Page 1       TOP OF DOC



PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.







 Page 2       PREV PAGE       TOP OF DOC





AUGUST 1, 1996

Printed for the use of the

Committee on Transportation and Infrastucture


BUD SHUSTER, Pennsylvania, Chairman

WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
HOWARD COBLE, North Carolina
 Page 3       PREV PAGE       TOP OF DOC
JOHN J. DUNCAN, Jr., Tennessee
WILLIAM H. ZELIFF, Jr., New Hampshire
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
ZACH WAMP, Tennessee
RANDY TATE, Washington
RAY LaHOOD, Illinois
 Page 4       PREV PAGE       TOP OF DOC

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
BOB CLEMENT, Tennessee
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
JAMES E. CLYBURN, South Carolina
BOB FILNER, California
 Page 5       PREV PAGE       TOP OF DOC
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi

Subcommittee on Public Buildings and Economic Development

WAYNE T. GILCHREST, Maryland, Chairman

JOHN J. DUNCAN, Jr., Tennessee
PETER I. BLUTE, Massachusetts
BUD SHUSTER, Pennsylvania
(Ex Officio)

ELEANOR HOLMES NORTON, District of Columbia
FRANK MASCARA, Pennsylvania
 Page 6       PREV PAGE       TOP OF DOC
(Ex Officio)



    Fitzgerald, Vice Admiral James, Inspector General, U.S. Department of the Navy

    Hill, Eleanor, Inspector General, U.S. Department of Defense

    Honigman, Steve S., General Counsel, U.S. Department of the Navy

    Peoples, Hilary W., Assistant Commissioner, Office of Commerical Broker, Public Buildings Service, U.S. General Services Administration, accompanied by Harmon Eggers, Deputy Associate General Counsel for Real Property

    Taylor, Robert S., Deputy General Counsel, Environment and Installations, U.S. Department of Defense


    Fitzgerald, Vice Admiral James

 Page 7       PREV PAGE       TOP OF DOC
    Hill, Eleanor

    Honigman, Steve S

    Peoples, Hilary W

    Taylor, Robert S


    Hill, Eleanor, Inspector General, U.S. Department of Defense, responses to post hearing questions

Honigman, Steve S., General Counsel, U.S. Department of the Navy:

Response to questions from Del. Norton, letter, August 14, 1996

Letter from Harmon R. Eggers, Deputy Associate General Counsel, Real Property Division, U.S. General Services Administration, August 13, 1996

Memorandum for the Secretary of the Navy concerning the relocation of Navy Exchange Service Command Headquarters, January 14, 1993

Fact and Justification Sheet

 Page 8       PREV PAGE       TOP OF DOC
Response to question from Rep. Gilchrest

Responses to post hearing questions

Peoples, Hilary W. Peoples, Assistant Commissioner, Office of Commercial Broker, Public Buildings Service, U.S. General Services Administration:

Responses to questions from Del. Norton

Responses to questions from Rep. Traficant

Letter from Julia M. Stasch, U.S. General Services Administration, to Rep. Molinari, October 25, 1994

Letter from J.E. Jaudon, Captain, Supply Corps, U.S. Navy Vice Commander, to T.C. Bowen, Acting Assistant Commissioner for Real Property Development, October 3, 1994

Memorandum, to Robert Ward, Director, Office of Real Estate (PQR), from Ida M. Ustad, Director, Office of GSA Acquisition Policy (VP), concerning Navy Exchange Command (NEXCOM) Lease No. NNA–250–93–C–0010, Virginia Beach, VA, September 29, 1994

Responses to post hearing questions


 Page 9       PREV PAGE       TOP OF DOC

U.S. House of Representatives,

Committee on Transportation and Infrastructure,

Subcommittee on Public Buildings and Economic Development,

Washington, DC.

    The subcommittee met, pursuant to notice, at 1:10 p.m. in room 2253 Rayburn House Office Building, Hon. Wayne Gilchrest (chairman of the subcommittee) presiding.

    Mr. GILCHREST. Good afternoon, everybody. The committee will come to order.
    I apologize for being late. Jim thought I was out observing netting on tuna fish, but I had a tuna fish sandwich.
    This afternoon the subcommittee will hear from representatives from the General Services Administration, as well as representatives from the Department of Defense and the Navy on the matter of the NEXCOM lease. This is not a new issue, but one which has few answers and many questions.
    Most importantly, a member of the committee, the Honorable Susan Molinari, has been attempting for 2 years to receive answers to questions that do not seem so very complex. They may be difficult, but they certainly are not, after reviewing some of the material that we've gathered, not really complex. The more confusing that they haven't been resolved than complex to the point of difficulty in taking so long to resolve them.
 Page 10       PREV PAGE       TOP OF DOC
    Given the resources available to the Defense establishment, it seems that there can be some accountability on the issue of this lease transaction: how it came about, why it came about, will the lease stand scrutiny, and whether or not NEXCOM had legal authority to entertain or to enter into the lease pretty much summarizes the questions. I guess maybe if we put the Marine Corps over that store and call it a PX, that might resolve the problem. I don't know. Just a thought.
    The Navy's action could have broader implications for this subcommittee as we review GSA's efforts to delegate more of its leasing authority to other agencies in the future. If this is the kind of lease action that could result from a delegation, even though that delegation was retroactive, what can we expect from other agencies?
    GSA should look closely at their own analysis of the lease, itself, which GSA found significant fault, to reflect on other agencies' abilities to effectively lease space for general purpose or office space.
    I certainly appreciate everyone that has come here to testify this afternoon, and we do look forward to your testimony, but this probably will not be the last hearing on this issue.
    We certainly will analyze the information we gather here today and prospectively, so this kind of situation doesn't happen again, hopefully, we'd like to resolve this with as much cooperation as is possible.
    I now recognize the gentleman from Ohio, The Honorable Jim Traficant, for an opening statement.
    Mr. TRAFICANT. Mr. Chairman, as you know, I've become very concerned about a proposal by the General Services Administration to delegate leasing authority to any agency who wishes to engage in that particular activity in-house.
    During a recent subcommittee hearing, we all heard from Ms. Molinari about her episode with the United States Navy and a lease executed by NEXCOM, a non-appropriated entity of the Navy. Many very serious questions have arisen in this matter since the subcommittee has begun its investment of the lease, and also those circumstances surrounding the execution of that lease.
 Page 11       PREV PAGE       TOP OF DOC
    If this experience with the Navy, its perception of correct leasing practices, along with internal review and oversight is any indication of how agencies, in general, view delegated authority, then my concerns regarding the GSA proposal to delegate leasing authority are heightened and sharpened.
    This entire transaction is one big mess. There are a lot of questions that have to be answered.
    When GSA had an opportunity to pull the transaction back in house, the GSA chose, instead, in my opinion, to compound a bad deal by granting delegation authority retroactively.
    I wonder if the Navy really bothered with asking anybody.
    When questioned by Congresswoman Molinari almost 2 years ago, the Navy and Department of Defense fumbled the ball and have yet to answer fundamental questions regarding sources of authority and the internal review process of lease contracts as they had, in fact, ventured forward.
    Keep in mind at this time there are four military entities reviewing the issue—four, Susan. Four: The Navy Inspector General, the Navy Office of the General Counsel, the Department of Defense Inspector General, and Department of Defense Office of General Counsel. And after all of this, there are still no answers to legitimate questions that have been posed by members who sit on an oversight subcommittee.
    I guess we'll try and get some answers. Through the exercise and examination of the Navy lease transaction, in my opinion, the subcommittee can then be better able to evaluate the GSA proposal of further delegation.
    My concern is: is this drive to delegate in the best interest of our taxpayers? And how can we, in fact, document and corroborate and show the data to support that?
    Certainly it appears that the Navy lease at this point is not, was not, and never had been in the best interest of our taxpayers.
 Page 12       PREV PAGE       TOP OF DOC
    I'm concerned how many more NEXCOMs there might be, how much money will be misspent, how many deals will be made.
    With that, Mr. Chairman, I commend you for scheduling the hearing, and I look forward to some serious questions.
    Mr. GILCHREST. Thank you, Mr. Traficant.
    Ms. Molinari, opening statement?
    Ms. MOLINARI. Thank you very much, Mr. Chairman.
    In the words of a Department of Defense Inspector General investigator, ''This Congressional is becoming a problem.'' For over 2 years, I have sought answers to several questions regarding a lease entered into by the Navy Exchange Service, called NEXCOM, in Virginia Beach for headquarters space for some 500 employees.
    NEXCOM is a large operation, grossing over $1.9 billion in revenues last year and employing over 18,000. These are big numbers for a non-appropriated fund instrumentality with little formal Congressional oversight, and it appears no accountability even to the Navy and the Department of Defense.
    In the face of overwhelming advice, the head of NEXCOM entered into a lease for space in Virginia Beach, Virginia. NEXCOM's General Counsel advised against the action, the contracting officer declined to execute the lease. Instead, a rear admiral, who had never before signed a lease in his capacity as head of NEXCOM, signed this lease.
    Now I learn that this act triggered an IG hotline call warning of the potential problems that this action could spawn.
    This lease, unbelievably, is now 3 years old. Personnel have retired, personnel have moved on. The audit trail is getting colder by the day. Yet, there is little light at the end of the tunnel.
    My letters of September 12, 1994; November 2, 1994; January 18, 1995; and April 17, 1995, all remain unanswered. Let me quote from my letter of April 17, 1995, to Vice Admiral David Bennett, Navy Inspector General: ''I am not willing to let another Congressional appropriations and authorization process go by without addressing this problem.''
 Page 13       PREV PAGE       TOP OF DOC
    Let me tell you all, since we are in the very same room at the same time today—the DODIG, the Navy IG, the DOD General Counsel, and the Navy General Counsel—I am sending a letter to the chairmen, Bob Livingston and Bill Young from the Appropriations Committee, as well as to Floyd Spence urging them all to compel your office to respond to my concerns and answer my questions.
    Just so you understand perfectly well what I consider a satisfactory answer, I expect accountability on all issues in my letter, not an interim response of the nature that I received on May 5, 1995, from Admiral Bennett who said, ''This inquiry has involved much detailed research.'' In the days to come, perhaps we'll see how much detailed research has gone on into this matter.
    So you will know that I have requested, I will once again present you with all the copies of my letter.
    Today, however, we hope to learn just what the official standing when they did it, and from that perhaps we can learn a little bit more about the substance of the issues under review.
    Let me conclude, both to the chairman and to Mr. Traficant, by thanking you. It's almost a little embarrassing that we have to take the time of an oversight committee to deal with one very specific issue that could have been resolved 2 years ago with the appropriate and forthcoming answers.
    I remain concerned. As is always the case in politics and in government, the longer it takes to answer a question, the more concerned we all become.
    So, for the assistance of this committee, for being willing to put their very important time aside at such an important week in the history of the United States Congress to deal with an issue affecting Staten Island, I'm very grateful and I thank you.
    Mr. GILCHREST. I thank the gentlelady from New York.
 Page 14       PREV PAGE       TOP OF DOC
    It's also an issue that deals with the underlying nature of leasing and leasing programs within the Federal Government, so we want to make sure that everything was done adequately and correctly and there was nothing arbitrary or capricious behind this, and if there were some mistakes made, we'd like to create a structure so those mistakes won't be made in the future.
    At this point we have at the table Ms. Hilary Peoples from GSA and Mr. Harmon Eggers, Associate General Counsel.
    Ms. Peoples, would you like to begin?


