[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
 UNPRECEDENTED CHALLENGES: THE COMPLEX TASK OF COORDINATING CONTRACTS 
               AMID THE CHAOS AND THE REBUILDING OF IRAQ

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                  MARCH 11, JUNE 15, AND JULY 22, 2004

                               __________

                           Serial No. 108-213

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          BETTY McCOLLUM, Minnesota
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
        March 11, 2004...........................................     1
        June 15, 2004............................................   177
        July 22, 2004............................................   313
Statement of:
    Kelman, Steven, Weatherhead professor of public management, 
      Harvard University, John F. Kennedy School of Government...   570
    Lanzilotta, Lawrence, Principle Deputy and Acting Under 
      Secretary of Defense (Comptroller), U.S. Department of 
      Defense; Deidre Lee, Director, Defense Procurement and 
      Acquisition Policy, U.S. Department of Defense; Tina 
      Ballard, Deputy Assistant Secretary of the Army (policy and 
      procurement), U.S. Department of Defense; General Paul 
      Kern, Commanding General, U.S. Army Materiel Command; 
      Brigadier General Robert Crear, Commander, Southwestern 
      Division, U.S. Army Corps of Engineers; and William H. 
      Reed, Director, Defense Contract Audit Agency, U.S. 
      Department of Defense......................................   235
    Neffgen, Alfred, chief operation officer, KBR government 
      operations, Americas Region; William Walter, director of 
      government compliance, KBR government operations; Charles 
      ``Stoney'' Cox, vice president and past Restore Iraqi Oil 
      [RIO] Project director, KBR government operations; and 
      Keith Richard, regional project manager, Theater 
      Transportation Mission, LOGCAP III, KBR government 
      operations.................................................   507
    Strock, Major General Carl A., Director of Civil Works, U.S. 
      Army Corps of Engineers, U.S. Department of Defense; 
      General Paul J. Kern, Commanding General, U.S. Army 
      Materiel Command, U.S. Department of Defense; Major General 
      Wade H. McManus, Jr., Commanding General, U.S. Army Field 
      Support Command, U.S. Department of Defense; Tina Ballard, 
      Deputy Assistant Secretary of the Army (policy and 
      procurement), U.S. Department of Defense; Lewis Lucke, 
      Deputy Assistant Administrator, U.S. Agency for 
      International Development; Dov S. Zakheim, Under Secretary 
      of Defense (Comptroller) and Chief Financial Officer, U.S. 
      Department of Defense; William H. Reed, Director, Defense 
      Contract Audit Agency, U.S. Department of Defense; and Rear 
      Admiral David Nash, USN (ret.), Director, Iraq Program 
      Management Office, Coalition Provisional Authority.........    25
    Walker, David M., Comptroller General of the United States, 
      accompanied by William T. Woods, Director, Acquisition and 
      Sourcing Management, U.S. General Accounting Office, and 
      Neal P. Curtin, Director, Defense Capabilities and 
      Management, U.S. General Accounting Office.................   197
    Warren, James, former truck driver, KBR; David Wilson, former 
      truck driver, KBR; and Marie deYoung, former logistics 
      specialist, KBR............................................   364
Letters, statements, etc., submitted for the record by:
    Ballard, Tina, Deputy Assistant Secretary of the Army (policy 
      and procurement), U.S. Department of Defense, prepared 
      statements of............................................ 56, 261
    Blackburn, Hon. Marsha, a Representative in Congress from the 
      State of Tennessee:
        Copy of subcontract......................................   399
        Resume of Ms. deYoung....................................   393
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, prepared statement of..........................   585
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................   141
    Crear, Brigadier General Robert, Commander, Southwestern 
      Division, U.S. Army Corps of Engineers, prepared statement 
      of.........................................................   274
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia:
        Memo from Ms. deYoung to Mr. Lesar.......................   498
        Prepared statements of............................. 5, 181, 321
        Washington Post article dated July 20, 2004..............   316
    Davis, Hon. Jo Ann, a Representative in Congress from the 
      State of Virginia, prepared statement of...................   146
    deYoung, Marie, former logistics specialist, KBR, prepared 
      statement of...............................................   375
    Harris, Hon. Katherine, a Representative in Congress from the 
      State of Florida, prepared statement of....................   308
    Kelman, Steven, Weatherhead professor of public management, 
      Harvard University, John F. Kennedy School of Government, 
      prepared statement of......................................   573
    Kern, General Paul J., Commanding General, U.S. Army Materiel 
      Command, U.S. Department of Defense, prepared statements  42, 267
    Lanzilotta, Lawrence, Principle Deputy and Acting Under 
      Secretary of Defense (Comptroller), U.S. Department of 
      Defense:
        Memo dated June 7, 2004..................................   237
        Prepared statement of....................................   240
    Lee, Deidre, Director, Defense Procurement and Acquisition 
      Policy, U.S. Department of Defense, prepared statement of..   255
    Lucke, Lewis, Deputy Assistant Administrator, U.S. Agency for 
      International Development, prepared statement of...........    64
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............   139
    Nash, Rear Admiral David, USN (ret.), Director, Iraq Program 
      Management Office, Coalition Provisional Authority, 
      prepared statement of......................................    83
    Neffgen, Alfred, chief operation officer, KBR government 
      operations, Americas Region, prepared statement of.........   511
    Reed, William H., Director, Defense Contract Audity Agency, 
      prepared statement of......................................   248
    Ros-Lehtinen, Hon. Ileana, a Representative in Congress from 
      the State of Florida, prepared statement of................   148
    Ruppersberger, Hon. C.A. Dutch, a Representative in Congress 
      from the State of Maryland, prepared statement of..........   311
    Strock, Major General Carl A., Director of Civil Works, U.S. 
      Army Corps of Engineers, U.S. Department of Defense, 
      prepared statement of......................................    29
    Walker, David M., Comptroller General of the United States, 
      prepared statement of......................................   200
    Warren, James, former truck driver, KBR, prepared statement 
      of.........................................................   366
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California:
        Copies of audits.........................................   410
        Memorandum dated March 10, 2004..........................    10
        Minority views...........................................   329
        Prepared statements of............................ 20, 189, 347
    Wilson, David, former truck driver, KBR, prepared statement 
      of.........................................................   370
    Zakheim, Dov S., Under Secretary of Defense (Comptroller) and 
      Chief Financial Officer, U.S. Department of Defense, 
      prepared statement of......................................    75


 THE COMPLEX TASK OF COORDINATING CONTRACTS AMID CHAOS: THE CHALLENGES 
                      OF REBUILDING A BROKEN IRAQ

                              ----------                              


                        THURSDAY, MARCH 11, 2004

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2 p.m., in room 
2154, Rayburn House Office Building, Hon. Tom Davis (chairman 
of the committee) presiding.
    Present: Representatives Tom Davis, Burton, Ros-Lehtinen, 
McHugh, Mica, LaTourette, Ose, Jo Ann Davis, Platts, Turner, 
Carter, Tiberi, Waxman, Lantos, Kanjorski, Maloney, Tierney, 
Clay, Watson, Lynch, Van Hollen, Ruppersberger and Norton.
    Staff present: Melissa Wojciak, staff director; David 
Marin, deputy staff director, director of communications; Keith 
Ausbrook, chief counsel; Ellen Brown, legislative director and 
senior policy counsel; David Young, counsel; Robert Borden, 
counsel/parliamentarian; Drew Crockett, deputy director of 
communications; John Cuaderes, senior professional staff 
member; Edward Kidd, professional staff member; Ken Feng, 
investigator/GAO detailee; Teresa Austin, chief clerk; Brien 
Beattie, deputy clerk; Allyson Blandford, office manager; Phil 
Barnett, minority staff director; Kristin Amerling, minority 
deputy chief counsel; Karen Lightfoot, minority communications 
director/senior policy advisor; Anna Laitin, minority 
communications and policy assistant; Jeff Baran and David 
Rapallo, minority counsels; Mark Stephenson, minority 
professional staff member; Earley Green, minority chief clerk; 
Jean Gosa, minority assistant clerk; Cecelia Morton, minority 
office manager; and Naomi Seiler, minority staff assistant.
    Chairman Tom Davis. Good afternoon. We are going to go 
through two opening statements before we get to our witnesses, 
so take your time getting to your seats, the witnesses.
    A quorum being present, the committee will come to order.
    We meet today to look into the complex task of coordinating 
contracts amid the chaos and challenges of rebuilding Iraq.
    Even before the conclusion of major military actions, there 
were plans for a major effort to rebuild Iraq's infrastructure 
and government. Emergency supplemental appropriations bills for 
both fiscal year 2003 and fiscal year 2004 have provided more 
than $20 billion to rebuild postwar Iraq. Many Federal 
departments and agencies have already awarded or soon will 
award contracts for the sustainment and reconstruction efforts.
    The rebuilding of Iraq is a monumental task. Saddam Hussein 
spent decades frittering away his nation's vast wealth on 
himself and his Baath party cronies, while little to nothing 
was spent to meet the urgent needs of the Iraqi people. Decades 
of neglect and inaction have turned this once great nation into 
a country where the majority of people live in poverty and 
despair.
    However, with Saddam's ouster, we are witnessing a rebirth 
of Iraq. Freedom and liberation have brought a new sense of 
urgency to the Iraqi people. They understand what is at stake; 
and we, as part of the coalition of the willing, must do our 
part to sustain freedom by rebuilding their nation.
    Twenty days ago, I, along with other members of this 
committee, returned from Iraq where we witnessed the enormity 
of the reconstruction effort. This was my second trip, and in 
the 6 months since my last visit to the region I saw 
significant progress in our reconstruction efforts.
    The task at hand is enormous. It will be years before we 
are able to get Iraq running on its own. Yet each day Iraqis 
are getting a better life, thanks to the dedicated American 
soldiers and civilians working there. Our reconstruction 
efforts are being completed under even life-threatening 
conditions. Our military is nothing short of superb. Besides 
ensuring the safety of the country, they have become master 
builders and diplomats. The use of funds from the Commanders 
Emergency Relief Program paves the way for local and regional 
stabilization by allowing for small rebuilding projects that 
have an immediate impact on the local population.
    For example, we recently met with General Odierno, 
Commander of the 4th Infantry Division, who told us how he used 
his CERP funds to build a water treatment facility in Tikrit 
and a sewage treatment facility in Baji. In many ways, the 
Commanders Emergency Relief Program is meeting the immediate 
needs until our larger construction projects are completed.
    The positive offshoots of the Iraqi rebuilding effort are 
beginning to take shape. Entrepreneurialism is sprouting; and 
unemployment, which was once a major problem, is coming under 
control. Our efforts are paying off. Reconstruction, together 
with an interim constitution, locally elected leaders and a 
functioning, better-trained security force all add up to a 
stable and more peaceful Iraq.
    Today we meet to specifically discuss the complexity of 
coordinating our rebuilding of Iraq, primarily as it pertains 
to the larger construction projects and sustainment efforts. 
Currently, there are many U.S. Government agencies working to 
improve conditions in Iraq. For example, the Department of 
Defense, including the U.S. Army of Corps of Engineers and the 
U.S. Agency for International Development, are both working to 
rebuild Iraq. Both DOD and USAID have their own procurement 
shop, their own management team, and their own audit 
mechanisms. The committee is interested in the efforts made by 
each agency to manage and coordinate acquisition activities to 
ensure that taxpayer money is spent both effectively and 
efficiently.
    In addition, enormous amounts of money have already or are 
about to be expended in the efforts to rebuild Iraq. We need to 
make sure that acquisition rules are being followed. Congress 
has spent years streamlining complex government rules and 
regulations to make it easier for businesses to sell to the 
Federal Government, but did so in a way that carefully balances 
affordability, accountability, and accessibility to make sure 
taxpayer dollars are protected. It's our job to make sure that 
these things are happening in Iraq.
    We hope to learn today how our acquisition system and the 
professionals who run it have responded to the challenges 
raised in Iraq. No one doubts that the circumstances are 
extremely difficult. I've seen the chaos on the ground there. 
The security situation is tenuous at best. Our servicemen and 
women are being killed and wounded. A number of contractor 
employees have also been killed and wounded.
    Large-scale procurements are complex and difficult to 
understand in and of themselves. When it comes to procurement, 
if you're not confused, you're not paying attention.
    Add in the urgency and inherent dangers of contracting in a 
war zone, and the challenge of acquiring urgently needed goods 
and services becomes quite daunting. Through this hearing we 
hope to separate fact from fiction, truth from rhetoric, and in 
turn help make sure we are coordinating contract processes in 
Iraq in a way that ensures success and safety.
    Fortunately, our acquisition laws have been carefully 
crafted by Congress to provide enough flexibility for the 
government to quickly get the goods and services it needs in 
emergency situations. There are provisions in the acquisition 
laws that allow for carefully circumscribed exceptions to our 
standard for full and open competition to provide for a more 
limited, less time-consuming award of contracts for urgently 
needed supplies and services. I frankly cannot think of a 
situation that would better fit within these flexibilities than 
what we faced on the ground when we came into Iraq. Sometimes 
we just don't have time to take our time.
    I find it ironic that those who are complaining that the 
government doesn't have sufficient people on the ground to 
oversee and administer the current contracts in Iraq would 
foster contracting strategies that would increase substantially 
the need for contract administration. For every complex 
problem, there is a simple solution that doesn't work.
    I recognize that there have been mistakes. The contract 
oversight process is not always pretty, and the decisions made 
under the pressures of combat are not as always as lucid as 
those made under less-threatening conditions.
    I commend my ranking member and others who have raised some 
important questions pertaining to the reconstruction process. 
Today I hope we can differentiate between real issues worthy of 
serious inquiry and those with little or no basis in fact that 
are raised solely to create a whiff of scandal.
    There are some who have disagreements with contractors 
overpayments, and it should come as no surprise to anybody 
who's familiar with the administration of complex contracts in 
difficult circumstances. These difficulties should be viewed 
within the context of the wartime environment in Iraq.
    Many of the disputes that have been made public show that 
the contract oversight process is indeed working. This hearing 
is part and parcel of a functioning oversight process.
    Make no mistake, I have no patience for fraud or abuse. I 
expect that any such instances that are proven will result in 
harsh punishment for the perpetrators. I also expect that, as 
the conditions on the ground improve, the next generation of 
contracts will be awarded and administered in accordance with 
our standard acquisition procedures. Emergency procedures are 
for emergencies only.
    This is a monumental task, and there is no room for error. 
Nor is there room for partisan sniping aimed merely at 
undermining the overall reconstruction efforts. We are 
interested in the truth, not rhetorical calisthenics. We are 
interested in helping coordinate the many important contracts 
in place today or planned for the future. In short, we are 
interested in moving forward with a contracting framework that 
benefits our reconstruction goals. We are not interested in 
simply repeating disingenuous sound bites.
    Now, pursuant to committee rule 14, following the 
witnesses' opening statements, the ranking minority member and 
I shall each control 20 minutes in order to permit some 
important but complex lines of questioning and allow adequate 
time for full responses. Following the 40-minute questions, we 
will continue under the 5-minute rule.
    Mr. Waxman and I have agreed that we don't expect any votes 
today at this point.
    He has asked--requested of us that a number of documents be 
released from this committee. I understand that DOD has gone on 
their own volition and that these documents have been released.
    We are also joining with him in a request for more 
documentation from the Department of Defense reiterating an 
earlier request for some of these documents, and we join him in 
this. If when we get the responses back, they are not adequate, 
we will then address what further avenues we may wish to 
pursue.
    In the interests of time and given the 20-minute block 
agreement I have made with Mr. Waxman, we are limiting opening 
statements to the ranking member and myself. But statements 
will be included in the record, and you will have 10 calendar 
days to do so.
    I also want to thank all of our witnesses for appearing 
before the committee, and I look forward to their testimony. I 
also want to recognize a new member of the committee, the 
gentleman from Ohio, Mr. Tiberi. We have had a couple of 
vacancies on this committee, and we are very happy to have him 
here. We understand he is going to be here for the entire 
hearing, and we appreciate it. Thank you.
    At this time, I will yield for Mr. Waxman's opening 
statement.
    [The prepared statement of Chairman Tom Davis follows:]

