asks that I raise four questions. The statutory criteria which this committee adopted states that these contracts should include definitive arrangements for the construction and operation of the CRBR. As I understand it, it is ERDA's intention that TVA will carry on the operation of the CRBR. Administrator Seamans recent letter to Chairman Anders states that the contract with TVA is yet to be negotiated. Does this mean that definitive arrangements for the operation of the reactor have not been arranged? Mr. DEMBLING. GAO has not looked into that matter. Representative Moss. I will address the question then to Dr. Seamans when he is before the committee. Senator MONTOYA. Do you have any other questions? Senator BAKER. Mr. Chairman, could I ask what your intentions are about the hearing? Senator MONTOYA. We are trying to finish the hearing. We only have two more witnesses. I don't want to ask them to come back this afternoon unless the committee thinks otherwise. Representative MCCORMACK. Let us finish it up this morning. Senator MONTOYA. If there are no further questions of this witness we will call on the next one. Thank you very much. Mr. DEMBLING. Thank you, Mr. Chairman. Representative MCCORMACK. Could we ask Mr. Dembling to stay around for a while? Senator MONTOYA. Would you mind staying here until we finish with Dr. Seamans and the other witness? Senator MONTOYA. Dr. Seamans, you have a statement. Do you mind if we include it in the record at this point and then you can proceed to summarize it, or would you prefer to read it? STATEMENT OF DR. ROBERT C. SEAMANS, JR., ADMINISTRATOR; ACCOMPANIED BY DR. G. W. CUNNINGHAM, DEPUTY DIRECTOR FOR TECHNOLOGY, DIVISION OF REACTOR DEVELOPMENT AND DEMONSTRATION; M. C. GREER, CONTROLLER; AND LLOYD W. SIDES, ASSISTANT GENERAL COUNSEL, ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION Dr. SEAMANS. It will be satisfactory to put it in the record, although I would like to run through some of it in detail if I might, Mr. Chairman. Senator MONTOYA. Certainly. Dr. Cunningham also has a statement with exhibits attached. If it is all right with him we will submit his statement for the record. Then you may proceed to summarize it also. So you may proceed, Dr. Seamans. Dr. SEAMANS. Mr. Chairman, members of the committee, we appreciate the opportunity to review with you our proposed modifications to the contractual arrangements for carrying out the Clinch River Breeder Reactor demonstration project, which is a key element of our liquid metal fast breeder reactor (LMFBR) program. I have with me a number of ERDA people who are familiar with the contract revisions, including Dr. George Cunningham, whom you have already referred to. Following my comments, he will put his statement in the record and refer to the charts that are appended, making some brief comments. I also am pleased to have today Mr. Wallace B. Behnke, vice president of Commonwealth Edison and chairman of the board of Project Management Corp. He is here to answer any questions you may have regarding the position of our industrial partners in this cooperative undertaking. As you are aware, ERDA's mission is to develop and demonstrate safe, economic, and environmentally acceptable energy technologies that can be commercialized by industry on a wide scale. In effect, we are transferring our expertise to industry so that industry can utilize these new or improved technologies in meeting the Nation's energy needs. This is unlike many other Federal agencies whose objective is to obtain from industry an end product, such as military or space hardware, which the agency then utilizes to achieve its basic mission. In the case of the CRBR, the question is not whether the Government can build and operate a liquid metal cooled reactor. In fact, several such reactors have already been built and operated by the Government. Rather, the essential purpose of the CRBR project is to demonstrate LMFBR technology so that industry can take the next step toward full-scale power reactors. More specifically, we want to see if the economics, safety, reliability, and environmental acceptability of CRBR systems can be demonstrated sufficiently to enable licensing and operation of the reactor in a practical sense within the utility industry. As initially authorized by the Congress, the CRBR project contemplated a development and demonstration effort of about $700 million. The utility industry committed to provide about $250 million, with the Government providing $92 million in direct assistance, as well as fuel material and base program research and development support. The project was to be managed by the Project Management Corporation [PMC], which represented the utility industry. The Government was to contribute its expertise in LMFBR technology, provide the majority of funding, including additional funds if required, and retain ownership of the plant. The objective was to provide a bridge from the Government's technology programs to an industrial base for further commercialization by industry. As it has evolved, the CRBR project is technically and administratively more difficult and expensive than initially contemplated. The estimated cost has increased to $1.95 billion, with the Government funding the entire increment. There are significant technical difficulties involved in managing a project of this size and complexity, as well as uncertainties and potential delays in the licensing process. Given the need for the substantial additional Government investment, along with the need for clear-cut lines of decisionmaking authority, I decided about a year ago to seek changes in the basic project arrangements to provide full management control by ERDA. The Congress approved these changes with its action on our authorization bill last December. Now, we have negotiated a revised arrangement whereby ERDA will directly manage the project. An integrated organization and streamlined management mechanism has been developed, along with additional project controls. At the same time, the arrangement preserves the fundamental interest of the utilities in the project, as well as their active involvement and financial participation. The revised arrangement, while somewhat unique, remains fully consistent with the original objectives of the project. Significantly, the utilities have committed to continue support of the project up to the full amount of their initial $250 million commitment, even though ERDA will have full project management authority. Several questions have been raised regarding the revised arrangement. These include the legal basis for the modified arrangement, possible conflict of interest in the integrated staff, the degree of ERDA control, and changes in contractual terms and conditions resulting from the shifting of management control from PMC to ERDA. With regard to these questions: 1 Under item 4.1, ERDÂ shall manage the project and shall establish an integrated industry-Government organization under ERDA direction. Under 4.1.7, ERDA shall assume responsibility for supervision and administration of contracts with the architect-engineers and all the suppliers. Under 4.1.9, ERDA will make arrangements for a reasonable number of PMC and utility employees acceptable to ERDA to participate in integrated organization for purposes of education and training. PMC will be responsible for salary and related costs of all PMC people in the integration organization. 