    Ms. PEOPLES. Thank you.
    Good afternoon, Mr. Chairman and members of the subcommittee. My name is Hilary Peoples. I'm the Assistant Commissioner in the Office of Commercial Broker, GSA's Public Building Service.
    I'm accompanied here today by Harmon Eggers, our Deputy Associate General Counsel for Real Property.
    Thank you for the opportunity to appear before you to discuss the involvement of the GSA in the 93,000 square foot leasing action by the Naval Exchange Service Command, known as NEXCOM, in Virginia Beach, Virginia.
    I would like briefly to summarize my testimony and submit my written testimony for the record.
 Page 15       PREV PAGE       TOP OF DOC
    GSA first became aware of the NEXCOM leasing action in May 1993 as a result of a request from Representative Molinari that GSA review NEXCOM's proposed lease. At that time, Public Building Service staff contacted NEXCOM and was informed that NEXCOM had its own authority and that they had already entered into a long-term lease in Virginia Beach.
    GSA relied on the NEXCOM determination of its authority and referred Representative Molinari to NEXCOM for further information on the action.
    A year later, in April 1994, GSA received a letter from NEXCOM for informational purposes advising that it intended to exercise an option for additional space in Virginia Beach. In preparing the response, GSA's Office of General Counsel examined the question of NEXCOM leasing authority.
    Based on its research, GSA advised both Representative Molinari and the Secretary of the Navy, John Dalton, that GSA believed NEXCOM lacked legal authority to lease the Virginia Beach space.
    In addition, in order to protect the interests of the Government, GSA issued a retroactive delegation of authority to Navy to ensure that NEXCOM would be able to either ratify its lease or take other action that it deemed appropriate. To the best of our knowledge, Navy has not yet exercised this option.
    In this instance, GSA issued a delegation as a precautionary action to protect the Government against potential legal liability if it was ultimately concluded that NEXCOM did not have the authority to enter into the lease. The lease had already been executed.
    In 1994, again at the request of Representative Molinari, GSA conducted a review of the NEXCOM lease. GSA's Office of Acquisition Policy completed a review, and GSA notified Navy that the NEXCOM action did not meet the standards for leases executed under GSA's delegation of authority.
    The GSA review also noted that NEXCOM believed that it had its own authority, and that as a non-appropriated fund activity, that it was not bound by the same regulations.
 Page 16       PREV PAGE       TOP OF DOC
    There are still differing opinions concerning NEXCOM's authority to enter into leases. In June of this year, GSA's General Counsel was requested by the Department of Defense counsel to review a Navy opinion on NEXCOM authority. GSA's counsel responded that we believe general purpose office space must be acquired by GSA absent a specific delegation; however, GSA will ultimately defer to DOD to determine NEXCOM's leasing authority.
    Although the Property Act is a primary GSA responsibility, the ultimate determination of NEXCOM authority will rely on DOD statutory and regulatory authorities, as well.
    Mr. Chairman, I thank you for the opportunity to testify before the subcommittee, and I would be happy to answer any questions the subcommittee may have regarding our involvement in this lease.
    Mr. GILCHREST. Thank you, Ms. Peoples.
    Mr. Eggers, do you have a testimony?
    Mr. EGGERS. I don't have a prepared statement, but I'm willing to answer any questions at any time.
    Mr. GILCHREST. All right. I will now defer to Mr. Traficant.
    Do you have any questions?
    Mr. TRAFICANT. I notice in your testimony, Ms. Peoples, you say, ''In order to protect the interest of the United States, the GSA issued a retroactive delegation.''
    Ms. PEOPLES. Yes.
    Mr. TRAFICANT. Now, in the eyes of the committee, it was a very expensive lease, bad lease—it was flawed. There was no specific delegation. How in God's name did the GSA protect the interest of the United States by a retroactive delegation? And, in fact, whose ultimate decision was that?
    Ms. PEOPLES. GSA made the decision to give a retroactive delegation in order to give additional authorities to the Department of Defense so that they could make an ultimate determination on appropriate action related to this lease.
 Page 17       PREV PAGE       TOP OF DOC
    The lease had already been executed. There could be potential legal liabilities related to that particular action if it was determined to be unauthorized.
    In order to allow them the options of either ratifying this action or taking other appropriate action, we felt that it was appropriate to issue this delegation.
    Mr. TRAFICANT. In line with that, you had a legal opinion from your own in-house counsel that said that NEXCOM did not have leasing authority. Navy ignored the opinion. They signed the lease anyway. And on the strength of your counsel and GSA's counsel, you still went forward and granted the retroactive authority.
    Ms. PEOPLES. The lease had already been executed prior to GSA's knowledge of the lease. We did execute and give a delegation in 1994 in order to give additional tools and authorities to the Department of Defense.
    Mr. TRAFICANT. Why didn't you take that matter back to in-house on the strength of such precedence in the fact that it reached way beyond the bounds of public law?
    Ms. PEOPLES. In this particular case there were then, and there are today, still differing opinions related to the authorities. We did it as a precautionary action. To date, there has not been a final determination related to the authorities to enter into this action.
    Mr. TRAFICANT. At the time of that decision, though, isn't it a fact that the GSA had never been subject to any other opinion other than the fact it was the authority of the General Services Administration to, in fact, effect a lease, even in this case?
    Ms. PEOPLES. In this case, we were relying on the determinations made by the Department of Defense at the time that they entered into it. We did have questions, and have put those on the record. There has not been a final determination.
    Mr. TRAFICANT. At some particular point did you call the Oversight Committee, this subcommittee, and notify this subcommittee, through its staff or principals, of this activity and its development?
 Page 18       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. I'm not aware of that. I would be happy to research that for you.
    Mr. TRAFICANT. Our information has it that GSA contacted the directors of both the minority and majority staff and they were told specifically that this would, in fact, be outside of the bounds and the scope of the General Services Administration and they should go very carefully here and take whatever action is necessary to reconcile this problem with the committee.
    You have no knowledge of that?
    Ms. PEOPLES. I have no personal knowledge of that, but I would be happy to research that and get back to the committee with a response on the record.
    [The information received follows:]

    Question: Our information has it that GSA contacted the directors of both the minority and majority staff and they were told specifically that this would, in fact, be outside of the bounds and the scope of the General Services Administration and they should go very carefully here and take whatever action is necessary to reconcile this problem with the committee.
    Answer: There are no current GSA staff who recall such a conversation with the committee staff directors. Neither have we found records which would shed light on such a conversation.

    Mr. TRAFICANT. A couple other questions here, Mr. Chairman.
    There are a lot of rumors flying around about this deal. There are a lot of rumors flying around that this person knows that person, this person knew this person. I'm not accusing anybody of anything, but did GSA, on the strength of such a precedent type of the thing, with concerns that you have, ever do a thorough analysis and/or investigation as to the principals and the dynamic of the individuals involved in any association that might exist that could have colluded to develop this lease?
 Page 19       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. I'm not aware of any specific investigation related to individuals involved in this procurement as conducted by GSA.
    Mr. TRAFICANT. So then the GSA got notice of a lease after the fact that was made in complete deference to what was considered, at least, to be the process of law. GSA retroactively granted authority, and GSA has, on the strength, especially since the concerns developed by Ms. Molinari, conducted an investigation into the process of how the Navy, NEXCOM, executed this lease? Is that what you're saying to me?
    Ms. PEOPLES. GSA reviewed the contract that had been entered into and reported back to Representative Molinari concerning our findings on that particular case. Yes.
    Mr. GILCHREST. The gentleman from Ohio has completed his questions.
    The gentlelady from New York, Ms. Molinari.
    Ms. MOLINARI. Thank you very much, Mr. Chairman.
    If you could explain to me again at what point in time—I understand you've said that GSA deferred to DOD to interpret for them whether DOD had the authority to go ahead and execute this lease. Is this common practice within GSA? It seems to me that part of your statutory obligation is to make that decision, as opposed to the departments that might be asking for the ability to execute.
    Ms. PEOPLES. GSA does generally provide multi-year authorities and is responsible for most general purpose space; however, there are a number of agencies that do have independent statutory authority, in whole or in part, and those activities that have independent authority act within the parameters of that authority.
    Generally we do not get involved or ask whether or not an agency has authority. We are happy to assist if an agency comes to and asks for help in making that determination, but we do generally provide the general purpose space for Federal agencies.
 Page 20       PREV PAGE       TOP OF DOC
    Ms. MOLINARI. So what led you to believe that DOD had the authority to do this on their own?
    Ms. PEOPLES. DOD made that determination on their own and took action under their own determination. It was not until we were advised relating to this activity and asked to look into it that we separately examined their authorities to proceed.
    Ms. MOLINARI. The first response from GSA confirmed DOD.
    Ms. PEOPLES. The first response, as testified in 1994 by our Deputy Administrator, we stated that we had relied on conversations that took place between PBS staff and the NEXCOM staff. In retrospect, clearly that may have been a mistake in not doing an assessment at that point in time.
    Later, as the issues remained, we did make an assessment and prepared the response that you are aware of.
    Ms. MOLINARI. And the initial reaction—I'm trying to find out what the difference was, first in GSA assuming that DOD would have that authority to enter into the lease, as opposed to any other agency that would come before you.
    Ms. PEOPLES. If an agency asserts that they have individual authority to do leasing, we would normally rely on their determinations. They go through a similar process of making that assessment related to their authorities, and only in the case, if there was a question that arose particularly related to it, or if they asked us to assist them in making that determination, would we separately try to assess whether or not they could proceed.
    Ms. MOLINARI. But what, in this particular case, when the first determination was made—I'm trying to just get a clear answer as to why GSA concluded——
    Ms. PEOPLES. In 1993, GSA did not conclude or make a determination related to DOD's authorities; they simply accepted the statement made that NEXCOM had authorities, and in that respect it was a statement accepting the Navy assertion about their authorities.
 Page 21       PREV PAGE       TOP OF DOC
    It was as distinct in 1994, a year later, when we actually researched the issue and made an independent determination.
    Ms. MOLINARI. So, just from a very basic level, then, all the Navy has to do is say to GSA, ''We have the authority,'' and they don't have to back up as to where they—how they got that interpretation?
    Ms. PEOPLES. Every agency has responsibility of ensuring that they take actions that are consistent with the authorities that they have. If we're asked to assist them, we'll certainly be happy to do so.
    Ms. MOLINARI. But up until that point there is no other further qualification that they are a non-appropriated fund or any agency or anything like that?
    Ms. PEOPLES. Ultimately the agency would have to make that determination, themselves.
    Ms. MOLINARI. And then, therefore, maybe you can't answer this question, but it was my understanding that one of the reasons why GSA entered—had a basic willingness to defer to DOD was because DOD had claimed that NEXCOM was using non-appropriated funds to pay for the lease; is that correct?
    Ms. PEOPLES. Yes.
    Ms. MOLINARI. Is there any legal authority, whatsoever, for NEXCOM to enter into a lease using appropriated funds?
    Mr. EGGERS. I'm not aware of any specific statutory authority that non-appropriated fund instrumentality has to enter into a lease for general purpose office space. That was part of what our GSA Office of General Counsel researched at the time.
    Ms. MOLINARI. Could you repeat that for me, Mr. Eggers, please?
    Mr. EGGERS. Sure. I'm not aware of any specific statutory authority that a non-appropriated fund instrumentality has, granted from Congress, that is, to lease general purpose office space. There isn't a specific statute that covers it.
 Page 22       PREV PAGE       TOP OF DOC
    It raised the question: do they, in fact, have authority? There can be another bases for authority that may not be that clear in the statute.
    Ms. MOLINARI. I appreciate that. I think that would be very helpful to get that in the record, because, as we now find out, another twist to all this that appropriated funds were reimbursed to the Navy for the execution of this lease.
    Mr. EGGERS. I wasn't aware of that.
    Ms. MOLINARI. Apparently neither was the Navy. The DOD General Counsel is not aware of that, either.
    GSA has been extremely helpful at a certain point in history where we determined—where you determined that this leasing authority was not executed properly and did, in fact, provide a valuable oversight of the lease.
    Do you have that in front of you?
    Ms. PEOPLES. No, but I'd be happy to provide a copy.
    Ms. MOLINARI. We have a copy. I just actually was thinking to get that into the record, and I would like at this point to enter that into the record at this point in time.
    [The information received follows:]

    [Insert here]