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    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
thank you for holding this hearing today.
    The subject we are going to consider, contracting in Iraq, 
urgently needs congressional oversight. It is an issue that has 
crucial implications for the success of our efforts in Iraq and 
for U.S. taxpayers. Usually I keep my remarks short at 
committee hearings, but today I am going to speak at some 
length in this opening statement.
    I have been investigating contracting in Iraq for many 
months and I believe few of my colleagues understand just how 
big a mess this administration has created. I want to explain 
to the members of this committee and the public what is going 
wrong and why.
    The problem starts with the procurement strategy that the 
administration is using in Iraq. It is profoundly flawed.
    I have a chart that I want to display. It is over there.
    The chart shows two numbers, the first, 2,300; 2,300 is the 
number of discrete reconstruction projects that the coalition 
provisional authority is planning to do in Iraq. The second, 
zero, is the number of projects that will be subject to 
competitive bidding.
    Instead of promoting competition, the administration is 
giving contractors monopolies over huge sectors of the 
reconstruction effort. One company, Halliburton, gets all work 
related to oil reconstruction in southern Iraq. Another 
company, Parsons, gets all work related to oil reconstruction 
in northern Iraq. And they never have to bid against each other 
for any specific project. The administration has a procurement 
strategy that intentionally shields contractors from 
competition.
    Think about this: For nearly a year both Halliburton and 
Bechtel have had enormous operations in Iraq. Both companies 
can do virtually the same work. But never once have they had to 
compete against each other for a specific project. This is a 
great deal for Bechtel and Halliburton, but it is an absolutely 
horrendous deal for the taxpayers.
    These problems are compounded by the fact that many of the 
contracts that are being issued are cost-plus contracts. Under 
a cost-plus contract, the more the contractor bills, the more 
money the contractor makes. That is why cost-plus contracts are 
notoriously prone to abuse.
    In the absence of competition to discipline the process and 
to hold down prices, the taxpayer has to rely on contracting 
officers working for the Defense Department to keep prices 
reasonable. These officials are supposed to scrutinize the 
proposals submitted by Halliburton and other contractors and 
reject those that are loaded up with unnecessary expenses. But 
they are inexperienced and overworked.
    Representative John Dingell and I asked GAO to investigate 
what kind of job the Defense Department is doing managing the 
largest contract in Iraq, Halliburton's LOGCAP contract. The 
contract alone is worth over $4 billion to Halliburton.
    GAO told us that the Army Central Command in Kuwait has not 
made cost control a priority. GAO found that the Army does not 
have the expertise or the personnel in Kuwait needed to ensure 
that taxpayers are not being overcharged. According to the 
General Accounting Office, inexperienced reservists are being 
sent to Kuwait and given key oversight responsibilities. A 2-
week training course on contract management is the only 
preparation they receive.
    GAO told us that in one instance the Army approved a LOGCAP 
contract worth $587 million to Halliburton in just 10 minutes. 
The documentation for this mammoth contract was just six pages 
long. In essence, this administration's approach to contractors 
like Halliburton is ``trust but don't verify.''
    Auditors like the Defense Contract Audit Agency and 
criminal investigators with the Inspector General and the 
Justice Department can try to catch waste, fraud and abuse 
after it occurs, but there are few mechanisms in place to 
prevent overcharges from occurring in the first place. We are 
now learning that the administration's approach is an enormous 
mistake.
    This week, the committee received two recent audits of 
Halliburton by DCAA. At the appropriate time--well, I won't 
need to move to have the committee release these documents 
publicly because I understand that we have all agreed and the 
DCAA has agreed to make these documents public, so they will be 
available. These audits are a scathing indictment of 
Halliburton.
    According to DCAA, Halliburton's cost accounting system 
has, ``significant deficiencies'' and the company has 
repeatedly violated Federal acquisition regulations. Well, 
anybody who has followed this issue has heard Halliburton say 
over and over again that any violations or overcharges are 
isolated occurrences. This is what it said when it was revealed 
that Halliburton sought fees for millions of meals it never 
served, and it is what Halliburton said when it disclosed that 
company procurement officials participated in a $6 million 
kickback scheme, and this is also what Halliburton said to the 
DCAA.
    When the audit agency gave Halliburton a chance to respond 
to its preliminary findings, Halliburton wrote, ``this issue is 
not a significant estimating system deficiency as stated in the 
DCAA reports. Rather, this was a unique situation.''
    The problem with Halliburton's response is that it is not 
true. According to the DCAA, ``The estimating deficiency is not 
a one-time occurrence. It is systemic.''
    Now here is a stunning fact that is revealed in the DCAA 
audit documents. The DCAA brought these systemic problems to 
the attention of the Army Corps of Engineers on January 13. 
Three days later, on January 16, the Army Corps gave 
Halliburton another $1.2 billion contract. It was as if the 
decisionmakers simply didn't care.
    Yesterday, I sent my colleagues a briefing memorandum that 
went through some of these issues in detail, and I'd like to 
ask unanimous consent that it be made part of the hearing 
record.
    Chairman Tom Davis. Hearing no objection, I would note that 
there are parts of the briefing memorandum that we take issue 
with on the factual side, Mr. Waxman. We will get to that in 
our questions, but with that understanding, without objection, 
it will be entered into the record.
    [The information referred to follows:]