1 See p. 463 for balance of Dr. Seaman's prepared statement which covers the items mentioned in more detail. 72-818 O-76-30 Under 4.1.12, ERDA shall manage the project through integrated organization. Under 4.1.12: ERDA shall organize integrated organization and may revise it at any time. ERDA shall approve or reject PMC utility people nominated by PSC to key positions and ERDA shall have the right to terminate any assignment to the integrated organization at any time for cause, any disagreement ultimately to be decided by the Administrator. Under 4.1.16.1, ERDA shall direct all time and effort toward advancing ERDA's activity and discharging ERDA's responsibilities. Under 2.4.5.1, PMC annual budget and work plans are subject to ERDA approval and so on. I just think it is important to realize that the words are really quite clearly stated in the proposed contract. Representative MCCORMACK. Could we have copies of that material you have been ready, Dr. Seamans? Dr. SEAMANS. Certainly. [The material subsequently furnished follows:] PERTINENT CONTRACT PROVISIONS REGARDING ERDA CONTROL (P. 4) PRIN. PROJ. OBJ. NO. 3-ERDA WILL ASSUME RESPONSIBILITY FOR MANAGING AND CARRYING OUT PROJECT 10.3 4.1 4.1.4 4.1.7 4.1.9 4.1.12 ERDA shall manage Project and shall establish integrated industry/ government organization under ERDA direction. ERDA obligated to seek additional legislative authority and funds to ERDA shall assume responsibility for supervision and administration ERDA shall manage Project thru integrated organization. ERDA shall organize integrated organization and may revise at any time. ERDA shall approve or reject PMC/utility people nominated by PSC to key positions in integrated organization. ERDA shall have right to terminate any assignment to integrated organization for cause at any time-any disagreement ultimately to be decided by Administrator. 4.1.16.1 ERDA shall direct all time and effort toward advancing Project activities and discharging ERDA's responsibilities. 4.1.16.2 ERDA shall administer all Project contracts assigned to or entered into by ERDA. 4.1.16.5 ERDA shall manage Project to assure it is designed, constructed and operated in accordance with applicable NRC licensing requirements, codes, and standards. 2.4.5.1 4.1.8 2.4.6 2.4.8 PMC annual budget and work plans are subject to ERDA approval. PMC can inspect work, consult with ERDA and contractors, review and provide input into Project activities. PMC required to reimburse ERDA per ERDA annual budget, the lesser of all funds (less appropriate reserves) available to it, or 50% of the annual ERDA Project budget. PMC can "approve" major changes, subject to ultimate binding decision of Administrator in case of dispute. Dr. SEAMANS. An integrated organization and streamlined management mechanism has been developed, along with additional project controls. At the same time, the arrangement preserves the fundamental interest of the utilities in the project, as well as their active involvement and financial participation. The revised arrangement, while somewhat unique, remains fully consistent with the original objectives of the project. Significantly, the utilities have committed to continue support of the project up to the full amount of their initial $250 million commitment, even though ERDA will have full project management authority. [The balance of Dr. Seamans' prepared statement follows:] REMAINDER OF PREPARED STATEMENT OF DR. ROBERT C. SEAMANS, JR. We have reviewed extensively the legal basis for the modified arrangement, and have discussed the issues with the General Counsel of the General Accounting Office. This exhaustive review disclosed no valid basis for a concern regarding the legality of the proposed contract revisions. The proposed integrated PMC-ERDA organization does involve unique responsibilities with respect to supervision, control and management. However, we believe that it is a necessary and important feature to achieve project objectives. From the outset we planned to institute administrative controls and procedures adequate to avoid conflict-of-interest situations. Nevertheless, as the result of the concerns expressed by the Committee, I have directed ERDA staff to expedite the development and promulgation of administrative policies and controls to provide additional assurances in this area. I also plan to require periodic reviews of project operations to verify that our policies and controls are adequate to avoid any real conflict-of-interest situations. We believe these steps will alleviate the concern in this area. I plan to give close personal attention to this matter. As Dr. Cunningham will explain in detail, we believe that the revised arrangement does provide clear lines of authority to ERDA with respect to project control. I find it regretable that any misunderstanding has arisen from past description of PMC's role in the management process. In negotiating the proposed arrangements, our basic intent was to make the minimum necessary changes in the existing contract. The purpose of these revisions was principally to recognize that ERDA and not the utilities will now make the fundamental decisions affecting project management. One consequence of this decision required a change in utility liability in the event that the Government should decide to initiate termination of the project prior to its completion. The existing contractor provisions would have committed the utilities to continue to contribute funds to the project at a rate of $25 million per year even after the Government's decision to terminate. We could find no basis in equity to continue to insist on this arrangement. Accordingly, we agreed that in the event of project termination the utility contribution would be limited to the amount of funding contributed at the point of termination. It should be noted that the utilities have already contributed over $100 million to this project. Another change involves a contingency provision which would have permitted ERDA to request TVA to complete the facility at ERDA expense. With the Government assuming responsibility for construction management, that contingency provision becomes unnecessary. TVA asked that the provision be dropped on the basis that their forces are fully committed to their own efforts. We agreed since the contract provision has little real value to ERDA under the revised arrangements. Mr. Chairman, this project is one of the largest cooperative programs in our Nation's history. The approximately $250 million pledged by the utility industry involves over 700 firms. Utility participation in the project is fundamental to our major objectives. We believe the revised arrangement is the most advantageous method of proceeding considering all the circumstances. Needless to say, we and our partners are anxious to get on with the job. |