    Ms. MOLINARI. Mr. Chairman, if you'll just indulge me for a few moments, I think it's important that we——
    Mr. GILCHREST. Take your time.
    Ms. MOLINARI. ——list some of the results of the audit.
 Page 23       PREV PAGE       TOP OF DOC
    Perhaps at this point I yield back the balance of my time, then. We'll come back.
    Mr. GILCHREST. I thank the gentlelady from New York.
    I'll ask—I have just a few general questions.
    Is it a good idea in your mind—first of all, Ms. Peoples, you're doing a nice job. You're doing a very good job. We're all proud of you. Mr. Eggers, you could talk a little bit more.
    Either one of you could answer this question. Is it a good idea in a general sense to grant retroactive authority in the manner in which it was granted?
    Ms. PEOPLES. I think it's appropriate to use retroactive authorities when, in those very rare circumstances, you encounter a situation where the Government may be at liability for a potentially unauthorized action.
    In my experience, this is something that is so unusual that you have to look at these things case-by-case. But clearly, looking at the ability to rectify a situation in order to minimize the impact in terms of Government liability seems appropriate.
    Mr. GILCHREST. Were you aware, at the time that you gave retroactive authority, that originally—it's my understanding, on 11 February, 1993, NEXCOM counsel, Cheryl Parkinson, sent a memo to NEXCOM Contracting Officer Paul Fewer which stated that NEXCOM did not have the authority to enter into a contract for lease of general service office space. That was the original recommendation.
    Now, when you gave the retroactive authority, was that understood at that time?
    Ms. PEOPLES. I would have to get back to you on that particular issue.
    Mr. GILCHREST. Mr. Eggers.
 Page 24       PREV PAGE       TOP OF DOC
    Mr. EGGERS. I may be able to answer that.
    I spoke with Cheryl Parkinson during the month of May 1994. She mentioned that there was a disagreement within NEXCOM as to whether or not NEXCOM had leasing authority. Subsequently the Navy Inspector General provided me with a copy of Cheryl's opinion, so I did see the opinion, but it was provided long after GSA had granted delegation of leasing authority.
    Mr. GILCHREST. Is it normal—this is for the purpose of following what Mr. Traficant is trying to allude to. The overall leasing of space for public buildings, in a general sense, needs to have some consistency to it. So the very following day NEXCOM Contract Review decided against Cheryl Parkinson and they went ahead and proceeded with the leasing. That's a quick overturn, in my judgment—especially if there is some question.
    At that point I guess they made no—they apparently did not think, for whatever reason, that they had to contact GSA.
    Now, two other quick questions.
    Does the Navy ever lease space where they need the help of GSA?
    Mr. EGGERS. Yes, they do.
    Mr. GILCHREST. OK. Have there ever been—to your knowledge, does the Navy lease any other space using non-appropriated funds?
    Mr. EGGERS. I'm not aware of any non-appropriated funds leases.
    Mr. GILCHREST. So this may be the only building leased by the entire Naval Services by using non-appropriated funds?
    Mr. EGGERS. I don't know. I don't know if it is.
    Mr. GILCHREST. Ms. Molinari asked you a question dealing with your original conclusion about NEXCOM authority. The Navy didn't have authority to lease space. That was your original conclusion. And then, Ms. Peoples, you said there was a change in mind because of some of the research that was done.
 Page 25       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. Right.
    Mr. GILCHREST. What did that research conclude? Why was there a change of heart by GSA? And when you answer that, if you changed your mind because of the research—and I do it all the time. I research tuna fish and dolphins. I concluded that we could do it safely. So when you did the research, you made a conclusion that the Navy had the authority to do that, or you should go ahead and give them retroactive authority? Now I think you're saying that we're waiting for DOD to come up with some conclusion.
    Ms. PEOPLES. When we entered into and first gained knowledge of this particular action in 1993, we did not research and make a specific determination related to the legal authority. We relied on assurances from NEXCOM that they had their own authority, and with that authority they had entered into a lease.
    Subsequent to that, in 1994, we did actually research the issue. We made, at that point, a determination based on the research performed by GSA's Office of General Counsel that we believed that NEXCOM did not have the authority to enter into the lease agreement.
    There are still differing opinions related to whether or not that authority exists. GSA has stated it's opinion that NEXCOM did not have the authority.
    Mr. GILCHREST. It's GSA's conclusion as of this moment that the Navy doesn't have the authority to use non-appropriated funds to lease space for their building or for NEXCOM? That's your opinion at this moment?
    Ms. PEOPLES. Our opinion is that they did not have authority to enter into a lease for multi-year general purpose space.
    Mr. GILCHREST. Do they have authority to enter into a 1-year general services space?
    Mr. EGGERS. I'm not aware of any authority they would have to do it for 1 year. I mean, if it is general purpose office space, then GSA generally would view its as its authority and its jurisdiction to lease general purpose office space.
 Page 26       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. I'm not sure if I follow that. You're saying——
    Mr. EGGERS. I don't think it would matter whether it were a lease for 1 year, 5 years, or——
    Mr. GILCHREST. OK. So NEXCOM doesn't have the authority——
    Mr. EGGERS. It's general purpose office space. Based on Reorganization Plan Number 18 of 1950, which transferred all leasing functions from the various Federal agencies to GSA, GSA's general view is that we, GSA, have the authority to lease general purpose office space for Federal agencies.
    Mr. GILCHREST. I'll close with this question for now, because I know some other people have some other questions.
    At the end of your testimony, Ms. Peoples, you said that ''the General Counsel, however, stated that GSA ultimately would defer to DOD to determine the leasing authority of non-appropriated funds.''
    Ms. PEOPLES. Yes.
    Mr. GILCHREST. So you're saying that if DOD—who in DOD—if DOD makes the determination that they can use non-appropriated funds to lease space, then you'll say okay?
    Ms. PEOPLES. I think the distinction here is that GSA will make the determination if the authorities are derived from the Federal Property Act, but if the authority to enter into these leases comes specifically from DOD's statutes and DOD regulations, then we would defer to the Department of Defense related to those individual authorities.
    Mr. GILCHREST. So at this point you're not sure if DOD has the statutes to do that?
 Page 27       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. That they may have their own specific authority to enter into these leases outside of the parameters of GSA's authority under the Federal Property Act.
    Mr. GILCHREST. Could—just if the—Mr. Eggers?
    Mr. EGGERS. Yes?
    Mr. GILCHREST. Are you aware of any statute that gives the DOD the authority to use non-appropriated funds for leased space?
    Mr. EGGERS. I'm not aware of any specific grant of statutory authority from Congress to DOD or to non-appropriated fund activities, again, to lease general purpose office space.
    Mr. GILCHREST. So what does that mean? Does that mean the Navy—what if DOD says they do, if we're deferring to DOD?
    Mr. EGGERS. Well, it will depend on what the basis for that conclusion is. I mean, if they do come up with a logical explanation for some authority, there are many statutory provisions that deal with non-appropriated fund instrumentalities, and——
    Mr. GILCHREST. Is all of this stuff on computers so we could punch a button and bring it up to the screen and say, ''There it is''? But we do have people that look through library books to see if it's there. I mean, how much longer do we expect this is going to take to find out if DOD has the authority?
    Mr. EGGERS. I don't know. Based on our review, we found none, and that's why our Office of General Counsel, in a response to the General Counsel of Department of Defense, on June 28, 1996, advised that we see no specific authority and, in our view, a non-appropriated fund instrumentality would have no greater authority than the Department of Defense or Navy, which created the non-appropriated fund instrumentality by regulation.
    So our legal position or our legal view is what's set forth in the 28 June, 1996, letter from our General Counsel, but I understand that General Counsel for Department of Defense will be issuing a decision, a legal opinion, a final legal opinion on behalf of DOD. You know, I don't know which way it's going to go, but that's certainly something we'll be interested to see.
 Page 28       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. We certainly will be. That will be real interesting.
    I think we all have some further questions, but if you could—Ms. Norton, do you have any questions? I recognize Ms. Norton.
    Ms. NORTON. Thank you very much, Mr. Chairman.
    I have to say that this event comes at a propitious time and I think ought to send some alarm bells ringing when one considers that the GSA is proposing that any agency, any size, anywhere should be able to lease space.
    I'm looking at the—let me try to go through so I understand what is involved in delegation.
    How does GSA decide, under present law, that a delegation should occur at all?
    Ms. PEOPLES. I think it's important in this particular case to recognize that this particular action was not a delegation as we are discussing in our proposed program.
    The NEXCOM lease is unique. The lease was already executed. And the delegation that we issued was done retroactively in order to give authorities to take appropriate action related to that lease.
    Ms. NORTON. I prefaced my question with a more general concern. I am quite aware of what happened in this instance, and we are looking closely at what happened in this instance.
    What happens in this instance has led me to be far more interested in the process, itself, particularly given, I repeat, that this is about to go wholesale——
    Ms. PEOPLES. Right.
    Ms. NORTON. ——as far as you are concerned. I want to know about delegations as they are done. How does a delegation—how does GSA decide that a delegation should occur?
 Page 29       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. Under our proposed program, we would set certain guidelines and principles in place and criteria for exercising our delegations. This is done up front with the granting of the authority, and it includes giving advice on applicable laws and regulations and setting the parameters in terms of how the contracts should be done.
    Ms. NORTON. Do you believe that the typical Federal agency would qualify for a delegation?
    Ms. PEOPLES. I think that in selected cases there are people who are trained and fully qualified to enter into leases. As we have done in the past, and as it proposed in our new program, one of the criteria for exercising a delegation is to have people who are trained as lease contracting officers, and we feel this is an important distinction.
    Ms. NORTON. Who will train those people, you or someone else?
    Ms. PEOPLES. The training can happen in a number of ways, and there certainly are alternatives to that. We do not intend to train all of the Government officers.
    Ms. NORTON. Well, then, how would you know that they are well-trained?
    Ms. PEOPLES. The agency, exercising its authorities, has responsibilities for ensuring that they comply. We do conduct——
    Ms. NORTON. Comply with?
    Ms. PEOPLES. Comply with the authorities that they have, whether the authority is granted by GSA or comes from its own independent authority base.
    Ms. NORTON. Will you make sure that training is taking place before a delegation is granted?
    Ms. PEOPLES. As part of the conditions of granting delegations, one of the specific criteria cited in the delegation is that an agency must have trained contracting officers to enter into agreements under the delegated authority.
 Page 30       PREV PAGE       TOP OF DOC
    Ms. NORTON. And it's the responsibility of the agency to make sure they are trained according to your specifications?
    Ms. PEOPLES. It is the responsibility of the agencies to ensure that they are appropriately trained. We are happy to assist and provide advice and guidance as it relates to at the time.
    Ms. NORTON. If they tell you they are appropriately trained, that's what is required and all that is required?
    Ms. PEOPLES. We also have a program whereby, on a periodic basis, we work with agencies who have delegations to review their overall program, and one of the things that we look at is their criteria and how they meet the qualifications for training.
    Ms. NORTON. How long will delegations be—for how long will delegations be granted?
    Ms. PEOPLES. Under the proposed program, we have not set any specific parameters. It is an excellent question, and it is one of the things that we are looking into as we set the framework for the program.
    Ms. NORTON. But you don't know yet?
    Ms. PEOPLES. We have not made a final determination yet.
    Ms. NORTON. But it will not be open-ended?
    Ms. PEOPLES. Well, GSA's authorities are up to 20 years, and right now we are working to come up with specific recommendations related to such issues as the terms of the leases.
    Ms. NORTON. Is there anybody who has authority now for up to 20 years?
    Ms. PEOPLES. There are individual agencies that have authority. Generally, they tend to be special purpose, and a number of those are cited in the Federal Property Management Regulations.
 Page 31       PREV PAGE       TOP OF DOC
    Ms. NORTON. You appear to rely, in some sense understandably, on what the agency tells you. One is left to wonder if that is wise, however, when you look at the Navy's own regulations—planning managers and non-appropriated fund activities, program manager guidance.
    Those regulations—Navy regulations now say very specifically that procurement includes purchasing, renting, leasing, or otherwise obtaining goods, services, or facilities, period. The Navy, internally, has its own regulations that do not mention general purpose office space.
    Now, he had a violation of internal regulations. So far as I can tell, you would rely wholly upon what the agency tells you, and we have no way even of knowing whether it was in compliance, not only with your own, but of its own internal regulations, and you wouldn't ask for any evidence of that, apparently—at least your testimony thus far doesn't indicate that. And yet, most of them who have done this before, you apparently will use similar procedures, relying on the agency.
    Ms. PEOPLES. If an agency is operating under what they believe to be their statutory authority, they certainly can establish whatever regulations are appropriate.
    Those agencies operating under GSA delegations, we do have a fundamental responsibility and we have and are continuing to work on a program to ensure that it's appropriately exercised—not necessarily on a transaction basis, but we do set criteria, we provide training, and when we issue delegations we have a specific conditions that must be complied with.
    Ms. NORTON. Now, my concern would be for—I can understand that you have more to do than ask people and agencies to prove everything that they say is true. In the absence of that, the burden on GSA would be to find some effective monitoring mechanism. What would that be, particularly in the case of agencies that are now about apparently to receive authority none of them has ever exercised before?
 Page 32       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. Well, under our proposed program, which would be done within the parameters of a GSA delegation of specific authorities, we would have reporting requirements and we would have specific oversight program related to that.
    Ms. NORTON. Are delegations for purchasing equipment different from delegations for lease of space?
    Ms. PEOPLES. I can't address that issue.
    Ms. NORTON. Mr. Eggers?
    Mr. EGGERS. I'm sure they would be. I mean, we certainly delegate authority for leasing, we delegate authority for buildings management. I'm not familiar with delegations of authority for purchasing equipment—have never seen one. Typically our Public Buildings Service, I don't believe, would be granting that type of delegation. It might be something that comes out of our Federal Supply Service. But I think any delegation would depend on the complexity of the authority delegated as to what the delegation would provide.
    Ms. NORTON. Should they be different? Should the delegations be different?
    Mr. EGGERS. Fundamentally, a delegation is an authorization for someone to act. There should be an assurance under any type of delegation that the rules, the regulations, the laws that apply to the agency——
    Ms. NORTON. Mr. Eggers, I'm trying to find the difference between delegating purchasing equipment and delegating leasing space. The assumption of my question is that those are fundamentally different actions. I'm asking you if you believe they are fundamentally different. And, if not, why not?
    Mr. EGGERS. Yes. A delegation, as a legal principle, is essentially the same. It would seem like it's probably different because a lease would involve a larger expenditure of funds, it would involve a longer term and a greater commitment by the Government. So it would certainly be something that I think GSA would take more steps to ensure that the agency that has delegated leasing authority has the ability to carry out the delegation in accordance with law. I think we'd be less concerned about a delegation to purchase supplies or equipment.
 Page 33       PREV PAGE       TOP OF DOC
    Ms. NORTON. Are you telling me that you plan different types of delegation or not?
    Mr. EGGERS. I don't know of any types of delegations that GSA is planning other than the leasing delegations. Hilary may be aware.
    Ms. PEOPLES. No. The Public Buildings Service program is limited to real property delegations.
    Ms. NORTON. I understand that. That's why I asked Mr. Eggers if he saw any difference, and I'm trying to find out just what is being delegated and whether the agency is cognizant of any difference or intends to take any such difference into account.
    Mr. EGGERS. I'm not aware, other than different subject, different principles, procedures, and maybe different scrutiny, different oversight, depending on the nature of what's being delegated.
    Ms. NORTON. One more question, Mr. Chairman.
    That is something I would like clarification on. I mean, what you have given me is a sort of Hornbook law answer. I'm trying to find out what, in fact, the agency intends—what distinction the agency intends to make, if any, and I would appreciate it if that information was provided to the chairman, who I'm sure would provide it to the rest of us.
    Ms. PEOPLES. We'll be happy to provide an answer on the record for that.
    [The information received follows:]

    [Insert here.]

