**STATEMENT OF KATHERINE H. STEVENSON, ACTING ASSISTANT DIRECTOR,
BUSINESS SERVICES, NATIONAL PARK SERVICE, U.S. DEPARTMENT OF THE
INTERIOR, BEFORE THE SENATE SUBCOMMITTEE ON NATIONAL PARKS OF THE
COMMITTEE ON ENERGY AND NATURAL RESOURCES, CONCERNING H.R. 1191, TO
AUTHORIZE THE NATIONAL PARK SERVICE TO PAY FOR SERVICES RENDERED BY
SUBCONTRACTORS UNDER A GENERAL SERVICES ADMINISTRATION INDEFINITE
DELIVER/INDEFINITE QUANTITY CONTRACT ISSUED FOR WORK TO BE COMPLETED AT
THE GRAND CANYON NATIONAL PARK.**

**NOVEMBER 8, 2007**

Mr. Chairman, thank you for the opportunity to present the views of the
Department of the Interior on H.R. 1191, a bill that would authorize the
National Park Service to pay for services rendered by subcontractors
under a General Services Administration Indefinite Deliver Indefinite
Quantity Contract issued for work to be completed at the Grand Canyon
National Park.

The Department appreciates the subcommittee's efforts to address this
situation but opposes H.R. 1191. The Department also testified in
opposition to H.R. 3961, a similar bill, in testimony before the House
Subcommittee on National Parks on March 30, 2006.

H.R. 1191 would authorize payment, through the appropriation of such
funds as are necessary, to subcontractors who completed work under task
orders to Pacific General, Incorporated (PGI) for which PGI was paid,
but subcontractors were not. The work was completed under National Park
Service (NPS) task orders issued against PGI's Indefinite Deliver
Indefinite Quantity (IDIQ) contract with the General Services
Administration.

PGI's default has created a financial burden on the affected firms. The
NPS had a contractual relationship with the prime contractor, PGI. The
NPS does not have a contractual relationship with the subcontractors and
NPS does not have the legal authority to pay subcontractors who
completed work under PGI's IDIQ contract for which PGI failed to render
payment.

H.R. 1191 would authorize the Secretary to pay these subcontractors
under certain conditions. The bill would authorize payment if: 1) the
task orders issued to PGI by NPS have been terminated, 2) the amount
owed to the subcontractors is verified, 3) all reasonable legal avenues
or recourse have been exhausted by the subcontractors to recoup amounts
owed directly from PGI, and 4) the subcontractors provide a written
statement that payment of the amount verified represents payment in full
by the United States for all work performed at the park under PGI task
orders issued by NPS between Fiscal Years 2002 and 2003.

Between Fiscal Years 2002 and 2003, the Grand Canyon National Park
(park) issued approximately 40 task orders to PGI under this IDIQ
contract. Those task orders totaled an estimated \$17 million for
various construction projects throughout the park. Invoices sent to the
park indicated that PGI certified payments were being sent to
subcontractors and suppliers. The NPS paid more than \$10 million to
PGI, of which approximately \$1.4 million, based on our most recent
estimates, was owed, but never paid, to subcontractors. PGI has been
indicted by the U.S. District Attorney's Office in Arizona on 26 counts
of fraud involved with these task orders.

In January 2004, the park began receiving complaints from subcontractors
citing lack of payment by PGI. In February 2004, the NPS suspended
further payment to PGI and issued a suspension notice ordering PGI to
cease activity, followed by termination for default of 17 remaining task
orders. PGI has had every reasonable opportunity to resolve the
situation, but has since ceased doing business.

Following PGI's default, the NPS withheld payment to PGI and began
paying subcontractors directly for work completed on PGI task orders,
valued at \$906,335. Contract law generally prohibits payments directly
to subcontractors because of the lack of a direct, contractual
relationship between the parties. However, in this case, NPS consulted
with the Government Accountability Office (GAO) and with their approval,
began paying subcontractors directly for these claims. NPS has used
approximately 92% of the withheld funds to pay 41 claims of an estimated
total of 76 claims submitted.

The impact of PGI's default was compounded by lapses in the contracting
operations at Grand Canyon National Park. An acquisition management
review conducted by the NPS Washington Contracting and Procurement
Office, determined that the park had failed to obtain payment and
performance bonds from PGI required by the IDIQ contract and the Miller
Act (40 U.S.C. § 3131). To prevent future lapses, we have strengthened
internal controls both at the park and regional level. For example, the
park superintendent is now annually evaluated for management of the
park's contracting program. In addition, the NPS Intermountain Region
will be conducting periodic acquisition management reviews of the Grand
Canyon contracting program.

The Department understands the hardships PGI's default and NPS' actions
have placed upon the involved subcontractors. The payment bonds required
of the contractor under the Miller Act are designed to protect
subcontractors who do not have the recourse of placing a lien on the
property at issue, since liens cannot be placed on government property.
The courts have held that, while the contractor has an obligation to
provide such bonds, the Miller Act places no affirmative obligation on
the federal government to ensure the bonds have been obtained. The
Department recognizes that H.R. 1191 is intended to be an equitable
resolution to a difficult situation. However, it singles out one
situation for relief not available to others under the Miller Act and
would effectively have NPS pay for the same services twice.

Although we are sympathetic about the position of the subcontractors,
the Administration is concerned about the precedent that would be set by
requiring the federal government to assume the liability for the
contractor's default, particularly in a situation where no contractual
relationship exists.

Mr. Chairman, this concludes my prepared remarks. I will be happy to
answer any questions you or other members of the subcommittee might
have.