Let me reiterate Senior Vice President Darling's previous testimony that the University of California takes full responsibility for these business and management problems at Los Alamos. As president of the University, I want to assure you that we remain committed to strengthening financial controls and to restoring the American public's confidence in Los Alamos and the University's management of it. This has been the charge to my senior management team, as well as to the new leadership at Los Alamos, and it will remain the charge for as long as the University is entrusted with this responsibility.

The Committee has heard testimony from the University about the problems at Los Alamos and the range of corrective actions that have been taken. Rather than retrace those steps, I would like to provide you with a slightly different perspective that goes to the most critical question of all, which is how did this happen?

I have been president of the University of California for eight years. During that time, I have been enormously proud of the University's continuing contributions to our nation's security through its management of the national labs. Building on the legacies of Ernest Lawrence and Robert Oppenheimer, Los Alamos and Livermore have moved front-and-center in the effort to bolster homeland security, especially in the areas of counter-terrorism, non-proliferation, and prevention and preparedness for nuclear, biological, and chemical attacks. These labs continue as the nation's leader in findings ways to use the most advanced scientific and computational assets to simulate nuclear testing and to ensure the continued viability of our nuclear weapons stockpile. We must never lose sight of those critical contributions to the nation's security.

Along with its accomplishments, Los Alamos has had problems. It has been a time of considerable pain to me personally and to the University as an institution. It has forced us to ask hard questions about our management and to take strong action. The record will show that the University has responded quickly and that it has responded well. New performance provisions have been written into our contracts, and in every instance we have met or exceeded the new requirements.

Still, the question remains: Why these continuing problems at Los Alamos? As context, let me remind you that the University is a $15 billion enterprise, larger than many Fortune 500 companies. We employ 160,000 faculty and staff at our ten campuses, five medical centers, numerous community-based health facilities, an extensive network of agriculture extension centers and three national laboratories. And we remain, undisputedly, the world's premier research institution.

By necessity, for a University system so large and geographically dispersed, our management structure is decentralized. Considerable authority is delegated to our campus chancellors and laboratory directors. For the most part, this arrangement has worked well. There is clear accountability and sound management of our education, scientific, research and business and finance systems.

So the question again - why the problems at Los Alamos?

The last six months has been dedicated to probing that question at the very highest levels of the University. I appointed Senior Vice President Darling as interim vice president for laboratory management and enlisted the expertise of UC vice president for financial management Anne Broome and University Auditor Patrick Reed, as well as numerous other top University officials. They have worked seven-day weeks since last December, focusing almost solely on laboratory management issues while still performing their other University responsibilities. I wish to publicly thank them today for their invaluable service, not just to the University but also to the nation.

Through their efforts, as well as those of Interim Director Pete Nanos and his new management team at Los Alamos, we have made considerable progress in implementing the changes necessary at the Laboratory. We are also beginning to understand why there was such a fundamental management breakdown at the Laboratory.

I believe it comes down to two things: First, former Laboratory senior management did not address the problems in a timely or appropriate manner. And second, neither the University nor the NNSA provided adequate oversight to detect problems that should have been more readily apparent.

Let me focus first on Los Alamos leadership. As President, I appoint the ten campus chancellors and three laboratory directors. All are accomplished scholars (among them is a Nobel Prize winner), but they also must be able managers who can run complex organizations that require a careful balance between science and research and sound business management. I rely on the chancellors and laboratory directors to alert me early to potential problems and to obtain assistance of my top leadership team in whatever area necessary.

That did not occur at Los Alamos. The former managers of Los Alamos were slow to inform me about the procurement problems. When I became aware, I acted quickly, including replacing the top two managers.

But I don't entirely fault Los Alamos management. As part of the last contract negotiation, we created a new Vice President for Laboratory Management position to provide better day-to-day management of the national laboratories. The first vice president was John McTague, whose leadership and private sector experience led to strong improvements in management and oversight in a number of key areas, including security, safety and business efficiency. Under Dr. McTague's leadership, for example, UC engaged industrial firms to obtain important expertise in security and project management to reassess and strengthen the labs' internal systems in these areas.