    Ms. NORTON. One more question. We know that one remedy that you have or have followed if an agency does not follow your procedures is simply to retroactively affirm what they have done. Is there any other remedy?
 Page 34       PREV PAGE       TOP OF DOC
    Suppose an agency does not follow your procedures and practices? What is your remedy?
    Ms. PEOPLES. Under a delegation we have a number of remedies that are available to us in looking at that individual transaction and ultimately rescinding the authority in terms of an ability to go forward on future actions.
    The parameters of it are distinct when an agency is operating under what it claims is its own authority, with the regulations related to that individual authority.
    Ms. NORTON. What is your remedy?
    Ms. PEOPLES. Our remedies under delegation would be to review the transaction or——
    Ms. NORTON. Could you nullify the transaction?
    Ms. PEOPLES. There are a number of alternatives. We'd have to look at them case by case. The contracting office would have to make a determination like that.
    Ms. NORTON. Thank you.
    Mr. GILCHREST. Would the gentlelady yield for a second?
    Ms. NORTON. Yes.
    Mr. GILCHREST. In this particular instance, could you rescind this contract that the Navy became involved in?
    Mr. EGGERS. I don't believe we could rescind the contract. The contract was entered into. We could rescind the delegation. That might put Navy in a tighter spot. But typically I don't think one agency would rescind a contract entered into by another agency, especially when the other agency was claiming they had other authority to enter into the agreement.
    Mr. GILCHREST. How about the landlord, or a landlord? Could you rescind the contract with—couldn't a landlord file suit? Let's say the landlord that didn't get the lease, could that landlord file suit under this situation against the Navy or DOD or GSA or the Government, in general?
 Page 35       PREV PAGE       TOP OF DOC
    Mr. EGGERS. They could. On what basis? You mean that the lease wasn't valid, or——
    Mr. GILCHREST. Yes.
    Mr. EGGERS. Sure. I mean, that was one of the reasons we granted the retroactive delegation of authority.
    Mr. GILCHREST. So that wouldn't happen?
    Mr. EGGERS. No. To protect the interest of the United States, because the Navy had committed resources and had moved from one location to another. Because the United States would ultimately be responsible for paying whatever damages, we saw no reason to expose the United States to greater potential liability by having NEXCOM sitting there without any authority if, in fact, they did not have other authority to rely on.
    Mr. GILCHREST. Thank you.
    Thank you, Ms. Norton.
    Ms. NORTON. That's why I just want to challenge the notion that you couldn't rescind because it was another agency. If another agency enters into a contract illegally, you may not be able to rescind, but I cannot believe GSA wouldn't have the authority to instruct them to rescind. I mean, I don't want to give you the worst-case scenario, but surely you can think of instances where an agency entered into a contract where you found that there might be some kind of conflict of interest. That was even alleged here at one point.
    Suppose you found that? Wouldn't the interest of the United States be protected if you found a way to rescind what might have been an illegal——
    Mr. EGGERS. Again, if it were illegal it may be void from the very beginning.
    Ms. NORTON. So what would you do in that instance?
    Mr. EGGERS. Well, if we thought it was void from the beginning and we were aware of that, I'm sure we'd communicate that to the other agency and, again, some kind of action would have to be taken.
 Page 36       PREV PAGE       TOP OF DOC
    Ms. NORTON. What bothers me here is that you don't seem to have a clear—and I'm aware that they have entered into the transaction and that you are one step removed, and you seem to rely on the fact that you are one step removed, even when it comes, as we are now talking, to an illegal transaction.
    All I'm asking is: does GSA have the authority—and I'm giving you the worst case scenario—to say to somebody who has entered into an illegal transaction, ''You must rescind that transaction?'' or are you powerless to do anything once the transaction has become a contract?
    Mr. EGGERS. I'd like to look into that further and get an answer for you.
    Ms. NORTON. Gee, I wish you would, because you scare me in not having an answer for me, because I think the United States may be more at risk in your not having an answer for this matter than we were at the risk that caused you to retroactively approve the delegation.
    [The information received follows:]

    [Insert here.]

    Ms. NORTON. Thank you, Mr. Chairman.
    Mr. GILCHREST. Thank you very much, Ms. Norton.
    Mr. Mascara?
    Mr. MASCARA. Good. Thank you, Mr. Chairman.
    I'd like to revisit—at first I thought this was a kind of turf thing, but I see that perhaps that's not the case.
    Speaking to retroactive authority, perhaps that was an attempt to make legal that which was illegal in the first place. I'm not sure, because someone says, ''We give you retroactive delegation,'' that that is sufficient enough to provide a defense in court in case an interested party or an offeror were disgruntled, to say, ''You, we ex post facto gave NEXCOM the authority to engage in this lease.'' I just don't believe you can make something illegal legal by saying that it is now legal. The whole lease should have been negated and perhaps GSA enter into a lease.
 Page 37       PREV PAGE       TOP OF DOC
    Who is the lessor of this facility in Virginia Beach? Who is this person or persons or firm that was leased from? Who is the party to the lease?
    Ms. PEOPLES. We'd have to get back and put that on the record for you.
    Mr. MASCARA. Even though you're claiming this NAIF, I guess, as the reasons why NEXCOM could enter into a lease without first going through GSA, it gives me a great deal of cause for concern.
    I want to revisit what happened.
    In March 1993, they leased 75,000 square feet of space to replace the space in Staten Island, New York, going to Virginia Beach. In April 1994, the Navy said they needed an additional 18,000 square feet. Was it at this time that you said something's wrong here and that we need to look at the problems associated with the original transaction in March 1993?
    Ms. PEOPLES. At that point in time, in preparing the response to that letter that was sent to us for information purposes, the Office of General Counsel independently made an assessment and went back and looked at the fundamental issue of whether or not they had the authority on the original transaction.
    Mr. MASCARA. Do you think, because GSA said, ''We're going to give you retroactive delegation to engage that lease,'' that you felt sure that was proper, that you could do that, and that you would make it legal by doing that? Did you honestly believe that?
    Ms. PEOPLES. In giving the retroactive delegation, what we wanted to do was to give additional authorities in the event that it was ultimately determined by the Department of Defense that they did not have their own statutory authority.
    Mr. MASCARA. All right. So if they didn't have their statutory authority and they engaged in the lease, you can then—your legal counsel said that you can give them retroactive delegation to do that, and that lease would be legal, and you had no concerns of other people who may have offered space would sue the United States and would not win?
 Page 38       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. Department of Defense would have to use that authority as appropriate and would have to look at the transaction to ensure that it would fully meet all the legal requirements.
    Mr. MASCARA. Has anybody looked at whether this space is economical? I mean, did they go out for bids and—is the per-square-foot space cost—do you feel it is proper and cost-efficient?
    Ms. PEOPLES. In 1994, after the lease was entered into, a copy of the lease was sent to one of our specialists in our Philadelphia office, and at that point one of our staff who is familiar with rates in the area reviewed it in terms of the reasonableness of rental rates, and he sent a letter back to NEXCOM informing them that, based on his knowledge of the Tidewater market, Virginia Beach, that the rental rates appear to be well below the market.
    Mr. MASCARA. After the fact?
    Ms. PEOPLES. The request was made to GSA after the fact.
    Mr. MASCARA. I don't—who made the decision to—is there one person that said, ''We will go to Virginia Beach? Who made that decision? Do we have a name of a person that said—you know, there has to be some authority. I mean, this didn't happen by itself or by accident. It was by design that someone said, ''I've looked at the figures. The figures seem reasonable. We want to go to Virginia Beach, and I delegate somebody to sign these leases with somebody,'' and we don't even know who that somebody is.
    Can you give me that person's name who made that decision?
    Ms. PEOPLES. The ultimate decision to go to Virginia Beach was made before GSA was aware of the transaction, and that was made by the Department of Defense.
    Mr. MASCARA. So then we have to ask the——
    Ms. PEOPLES. Yes.
    Mr. MASCARA. ——Department of Defense who made that decision?
 Page 39       PREV PAGE       TOP OF DOC
    I don't have any further questions.
    Mr. GILCHREST. Thank you, Mr. Mascara.
    We have just a couple more questions, sort of on a second round. We'll go to Mr. Traficant, and then to Ms. Molinari.
    Mr. TRAFICANT. Some observations.
    At some point, GSA deferred to the DOD to see what authority existed over this matter. I'm not an attorney. I find that unusual. I think there is adequate law that should have been reviewed by counsel to determine this.
    Second observation: if the Navy's authority was so clear-cut, why did they ever bother to call you people in the first place? Why did they give you the courtesy?
    I'm looking at this scenario, and here's what I see: in this case someone—that someone being NEXCOM, the Navy, calls the GSA and tells them they have the authority to execute a lease. GSA says, ''Go ahead.'' Then GSA finds out there are some problems and they may not have authority to execute the lease but GSA says, ''Oh, well. Shucks,'' and grants it to them retroactively.
    Again, not being an attorney, testimony don't add up too good to me.
    Number one: was the NEXCOM lease ever determined in-house by counsel or any legal review to be in compliance with the Federal property management regulations?
    Number two: was it ever reviewed as to its impact, the fact that the issue may have been covered with jurisdiction of and by the Public Buildings Act?
    Was that ever addressed, those two?
    Ms. PEOPLES. At the request of Representative Molinari we did conduct a review of the lease that was entered into. That lease was reviewed against the standards that would be in effect as if it were executed under a GSA lease delegation.
    That particular report has been entered for the record, and there were a number of issues that were raised related to that.
 Page 40       PREV PAGE       TOP OF DOC
    Mr. TRAFICANT. I didn't ask you that. You inspected it and investigated it as if it were, in fact, let and lease entered into under the scope of GSA. It was not.
    Was it ever reviewed—the Navy's action, having executed a lease which I believe was in your jurisdiction, subject to some law—and I would believe in the Public Buildings Act—did anyone ever look to see if there was a violation of the Public Buildings Act by the action taken by the Navy? And, if so, was there any action taken, reports made, and to whom?
    Ms. PEOPLES. I'll have to—that's an excellent question, and I'll have to get back to you on the record for that.
    Mr. TRAFICANT. How long would that take, counsel?
    Mr. EGGERS. It shouldn't take very long.
    [The information received follows:]

    [Insert here.]

    Mr. EGGERS. I'm not aware of any review that was done. I know that it was investigated certainly by Navy IG and other IGs, so those are the only investigations I'm aware of.
    Mr. TRAFICANT. The Navy and the Department of Defense reviewed it? All right.
    Let me ask one last question, Mr. Chairman. I thank you for laboring here with this.
    Did the GSA ever determine if there were competitive biddings and if there were a number of sites that were reviewed and if the process of competition within a given region of necessary space was ever submitted?
 Page 41       PREV PAGE       TOP OF DOC
    Ms. PEOPLES. Those issues were reviewed and addressed in the report that has been completed and submitted for the record.
    Mr. TRAFICANT. Was there competitive bidding?
    Ms. PEOPLES. There were a number of offers, and the details are——
    Mr. TRAFICANT. Was there an official competitive bidding process subject to the leasing authority and standards and practices that are enforced and utilized by the General Services Administration, which is the precedent for handling leases?
    Ms. PEOPLES. There were differences in the way that action was handled.
    Mr. TRAFICANT. What were those differences?
    Ms. PEOPLES. I would have to go back and give that information to you on the record.
    Mr. TRAFICANT. I would ask that that be done, and I'd further ask unanimous consent that any other questions that we have, not to belabor the fact, be submitted in writing and answered in writing to the committee.
    [The information received follows:]

    [Insert here.]