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    Mr. Waxman. It is not just the government auditors who are 
complaining about Halliburton's practices. Halliburton's own 
internal auditors have said that the company procedures are, 
``antiquated'' and that it has, ``weak internal controls.''
    Last month, my staff was contacted by two former 
Halliburton procurement officers. They described company 
practices that systematically overcharge the taxpayer on 
hundreds of routine requisitions every day. When they tried to 
protest, they were ignored. They said that the company's motto 
was ``Don't worry about price. It's cost-plus.''
    Well, it's very hard to get details from the administration 
about the specific amounts Halliburton is charging for 
particular projects. The White House, Secretary of Defense, and 
the USAID all have an aversion to any form of oversight. When 
Representative Dingell and I wrote letters raising significant 
issues, they were almost always ignored. But we have been able 
to penetrate one particular contract, Halliburton's contract to 
import fuel from Kuwait into Iraq; and what we have learned is 
that Halliburton and its obscure subcontractor, Altanmia, have 
been gouging the taxpayer.
    I have another chart, and I want to show this to everyone 
here.
    Halliburton imports gasoline from Kuwait into Iraq for 
Iraqis to use. The Defense Energy Support Center imports 
gasoline from Kuwait into Iraq for the military to use. The 
chart simply compares the prices the government pays with those 
that Halliburton pays. The differences are astounding.
    Gasoline in the Middle East is a commodity. Everyone should 
be able to get it at essentially the same price, but 
Halliburton is paying over 20 cents more per gallon than the 
Energy Support Center just to purchase the fuel. Both 
Halliburton and the Energy Support Center have to transport the 
fuel through dangerous conditions into Iraq, both entities are 
using private contractors to handle the transportation, and 
both entities receive, military protection for convoys. But it 
costs the Energy Support Center just 36 cents per gallon 
compared to $1.21 for Halliburton, and then Halliburton adds on 
a markup for itself of 24 cents per gallon and another category 
called ``other'' charge of 2 cents per gallon. The end result 
is that it costs the taxpayer twice as much when Halliburton 
imports the fuel as it would cost the government to do it.
    Representative Dingell and I first raised this issue on 
October 15. Since then, all I have been hearing from the Army 
Corps of Engineers, which is the agency responsible for the 
fuel contract, is a string of denials and platitudes. As 
recently as February 1, the Corps spokesman said, ``We have our 
own internal audit process, and we haven't turned up any 
serious wrongdoing or major problems.''
    When you get to the bottom of this, that is the real 
problem. The policymakers in this administration don't seem to 
care about the pattern of waste, fraud and abuse that is coming 
to light.
    Fifty years ago, the CEO of General Motors said, what is 
good for the country is good for General Motors and what is 
good for General Motors is good for America. Well, I have a 
message to this administration: What is good for Halliburton is 
not always good for America. Iraq is a dangerous country. All 
of us in Congress want to do whatever is necessary to make sure 
our troops have the equipment and protection they need, and 
Americans are a generous people. They are willing to spend 
billions to help Iraqis rebuild their nation and establish 
democracy. But gouging and profiteering is heinous and should 
never be tolerated.
    I firmly believe that Congress has an important oversight 
roll to play in ensuring the wise expenditure of taxpayers' 
dollars. Part of the problems that we are experiencing can be 
attributed to the lack of vigorous congressional oversight. But 
I'm encouraged by the recent steps that Chairman Davis has 
taken. He has joined me in requesting the DCAA audit documents. 
He scheduled this hearing, and he has promised to hold another 
hearing hopefully by the end of April. This is not easy for him 
to do, and I am sure it will alienate many in the 
administration, but I commend him for the steps that he is 
taking, even as I will be pressing him to take more.
    In closing, let me say that I look forward to today's 
hearing and the opportunity to hear from and question the 
distinguished witnesses before us.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. Thank you very much, Mr. Waxman.
    We have our panel today. We have Major General Carl Strock, 
who is the Director of Civil Works, Army Corps of Engineers; 
General Paul Kern, Commanding General, U.S. Army Materiel 
Command, Department of Defense; Major General Wade McManus, 
Commanding General of the U.S. Army Field Support Command; Ms. 
Tina Ballard, the Deputy Assistant Secretary of the Army for 
Policy and Procurement, U.S. Department of Defense; Lewis 
Lucke, Deputy Assistant Administrator, USAID; Honorable Dov 
Zakheim, the Under Secretary of Defense, Comptroller, and Chief 
Financial Officer, Department of Defense. We have Mr. William 
Reed, the Director of the Defense Contract Audit Agency [DCAA]; 
and Rear Admiral David Nash, the director of Iraq Program 
Management Office, Coalition Provisional Authority.
    It is our committee's policy that all witnesses be sworn 
before you testify. So if you would rise with me.
    [Witnesses sworn.]
    Chairman Tom Davis. I think I went over with everybody that 
we try to keep a 5-minute rule. Mr. Waxman and I didn't observe 
it. So we understand. Your total statement will be in the 
record. Obviously, there are a lot of allegations and things 
going out there. We want to give you adequate time to make your 
statements.
    We have a distinguished panel that I think for most of you 
are career military or civil servants, served under 
administrations of both parties. We appreciate your taking the 
time to be here.
    I am going to start with General Strock and work our way 
down.
    General Strock. Thank you, Mr. Chairman.
    Chairman Tom Davis. I also need to recognize that Dr. 
Zakheim will be retiring on April 15. I want to extend my 
gratitude for your many years of service to our country and 
best wishes as you move forward and thank you for being with us 
today.
    Mr. Zakheim. Thank you, Mr. Chairman.
    Chairman Tom Davis. The others will be here for our next 
hearing, but this may be our last bite at you.
    Dr. Zakheim do you want to start off.
    Mr. Zakheim. I think if you would like to go in that order, 
just in terms of the flow, of how this is all seen in terms of 
oversight, then probably starting with General Strock is the 
right way to go. I will be talking specifically about contract 
performance oversight, and to start there is almost like 
starting a story in the middle. So with your permission I think 
we will start at----
    Chairman Tom Davis. We will then thank you.
    Again General Strock, thank you for being with us.

 STATEMENTS OF MAJOR GENERAL CARL A. STROCK, DIRECTOR OF CIVIL 
    WORKS, U.S. ARMY CORPS OF ENGINEERS, U.S. DEPARTMENT OF 
 DEFENSE; GENERAL PAUL J. KERN, COMMANDING GENERAL, U.S. ARMY 
  MATERIEL COMMAND, U.S. DEPARTMENT OF DEFENSE; MAJOR GENERAL 
   WADE H. McMANUS, JR., COMMANDING GENERAL, U.S. ARMY FIELD 
  SUPPORT COMMAND, U.S. DEPARTMENT OF DEFENSE; TINA BALLARD, 
      DEPUTY ASSISTANT SECRETARY OF THE ARMY (POLICY AND 
 PROCUREMENT), U.S. DEPARTMENT OF DEFENSE; LEWIS LUCKE, DEPUTY 
    ASSISTANT ADMINISTRATOR, U.S. AGENCY FOR INTERNATIONAL 
    DEVELOPMENT; DOV S. ZAKHEIM, UNDER SECRETARY OF DEFENSE 
 (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF 
  DEFENSE; WILLIAM H. REED, DIRECTOR, DEFENSE CONTRACT AUDIT 
  AGENCY, U.S. DEPARTMENT OF DEFENSE; AND REAR ADMIRAL DAVID 
  NASH, USN (RET.), DIRECTOR, IRAQ PROGRAM MANAGEMENT OFFICE, 
                COALITION PROVISIONAL AUTHORITY

    General Strock. Mr. Chairman and members of the committee, 
thank you for allowing us to testify today. It really is an 
honor to be here to tell you a bit about what we faced in Iraq.
    As you mentioned, I am the Director of Civil Works for the 
U.S. Army Corps of Engineers, but from March to September I 
served with ORHA and later CPA in a number of capacities, 
culminating as the Deputy Director for Infrastructure in the 
CPA. What I would like to do today is give you a limited 
description of the operating environment that was faced by 
coalition military forces and civil authorities as we went into 
Baghdad.
    Sir, ORHA was established in January 2003--that's the 
Office of Reconstruction and Humanitarian Assistance--and we 
deployed to Kuwait on March 15, 2003. ORHA consisted of three 
pillars: reconstruction, led by the U.S. Agency for 
International Development [USAID]; civil administration, led by 
the Department of Defense; humanitarian assistance, led by the 
Department of State; and three regional coordinators for north, 
central and south Iraq headed by two retired general officers 
and one former Ambassador.
    The priority of effort for ORHA initially was the planning 
for an expected humanitarian crisis. Significant effort went 
into planning for food, water, shelter and medical support. The 
reconstruction focus was to repair damaged infrastructure to 
prewar conditions. We understood that the future of Iraq relied 
on the integrity of the infrastructure, so careful efforts were 
made to use precision weapons to minimize impacts on 
infrastructure. The ground forces were also sensitive to the 
need to limit damage to infrastructure. The U.S. Agency for 
International Development was given a $680 million effort to 
apply to all sectors of infrastructure, and oil was handled 
separately through a contract under a task force to restore 
Iraqi oil from the Corps of Engineers that reported directly to 
coalition forces land component commander.
    The third element of ORHA was civil administration, and 
that was aimed at the reestablishment of government functions 
in the liberated country. This consisted of senior advisors for 
each of the 23 ministries in teams from one to five. We 
expected that the leadership would flee but that ministry work 
force and facilities would be intact on our arrival.
    Lieutenant General Gardner and his leadership really 
concentrated on creation of a guiding coalition for the future 
of Iraq. The first elements deployed to the port of Umm Qasr in 
late March, shortly after the commencement of the hostilities, 
and the main body began deployment to Baghdad in mid-April. 
When we arrived, we found a country roughly the size of 
California in terms of population and geography where virtually 
every element of government did not exist.
    There was relatively little damage due to combat 
operations, with the exception of the communications 
infrastructure which was deliberately targeted. We anticipated 
some looting but not as significant as it turned out to be. It 
was extremely difficult for our forces to control, and it was 
especially bad in government facilities. We also anticipated 
some level of sabotage, but again this exceeded our 
expectations, not as much as expected in the oil 
infrastructure, where very few fires were set, but much more in 
other elements of infrastructure. Virtually every public 
building was burned, with its records, its equipment and 
supplies all destroyed.
    The most challenging aspect we found in the infrastructure 
was really not about the damage caused by the war and its 
aftermath but by 30 years of neglect under the Saddam regime. 
We found an infrastructure that was fragile and antiquated, 
that was really on its last legs. It was only to the credit of 
the Iraqi public servants that this infrastructure worked at 
all, largely as we understand it through threat that they 
produce for the country. Saddam also used basic services and 
infrastructure to reward those who favored him and to punish 
those who did not.
    In the electricity sector, there was no generation of 
electricity when it arrived in Baghdad, a tremendous challenge. 
There was no water treatment. There was no sewage flowing. All 
the irrigation in the country had ceased. Fuel supplies were 
far more limited than we anticipated. The hospitals were in 
darkness and closed down. Schools were not operating. The work 
force will be expected to take advantage of.
    As expected, the key leaders were absent. They either fled 
or had been removed from debaathification. But the remaining 
civil servants we found were competent, committed and 
courageous. However, they really lacked a sense of initiative 
that is so important in a self-performing government and 
virtually had to be told to do everything that was necessary. 
They also lacked facilities, tools, and equipment and supplies 
and money to get their job done.
    Finally, the security situation that all of us faced was a 
tremendous challenge for everyone.
    I might add that ORHA, those civil servants who went in 
with General Gardner, faced exactly the same living conditions 
as the Iraqis--no food, no fuel, no power, no transportation, 
everything the same.
    Sir, when we got on the ground we first established a 
regional presence through our regional coordinators to include 
Baghdad. We relied very heavily on the military forces in the 
early stages. Their civil affairs and line units really carried 
the weight of the reconstruction and establishment of 
government, utilizing seized and invested assets and their own 
capabilities.
    General McKiernan, who commanded the Combined Forces Land 
Component Command, recognized the need early on to get 
electricity flowing in the country, so he convened a task force 
called ``fajr,'' which is first light in Arabic. It's a 
multidisciplinary task force led by Brigadier Steve Hawkins 
that went into Baghdad right behind the military forces with a 
priority to establish electricity, to first furnish it to 
hospitals, then water supply, then sewage treatment, and 
finally to domestic needs of the Iraqi people.
    We also found a flooding situation on our hands, as all the 
reservoirs had been abandoned and they were operated at free 
flow. Working with the Iraqi public servants we were able to 
find, we brought the rivers under control, and we started up 
the power plants and began to establish the electrical grid and 
began to treat water and get hospitals back on line. Eventually 
Task Force Fajr expanded their scope to a national level.
    Another task force that was established was Task Force 
Restore Iraqi Hope--Iraqi Oil. On February 13, the Army was 
designated as executive agent for restoration of oil 
infrastructure, and that authority was passed on to the U.S. 
Army Corps of Engineers, which further delegated authority to 
Brigadier General Bob Creer from the Southwestern Division to 
pull together a task force and accomplish that mission.
    The immediate mission was to fight anticipated fires and to 
safely shut down the oil fields in Kirkuk and Rumaila and then 
to bring the refineries, pipelines and export facilities back 
into operation. We used LOGCAP to reposition the firefighting 
forces that we needed for the immediate aftermath of the 
fighting, and after careful analysis decided to go to sole 
source with Kellogg, Brown and Root services to accomplish, the 
reconstruction of the oil infrastructure.
    There was far less sabotage than expected. We quickly 
brought the fires under control with the assistance of the 
Kuwaitis and, working with the Iraqi Oil Ministry, have made 
remarkable progress. We are now at prewar oil production levels 
of 2.5 million barrels per day. We are exporting 1.5 million 
barrels per day and refining about 500,000 barrels per day for 
domestic consumption. The expected earnings are $1.5 to $2 
billion a month; and so far, to date, we have returned $8 
billion to the DFI for use by the Iraqi people.
    Task force RIO also picked up an additional responsibility 
to provide domestic fuel for all the people of Iraq. This is 
not just gasoline. It included diesel, kerosene and LPG, which 
they used for cooking and heating.
    Sir, our final task was Task Force Restore Iraqi 
Electricity. In August, General Abizaid was very concerned 
about the progress of reconstruction. He was concerned that we 
were losing the consent of the Iraqi people, and frequently you 
heard from these people that this is the Nation that put a man 
on the moon but we can't get the lights on in Baghdad. Out of 
frustration, General Abizaid convened a conference in which he 
wanted to look at what we were doing with the electricity, the 
oil and refined fuel and the security situation that cared for 
all that infrastructure.
    One of the outcomes of that conference was the need for a 
FEMA-like capability similar to our domestic disaster response 
where teams of experts with flexible contracting tools and the 
necessary resources to fix problems as they encountered them 
could flow into Iraq. We deployed this task force within 2 
weeks. We pulled General Steve Hawkins back, not to the fight 
and put him ashore, and since that time we've contributed in 
many ways to the restoration of electricity working under the 
leadership of USAID and the CPA.
    We accomplished the first mission of 4,400 megawatts of 
productivity in October, and we are well on the way to 
achieving the 6,000 megawatt target by May. The task force 
really focused on temporary generation, distribution controls 
and logistics, while USAID focused on the longer-term aspects 
of electrical generation and distribution. To do this, we 
employed four competitively bid projects much like the IDIQs 
used by LOGCAP and Task Force RIO, and so far our efforts have 
been tremendously successful.
    My written includes far more detail, but I again appreciate 
the opportunity to lay out for you the situation we faced and 
some of the mechanisms we employed to address.
    Chairman Tom Davis. Thank you very much. As I noted before, 
your entire statements are in the record; and questions will be 
based on the entire statement.
    [The prepared statement of General Strock follows:]