However, an unintended consequence of the new management structure was to isolate laboratory management from other Office of the President functions. Laboratory management did not seek the necessary expertise of our auditors and financial management team, as it should have when problems arose at Los Alamos.

For this reason, we are devising a new governance structure that much more fully integrates the Office of the President into laboratory management, much as it already is - with great effectiveness - at our campuses.

There should have been other early warning systems. Among them are the Department of Energy and the National Nuclear Security Administration, which have more than 190 employees at Los Alamos and Livermore issuing numerous audits, reports, and assessments. The NNSA's steady stream of "excellent" ratings suggested to me that laboratory operations were fundamentally sound. I heartily agree with the recommendation by Deputy Secretary McSlarrow and Ambassador Brooks that this rating system be revised, but would add my own recommendation that it's time to reevaluate the broader DOE and NNSA management structures. I hope this will be a subject for further discussion.

More change is needed, both at the University and at Los Alamos, and I pledge these changes will be made. These include implementing the recommendations from the independent reviews conducted by PricewaterhouseCoopers and Ernst & Young, acting on the various Inspector General findings, and enforcing the strong whistleblower policies already in place.

But perhaps our greatest challenge is to ensure that our reforms are sustained over time. That said, we are gratified that the Secretary of Energy has recognized the extent of our efforts and has decided against termination of the Los Alamos contract.

With the Secretary's announcement yesterday, we are now about to enter into a new chapter in our 60-year history of managing the national laboratories as a service to the nation for which the University receives no financial gain. I am concerned, as we move forward, that we not lose sight of the broader national security objectives now at stake at a particularly critical time in our nation's history.

Those objectives are what drive my answer to the obvious question before me today - will the University now compete for the contract to manage Los Alamos National Laboratory? My first instinct is to respond: "Yes." We want to compete - and we want to compete hard - in order to continue the tradition of excellence in science and innovation that has characterized our 60 years of managing the national laboratories. We want to compete in order to maintain the world's premier nuclear design workforce. And we want to compete because we 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.

Let me hasten to add that I am in the last five months of my presidency. The decision whether to compete will have to be made by my successor and by the Board of Regents. In making their decision, they will have to grapple with a number of critical issues. Among them:

• First, what will be the conditions of the competition, including issues of criteria, statement of work, partnership and organizational structure, and how will these be impacted by the recommendations to the Secretary by the Blue Ribbon Commission?

• Second, is it even appropriate for the University to pursue a federal business contract? 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 by the Board of Regents.

• Third, what will be the relationship between the Department of Energy, the National Nuclear Security Administration, the Federal Bureau of Investigation and the contractor? The current relationship is clearly not working as effectively as it should.

• And finally, our principal contribution over the last 60 years has been to ensure the science and technological excellence of Los Alamos. That factor should be a primary consideration in the future contract, otherwise the University should not compete.

Our hope is that these questions can be answered in the months ahead so that the University can make an appropriate decision about whether or not to compete. We believe we would be a strong competitor and an even stronger long-term manager of Los Alamos. As the world's premier research university, the University of California is uniquely positioned to provide this service to the nation.

In closing, I want to emphasize that the University, for the remaining term of the contract, will continue to perform our obligations to the nation even as we continue to resolve the business and administrative deficiencies at Los Alamos. Our goal remains to raise the Laboratory business practices to the same level of quality as the science and weapons programs. We owe this to the American people whose security is dependent on the Lab.

Thank you for this opportunity to address the Committee. I would be pleased to answer your general questions, and my colleagues are available to respond to specifics. Senior Vice President Darling, who you all know, is overseeing day-to-day management issues at the Laboratories. With your permission, I would like him to briefly summarize actions the University has taken since the last hearing.