Management’s preliminary comments to the ERC Report FINANCE COMMITTEE June 19, 2002

1. General view We thank the ERC for the great service done to CERN. The work of the Internal Audit and Task forces is integrated in a clear picture… …and a fresh scrutiny of CERN has produced a very useful set of recommendations. The interaction of CERN Management with the ERC has been open and fruitful; As a consequence, the Medium Term Plan now presented embodies most of the ERC short and medium term recommendations on non-LHC activities, savings, and on LHC management structure and reporting; Some structural recommendations need to be examined with Council before implementation, in particular the proposal of a new Audit Committee; Longer term aspect, such as CERN top management structure, are for the next Management to consider.

Cost Consciousness We recognize significant lack of transparency in the managing and reporting of the LHC; At the same time, we would like to reassure Council that there are no significant, unjustified extra costs in the LHC Peer’s committees review the LHC project (machine and experimental areas) from a technical point of view; Committees make recommendations; the final decision is to the Project Management, which has enforced cost control. Since 1999, engineering modifications to the LHC machine and areas are subject to a formal procedure (ECR) which puts costs into evidence and has led to visible savings; This has ensured a reliable design of the machine, in particular in its most critical parts.

Cost Management: super-conducting dipoles assembly Spring 1999: offers for the first call for tender on magnet assembly ; Call for tender was done on the basis of “open books” and “shared responsibility”. Offers in the range of 700 kCHF/magnet to compare with 200kCHF/magnet in the 1996 cost estimate. Extrapolated to 1236 magnets this was a 600MCHF extra cost. The situation was reported to CC (also to dissipate the rumour that the LHC would cost 3 times more than expected). In response, Project Management has changed strategy completely : order of 90 magnets, to keep companies going, more R&D to make simpler design, technology transfer to firms, to reassure them about risks, Re-tender on conventional basis. Present contract: three companies, 330 kCHF/magnet. Extra cost of the whole dipole assembly is around 200 MCHF, including the cost of additional tooling, a reduction of 400 MCHF on the extra cost.

2. Where are we with respect to ERC Recommendations? … a prolonged SPS shutdown starting at the end of the 2004 run... effective use in the LHC project of the liberated manpower. … significant PS staff redeployment to LHC. –Definition of LHC schedule, non-LHC activities and savings is now completed, in line with Task Forces and ERC recommendations; –Savings are integrated in the Divisional plans; –Reallocation to LHC of about 500 MCHF; –Redeployment to LHC of liberated manpower has started; …R&D: further cooperative links with other institutions, …resources in common through a more intense collaboration. –An European R&D accelerator project under the ECFA umbrella is being defined. NON-LHC-RELATED SCIENTIFIC ACTIVITIES

LHC MACHINE AND EXPERIMENTAL AREAS proper estimate of the level of CERN manpower required in each group… – The 2001 cost to completion review was based on 36 Work packages. Exercise now extended to manpower. Magnet group reinforced. a “quasi contract”, …give a clear mandate and responsibility to group leaders in matters of performance, cost and schedule simultaneously. – Cost-to-completion budget (M and P) is given by the LHC Project Leader to the individual Group Leaders, under the responsibility of the Division Leader concerned. An explicit cost ceiling of 200 MCHF in addition to the present cost to completion – 140 M contingency in MTP, in the form of a positive balance in – Yearly external review will be established, to recommend the use of contingency for cost-to-completion variations (+ or -).

LHC MACHINE AND EXPERIMENTAL AREAS (cont’d) “earned value” reporting system. … – Earned Value Management for the LHC machine and experimental areas: by December – Extension to CERN’s share of detectors and other CERN projects will follow. Upgrade … existing follow-up tools – A new procedure for the updating of the Outstanding Commitments is in place from April 2002; database is available to the FI and SPL Divisions. Cost control should be strengthened at all levels in the project. – Responsibility of the Divisional hierarchy, – EVM system – The Finance Controller (to be appointed by June Council) has an independent view of the expenditure and commitments v.s. resources in the Plan. – The Programme Controller (appointed by DG in December 2001) reviews independently the whole process.

LHC DETECTORS the experiments’ Technical Coordinators must be integrated fully into the management and into the planning procedures of the EP Division. – Role and autonomy of Technical Coordinators is being strengthened as we enter the detector installation phase …introduction of “Locally Recruited Staff” … Outsourcing should be reserved for result- oriented contracts – Formal framework for Locally Recruited Staff : by December 2002, in view of re-tendering of important Industrial Services contracts in COHERENT HUMAN RESOURCE POLICY

REPORTING TO COUNCIL …quality of information provided to the Council should be improved in a significant way. – The June 2002 LHC Status Report gives the status of each LHC (36) work units, (in some cases an approximate estimate of the Earned Value achieved is given) and the identified risks (concerns); – EVM system will be decisive to allow the quality of information to Council to be improved; – Reporting every six months. AUDITING AND CONTROLLING AT THE COUNCIL AND THE DG LEVELS …Independent Audit Committee …. to report to the Council – Issue addressed in CERN/CC/2449 for discussion in Council. …Internal Controlling Service….to report to the Director General – Programme Controller Office is operating since November 2001 (FC/4490).

CONCLUSIONS The short and medium term recommendations of the ERC concerning: –non-LHC activities, –savings, –LHC management and reporting tools are either in place or being implemented; Management can provide a detailed list and time-table for implementation in September; The Programme Controller is in place; the proposal to establish a Finance Director/Controller is submitted to Council Audit structure: we propose CC to establish a Working Group to assess the overall situation, aiming at an intermediate proposal for November and full implementation by the December Council.