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    Chairman Tom Davis. General Kern, thanks for being with us.
    General Kern. Thank you, Mr. Chairman and members of the 
committee. I appreciate the opportunity today to speak to you 
about the Army's Logistics Civilian Augmentation Program, 
referred to as LOGCAP by the members and in our current 
testimony.
    My command, the Army Materiel Command's mission is to 
support our warfighters, and that includes all of our services 
as well as Ambassador Bremer's CPA, the Polish Multinational 
Division and other organizations in this theater.
    I have just returned from talking to members of the CJTF 
Command, General Sanchez in our area, and I would report that 
it's remarkable that it's been less than a year since the 
conditions which General Strock just described have been turned 
into a country which has been restoring itself into an economy 
and we hope to a democracy. We work each day to improve our 
support in the theater, and the observations that we have made 
show great success in that area as well as the areas that we 
need to improve. Part of the purpose of my visit there was to 
find those areas we need to improve so that we get direct 
feedback from our customers in their requests.
    LOGCAP provides to us the vital support for our forces in 
peace and in war. It gives us today the ability of an entire 
division of soldiers that can be returned to the fighting force 
and support through LOGCAP contracting. It provides us agility, 
flexibility, and fulfills critical, time-sensitive needs, and 
that is the critical part of a contingency-type contract where 
time is essential. It provides the means for our warfighters 
and our Nation to execute national security missions.
    These contracts are around the world, not just in Iraq, and 
they provide us extensive capability in each area we use them. 
When our forces go in as General Strock has described, they 
carry with them everything that they have for life support. The 
food, the water, the tents and the laundry they hope will not 
be far behind.
    LOGCAP has provided us the capability to change their 
conditions in which the soldiers and the support structure 
lives, from lying on the ground and eating MREs to one to being 
able to have shelter, sleep on cots, and have hot food 
prepared. If they wanted to shower when they arrived in Iraq 
last year, they used a bucket of water. Today, they have 
facilities to shower in. If they wanted a clean uniform, they 
used the same bucket of water; and today they have laundries 
that they can use. As many of the soldiers have reported to us, 
LOGCAP has changed the way that they can live and survive in 
that theater.
    Today force provider has provided transportable shelters, 
it has provided dining facilities, it has provided maintenance 
facilities, it manages large pieces of our general support for 
parts, and it is providing a new quality of life in the 
country.
    The stories are similar throughout. There are 61 base camps 
and today 79 dining facilities, which are supporting more than 
180,000 soldiers. It is time critical, and so it is a 
contingency type contract which allows us to go in based on 
requirements and work through a process of definitizing the 
contract requirements and coming to an equitable adjustment. 
Frequently in these austere places, support is not what we 
would expect, and our contingencies allow us to both plan for 
that early and then react as requirements develop. Again, 
timing is critical and key in all of these.
    The contractors also--and I would like to correct my 
written statement, since three additional contractors were 
killed just yesterday, has resulted today in eight killed from 
any accident and two killed in accidents. So they are exposed 
to the same dangers that our soldiers and others in Ambassador 
Bremer's organization are exposed. We don't know precisely 
where we are going to be in our security arrangements, and this 
has given us the flexibility to respond.
    We also believe in fiscal responsibility. So our process, 
which I will ask General McManus to describe in some more 
detail, allows for that fiscal responsibility. It is a process 
of defining requirements, making sure that they fit within the 
scope of our contracting efforts and then following up with 
audits and defense contract management administrative 
contracting officers to ensure that everything is done in 
accordance to our Federal acquisition regulations.
    The point is, we do plan and we do followup and we are 
fiscally and legally responsible for the actions that we do 
take.
    I believe that LOGCAP and our soldiers are doing a 
remarkable job. We aren't perfect. It is a war zone, and we are 
correcting the mistakes as we find them. I believe you will 
find that we have corrected more than we have found by the 
basis of just eliminating and working together both with our 
supporting requirements and our audit agencies. The soldiers 
have done a remarkable job, and they have been supported by the 
LOGCAP contract admirably.
    We look forward to your questions and I appreciate the 
opportunity on our behalf to testify.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of General Kern follows:]

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    Chairman Tom Davis. Can we go now to Ms. Ballard.
    Ms. Ballard. Mr. Chairman and distinguished members of the 
committee, thank you for this opportunity to report to you on 
the U.S. Army's role in contracting in Iraq.
    It is my privilege to represent----
    Chairman Tom Davis. Could you pull the mic just a little 
closer there?
    Ms. Ballard. Is that better, sir?
    Chairman Tom Davis. It's better.
    Ms. Ballard. It is my privilege to represent the Army 
leadership and the military and civilian members of the Army's 
contracting work force who are at the forefront in the 
reconstruction and restoration of Iraq's infrastructure. We are 
very proud of these dedicated men and women because of their 
extraordinary efforts to help create a stable and successful 
Iraq, especially in light of the dangers they face every day.
    This is a time of tremendous change, and we are most 
grateful for the committee' wisdom, guidance and strong 
support. Over the last year, our Army has met the demands of 
the global war on terrorism with more than 330,000 troops 
deployed around the world in more than 120 countries. They are 
doing what our country needs them to do in Bosnia, Kosovo, in 
the Sinai, in Korea, in Afghanistan and in Iraq. The U.S. 
Army--well-trained, well-led and well-equipped--is an important 
part of our globally engaged joint force. Our Army was 
instrumental in the defeat of Saddam Hussein and the subsequent 
liberation of more than 46 million people from oppression and 
despair. Our Army remains a central and critical participant in 
Operation Iraqi Freedom.
    On May 21, 2003, the Deputy Secretary of Defense designated 
the Secretary of the Army as the Executive Agent for the Office 
of Reconstruction and Humanitarian Assistance, later to become 
the Coalition Provisional Authority [CPA], in Iraq. On January 
14, 2004, the Deputy Secretary of Defense further assigned 
responsibility for Acquisition and Program Management Support 
for CPA to the Secretary of the Army. The Army is the lead 
service, helping Iraqi people build a stable and democratic 
society.
    Our job is enormous, but we continue to make progress in an 
extremely difficult situation. I would like to reiterate the 
widespread neglect of basic services that Deputy Secretary of 
Defense Paul Wolfowitz reported to the Senate Foreign Relations 
Committee on May 22, 2003. He said:

    Before the war, large numbers of Iraq's children under 5 
years old suffered from malnutrition.
    Only 60 percent of the Iraqi people had access to safe 
drinking water.
    Ten of Basrah's 21 potable water treatment facilities were 
not functional.
    Seventy percent of Iraq's sewage treatment plants needed 
repair. According to UNICEF reports, some 500,000 metric tons 
of raw or partially treated sewage was dumped into the Tigris 
or Euphrates rivers, which are Iraq's main source of water.
    Eighty percent of Iraq's 25,000 schools were in poor 
condition. In some cases, as many as 180 students occupied one 
classroom--with an average of one book per six students--while 
at the same time every one of the first 100 or so schools we 
inspected in southern Iraq had been used as military command 
posts and arms storage sites.
    Iraq's electrical power system operated at half its 
capacity.
    Iraq's agriculture production had dropped significantly.
    Iraq's oil infrastructure was neglected.''

    It will take time to reverse these desperate conditions, 
but we are making steady progress.
    The Army, as Executive Agent, is providing contracting and 
program management support both in Iraq and in the United 
States. We are charged with procuring all nonconstruction items 
and services to meet the humanitarian needs--the basic needs--
of the Iraqi people as well as the economic reconstruction and 
repair of Iraq's infrastructure. To date, in total, more than 
1,500 contracts valued at more than $9.7 billion have been 
awarded. Of that total, more than 1,300 contracts totaling $1.3 
billion have been awarded by our contracting office in Iraq. 
These contracts were awarded for the repair and renovation of 
schools, banks, railway stations, clinics, mosques, a human 
rights building, a teacher training institute, a women's rights 
building, and water treatment plants. These contracts were 
awarded to provide police and firefighters with uniforms and 
equipment, hospitals with badly needed supplies, electrical 
power system equipment, rescue equipment and buses. In 
addition, our contract awards are helping to build playgrounds, 
youth centers, emergency housing, roads, sewers and irrigation 
systems.
    Again, of the overall total of more than $9.7 billion, 
contracts awarded within the United States total $2.5 billion 
for more than 200 contracts that are restoring Iraqi oil, 
shutting down and repairing oil wells, firefighting, explosive 
ordinance demolition, restoring Iraqi electricity, radio 
installation throughout Iraq, laptops, and emergency medical 
personnel in each of Iraq's 18 governates.
    Led by Admiral David Nash, U.S. Navy retired, the Program 
Management Office for rebuilding Iraq is located in Baghdad 
with a support office located in the Pentagon. As the 
requirement focal point for all Iraq reconstruction 
contracting, the PMO is responsible for oversight and 
implementation of the $18.4 billion appropriated by the U.S. 
Congress to support the reconstruction of Iraq's 
infrastructure. The construction sectors are oil, electricity, 
public works and water, security and justice, transportation 
and communications, buildings, education and health.
    Over $12.6 billion will be spent toward actual construction 
over the next few years, and $5.8 billion will be spent on 
nonconstruction. Some of the funds will go toward democracy, 
which is not covered by supplies. Computers are needed to 
monitor and control electrical and water systems; vehicles are 
needed to transport materials or to support system maintenance; 
uniforms and supplies are needed to support the police and 
civil defense corps; and supplies are needed to support 
schools.
    On January 6, 2004, the Army released seven design/build 
construction solicitations. Proposals were received in February 
and are under evaluation for project awards in March of this 
year. These seven solicitations will result in 10 contracts in 
support of electrical, public works and water, water resources, 
transportation, communication, security projects and buildings. 
Contracts will be awarded using best value valuation 
methodology based on technical, management, past performance 
and cost factors.
    Our contracting personnel on the ground in Iraq are 
courageous, dedicated volunteers. Since June 2003, when our 
first person arrived, we have been operating in Iraq. We now 
have a total of 28 individuals. They are multi-service and 
civilian: 3 Army, 4 Navy, 1 Marine, 11 Air Force and 9 
civilians working in small, jam-packed work spaces. They are 
doing a phenomenal job under very tough and dangerous 
conditions.
    Let me illustrate my point. Army Colonel Elias George 
Nimmer, a Medical Service Corps Officer and a member of the 
acquisition work force assigned to the Office of Assistant 
Secretary of the Army for Acquisition, Logistics and Technology 
was deployed in late June 2003, as part of a team supporting 
CPA's work with Iraq's Ministry of Health. In the early morning 
of October 26, 2003, a barrage of rockets hit the al-Rashid 
Hotel where he was staying, and a rocket impacted directly 
inside his room. Colonel Nimmer was hit with shrapnel in the 
spine and unable to move. Following three surgeries, he is 
doing remarkably well and recently returned to duty within the 
Office of the Assistant Secretary of the Army.
    Currently, the General Accounting Office, in response to 
requests from Congress, is reviewing Iraqi essential services 
contracts to perform that the Army has followed proper 
procedures. We are working closely with the GAO auditors to 
ensure that they have all the information necessary to complete 
their work.
    I have a deep and growing appreciation for the courage, 
competence, dedication and efforts of our contracting 
personnel. Thanks to their hard work and extreme dedication, 
the U.S. Army leads the way in providing contracting support to 
CPA and to the people of Iraq. The work has been--and will 
continue to be--performed in accordance with proper procedures 
by military and civilian volunteers who are concerned and 
committed to accomplishing their work under the toughest and 
most austere conditions. We are proud of our role in helping to 
create and rebuild a stable and successful Iraq. Our 
accomplishments are helping the citizens of Iraq move toward 
governing themselves and sustaining, operating and maintaining 
their own infrastructure which, in turn, will help our 
soldiers, sailors, airmen and Marines to return home sooner.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    [The prepared statement of Ms. Ballard follows:]