    Mr. GILCHREST. Without objection, so ordered.
    Thank you, Mr. Traficant.
    Ms. Molinari?
    Ms. MOLINARI. Thank you very much, Mr. Chairman.
    I don't know where to start in just a few brief seconds.
 Page 42       PREV PAGE       TOP OF DOC
    I appreciate the interest of this committee.
    Mr. Mascara, I think one of the things which you were alluding to I'd like to just declare again because it highlights my frustration and concern. The time line will illustrate that, while there were questions being brought between NEXCOM and GSA, not only was this lease allowed to be delegated and ratified, but, in fact, the NEXCOM exercised an option extending the lease from 5 years to 10 years and leased an annex building.
    So while there were questions being raised, not only was there an ability for the Navy to go ahead and close on the initial offer; they extended from 5 years to 10 years, which I believe is an extraordinary length of time for a Federal lease, and put forth an annex building.
    So we not only said maybe we had a problem, but if we're going to have a problem, what the heck. That's really sort of the attitude, I think, that was followed here.
    Mr. Eggers or Ms. Peoples, has the Navy confirmed the delegation of authority to you?
    Mr. EGGERS. Have they confirmed it?
    Ms. MOLINARI. Yes. Isn't there a certain procedure that's required—maybe I'm wrong—where the Navy has to, in writing or in some way, shape, or form, accept the confirmation of delegation?
    Mr. EGGERS. There is a requirement in the Federal Property Act that if we delegate functions, that the Navy accept it, or any agency. But, again, this was a delegation of leasing authority and typical GSA delegations of leasing authority don't require acceptance.
    It's usually implicit because the agency requests the delegation be granted. Again, this was a very different situation because the transaction had already taken place.
 Page 43       PREV PAGE       TOP OF DOC
    Ms. MOLINARI. OK. So at no point in time—the Navy does not have to legally respond back to you in order to close that transaction?
    Ms. PEOPLES. Yes. There is a requirement in the delegation that they notify us if they exercise it and provide certain data relative to the transaction that's completed under the delegation.
    Ms. MOLINARI. And that has been done?
    Ms. PEOPLES. No, it has not been done, and to our knowledge they have not officially exercised the delegation of authority.
    Ms. MOLINARI. Now, does that not—Mr. Chairman, this, to me—I don't know what to say, because we've just spent a significant hour talking about the need to do things the right way so that the United States is not vulnerable, and so therefore we delegate. It seems to me there has been a large loophole that has been left open that may still leave the United States vulnerable.
    Ms. PEOPLES. We still have a——
    Ms. MOLINARI. The Navy has not accepted officially the delegation of that lease after all this.
    Ms. PEOPLES. That's our understanding to date.
    Ms. MOLINARI. OK. I guess we'll have to ask the Navy that, because I—there is clearly a reason for that. A Navy that was anxious to close on a deal, was anxious to extend a deal, was anxious to go against the advice of their counsel at the time and the contracting officer and a Member of Congress, still has not officially accepted the delegation of authority. That is confusing to me.
    If I may, again for the record, I am submitting this document, but, if I may, I'd just like to highlight several—I'm reading off GSA's response to my request for review of the lease.
 Page 44       PREV PAGE       TOP OF DOC
    GSA states that ''the conclusions were that the contracting people have little familiarity with usual leasing requirements and techniques; that the awardee was the highest priced offeror; that, in general, the NEXCOM lease demonstrates a lack of knowledge about basic lease procedures.
    ''The lease file indicates this requirement was not advertised locally in newspapers, as required by certain Federal regulations.
    ''The lease file also indicates NEXCOM officials ignored a basic concept of involving the exercise of options.
    ''The contracting officers' memorandum and lease files are silent as to why the other two renewal options were not evaluated and priced, despite the fact that SFO contemplated three 5-year renewals.''
    I'm leaving out a whole bunch.
    ''There is no evidence that an appraisal was obtained in this case. NEXCOM officials apparently were unaware of this real estate evaluation technique.
    ''The clauses are written entirely from the lessor's point of view.
    ''The NEXCOM lease contained 31 pages of lease language and clauses that were provided by the lessor, not the Government. The lessor wrote the clauses for this contract. The clauses will increase the United States Navy's exposure to unwarranted liabilities, negates the Government's right to withhold payment for services not provided.''
    These are just the highlights that I've ascertained, and therefore I hope the members of this committee now gain a greater understanding as to why I've pursued this for 2 years.
    Mr. MASCARA. Would the gentlelady yield?
    Ms. MOLINARI. Yes, sir.
    Mr. MASCARA. Do you have the cost of this lease? Does anybody have a—I came in late, so I don't know whether I missed that or not.
 Page 45       PREV PAGE       TOP OF DOC
    Ms. MOLINARI. It's $15 million for 10 years? Is that correct?
    Ms. PEOPLES. We'd have to have the Department of Defense speak to that.
    Mr. MASCARA. Thank you.
    Ms. MOLINARI. It's $1.3 million a year. And for the file—and, Ms. Peoples, I know that you stated that you responded that you did not know who the lessor is, and I would hope that after 2 years in preparing for this hearing that you'd come prepared with that information. If you would just submit that for the record, who is the lessor of this property.
    Ms. PEOPLES. I have that information and I just couldn't think of it at the moment, but it's Beverly Enterprises, Inc.
    Ms. MOLINARI. Thank you very much.
    Mr. GILCHREST. Thank you, Ms. Molinari.
    Ms. NORTON. Mr. Chairman, could I just ask a question? I'd like to know if there is any specific statutory authority for retroactive delegation.
    Mr. EGGERS. I don't know of any specific statutory authority for retroactive delegation. There's just the broad authority in the Administrator to delegate any authority or function vested in the Administrator in his discretion.
    Ms. NORTON. So the authorizing official is the Administrator?
    Mr. EGGERS. That's correct.
    Ms. NORTON. All right. Thank you, Mr. Chairman.
    Mr. GILCHREST. Thank you, Ms. Norton, and thank you, Ms. Molinari.
    Where is Beverly, Inc., from? Beverly, Inc., is the——
    Ms. PEOPLES. Beverly Enterprises, Inc.
 Page 46       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. Beverly Enterprises, Inc.? Where are they from?
    Mr. MASCARA. Mr. Chairman, they're one of the largest nursing home corporations in the country.
    Mr. GILCHREST. Were are they from?
    Mr. MASCARA. They run nursing homes.
    Mr. GILCHREST. Ms. Peoples, do you know where they're based, their home office?
    Mr. MASCARA. Arkansas.
    Mr. GILCHREST. Arkansas? I knew someone in the Navy in Arkansas once, but that was 35 years ago.
    Anyway, I ask unanimous consent that we take a 10-minute recess.
    Mr. GILCHREST. The subcommittee will come to order.
    The next panel is to DOD panel: Ms. Eleanor Hill, Inspector General; Vice Admiral James Fitzgerald; Department of the Navy, Mr. Steve Honigman, General Counsel; Mr. Robert Taylor, Deputy General Counsel, Department of Defense and Department of the Navy.
    I'm going to start up with just a couple of quick questions and then yield to my colleagues.
    Actually, I guess you have testimony we want to listen to. I think we'll probably go first then to Ms. Hill.

 Page 47       PREV PAGE       TOP OF DOC

    Ms. HILL. Thank you, Mr. Chairman.
    I do have a written statement which, with the Chair's permission, I'd like to offer for the record.
    Mr. GILCHREST. Without objection, it will be submitted.
    Ms. HILL. I would like to make briefly just a few comments about not only some of the questions you've asked as to our role in this case, but also I would like to point out a few things that I think this case shows not only about the case, but about our investigative system in DOD, and probably elsewhere in the Federal Government.
    The first thing I want to say at the outset is that I share the committee's concern, I share your frustration with this case. In my view, this case has taken far longer than it ever should have to be resolved.
    This is not, in my view, the level of responsiveness that we should be striving for at DOD or anywhere else, for that matter, in the Federal Government.
    My statement goes into some detail as to the role of our office, the Office of the DODIG, in this case, and I won't repeat all of that, but I do just briefly, want to desribe what our role was.
    The DOD hotline is operated out of our office. That hotline is a rather substantial operation for receiving complaints. It received over 15,000 complaints or contacts in 1995, for instance. Of those 15,000 in 1995, we had opened, I believe, 2,800 cases, our statistics show.
    In 1993, somewhere between March and June 1993, the DOD hotline received directly two complaints about this lease alleging generally that the lease had been executed improperly, that NEXCOM didn't have authority to do this.
    Mr. GILCHREST. What year was that, ma'am?
 Page 48       PREV PAGE       TOP OF DOC
    Ms. HILL. In 1993.
    Two of those complaints came directly to the DOD hotline. Two also came from GAO, the General Accounting Office, who has an organization called OSI, the Office of Special Investigations. They got two complaints from the GAO hotline. Those were also forwarded to our hotline.
    According to our records, when they got to the DOD hotline they were referred by DODIG hotline to the Naval Inspector General's office for resolution.
    I would point out to you that my understanding is that that's not unusual. Because of the statistics I just gave you, most of the things that come into the hotline organization are referred out, some to parts of DODIG and a far greater majority are referred outside the organization.
    These were referred to the Naval IG. My understanding is then the Naval IG referred those complaints to the Naval Supply Command Inspector General, which is yet another Inspector General system, and they proceeded to do an investigation.
    Our files do show that there was some follow-up from our office over the course of the next few months about when this was going to be finished. They proceeded with the investigation, and I believe in February 1994 we were notified by the Naval Inspector General that the case had been closed, that they had found no impropriety, that the actions in making the lease were reasonable.
    From what I can tell in looking at the record—again, this is in hindsight, as I was not part of this process at the time this happened—I gather from our records that that decision was based, to a great degree, on the fact that at the time GSA had a letter in the record saying that NEXCOM did have the authority to lease the building. I think probably they relied to a great degree on that.
    So that is the extent of the hotline issue here. That occured before Congresswoman Molinari's interest in the case or before her letters came over.
 Page 49       PREV PAGE       TOP OF DOC
    Our next contact with this case really was in October 1994 when GSA, the Inspector General at GSA, forwarded to the DODIG Congresswoman Molinari's letter asking for an investigation. He forwarded it to our office because we were the DODIG and would have cognizance over this.
    From our files on this case, it appears that probably in October or November 1994, after they came in, a decision was made at the DODIG that part of those allegations would be investigated in-house by the Department of Defense IG and part of them would be referred out.
    In her letter the Congresswoman included many of the allegations that hotline had originally about the lease being improperly executed, that there was no authority, that there was no oversight to the lease process, etc.—some of the things you've referred to this morning. However, she also included some allegations which had not come up before regarding an alleged conflict of interest by then Secretary of the Navy John Dalton.
    From what I can tell from our files, the decision was made to keep in-house in the DODIG the allegations regarding Secretary Dalton. In hindsight, I can really only speculate as to why that was made. I think it probably had to do with a number of factors.
    One, he was a senior official. Generally in most, but not all, senior official cases they are kept in-house because of the need for independence, objectivity, etc.
    Second, they were aware that as far as the other allegations, the Naval IG had already also been forwarded the Congresswoman's letter and had, in fact, also conducted some investigation on this before.
    So what happened in the next 2 months was the DODIG staff proceeded to investigate the conflict of interest allegations. They reviewed the entire lease file. They got financial documents of the Secretary. They got the financial print-outs on the companies involved. The allegations had to do with the fact that Secretary Dalton had worked for Stevens prior to becoming Secretary of Navy, and Beverly was a client of Stevens.
 Page 50       PREV PAGE       TOP OF DOC
    Then, after the review of the files, our people did some phone interviews, and they also did a number of sworn interviews of individuals involved in the leasing process, as well as the Secretary.
    As a result of that investigation in February, I believe, of 1995, the then-Acting Inspector General, Mr. Vander Schaaf, wrote Congresswoman Molinari and also advised the Secretary of Navy and the Navy Inspector General, that we had finished that part of the investigation and found no conflict of interest.
    Briefly, I can tell you that was based—number one, they found no conflict of interest on the original lease because at the time Secretary Dalton had not yet been nominated. There had not even been any press reports of his name as a potential nominee at the time of that lease, so they found no conflict.
    On the lease modifications they also found no conflict because they found that the Secretary denied any involvement, any knowledge of the lease. They also queried under oath the people who were involved in executing the lease modifications. They said the Secretary was not involved, that they had not been pressured to enter into the lease.
    And so they felt, based on that and based on the records, that there was no indication of any involvement, that he had no knowledge or involvement in the lease, and therefore that portion it was closed out.
    The rest of it, including some of the things that you've been discussing this morning—the oversight of the lease, whether it was a legal lease, etc.—was forwarded to the Navy IG for them to investigate in, I believe, February 1995.
    From there, as I'm sure you'll hear this morning, my understanding is the Navy IG conducted some investigation, and then the legal issue came up. It was referred to Navy General Counsel, and from there to DOD General Counsel.
    I can tell you that our files do show—and I cite some of it in the testimony—that our staff was doing follow-up on this. I was very chagrined to see the entries in there from, I believe, from earlier this year to probably right in May. There are a number of entries in the file where they had contacted Navy IG, DOD, OGC, Navy OGC, and were unable to get any answers as to when this was going to be finished.
 Page 51       PREV PAGE       TOP OF DOC
    That is what spurred the comment that Ms. Molinari referred to in her opening statement. One of our investigators—in fact, there is an e-mail in the file that I saw in which he says, ''This is becoming a problem.'' In fact, in May of this year the investigators recommended to their supervisors that we transfer action on the whole thing to the Navy because we don't have operational control over the Navy, we can't force them to do something, and our investigators were getting nowhere in asking for an expected completion date.
    That recommendation, at the time this hearing came into play, was in the process of coming up to me for my decision as to what to do with it they had not quite gotten it to me when this hearing and the contact with your staff started.
    That's really where we are and how we fit into the long, in fact, for too long-history of this case.
    I do want to say just a couple of things beyond that about some of the things I think this case really tells us about the system.
    First of all, as far as the case, itself, I can tell you that I was somewhat concerned when I went through this file. There is certainly a very complex legal issue involved here regarding this lease. Reading the statements, I know that many lawyers obviously are disagreeing and have viewed this time and time again, so who am I to say it is not complex. I am a lawyer. I'm not a contract or a lease lawyer, but I know there can be very confusing legal issues.
    My concern is not so much with the legal issue here as, regardless of the legal issue, there are some other issues here that should be addressed that go to good government, go to common sense.
    Congresswoman Molinari, just before we recessed, read a number of points from the GSA letter—things such as the fact that the lessor basically dictated the context of this lease. If you look at some of the interviews that our people had done—and I went back and read those from February, I guess, of 1995—you find that even though they were looking at the Dalton conflict of interest question, they did ask some other questions about the lease. Some of the things in those interviews are very troubling.
 Page 52       PREV PAGE       TOP OF DOC
    For instance, there are some allegations that people didn't have leasing experience; that this was done over the objections of a lot of people. There is some testimony indicating that they were going to use appropriated funds to cover this lease after they were saying it was non-appropriated in order to get by the legal requirements.
    So, as I said, we haven't done that investigation. We've sent it to the Navy IG and I know it's still in progress. I'm not privy to all the facts as to what they found, and I don't want to draw premature conclusions on that. It is a concern to me, however, that those kinds of good government issues have not yet been resolved. Whether or not this lease was legal, clearly the U.S. Government should have experienced people drafting a lease and should be doing it in the way that a reasonable, rational person would.
    Those are the kinds of things that I think could have been addressed early on in this investigation, and obviously were not.
    Second—and this is much broader. That pertains to the actual case. This whole scenario really highlights some of the things that I think are real problems in the IG system and the investigative system that I've seen in the little over a year now that I've been the DOD IG.
    First of all, we have a tremendous caseload. There is no shortage of things to investigate. I've mentioned to you the hotline, the 15,000 contacts a year. We have 2,800 open cases. In our organization Departmental Inquiries is the entity that handled the investigation in this case. They do whistleblower reprisal cases and they do senior official cases. They had, in 1995, 450 or 460 cases that came to them for disposition.
    This isn't even mentioning to you the audit investigations we have going, the criminal investigations, and many other things.
    We have a tremendous caseload.
    By contrast, the second point is, though we are getting more cases, we are on a down slope as far as resources. Our office, alone, the DODIG, is slated to be reduced 33 percent by the year 2001. We are going to take a big cut. We are having trouble handling these cases now. We're going to have 33 percent less people to do it in 2001.
 Page 53       PREV PAGE       TOP OF DOC
    The third point is a result of the first two. I can tell you that I've spent over 20 years doing investigations, not as an IG, but as a prosecutor and in the Senate doing Congressional investigations. I can tell you that the one thing I've learned is the best way to maintain accountability in an investigation is to do it in-house with your people.
    If you have the kinds of numbers and the kind of resource problems that we have, not only in our office, but the military IGs and the other IGs, it's impossible to do that.
    What happens is many of these cases are delegated out, they are transferred out. When we transfer them out, we lose operational control, and this case particularly is an example of that.
    In this case, if you look at the original hotline, it was delegated from us to the Navy IG, who then, in turn, referred it to an IG under him. So it was referred out twice, and I'm sure part of that was because of resources.
    The issue that is now with legal counsel as well as the other allegations were referred by us to the Navy IG. He did his work and then had to refer it out for a legal opinion. It went to the Navy General Counsel for a legal opinion and then was referred again to the DOD General Counsel.
    So this whole referral system, in my view, is not the best way to do investigations, but, unfortunately, it's what we have ended up with over the years.
    So that's anther point.
    Mr. GILCHREST. Ms. Hill, we—you're giving excellent testimony and I certainly appreciate the information and the manner in which you are giving us this information. We do have three other people—unless you want to not testify and we'll let Ms. Hill carry the ball here?
    What we'll do—do you have a closing point, Ms. Hill?
    Ms. HILL. Yes. My closing point is that the bad news is we have problems. People are not perfect. They make mistakes. Our system is clearly imperfect.
 Page 54       PREV PAGE       TOP OF DOC
    The good news is that we are aware of the problems. The truth is that hearings like this make us more aware of those problems, and we are trying to address them.
    I put some of the things in the statement that we've done in this area. The Military IGs and I have talked about this on numerous occasions. We're trying to effectively address timeliness issues, but I would be less than candid with you if I told you we were there yet. It's a big problem and there is a lot more to do.
    Mr. GILCHREST. We're going to try to help you solve those problems and maybe add a little more money in the budget for the IG of the DOD.
    Anyway, thank you very much for your testimony.
    Admiral Fitzgerald, I would say ''front and center,'' but you probably haven't heard that in a long time.
    Admiral FITZGERALD. No, sir, but I would understand it.
    Admiral FITZGERALD. Good afternoon, Mr. Chairman and members of the committee. I am Vice Admiral James Fitzgerald. I became the Navy Inspector General on September 1, 1995.
    The Office of the Naval Inspector General—we call it NAVINSGEN, has reviewed the question of the NEXCOM lease authority on two occasions. On 26 March 1993, an anonymous caller to the Inspector General Department of Defense hotline alleged that the commander of the Navy Exchange Command, NEXCOM, had signed a lease to rent the Beverly Building in Virginia Beach, Virginia, against the advice of counsel.
    The DODIG referred the case to us for investigation, and we, in turn, as Ms. Hill noted, passed it to the Naval Supply Systems Command IG for action.
    The NAVSUP IG provided us a report of investigation in July 1993. The report included a May 26, 1993, letter from GSA to Congresswoman Molinari indicating that NEXCOM, not GSA, had the authority to enter into the lease.
 Page 55       PREV PAGE       TOP OF DOC
    Relying on that letter, the report stated the allegation was unsubstantiated.
    When we reviewed the report, we noted that the allegation that NEXCOM counsel had objected to the action had not been addressed, and that the NEXCOM counsel had not been interviewed. Therefore, in October 1993 we tasked the NAVSUP IG to conduct additional inquiries and said it would treat the July report as an interim progress report.
    The NAVSUP IG responded with a supplemental letter dated January 26, 1994. The letter discussed the concerns of counsel and explained why NEXCOM thought its action was correct.
    However, it also stated that GSA had granted a retroactive leasing authority to the Secretary of the Navy, and in order to resolve the issue NAVSUP had formally requested ratification of the lease.
    We then concluded the supplemental response was sufficient to close that case, and by letter of 17 February we wrote to the DODIG that we considered the case closed. No conclusions were stated regarding the truth of the allegations, although we concurred with the request to ratify the lease.
    In February 1994, DODIG again asked us to reexamine the NEXCOM decision to execute the lease. This time we determined that we would conduct the investigation because it was apparent that a senior Navy official, COM NEXCOM, had personally signed the lease over the objections of both his attorney and the senior contracting officer.
    The NAVINSGEN investigator, my investigator, began to collect documents and conduct interviews. By early March we realized the case required resolution of the conflicting legal opinions among attorneys within the Navy's Office of the General Counsel, who provided legal advice to NEXCOM, NAVSUP, NAVFAC, and the Assistant Secretary of the Navy for Installations and Environment.
 Page 56       PREV PAGE       TOP OF DOC
    Therefore, in March 1995, in my formal memo of 9 March, we requested the General Counsel of the Navy to provide a formal legal opinion that would help resolve the controversy.
    We continued to conduct interviews and gather documents through most of the summer of 1995, at which time there appeared to be sufficient evidence to write a report in the event that the Navy's legal opinion was that NEXCOM did not have authority in question.
    However, we also recognized that further investigative steps might be required in the event that it was decided that they did have leasing authority and that a report could not be prepared until the legal issue was resolved.
    Once we receive a decision on the issue, we will be able to determine whether or not more investigation or interviews are necessary.
    We are committed to seeing that, once the legal opinion is issued, that this investigation is closed out quickly, and we will provide a report to the DODIG for transmission to Congress.
    Thank you very much.
    Mr. GILCHREST. Thank you, Admiral Fitzgerald.
    If I could beg the indulgence of the committee just for a couple of minutes, Mr. Traficant has to leave. He has one or two quick questions, and he'll submit the rest of the questions into the record.
    Mr. TRAFICANT. Thank you, and I thank the members of the committee.
    If anyone can answer this, please do, because I have been hearing all this testimony and I've never heard more crying in my life. I don't know if you need more money. I think something else may be needed here.
    I have a very simple question. The Navy and NEXCOM have the legal authority to execute this lease? Can someone answer that for me?
 Page 57       PREV PAGE       TOP OF DOC
    [No response.]
    Mr. TRAFICANT. It has been 2 1/2 years. There are letters after letters. I mean, we're coming before a committee, and evidently no one really has to tell Congress anything any more. Anybody? Was it determined that legal authority existed for the Navy and NEXCOM to execute this lease?
    Mr. HONIGMAN. Perhaps I can answer that question, Mr. Traficant.
    Mr. TRAFICANT. Perhaps.
    Mr. HONIGMAN. I'm Steven Honigman, the Navy Department's General Counsel.
    Mr. TRAFICANT. How are you, Steven?
    Mr. HONIGMAN. That is, in fact, the question that we have examined and have sought to answer, and that is still pending. In our view—that is, the view of my office—NEXCOM did have independent authority, but we have an understanding that there are persuasive opinions, authorities, arguments, and policy considerations on both sides, and for that reason we've sought a final, definitive opinion from the General Counsel of the Department of Defense.
    Mr. TRAFICANT. Do we have to check with some alien power to find out if there is a law, with all you attorneys after 2 1/2 years, that would determine a simple question?
    I am, believe me, beside myself.
    Mr. HONIGMAN. Sir, we consider other——
    Mr. TRAFICANT. I have one more question. Mr. Taylor?
    Mr. TAYLOR. The question is a complex legal matter. There is no law that precisely answers that question. it is a matter, in my view, of interpretation of the reach of reorganization plan number 18 of 1950. That's where it comes down. It is——
 Page 58       PREV PAGE       TOP OF DOC
    Mr. TRAFICANT. What court, counsel, set the precedent that would govern the testimony you just offered? What decision reinforces the legal parameters in which you've made that decision and testimony here? Was there a court decision that set a precedent that forced that to be interpreted that way, or does the Navy and the Department of Defense make their interpretation about precedent?
    Mr. TAYLOR. It is interpretation of statutory authority and, again, the reorganization plan number 18, which has statutory effect.
    Mr. TRAFICANT. I'm not going to belabor it. We have a lot of time here. I don't mean to cut you off, but I'd like to just say this to you: no one could look anybody in the eye and give a straight answer around here. I don't particularly like that. I'm just a regular little guy, you know. I don't know what's going to happen. This thing stinks to me.
    One last question: did anybody ever investigate if there was a competitive bidding process and why there were no local solicitations made for space where all real estate entities in a given region that evidently the Navy needed so badly could have submitted a bid and said, ''I've got a building and I'd like for you to look at it''? Was that investigated? Ms. Hill?
    Ms. HILL. I can tell you, Congressman, again, we covered some of those questions and then referred it over to the Navy IG for final resolution. From my reviewing the file in the last few days, including some of the GSA items and some of the items from NEXCOM, I think there is some discussion in there whereas GSA says something along the lines that they didn't locally advertise in the newspaper. I believe there is something in the file where NEXCOM comes back and says, ''We didn't use a newspaper, but we contacted several brokerage firms.''
    So their view is that they did some local advertising through brokerage firms.
    Mr. TRAFICANT. So the answer was no, no investigation?
 Page 59       PREV PAGE       TOP OF DOC
    Ms. HILL. No. The answer is not no. The answer is that we asked a few questions about that back 2 years ago when they started this. When it was transferred to the Navy IG, my understanding is that that was going to be investigated, and I think it probably was, but——
    Mr. TRAFICANT. One last question real fast, here. Just for the record, I'd like for all of you to answer this question.
    Was anybody at any time—you, personally, or anybody that you know or may have knowledge of, were you contacted by anybody within any part of the Government to ask you to lay low on this and to not make this a priority? Counsel?
    Mr. HONIGMAN. I can answer that right now, sir. Absolutely not.
    Mr. TRAFICANT. Fine. Vice Admiral?
    Admiral FITZGERALD. No, sir.
    Mr. TRAFICANT. Ms. Hill?
    Ms. HILL. No.
    Mr. TRAFICANT. Mr. Taylor?
    Mr. TAYLOR. Absolutely not.
    Mr. TRAFICANT. To your knowledge——
    Ms. NORTON. Would the gentleman yield?
    Mr. TRAFICANT. Yes. One last point I'd like to make. I have a number of questions, Mr. Chairman. I ask unanimous consent that these questions be presented to this panel and any panel I should so miss and that they would respond to them in writing and that we get some time element on when they could respond in writing to those questions.
    Ms. NORTON. Would the gentleman yield just before he leaves on——
 Page 60       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. Hold one second. We do have a number of—if I could—Mr. Traficant did have to leave, and I know we could just go into the questions, as opposed to hearing any more testimony. That's possible.
    Ms. NORTON. I would like——
    Mr. GILCHREST. But I think maybe at this point maybe we could just—we will certainly read your testimony. I think it might be fruitful for us now—Mr. Traficant has to leave, but Ms. Molinari asked to make a quick comment before Mr. Traficant left——
    Ms. NORTON. Mine is also before he leaves.
    Mr. GILCHREST. ——so I'll yield now to Ms. Molinari.
    Ms. MOLINARI. Thank you. I'll be very brief.
    Mr. GILCHREST. The unanimous consent request by Mr. Traficant, without objection, is so ordered, and we will get the answers to the questions that you request expeditiously. I would hope that they would come in some time by the first of September.
    Mr. TRAFICANT. That would be fine.
    Mr. GILCHREST. Ms. Molinari?
    Ms. MOLINARI. Just two very quick questions.
    Ms. Hill, you had stated in your testimony that you queried people responsible for executing the lease; however, in your testimony and in the documentation—and I hope I'm wrong on this—I have seen no contact made by your agency to Admiral Weatherson.
    Ms. HILL. That's correct, and I asked that question when——
    Ms. MOLINARI. Mr. Traficant, could you just wait for a second, because it is apparent in this investigation that was completed, the person who signed the contract, who was told not to sign the contract by the contracting officer, the vice admiral who retired shortly after he signed the contract, was not part of any investigation that has been concluded that provided the answer that there was no conflict of interest, which——
 Page 61       PREV PAGE       TOP OF DOC
    Ms. HILL. Well, he was not part of the DODIG investigation. I do believe—and the admiral should correct me if I'm wrong—that he was contacted during their investigation. I know he was contacted either through that or in the original hotline investigation.
    Admiral FITZGERALD. I personally can't attest to the fact of whether or not he was——
    Ms. HILL. I'm pretty sure he was.
    Admiral FITZGERALD. ——but I certainly can find out.
    Ms. MOLINARI. I'd appreciate that. Obviously he's——
    Admiral FITZGERALD. Yes, ma'am.
    Ms. MOLINARI. ——the point person in this entire investigation.
    Ms. HILL. I would just like to add, though, that I asked that very same question. I thought it was a very obvious question when I first looked at what was done back in December 1994 when they did our part of this case. Not only was he not interviewed, they didn't interview some of the outside people. They interviewed people in the Navy who were there at the time.
    Ms. MOLINARI. They also didn't interview the Chief Operating Officer Peck——
    Ms. HILL. Right.
    Ms. MOLINARI. ——who was brought in specifically for this transaction.
    Ms. HILL. Right. Exactly. They talked to people who worked with him, they talked to people who worked on the lease and who were supposed to sign the lease and didn't, and they talked to Admiral Cavanaugh.
 Page 62       PREV PAGE       TOP OF DOC
    I was told that the decision had been made at that time that, since they were only looking at the conflict issues and they found that there was no conflict because of the dates as to when the lease was signed versus when John Dalton's name was first mentioned, etc., that the decision was made at that point by management that they should not pursue that.
    Ms. MOLINARI. I know Ms. Norton wants to ask some questions. She has to leave. But I'm going to follow up on——
    Ms. NORTON. I just had a couple——
    Mr. GILCHREST. I think what we'll do, rather than completely shoot from the hip for the rest of the hearing, we will review your testimony and we will certainly give you plenty of time to respond to our questions, but what I'll do now, since Ms. Molinari is asking questions, I'll yield to Ms. Molinari for questions of this panel and then we'll proceed.
    Ms. NORTON. I just want to ask one question. The reason I wanted the gentleman to yield is because I wanted to follow up on his question as to whether or not there had been any violation of law, and we were not able to get a definitive—in fact, I think it's fair to say we were able to get no answer to that after all this time.
    I would like to ask, can we all at least acknowledge that there was a violation of Navy regulations, a per se violation of Navy regulations? Would you like me to read what the regulations say? ''Procurement includes purchasing, renting, leasing, or otherwise obtaining goods, services, or facilities.''
    Can all of us lawyers together at least concede for the record that whatever you may find about a matter that you say is complex—I'm real dumb-minded, here, because at least to the regulations I'd like an answer as to whether or not those regulations were violated that I have just read.
    ''Procurement includes purchasing, renting, leasing, or otherwise obtaining goods, services, or facilities.''
 Page 63       PREV PAGE       TOP OF DOC
    Mr. HONIGMAN. I believe you're referring to the Secretary of the Navy's instruction 7043.5.A.
    Ms. NORTON. Correct.
    Mr. HONIGMAN. And in my view, when we talk about leasing facilities by a non-appropriated fund instrumentality, there was no violation in the sense that what happened here was a non-appropriated fund instrumentality entered into a lease for facilities.
    The issue I think is whether——
    Ms. NORTON. Just a moment.
    Mr. HONIGMAN. ——it was authorized to do so, and that's the question that we're still considering.
    Ms. NORTON. Are you arguing that the lease was for a facility? Because these regulations are very explicit and don't say ''including,'' but explicitly name what they're talking about. I see no reference to general purpose office space. That is a term that could easily have been used. It's not the kind of procurement one is likely to overlook and kind of leave out.
    So I don't understand why that would have been left out if, in fact, it was intended to be covered, or if there is any doubt about whether it was intended to be covered.
    Mr. HONIGMAN. I would be happy to provide a fuller answer for the record, but in my view sitting here today ''facilities'' is a more general term, and when you're drafting an instruction of this kind you seek to draft it so that the generalities include the specifics. Otherwise, you might have——
    Ms. NORTON. Mr. Honigman, are you seriously considering—are you familiar with GSA terminology?
    Mr. HONIGMAN. No, I am not.
 Page 64       PREV PAGE       TOP OF DOC
    Ms. NORTON. Clearly you're not, because the notion that the word ''facility'' is not a term of art with a specific meaning, the notion that you, as counsel, would say it is not a term of art but is a general word that can cover general purpose office space, again, I—this scares me we are about to delegate this out because here we are dealing with words that have a meaning in law and a meaning in practice, and I would expect the answer you've just given to come from a lay person.
    For the ordinary Joe in the street ''facility'' can generically mean general purpose office space, but I would not think so for a counsel of any department of the Government with any familiarity whatsoever with procurement.
    Mr. HONIGMAN. I would be happy to provide a fuller answer for the record.
    Ms. NORTON. I'm afraid you're going to have to, Mr. Honigman.
    [The information received follows:]