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    Chairman Tom Davis. Let's move to Mr. Lucke. Again, your 
total statement is in the record, so try to keep it within 5 
minutes.
    General McManus is here for questions, and Mr. Reed is here 
for questions. That is why they are sitting up there, but they 
don't have to give opening statements. Thanks.
    Mr. Lucke. Mr. Chairman and distinguished members of the 
committee, I welcome the opportunity to testify on the U.S. 
Agency for International Development's participation in Iraq 
reconstruction.
    USAID began contingency planning for possible humanitarian 
and reconstruction efforts in post-conflict Iraq in late 2002. 
As part of this process, we mobilized significant resources and 
technical expertise to support both potential humanitarian as 
well as reconstruction requirements. I arrived in the region in 
November 2002, moved to Baghdad in April 2003, and remained as 
USAID mission director until last month.
    Working with CPA to improve the lives of Iraqis, USAID is 
working throughout Iraq to restore critical infrastructure, 
support the delivery of health care and education services, 
expand economic opportunity and improve governance. With a 
staff of some 160 ex-patriots and Iraqis, we are managing some 
$3.8 billion in projects to date. The USAID contractors and 
grantees now number some 800 ex-patriots, 3,000 Iraqis with a 
presence in every province of Iraq.
    Starting from zero, we're now fully mobilized and producing 
results, and we have moved fast. Our infrastructure contract 
alone has obligated over $1 billion in power, water and other 
work since the contract was awarded in March of last year. In 
coordination first with ORHA and then CPA, USAID was tasked 
with managing some $2.1 billion of the first April 2003 
supplemental appropriation.
    We have many partners in Iraq within CPA: the Corps of 
Engineers for infrastructure supervision, the U.S. Army for the 
power sector, and the State Department in various sectors, 
especially governance.
    Our role in post-conflict Iraq has been twofold: first, to 
avoid a humanitarian crisis, which didn't happen; and, second, 
to lay the foundation for long-term reconstruction, where we 
are well on the way to helping CPA accomplish this goal.
    Our specific accomplishments in Iraq are significant.
    In infrastructure, we have repaired and are repairing power 
systems, the port of Umm Qasr water and sanitation systems, 
airports, telecommunications facilities, schools, health 
clinics, railways and irrigation systems.
    In social services, we've immunized millions of children, 
strengthened the health care system, printed and distributed 
millions of new textbooks, distributed school and student kits 
to millions of students, and trained teachers.
    In the area of economic opportunity, we have implemented 
key reforms in economic governance related to the regulatory 
environment, banking, taxation, replacement of the old 
currency, and begun work in the key agriculture sector.
    In governance, we have helped establish local councils 
throughout Iraq, awarded rapid response grants to provide 
essential local services, begun civic education programs, 
helped reestablish functioning government ministries, 
established hundreds of community associations, and we're 
helping CPA lay the groundwork for a democratic and sovereign 
Iraq.
    We have accomplished this work under the initial 2003 
supplement by awarding nine contracts for port administration, 
airport administration, logistic support, infrastructure 
repair, architecture and engineering services for 
infrastructure, health, education, economic recovery and reform 
and agriculture.
    Additionally, we have significant grants to five U.S. NGO's 
for community development throughout Iraq, grants to the World 
Health Organization, UNICEF and UNESCO for health, water 
sanitation and replacement of math and science books 
respectively, and grants to five U.S. universities to partner 
with Iraqi universities.
    Under the second Iraq supplemental, USAID was the first 
agency to make an award in support of the continuing efforts in 
Iraq with a $1.8 billion infrastructure contract utilizing full 
and open competition. It's anticipated that this contract will 
primarily provide additional work in the power and water 
sectors.
    Although proud of our efforts in Iraq, our work takes place 
in the context of considerable security and logistical 
challenges associated with standing up the largest U.S. 
reconstruction program since the Marshall plan. USAID has 
remained as open and transparent as possible in our procurement 
process. We have made serious efforts to make available 
virtually every procurement document we legally can on our Web 
site.
    Steven Schooner of the George Washington University Law 
School recently wrote at a Government Contracts Year in Review 
conference that USAID, ``has endeavored, for the most part 
successfully, to provide information related to its contracting 
activities on its Web page.'' He goes on to say, ``I believe 
that USAID has set a new standard for transparency and public 
procurement.''
    We will continue to expand our efforts to meet the very 
high standards that we have set for ourselves. We are also 
doing everything we can to ensure that the taxpayers receive 
value for their dollar, that includes posting U.S. direct-hire 
staff to Iraq, including to three regional offices to oversee 
these contracts, as well as hiring senior contracting officials 
to help administer these awards.
    We are co-located in Baghdad with the USAID Inspector 
General's Office and receive audit support from the Defense 
Contract Audit Agency to ensure funds are spent appropriately 
and are accounted for. And we take this accountability 
responsibility seriously.
    USAID is determined to successfully help CPA lay the 
foundation for governmental and economic transformation in 
Iraq. We are successfully managing an enormous sum of public 
funds to an ambitious but focused reconstruction program, and 
we are prepared to continue this effort for the duration of the 
construction period.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Lucke follows:]