    [Insert here.]

    Mr. GILCHREST. Thank you, Ms. Norton.
    I would like to say that the questions we have here today, we do and we will appreciate responses and some kind of conclusion to the questions, but the questions that we ask today that don't draw conclusions are the basis for the next hearing.
    Ms. NORTON. Before the next hearing I would like a written answer to that question, please.
    Mr. GILCHREST. Thank you, Ms. Norton.
    Ms. NORTON. On facilities versus general office space.
    Mr. GILCHREST. Mr. Mascara said that he had to leave, but he wanted to correct something on the record.
 Page 65       PREV PAGE       TOP OF DOC
    Mr. MASCARA. Yes. I'm still trying to determine who the lessor was. Was it Beverly——
    Ms. HILL. Beverly.
    Mr. MASCARA. ——Enterprises, a nursing home?
    Ms. HILL. I don't know about the nursing home. I had not heard that.
    Mr. MASCARA. I just wanted to correct the record. If it is Beverly Enterprises, they are from the State of California.
    Mr. GILCHREST. Thank you, Mr. Mascara.
    Mr. MASCARA. Thank you, Mr. Chairman.
    Mr. GILCHREST. Ms. Molinari, you are recognized.
    Ms. MOLINARI. [Question asked off-microphone.]
    Mr. HONIGMAN. I've just become personally aware of the issue about appropriated funds. My personal understanding is that at the time that the lease was entered into, non-appropriated funds were used. I am looking into and I expect that the Inspector General is looking into the actual factual situation.
    Ms. MOLINARI. And I think that's an important point for the record here. The Navy is stating—now, I'm not saying that you're advocating this, but what the Navy has apparently tried to play is that non-appropriated funds were used so that they would not need the delegation of authority. That statement in and of itself is in question right now.
    But if we take that on its face, non-appropriated funds were not used so that they wouldn't need the delegation of authority, and then those funds were replaced with appropriated funds by the United States Navy.
    This is absolutely outrageous, and a shell game with the taxpayer dollars.
    Now, maybe this is just another big chance and another big coincidence, but clearly—and I think you can well understand, when all these facts are put together, why I have lived the last 2 1/2 years asking in utter frustration, and, frankly, why the suggestion that this is just too complicated to answer by the Department of Defense, Department of Navy, IG, and General Counsels to answer one question in 2 1/2 years with Congressional inquiry made by a Member of Congress and a Congressional committee is a little hard to swallow.
 Page 66       PREV PAGE       TOP OF DOC
    Mr. HONIGMAN. Ms. Molinari, one thing that I would have said in my opening statement was to emphasize our regret that it has taken my office—it did take my office as long as it did to prepare our opinion.
    The issue was a complex issue. It was an issue that was studied intensively by my staff. Very capable lawyers in my office developed conflicting opinions and supported those opinions with reference to authorities, cases, and policy considerations. It was appropriate, I believe, to seek to come to a unified position.
    However, we did take too long to do so, and I do extend my apologies to you and to the subcommittee for the time that it took our office to reach the point on November 3rd when I issued my opinion.
    Ms. MOLINARI. Once again, we seem to be having an argument over whether this is incompetence or wrongful intent here. There has got to be a larger answer to the question.
    A decision was made to not use the—to not have to go through GSA in order to close on this lease by stating that non-appropriated funds were used, and then appropriated funds replaced those monies. Is that correct?
    Ms. HILL. Congresswoman, I just want to point out on this appropriated funds issue, so it's clear, that the memo that you read from is Mr. Campany's memo that was in our file. He was one of the investigators who did the investigative work regarding Dalton. That statement was based on their interviews, the sworn interviews, which I think we provided to the committee, which I've read and in which there are numerous questions asked about this whole issue of using appropriated funds and their intent to use appropriated funds.
    So this was something that came up, unfortunately, early. I mean, it came up in probably December 1994.
    My understanding, from our people, is that when in February 1995, they notified you they were transferring the lease allegations to the Navy, that that whole file, including the transcripts of the interviews and Campany's memo and everything else, was transferred to the Naval IG.
 Page 67       PREV PAGE       TOP OF DOC
    Now, I don't know whether it ever went to Mr. Honigman from there, but it has been in the file for some time.
    Ms. MOLINARI. But, nonetheless, the fact remains that we have a copy of a check that was sent from Navy supply paid to the NEXCOM for the lease. So whether that was the intent or not, I mean, I'm trying to find out intent now. The fact is NEXCOM is an appropriated fund, so the answer that Mr. Honigman just gave to Ms. Norton is just not sustainable.
    Now, why that happened is all of the sudden, because it took 2 1/2 years to still get this answer, is starting to bug me.
    Mr. HONIGMAN. I can only say that I expect that we will be able to provide, through counsel and through the Inspectors General, an answer to your question, Ms. Molinari, at the time that the final report is issued.
    Ms. MOLINARI. Let me just review, and then I'm not going to belabor this, because there is just no point to this, but we have a 2 1/2-year investigation with some of the highest investigative officers in the Navy and the Department of Defense. I asked several questions as a Member of Congress backed up by this committee that goes back to over a year ago. It all has to do with the lease that was executed where there was initial discussion as to whether the Navy had the authority or did not have the authority to lease.
    We're still having that discussion 2 1/2 years later.
    In the interim, a lease was entered into by the Navy against the will of the contracting officers and the legal counsel on site at the time that extended property that had, according to GSA's revelations, a myriad of things that had gone wrong with it, including allowing the lessor to write some of the terms of the lease. One of the reasons why this lease was rushed and allowed to be rushed was because it was non-appropriated funds. Now we find out that money was—that a financial transaction took place that did, in fact, make it an appropriated fund.
 Page 68       PREV PAGE       TOP OF DOC
    Again, we're here, after all these questions are asked, finding out that investigations continued as to a conflict of interest that did not allow people like Admiral Weatherson or Chief Operating Officer Peck, people who actually executed the lease, to ever be interviewed, including Beverly Enterprises.
    I mean, these are hecks of investigations that take 2 1/2 years, and the principals responsible have never been interviewed.
    Now, am I just a suspicious mind, or have you all just given us reason to think that there is something going on here?
    I will accept the fact if you document to me that it was just a myriad of very bad decisions made, but the fact that it has taken 2 1/2 years, the fact that your testimony, Mr. Taylor, at the end says you're just coming to a conclusion and now you're going to recirculate this memo tells me we have an ability to stall for another year while we get comment.
    This just cannot drop. This will not drop. The longer that any of these questions are delayed, the more I think we're all concerned.
    Mr. HONIGMAN. Ms. Molinari, I very much regret the time that we've taken to try to come to an answer, but the reason that we've taken so long in part is because it's such a difficult question. There is no intention to delay——
    Ms. MOLINARI. Mr. Honigman, can I ask you, within your department, how many times have you and your people on this investigation met on this within the last month?
    Mr. HONIGMAN. Within the last month we've prepared for this hearing, so we——
    Ms. MOLINARI. Prior to being called for this hearing.
    Mr. HONIGMAN. We have not met before being called for this hearing on this issue since 1995, when I issued my memorandum.
 Page 69       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. Thank you, Ms. Molinari.
    I think I would speak for the members of the committee that we don't accept the fact that this investigation had to take this long at all.
    I'll finish up with a few questions.
    Is there anybody at the table that has any idea or can tell me who will have any idea who made the decision and for what reason, the NEXCOM move from Staten Island to Virginia?
    [No response.]
    Mr. GILCHREST. Is that a no?
    Admiral FITZGERALD. I cannot.
    Mr. GILCHREST. Mr. Honigman?
    Mr. HONIGMAN. I cannot, sir, but I'm sure we can provide that for the record.
    Mr. GILCHREST. That would be one of the purposes for the next hearing.
    Is there anybody at the table that has any idea how many people worked at NEXCOM, how many employees, civilian and military, in Staten Island?
    Admiral FITZGERALD. I cannot.
    Mr. GILCHREST. Is there anybody at the table that has any idea how many people worked at NEXCOM in Virginia Beach?
    [No response.]
    Mr. GILCHREST. Is there anybody at the table that has any idea what the cost of the lease in Virginia is now and what the cost of the lease was in Staten Island?
    [No response.]
 Page 70       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. No one has any idea what the cost of the lease was in Staten Island?
    [No response.]
    Mr. GILCHREST. I'm told that the cost of the lease was zero. No taxpayers' dollars paid for the lease in Staten Island.
    Mr. Honigman, were you going to say something?
    Mr. HONIGMAN. Yes. I've just been given a copy of a memorandum for the Secretary of the Navy dated 14 January, 1993, signed by the Assistant Vice Chief of Naval operations, Admiral Heron, I believe it was, requesting approval to relocate NEXCOM from Staten Island to Norfolk, and it is signed, ''Approved, 15 January, 1993,'' by Dan Howard, the Under Secretary of the Navy.
    Mr. GILCHREST. So now we have a—if you could just go over that again, the date is——
    Mr. HONIGMAN. The request is 14 January, 1993.
    Mr. GILCHREST. And the request is to move NEXCOM——
    Mr. HONIGMAN. To relocate NEXCOM from Staten Island to Norfolk.
    Mr. GILCHREST. What we would like to do is to find out what is the rationale or what criteria was used to base that move on. Was it to benefit the taxpayers, benefit the Navy? It certainly couldn't have benefitted the taxpayers, I wouldn't think.
    Anyway, that's—those are interesting questions.
    Mr. Taylor, you made some—you were asked a number of times during the question period by Mr. Traficant, and again, I think, by Ms. Norton, as to the legality. What precedent did the Navy use to enter into this lease using non-appropriated funds and not going through GSA?
 Page 71       PREV PAGE       TOP OF DOC
    I would assume—and you can correct me—that Mr. Weatherson, after talking to some of the counsel that he had—and I'm sure there was conflicting information that he received—Mr. Weatherson then, and it was accepted later, started a brand new precedent as far as leased space by the Navy.
    What is your opinion on that? And has the Navy ever in the past leased space under these circumstances?
    Mr. TAYLOR. My understanding, subject to correction, is that the Navy—that NEXCOM leased space in 1990 without—again, without going through GSA, but I don't know any of the specifics.
    Mr. GILCHREST. Where was that?
    Mr. TAYLOR. I don't know any of the specifics. We'll have to supply that for the record.
    Mr. GILCHREST. Was it general purpose office space?
    Mr. TAYLOR. I understand the distinction and the importance of it being subject to GSA authorities.
    Mr. GILCHREST. But what you're telling me is somewhere in the Navy, somewhere in the United States, there was leased space by non-appropriated funds in a manner that we're dealing with right now?
    Mr. TAYLOR. Subject to correction, that's——
    Mr. GILCHREST. Can you call somebody and get that information to us tomorrow?
    Mr. TAYLOR. I am told yes.
    Mr. GILCHREST. Thank you.
    Mr. TAYLOR. In addition, you asked whether there were other precedents. Again, my understanding is that the Army/Air Force Exchange Service has leased space in the past going back many years.
 Page 72       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. So the Army and Air Force leases——
    Mr. TAYLOR. The Army/Air Force Exchange Service, which is a non-appropriated fund instrumentality that serves both the Army and the Air Force, has leased space that, again, it's my understanding would be subject, if it were not leased by a non-appropriated fund instrumentality, would be subject to the jurisdiction of GSA.
    Again, let me quickly add that when I said, ''If not leased by a non-appropriated fund instrumentality, it would be subject to GSA,'' I'm not concluding the fact that it was leased by a non-appropriated fund——
    Mr. GILCHREST. Let me say, before I lose what you're saying, you say the Army and the Air Force has for years leased space using non-appropriated funds for PXs?
    Mr. TAYLOR. No. My understanding is that it's primarily for warehouse space, and——
    Mr. GILCHREST. Has the Navy used funds—warehouse space for what? For military equipment? For PX stuff?
    Mr. TAYLOR. For PX stuff, for exchange stuff.
    Mr. GILCHREST. Has the Navy done that in the past for warehouse space for NEXCOM stuff using non-appropriated funds?
    Mr. TAYLOR. I do not know the answer to that question.
    Mr. GILCHREST. You're with the DOD?
    Mr. TAYLOR. With DOD.
    Mr. GILCHREST. So you know about the Army and the Air Force, but you don't know about it as far as the Navy is concerned?
    Mr. TAYLOR. In my background, in my work on this, I have spoken with AAFES, Army/Air Force Exchange Service. I have not spoken with NEXCOM.
 Page 73       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. Mr. Honigman or Admiral Fitzgerald, do you know if you operate similarly as the Army and the Air Force do to rent space for NEXCOM stuff using non-appropriated funds? Is that routine in the Navy?
    Admiral FITZGERALD. I do not know.
    Mr. HONIGMAN. And I would have to provide an answer for the record, sir.
    [The information received follows:]