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    Chairman Tom Davis. Thank you very much.
    Dr. Zakheim, thank you.
    Mr. Zakheim. Thank you, Mr. Chairman, Representative 
Waxman, members of the committee.
    I want to focus on Department of Defense oversight of 
contracts related to military operations and reconstruction in 
Iraq. With me on my left is Mr. Bill Reed, who has been serving 
as Director of DCAA, the Contract Audit Agency, for 16 years 
and is a respected professional in his field.
    DOD considers the oversight of contracts an essential 
responsibility. We have a number of strong organizations, 
policies and regulations to fulfill this responsibility. Our 
task is not only to identify contract issues, but also to 
prevent future occurrences of problems we identify, recover any 
excess charges and take appropriate action against any 
contractor wrongdoing.
    As the Under Secretary of Defense Comptroller and also the 
Department's Chief Financial Officer, I am responsible for 
ensuring the adequate financial management of funds spent on 
the reconstruction of Iraq. My involvement in DOD contract 
performance oversight comes primarily from my office's 
responsibility for the Defense Contract Audit Agency. Bill Reed 
reports to me.
    DCAA's mission is provide all contract audit and financial 
advisory services related to DOD acquisition of goods and 
services. Other DOD organizations that are not within my 
office, such as the Defense Contract Management Agency and the 
DOD Inspector General, also play important oversight roles in 
terms of managing--of watching contracts--and work closely with 
DCAA. My colleague, the Under Secretary of Defense for 
Acquisition, is responsible for the contract policies to help 
ensure the Department obtains the best value when acquiring 
equipment and services and also is responsible for oversight of 
the Defense Contract Management Agency.
    The Army and DCAA are strategic partners in the oversight 
of contracts through performance. The Army, as the executive 
agent for all Department reconstruction requirements in Iraq, 
is responsible for contract and program management activities 
there.
    DCAA, which is co-located with Army personnel in Baghdad, 
evaluates all contractor proposals and reviews all billing 
paperwork for primes and subcontractors.
    My office's financial management activities in Iraq began 
at the end of major combat operations there. I created and had 
in place by late April 2003 a 20 member forward cell that 
included representatives not only from DCAA but also from the 
DOD Inspector General, from the Office of Management and 
Budget, from the Defense Contract Management Agency, from the 
Joint Staff, from USAID and from the General Accounting Office. 
This team and its supporting rear cell at the Pentagon were 
especially critical to getting the Coalition Provisional 
Authority fully operational and capable of undertaking its 
enormous reconstruction tasks.
    DOD contract performance oversight is now being supported 
by DCAA's Iraq branch office under Branch Manager Dan Altemus. 
The office now has 25 auditors. I met all 25 of them when I was 
in Iraq 2 weeks ago, the office it will increase to 31 auditors 
by the end of May.
    Complementing this in-country support, DCAA has auditors 
that also provide contract oversight at stateside locations 
that have major contracts in Iraq.
    Let me talk briefly about some of our findings and actions. 
DOD oversight of contract performance in Iraq has uncovered a 
number of problems. A resulting action has ranged from 
recommending changes in processes to rejection of unsupported 
proposal costs to reductions in billed costs for potentially 
unreasonable expenditures, to referral of our findings to the 
DOD Inspector General for possible legal action against the 
contractor.
    Contractor performance in Iraq has not been perfect, but it 
has not been terrible. Iraq presents a difficult security 
environment for contractors, as you have heard. A number have 
already been killed, many wounded. Many contractors that have 
not had problems in performing their domestic DOD contracts are 
having difficulties in adjusting to the unique environment in 
Iraq and to their own firm's influx of new business.
    We believe that contractor financial and internal control 
problems will resolve themselves. In the meantime, we will take 
whatever actions are necessary to protect the government's 
financial interest. DOD has enforced and will continue to 
enforce the highest standards for contracts in Iraq and 
anywhere else. Halliburton, mainly through its Kellogg, Brown 
and Root subsidiary, is the largest contractor operating in 
Iraq with contract ceilings that approach $18 billion. We are 
not surprised that the largest contractor has the bulk of the 
contract problems we found.
    KBR has been responsive to the reported contract findings 
and has agreed to work on improving its contract performance. 
Contract problems reported to date generally have been caused 
by contractor deficiencies, not by problems with contract 
policies or the DOD organizations managing these contracts. The 
process works.
    Still, to mitigate only process problems, the Department 
has taken action to ensure that its contract processes are 
integrated, effective and efficient. Especially significant has 
been the creation of the CPA's Program Management Office, led 
by Admiral Dave Nash who is here. I should also mention, new 
CPA Inspector General.
    My statement for the record provides details on DOD 
oversight of Iraq contracts and the major issues we have 
identified. I will only highlight a very few of them orally.
    Estimating practices: DCAA has identified significant 
deficiencies in KBR's estimating practices relating to the 
award of subcontract costs. Earlier this year, after 
consultation with the contracting officer, DCAA returned two 
major task order proposals worth more than $3 billion to KBR 
because they were inadequate for the purposes of negotiating a 
fair and reasonable price.
    KBR later resubmitted one of the task orders for $700 
million less than the original proposal. Even this resubmitted 
proposal was later withdrawn by KBR due to continuing pricing 
issues.
    It was DCAA that found that $700 million problem. These 
issues included proposal subcontract costs that were 
significantly different from previously negotiated actual 
subcontract amounts and KBR's use of proposal estimates instead 
of more than $290 million of actual costs already incurred. 
Both issues were disclosed during the DCAA audit.
    On January 13, 2004, DCAA notified the appropriate 
government contracting officials that KBR's subcontracting 
estimating process and procedures were considered inadequate 
and recommended that DCAA be advised before the negotiation of 
any future contract awards. KBR's deficiency in estimating some 
contracts was the catalyst of DCAA's review of potential 
gasoline overpricing under the Restore Iraqi Oil [RIO], 
contract.
    The review found significant issues related to KBR's 
pricing and award of subcontract costs. It disclosed potential 
overpricing on gasoline of $61 million through September 2003. 
During DCAA's review, the auditors came across other 
information that led them to make a referral to the DOD 
Inspector General, which recently launched an investigation of 
this potential overpricing of gasoline.
    KBR and dining facilities subcontract costs: DCAA has 
identified inadequate support for billed dining facilities 
costs. In DCAA's opinion, the billed number of meals appears to 
exceed significantly the actual meals served.
    DCAA and KBR have agreed on the withholding of $176.5 
million, of which it voluntarily withheld $140.7 million from 
future billings while KBR prepares a response to issues 
reported by DCAA.
    Then there is the violation of the ``Anti-kickback'' Act. 
KBR itself has voluntarily disclosed a possible violation of 
the ``Anti-kickback'' Act by two of its employees. KBR has 
already reimbursed the government for the estimated impact of 
$6.3 million. DCAA has requested supporting data from KBR to 
validate that sum. DCAA has helped identify contracting issues 
that stem from the fact that major contracts in Iraq have been 
slow to get definitized, and by definitized, I mean to get a 
definite contract price negotiated.
    DCAA found that KBR was not observing the 85 percent limit 
in the reimbursement vouchers it submitted for its 
undefinitized LOGCAP task orders. In late February, DCAA told 
KBR that it should apply that 85 percent limit to its vouchers, 
in other words, not charging the additional 15 percent. The 
Army's contracting officer has received KBR's response to the 
DCAA recommendation and is currently evaluating it.
    There are other contract issues that go beyond KBR, and it 
is important to mention a few of these.
    Titan Corp.: Recent DCAA audits disclosed deficiencies in 
Titan's labor distribution system, which records costs to Titan 
employees. DCAA also found that Titan lacked procedures for 
adequate tracking of hours worked by foreign national 
consultants. Based on these findings, the Defense Contract 
Management Agency contracting officer implemented a 10 percent 
withhold on all of Titan's labor and consulting costs until all 
identified deficiencies are corrected and bills to the 
government are based on adequate internal controls.
    Restore Iraqi Electricity: In January and February of this 
year, DCAA auditors evaluated proposal costs exceeding $900 
million from the three prime contractors for the RIE program, 
Fluor Federal systems, Perini Corp. and Washington Group 
International. As a result of these proposal reviews, DCAA 
reported to the Army Corps of Engineers that all three 
contractors had substantial subcontract pricing issues.
    DCAA will continue to perform oversight of the subcontract 
estimating and billed costs. It will work closely with the 
prime contractors and the Corps of Engineers to ensure that 
future subcontract estimates are adequate. In addition, it will 
evaluate each voucher submitted by the prime contractors to 
ensure that contract costs, including subcontract costs, are 
properly billed and paid.
    In closing, I first want to underscore the context in which 
all of this is taking place. You have heard the details of how 
the country of Iraq has been completely transformed in less 
than a year. After the war, we have opened hospitals; we have 
opened medical clinics; we have restored Iraqi oil to prewar 
levels; courts are back in operation and are probably 
functioning a bit better than the previous 30 years; a new 
currency in circulation; 170 newspapers are being published; 
students sit in rehabilitated classrooms with new textbooks 
whose contents probably are true for the first time in many 
years; and a Governing Council that ratified a Bill of Rights.
    That is the context in which we have all operated. Beyond 
that, I want to underscore that we in the Department of Defense 
are absolutely committed to an integrated, well-managed process 
in Iraq. We will not tolerate the billing of costs that are not 
properly documented and supported. If internal controlled 
systems are deficient, we will continue to use protections, 
such as contract withholdings, to safeguard the people's 
interests. And we will provide whatever personnel and budget 
resources are needed to enforce integrity in DOD contracts.
    My comptroller organization will continue to work with 
other organizations within and outside the Department to assist 
those organizations and to share our findings. From the 
beginning, DCAA and my office have coordinated closely not only 
with the DOD Inspector General but with the General Accounting 
Office and now with the CPA Inspector General, since its 
creation.
    We have regularly provided these organizations with 
information on our activities. And this has included DCAA 
detailed briefings to the GAO on June 23 and November 7 of last 
year. And this past January 7, DCAA Director Bill Reed and I 
personally briefed David Walker, the Comptroller General and 
Gene Reardon, the Deputy Inspector General of DOD, on DCAA's 
contract audit support of Iraq reconstruction.
    DCAA and my office are the primary source of information on 
Iraq oversight for both the GAO and the DOD Inspector General. 
I repeat, we are the primary source. GAO and the DOD IG have 
been supportive of our work in Iraq and have allowed DCAA to 
continue its programmed audits without attempting to duplicate 
their work.
    In sum, I believe the Department's contract oversight has 
been vigilant, and we will ensure that it continues to be 
vigilant. I look forward to addressing any questions or 
comments you have on this matter.
    [The prepared statement of Mr. Zakheim follows:]

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    Chairman Tom Davis. Thank you very much.
    Admiral Nash, clean up here.
    Admiral Nash. Thank you and good afternoon, Mr. Chairman 
and members of the committee.
    I will submit my written remarks for the record and I would 
like to summarize them very quickly. I really appreciate this 
opportunity to offer a field perspective on the reconstruction 
in Iraq based on my 8 months of experience there. It is an 
honor to appear before you and to bring the information that I 
have.
    The Program Management Office is a living example, in my 
opinion, of how a total can be greater than the sum of its 
parts. I am proud to represent that team today that is 
dedicated. Speaking in the broadest of terms, the Public 
Management Office is responsible for managing and executing the 
U.S.-funded reconstruction of Iraq's infrastructure and 
essential services. As the Office's Director, I report to the 
Coalition Provisional Authority's Administrator, Ambassador 
Bremer. I also report to Acting Secretary of the Army--
Brownlee--for Acquisition and Program Management Support.
    Our goals are simple: To properly execute the supplemental 
work; to build the capacity for Iraq to do large program 
management for their own future; to build the capacity of Iraq 
construction and construction support industry; and finally and 
most important, is to win the peace in Iraq.
    Most of you have seen the statistics about electricity and 
water and telephone and other infrastructure elements in Iraq. 
Having lived in Iraq for 8 months, I can attest to the severity 
of these challenges. As you know, Saddam Hussein's government 
paid little attention to maintaining the country's 
infrastructure. Before the war, the electrical grid left more 
than one-third of the Iraqi citizenry without power; 40 percent 
of their citizens lacked access to safe, reliable water 
supplies, with only 6 percent of the population linked to a 
sewage treatment system, and telephones limited to only a 
handful of homes. In summary, facilities and services across 
the country ran until they were broken and then abandoned.
    Rebuilding the Iraqi infrastructure is a key part of the 
overall strategy to assist Iraq in becoming a free and 
democratic country. You all did your part by providing the 
$18.4 billion to help rebuild Iraq. The $12.6 billion will be 
focused on construction and approximately $5.8 billion on 
nonconstruction. Our emphasis is creating security through 
stability that will ultimately accelerate the pace at which 
Iraqi sovereignty will lead to all of our troops returning home 
permanently.
    Lieutenant General Sanchez and I agree wholeheartedly on 
this principle, and we are committed to working together. 
Moreover, we are firmly committed to the concept that time is 
of the essence, and we must work as fast as possible to rebuild 
Iraq infrastructure. And to ensure accountability for the funds 
allocated under fiscal year 2004 supplemental appropriations 
bill for the reconstruction of Iraq, a coordinated body was 
necessary.
    The Coalition Provisional Authority and Ambassador Bremer 
created the Program Management Office designed to direct, 
coordinate and oversee the contracting organizations for this 
endeavor. U.S. Government organizations and agencies, such as 
USAID and the Army Corps of Engineers, will serve as executive 
agents in contracting on our behalf.
    We established an approach and reconstruction efforts that 
follow four basic tenets: First, financial and contractual 
authority will follow a clear chain of responsibility; second, 
program management will follow an innovative and highly 
leveraged approach that relies heavily on the private-sector 
participation; third, contracting the work will follow a 
strategy of full and open competition and comply with the 
Federal acquisition regulations in the supplemental bill; and 
finally, we will have maximum transparency in everything we do.
    Our approach leverages the private sector for construction 
and program management support while maintaining a layer of 
government oversight protecting the American taxpayer. This 
concept of operations is inherently agile and allows us to 
evaluate and adjust each stage based on performance. The result 
is the greatest value at the least cost.
    The assistance you have provided in response to the 
President's emergency supplemental request is vast and speaks 
well for the generosity of the American people. It will lay a 
solid foundation for the future in Iraq.
    As we move forward, we are organized for success and have 
the people, technology and processes to do the job. We are at 
work today on the following: The supplemental funds for 
reconstruction are being committed in accordance with the 5 
January 2007 report to Congress. Each contract contains 
explicit incentives for hiring Iraqi citizens. And finally, we 
are emphasizing transparency of operations by using off-the-
shelf management information systems for real-time reporting, 
visible on the Program Management Office Web site.
    I said earlier that our actions were open, competitive and 
transparent. To assure that they remain so, the following 
auditors, including others, will oversee and review our work: 
The Defense Contracting Auditing Agency has already joined us. 
The Coalition Provisional Inspector General has already stood 
up, and I have already spoken to the General Accounting Office 
and the Comptroller General.
    Continuing audits, in my experience, are a normal part of 
the acquisition cycle and not only serve the classic functions 
of preventing waste, fraud and abuse but also will serve as a 
running tutorial for the Iraqi Government and business 
community.
    I am confident that we have made a solid start to the task 
ahead. However, no effort of this size or scope has ever been 
flawless. We will work hard to continually evaluate ourselves, 
improve and ask the auditors to help us do so.
    Mr. Chairman on June 30, a sovereign Iraqi Government 
assumes power. However, the mission to rebuild the 
infrastructure of Iraq will continue. Rebuilding power plants, 
water treatment facilities, telecommunications facilities, 
schools, security facilities, public buildings, this all will 
take time. In my 8 months in Iraq, I have met hundreds of 
Iraqis. Their message has been consistent. They want nothing 
more than what we enjoy here, reliable electricity, clean 
water, functioning sewage systems, an educational 
infrastructure and better health care. Beyond that, they expect 
the United States will make good on its promises, and we shall.
    Thank you very much.
    [The prepared statement of Admiral Nash follows:]

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    Chairman Tom Davis. Thank you all very much.
    Let me start the questioning. This really goes to everybody 
on here. I am going to ask a three part question, but I want to 
get this on the record, and everybody is under oath. Have you 
or anyone in your office ever discussed with the Vice President 
or with his office the award of a contract for Iraqi 
reconstruction prior to any contract being awarded?
    General Strock. No, I have not.
    General Kern. No, sir, I have not.
    General McManus. No, sir, I have not.
    Ms. Ballard. No, sir, I have not.
    Mr. Lucke. No, sir, I have not.
    Mr. Zakheim. No, sir, I have not.
    Mr. Reed. No, sir, I have not.
    Admiral Nash. No, sir, I have not.
    Chairman Tom Davis. Did the fact that the Vice President 
was a former officer, CEO, of Halliburton influence the 
selection of Halliburton and KBR in any way?
    General Strock. No, sir, it did not.
    General Kern. No, sir, it did not.
    General McManus. No, sir, it did not.
    Ms. Ballard. No, sir, it did not.
    Mr. Lucke. We have no contractual arrangement with 
Halliburton.
    Mr. Zakheim. We oversee, but I have no knowledge of any of 
this.
    Mr. Reed. No, I have no knowledge.
    Admiral Nash. No, sir, I have not.
    Chairman Tom Davis. Have you or anyone in your office been 
pressured by any political appointee or high official in the 
administration to make an award to a particular firm or go easy 
on any contractor in carrying out contract oversight 
activities?
    General Strock. Not to my knowledge.
    General Kern. No, sir, not in my office.
    General McManus. No, sir, not in my command.
    Ms. Ballard. No, sir.
    Mr. Lucke. No, sir, not to my knowledge.
    Mr. Zakheim. No, sir.
    Mr. Reed. No.
    Admiral Nash. No.
    Chairman Tom Davis. Thank you.
    An issue was raised, given the conditions on the ground in 
Iraq, do you think it would have been practical to have used 
multiple award task order contracts for sustainment or 
reconstruction services?
    There was a chart put up by the ranking member on a number 
of discrete projects and the number of discrete projects 
subject to competition. Is there any chance you would have been 
able to conduct competition for any of these task orders? Let 
me start with you, General McManus.
    Admiral Nash, you now are current. Maybe as the situation 
changes, could we do a better job?
    General McManus. It is important to note that the LOGCAP 
contract provides us a flexibility and agility to respond to 
unknown requirements over unknown timelines in uncertain 
conditions. As we began to prosecute this campaign--and 
remember, we were operating in Iraq as well as Afghanistan and 
Kuwait with forces employed to include bringing in the 
additional support for ORHA and CPA, the Iraqi Survey Group, 
and now the multinational division--the timelines against which 
we execute the warfighter's requirements or the customer's 
requirements are often very, very tight.
    In the course of normal competition, we wouldn't be nowhere 
near where we are today in terms of life support, distribution 
logistics support, if we had to do that. Time really becomes 
the biggest enemy, sir.
    Chairman Tom Davis. I understand that, but LOGCAP is given 
to one company.
    General McManus. That is correct.
    Chairman Tom Davis. So, basically, when you go out to them, 
nobody can say, ``I can do it cheaper or better,'' on any 
number of tasks, isn't that right?
    General McManus. That is correct. It's also important to 
note that LOGCAP, as a former program, we have been using as an 
institution for a decade. This is competition in which we 
select competitively a contractor to support contingency 
operations.
    Chairman Tom Davis. Admiral Nash, did you want to add 
anything to do that?
    Admiral Nash. When you use multiple award contracts, it 
requires that you have a lot of contractors mobilized onsite. 
It works very well in the United States where you have lots of 
contractors.
    But when you don't have lots of contractors, then you end 
up with the additional costs of mobilizing many. As we get many 
contractors mobilized in Iraq in the future, it will be 
something we will look at, because we will be looking for ways 
to become more efficient.
    Chairman Tom Davis. Since the contractors had to be there, 
there was no--there wasn't a lot of people knocking on the door 
to send people over?
    Admiral Nash. No, sir, to my knowledge.
    Chairman Tom Davis. Mr. Lucke, do you have any comments?
    Mr. Lucke. We began planning in November 2002, and we were 
able to use limited competition for eight of our nine grants. 
The one that we did not use limited competition on was for 
personnel, and that was a sole source that we absolutely needed 
in order to have personnel present in order to implement the 
programs.
    Chairman Tom Davis. Let me ask Mr. Reed, you are head of 
the Defense Contract Audit Agency. How many years have you been 
in the business of looking at government contracts?
    Mr. Reed. Thirty-nine years.
    Chairman Tom Davis. You served under a lot of different 
administrations and seen--you have seen a lot of contracts go 
awry during that time?
    Mr. Reed. Yes.
    Chairman Tom Davis. The ranking member made a comment that 
cost-plus contracts are notoriously open for abuse. Let me ask 
about the reliance on cost-plus contracts in this particular 
circumstance.
    Obviously, there are some cases where there are better 
vehicles than others. As you look at this from your perspective 
having to audit these, were there better ways to do this, or 
was this the most efficient way to accomplish the mission?
    Mr. Reed. The selection of the contract type is usually a 
balancing of risk between the government and the contractor. 
Firm-fixed contracts shift most of the risk to the contractor. 
Obviously, cost reimbursement is more of a balanced risk.
    There's no question that, when you are dealing with a 
contingency operation, that it will be very difficult to get 
any contractor to bid firm-fixed price for the scope of some of 
these efforts, which the requirements are very fluid, quite 
frankly. So I believe that the contracting vehicle selection is 
appropriate in my judgment.
    Chairman Tom Davis. And when you talk about cost-plus, 
there is an award fee with that, too, that goes to your ability 
to manage the contracts and bring costs down?
    Mr. Reed. That is correct, and that is a classic vehicle 
used by contracting officials to ensure contract performance.
    Chairman Tom Davis. You have seen, obviously, a lot of 
cost-plus contracts in your time. In this situation, there have 
been allegations that one of the contractors, Halliburton in 
particular, would send in invoices for meals that weren't 
served. Is this a common practice, when you're not sure what 
logistics are going to be and what is our catch to catch this 
and make sure there are corrections made as this goes through 
the process?
    Mr. Reed. DCAA certainly is not an expert in restaurant 
services, but just from a common sense standpoint and what we 
have been advising to the contracting officer that we would 
expect to see, just common sense, is a reimbursement based on 
actual meals served plus a small margin for unexpected surplus 
based on some pattern of history. So, you know, if the average 
is 3,000 meals a day, 1 day only 2,900 show up and we have a 
small margin for the contractor to be covered because he 
estimated based on history to serve 3,000 meals.
    Chairman Tom Davis. So it is not uncommon for them to come 
in with an invoice for more or less than they actually served, 
based on historical----
    Mr. Reed. That should be a condition of the contract. The 
contract should spell that out. And DCAA will audit to whatever 
the terms of the contract are.
    Chairman Tom Davis. Do you have any comments on that?
    General McManus. No, sir.
    Chairman Tom Davis. Ms. Ballard.
    Ms. Ballard. No, sir.
    Chairman Tom Davis. As I understand it, the allegation here 
is that there were meals not served, and there were billings 
coming in. But ordinarily, on an audit, it would be reconciled?
    Mr. Zakheim. That is exactly right.
    Chairman Tom Davis. The process is set up that it would not 
be uncommon for someone to come in slightly over or under and 
on audit, you pick those up and reconcile?
    Mr. Zakheim. Exactly.
    Chairman Tom Davis. That is not necessarily evidence of 
fraud, that's just the way it works in the normal scheme of 
things?
    Mr. Reed. That's right.
    Chairman Tom Davis. Why is any gasoline being imported from 
Kuwait under Halliburton's IO contract? Why are they such high 
prices? Ms. Ballard, can you explain that to us, because you 
have the chart that was up there and the chart leaps out at 
you?
    Ms. Ballard. Mr. Chairman, first, the oil is being imported 
from Kuwait because of safety issues for our soldiers. 
Initially, when we began to import oil from Kuwait, it was a 
few days after the hostilities had ceased in Iraq. There were 
lines miles long, two to three cars wide. This gave openings to 
riots, to civil unrest, which created threats to our soldiers. 
The crowds became cover upon which the insurgents could use it 
to attack our soldiers. So our first and primary objective was 
to obtain fuel so we could disburse crowds and eliminate the 
civil unrest.
    Strategically, we need to be able to obtain fuel from the 
north and south. If a border is shut down in the north and we 
are only receiving north fuel, then we have returned to the 
situation where we have created opportunities for civil unrest 
and threats to our soldiers.
    And third, sir, in obtaining fuel from Kuwait, Jordan and 
Turkey, we are just making the requirements for fuel in the 
region, and it is a principal requirement to maintain fuel 
supplies in the region.
    Chairman Tom Davis. Who within the Defense Department would 
decide what that reasonable price for fuel would be on that? 
Tina, do you know why $1.32 might be normal in some cases and 
$2.64 would be normal under other circumstances?
    General Strock. Sir, if I could take that on, sir. Again 
Carl Strock from the Army Corps of Engineers.
    This is a very complex question to resolve and answer. The 
prices you see here have a lot of variables in them. As Ms. 
Ballard mentioned, at the time that we entered into our first 
contract for delivery of fuel, it was early May, and, sir, I 
was in Baghdad the day that a U.S. soldier from the 3rd 
Infantry Division was assassinated in a gasoline line trying to 
keep order. We were told to get fuel moving now.
    Sir, we worked with our contractor to do that. The 
contractor secured three prices on May 4th and, on May 5th, 
made an award to the lowest price. That price was as reflected 
on the board here.
    Sir, that price has three components, one is the cost of 
the fuel. The other is transportation and other costs 
associated with that. The transportation costs were $1.2 a 
gallon. They are significantly different from the lower one 
because the distance was three times further Camp Cedar versus 
Baghdad. So the distance, considerably longer. And the 
turnaround time on that distance is considerably longer as 
well. About a 2-day turnaround to Camp Cedar is 6 to 10 days to 
get in and out of Baghdad.
    Chairman Tom Davis. So this is really not apples to apples?
    General Strock. No, sir, it is not. There is a time span 
here as well. The contract on the top was awarded on May 5th. 
The other was awarded later in August. Our contractor, when we 
approached him, said, ``Give me time. I can negotiate a better 
price.'' We said, ``There is no time. Do the best you can, and 
this is it.''
    The additional costs there, sir, the 24 sentences of other 
costs, has to do with the capability of Iraqi infrastructure to 
download the fuel we delivered. Iraq does not routinely import 
fuel. They move fuel around the country by pipelines, and the 
storage places take fuel from the tanks to trucks. They are not 
set up to take fuel from trucks to tanks. We had to create 
those conditions through our contractor, and there was a cost 
associated with that, sir. So the 24 cents has to do with those 
kinds of expenses and difficulties.
    And finally, sir, the 2 percent represents, as I am told, 
the markup from the contractor for the management of this 
contract. It is the normal cost of doing business.
    I would also like to add, sir, that the cost of fuel from 
Turkey has averaged $1.20 to $1.30 per gallon. We import about 
two-thirds of the fuel from Turkey and about one-third from 
Kuwait, and we do that for the reasons Ms. Ballard has cited.
    We need to keep it flowing from two different directions. 
We could not use Turkey exclusively because, for example, at 
one point, when we were negotiating with the Kuwaitis, the 
border of Turkey was closed for 4 days, and the fuel was shut 
off. So the uncertainties of the situation required that. And 
further, the Turkish drivers would not take fuel into Baghdad, 
but the Kuwaiti drivers were willing to do so.
    Today, sir, we are paying 39 cents less per gallon than we 
did with that first task order, as we have negotiated with the 
supplier, who has agreed to work a spot market price for our 
fuel, still accelerated because we buy on spot market. We have 
not been willing and able to enter into contracts longer than 