    [Insert here.]

    Mr. GILCHREST. So we don't know that. That's interesting. I was going to ask another question, but if you don't know the answer to that one I can't ask the other question.
    Could you tell me, Mr. Taylor, what your personal opinion is on the present status of the lease that we're now talking about—the present legal status of this lease. Is it up in the air?
    Mr. TAYLOR. If we're talking about the generic legal issue of whether non-appropriated fund instrumentalities have the authority to lease space, general purpose office space in urban centers, without receiving a delegation from GSA, that is up in the air but nearing resolution within my office.
    Mr. GILCHREST. What is near? Nearing resolution? So it's nearing resolution. That means, from what I understand earlier from Ms. Peoples, your office will make the final determination as to whether or not this leased agreement is legal?
    Mr. TAYLOR. With respect to the Department of Defense. Now, if GSA were to come back and tell us they do not accept that determination, then perhaps the final resolution would be made by the Office of Legal Counsel within the Department of Justice. That would be the mechanism for resolving the legal dispute.
 Page 74       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. You say you're nearing your decision. What does that mean? A week? A month? Can we have some idea of when that conclusion will be reached?
    Mr. TAYLOR. Well, within my immediate office, I can only really speak with respect to my immediate office and not with respect to the Office of General Counsel, as a whole. The General Counsel's schedule and commitments and whether she accepts my recommendation are all things that I——
    Mr. GILCHREST. Who is the General Counsel?
    Mr. TAYLOR. Judith Miller.
    Mr. GILCHREST. Does anybody at the table have any idea who made the decision for the financial terms of the lease?
    Mr. HONIGMAN. No, sir.
    Ms. HILL. The only thing—again, this is part of the thing we didn't investigate, but, in going back myself over the files for the last couple days, I did see there is some correspondence in the file between the Navy—between NEXCOM and Beverly—talking about negotiating the lease and the terms of the lease. Evidently there were negotiations, and at some point, as the Congresswoman pointed out, a lot of Beverly's terms were accepted by NEXCOM into the lease. But I don't know if there was somebody above that.
    Mr. GILCHREST. Is that the way it's done in the Army and the Air Force when they sign leases, Mr. Taylor, that the lessor or the person that owns the building decides what the terms of the lease are going to be?
    Mr. TAYLOR. I will assume that there would be negotiations between the parties and neither one side nor the other would dictate what the——
    Mr. GILCHREST. Does this particular situation, where Beverly dictated the terms of the lease, seem a little bit odd to you, Mr. Taylor?
    Mr. TAYLOR. I have no knowledge of the facts of the negotiation here, and——
 Page 75       PREV PAGE       TOP OF DOC
    Mr. GILCHREST. I see.
    Mr. TAYLOR. ——and would just observe the fact that——
    Mr. GILCHREST. You're investigating this?
    Mr. TAYLOR. I am not investigating the underlying facts of the transaction.
    Mr. GILCHREST. You can make a decision on whether or not the Navy legally concluded a lease within its jurisdiction without understanding the full ramifications of the entire situation?
    Mr. TAYLOR. As I understand the question posed to me, it is whether non-appropriated fund instrumentalities have the legal authority to engage in——
    Mr. GILCHREST. So that's the only thing you're dealing with?
    Mr. TAYLOR. That is the only thing I am dealing with.
    Mr. GILCHREST. Admiral Fitzgerald, do you have some concerns about the way the lease was not negotiated, basically?
    Admiral FITZGERALD. Yes, and I think that will be one of the things that we will address when we can get on with our investigation.
    Mr. GILCHREST. Can I ask, when did your investigation start?
    Admiral FITZGERALD. We were referred for DODIG on 1 February, receipt was 15 February.
    Mr. GILCHREST. Of 1996?
    Admiral FITZGERALD. Of 1995.
    Mr. GILCHREST. Of 1995?
    Admiral FITZGERALD. Right.
    Mr. GILCHREST. So 1995——
 Page 76       PREV PAGE       TOP OF DOC
    Admiral FITZGERALD. ——asked the question on 9 March on the——
    Mr. GILCHREST. And did you ever ask General or—you don't have generals, do you?
    Admiral FITZGERALD. No, sir.
    Mr. GILCHREST. Admiral Weatherson—have you ever talked to Admiral Weatherson?
    Admiral FITZGERALD. I have not, but he was talked to, which is what I wanted to mention here. He was interviewed during the course of the first investigation, and we did take a sworn statement from him, and it is included in the results of the first investigation, which we provided to staff. I don't personally know the content of that statement.
    Ms. MOLINARI. The point of clarification was that I would have thought it was appropriate to be directed toward Admiral Weatherson, since he was the one that extended the lease.
    I appreciate the fact that you did that. I would have thought that somewhere along the line that DODIG would have become involved.
    Ms. HILL. As I said, Congresswoman, I asked that very same question and was told that they did talk to the person who made the lease modification, because at the time of the modification Dalton was in office and had been named as Secretary. At the time of the original lease, their review did not indicate that he even had been named as a potential nominee.
    Again, in hindsight since I wasn't there, certainly you could argue that they could still have gone and interviewed him, but that decision was made and they didn't.
    Ms. MOLINARI. I just appreciate the clarification.
    While I have the microphone, Mr. Chairman, Mr. Taylor, can you include in your investigation also the answer as to—you know, there is a whole other layer here now, and that is that seemingly—and I guess maybe, Vice Admiral, you have to answer this question for us, too, to confirm for us that appropriated funds were used. This is all now a whole other question.
 Page 77       PREV PAGE       TOP OF DOC
    It appears that you have to answer: can non-appropriated funds, I suppose for the future, be used without delegation authority?
    Second: what happens when non-appropriated funds are used and then are replaced by appropriated funds?
    Mr. HONIGMAN. OK. I will include that.
    Mr. TAYLOR. Can I suggest that I proceed ahead and answer the first question first so that we don't delay yet further the answer to the question?
    Ms. MOLINARI. I think that would be a great idea. Thank you.
    Mr. TAYLOR. Thank you.
    Mr. GILCHREST. Thank you, Ms. Molinari.
    I think we have a number of questions that will be submitted into the record and certainly sent to each one of your offices.

    Mr. GILCHREST. I think—first of all, I hope you've enjoyed the experience being here on Capitol Hill. It's rather unique experience for the democratic experiment, and it's ongoing.
    I think, though, at the next hearing we may—you may probably attend and sit as counsel to more principal individuals who have made the decisions that have caused us to have this hearing and you to investigate. You are not the ones that made the decision to move NEXCOM from New York to Virginia. You're not the ones that made the decision to use the appropriated funds in lieu of the non-appropriated funds. So all the people that did that, they're the ones that we would like to have, in a rather enjoyable setting—maybe we'll have a little coffee the next time.
    But I do appreciate your time and your effort, and we would also appreciate the very efficient, expeditious manner in which we can draw all of these questions to a very succinct conclusion.
 Page 78       PREV PAGE       TOP OF DOC
    Thank you very much, Ms. Molinari.
    The hearing is concluded or adjourned.
    [Whereupon, at 3:36 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]

    [Insert here.]