30 days duration.
    I can't speak to the DESC contract and how that's 
structured, but I know ours was deemed to be fair and 
reasonable.
    Chairman Tom Davis. What was the justification for selling 
this gas inside Iraq for 4 to 15 cents a gallon in some cases?
    General Strock. We worked on that with the Iraqi Ministry 
of Oil and State Oil Marketing Organization. They have a 
responsibility for the provision of domestic fuel to their 
people. They were concerned about the level of strategic 
reserves and they were also willing to do what it took to get 
fuel to the pump. They chose not to transfer the cost of this 
fuel to the Iraqi people because of the impact it would have 
had on the economy in Iraq.
    I would also like to point out that it doesn't really 
matter where this money comes from. We must use it in a 
responsible way. But of the $1.4 plus billion we spent on the 
importation of fuel, 95 percent of that money has been from the 
development fund for Iraq and only about 5 percent, or $72 
million, has come from U.S. taxpayers.
    Chairman Tom Davis. Most of this was in dinars and was from 
the Development Fund?
    General Strock. Yes. It is from the $8 billion worth of 
revenue from the oil market as well as the $1 billion that the 
U.N. put in. Again, I want to emphasize, that is not a reason 
to not demand the lowest possible price, but----
    Mr. Ose. Would the gentleman yield?
    One point that gets lost here, over the past decade or 15 
years, the average price of gasoline in Iraq has been around 8 
cents a gallon. So to go into Iraq and all of a sudden start 
charging a dollar a gallon, you are going to have massive 
disruptions. And I think that is the point that General Strock 
is trying to make.
    General Strock. This applied to all types of fuel. LPG and 
kerosene, they use for cooking and heating. If we had charged 
the actual cost that we paid----
    Chairman Tom Davis. There would have been a riot in Iraq 
and reconstruction would have been over before it started. I 
appreciate--who first raised the issue of the potential 
overpricing by Halliburton under this task order? Was it DCAA, 
the contracting people?
    Mr. Zakheim. DCAA raised it first. Bill will give you some 
details on that.
    Mr. Reed. We were doing our normal activities, in terms of 
auditing these various task orders. This was one of the larger 
task orders, and we were doing a review of how KBR was 
administering its subcontracts for fuel and found that they 
were very deficient in documenting the basis of the awards. 
Much of the information you just heard from General Strock, 
unfortunately, was not documented by KBR in their subcontract 
files.
    Chairman Tom Davis. No reason to believe it was inaccurate, 
just undocumented?
    Mr. Reed. Just undocumented, and the haste was their 
reason, people were turning over and they were just a little 
sloppy.
    Chairman Tom Davis. OK. I think that puts it into 
perspective.
    Mr. Ose.
    Mr. Ose. Mr. Chairman, could we get the DESC to buy 
gasoline and ship it to California? I don't know who has this 
information. I am looking at a piece of paper, background 
information, U.S. support for Iraq reconstruction efforts, that 
lists the appropriation expenditures together with five 
separate contracts that were awarded as of January 2004. Do you 
have this paper down there, any of you? It came in this packet 
that I got.
    Chairman Tom Davis. I think that was for committee members.
    Mr. Ose. There are five contracts listed at the bottom of 
that. There is one to USAID, three to the Corps and another to 
AID. One is $1.8 billion to Bechtel, $1.6 billion to KBR, 
another $1.2 to KBR and another billion for Bechtel and $800 
million to Parsons. And then above--I think they need this form 
down in front of them.
    Chairman Tom Davis. Mr. Waxman raised an issue in his 
opening testimony about the northern part being--going to 
Parsons in the RIO contract exclusively and the southern part 
of the country going to Halliburton, and that we don't bid 
tasks off between the two of them. Would that make any sense?
    Ms. Ballard. Mr. Chairman, when the acquisition strategy 
was developed for the Restore Iraqi Oil solicitation, we found 
that Iraq's existing infrastructure had a northern and a 
southern oil company. Based on this, the procurement specialist 
determined that to best integrate with the existing Iraq 
infrastructure we should also have contractors in the north and 
the south. There were also some technicalities with regard to 
the different type of fuels that were generated in the north 
and the south.
    Sir, the issue of multiple awards, IDIQ contracts, has been 
raised. The Federal Acquisition Regulations specifies that--
when we are not to use that type of contract. The circumstances 
specified in the regulation exist here. For example, we must 
determine that the benefits of structuring the contract as we 
did outweigh the benefits of competing the contract as 
Congressman Waxman has suggested. Those circumstances do exist, 
because our objective is to then transfer these capabilities to 
the northern and southern Iraqis. To maintain stability in the 
region, we structured our contracts to match the infrastructure 
that existed in Iraq when we arrived.
    Chairman Tom Davis. I think that puts all of this in a much 
different perspective than we have heard. But my time is up, 
and I now yield 20 minutes to Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Earlier Chairman Davis asked each of you whether anybody 
was under political pressure to award contracts to particular 
companies, and you all answered no. He also asked whether you 
are aware of any political pressure on administration 
officials, and again, you all answered no.
    I want to draw your attention to a December 15 Wall Street 
Journal article. The article refers to two letters by an Army 
Corps contracting officer, Mary Robertson. Ms. Robertson 
indicated that she was under political pressure to direct 
Halliburton to negotiate exclusively with Altanmia, an obscure 
and inexperienced Kuwaiti firm. Ms. Robertson wrote, ``Since 
the U.S. Government is paying for these services, I will not 
succumb to the political pressures from the Government of 
Kuwait or the U.S. embassy to go against my integrity and pay a 
higher price for fuel than necessary.'' She wrote that to her 
superiors, but then Halliburton went ahead and contracted with 
Altanmia.
    She is not the only one who claims political pressure. 
Thomas Crum, a senior Halliburton official, stated, ``The 
concern that the embassy had was expressed clearly, and it was 
the same as the Government of Kuwait, that we weren't buying 
enough gasoline from Kuwait.'' How do you respond to these two 
statements from U.S. Government employees that they were under 
political pressure?
    Mr. Zakheim. In the first place, Congressman, half of what 
you are discussing is the Government of Kuwait, not the 
Government of the United States.
    Mr. Waxman. I am discussing the U.S. embassy, and they work 
for us.
    Mr. Zakheim. Well, yes, but that is a different agency and 
so at least----
    Mr. Waxman. Let me ask General Strock because this woman 
works for him.
    Were you aware--and maybe she even contacted you--that she 
was under pressure from someone to tell--to have Halliburton 
contract with Altanmia, and she urged them not to because she 
didn't feel she could give in to that political pressure and 
charge the higher price as a result?
    General Strock. Sir, at the risk of sounding evasive, she 
did not work for me. I work for the CPA, and I was on loan to 
CPA, and I happened to be an Army Corps of Engineers officer 
there.
    She worked for Brigadier General Robert Crear in the Task 
Force RIO, and I am not aware of anything surrounding that 
allegation, sir.
    Mr. Waxman. I see. We are going to have another hearing, 
and maybe we can get to the bottom of that. But I would 
indicate that maybe none of you are aware of political 
pressure, but there were two people working for the government 
that did feel they were under political pressure.
    Mr. Reed, I want to ask you about the audit that was done, 
what is known as the Flash Report. So I want to get some 
questions answered about it. This Flash Report found 
significant deficiencies in Halliburton's cost estimating 
practices, is that correct?
    Mr. Reed. That's correct.
    Mr. Waxman. Can you explain what these deficiencies were?
    Mr. Reed. Well, the largest deficiency was the inadequate 
support for their subcontract estimates. They simply were not 
following what we considered reasonable business procedures to 
solicit bids, evaluate bids and justify the fair and reasonable 
price of the subcontracts being awarded. At least we couldn't 
tell that was being done by the documentation in their files. 
That was certainly very significant.
    Generally, there was--I would characterize the general 
deficiency as a real problem supplying current, accurate and 
complete data in support of all of their proposed costs, not 
just subcontract estimates, but subcontracts were by far the 
most material part of the proposal.
    Mr. Waxman. The Flash Report also found that Halliburton 
repeatedly violated the Federal Acquisition Regulations. Is 
that right?
    Mr. Reed. There is a guideline in the Federal Acquisition 
Regulations prescribing what the contractor should submit in 
its proposal to support its proposed costs. They failed to 
follow those guidelines, particularly in the case of 
subcontracts.
    Mr. Waxman. The report found that Halliburton even violated 
its own cost estimating manual. Is that right?
    Mr. Reed. That's correct. Their own manual very closely 
followed the FAR guidelines.
    Mr. Waxman. In a statement yesterday, Halliburton claimed 
they had no opportunity to respond to your findings. They said, 
``We have not been given a chance to respond to accusations 
before they were released publicly.'' Did Halliburton have an 
opportunity to review DCAA's Flash Report before it was issued?
    Mr. Reed. Yes, sir. Our standard practice is to provide a 
draft report to the contractor for written comments. In this 
case, we did that; written comments were received. In fact, 
they are attached to our Flash Report.
    Mr. Waxman. You even mention in your report that they had a 
chance to review it, and they responded?
    Mr. Reed. That's correct.
    Mr. Waxman. Let's turn to one of Halliburton's responses to 
your audit. You said DCAA found significant deficiencies in 
Halli-
burton's estimating system. Did Halliburton agree that these 
deficiencies were significant?
    Mr. Reed. While agreeing to the deficiencies, they argued 
that they were not significant.
    Mr. Waxman. And what did DCAA think about Halliburton's 
claims that these deficiencies were insignificant?
    Mr. Reed. We disagreed and stated that to the contracting 
officer in our report.
    Mr. Waxman. You thought there were serious problems, and 
DCAA explicitly concluded the estimating deficiency was not a 
one-time occurrence, but it was systemic?
    Mr. Reed. That's correct.
    Mr. Waxman. These cost estimate proposals are very 
important. Once approved, the cost proposals are the basis for 
Halliburton's fees, aren't they?
    Mr. Reed. There are many factors that go into the fee 
setting, but certainly cost is a consideration in setting the 
fee.
    Mr. Waxman. DCAA found that Halliburton submitted a $2.7 
billion proposal that, ``did not contain current, accurate and 
complete data regarding subcontractor costs.'' Is that correct?
    Mr. Reed. That's correct.
    Mr. Waxman. If Halliburton's estimate is too high and is 
accepted, then Halliburton gets profits for work it has never 
completed. Is that right?
    Mr. Reed. That's a possibility.
    Mr. Waxman. GAO told us that there were enormous 
discrepancies between the first proposal that Halliburton 
submitted in October and the second proposal that Halliburton 
submitted in December after DCAA rejected their first proposal. 
According to GAO, the first proposal was $700 million higher 
than the second proposal. Is that correct?
    Mr. Reed. That's correct. And actually, it was DCAA who 
identified that and briefed it to the GAO.
    Mr. Waxman. Now, is this normal to have that kind of $700 
million deficiency?
    Mr. Reed. Certainly the materiality of that issue is not 
normal, no, sir.
    Mr. Waxman. In fact, I understand there still has not been 
a final proposal submitted. GAO told us that DCAA continued to 
have doubts about the validity of the second proposal, and as a 
result, Halliburton withdrew this proposal also. Is that 
correct?
    Mr. Reed. Yes, sir. That is correct. The company is taking 
these rejections very seriously. I have had the highest level 
of commitments from the company officials that they are going 
to get these problems solved, and they are hesitant to submit 
additional proposals until they can submit current, accurate 
and complete data. We are urging them to do so expeditiously.
    Mr. Waxman. On January 13, DCAA sent its December audit to 
the Army Corps and other Defense agencies overseeing major 
Halliburton contracts. The January 13 cover memo from DCAA 
highlighted the serious nature of the audit findings and 
concluded with the final explicit warning to the Corps and 
others, ``We recommend that you contact us to ascertain the 
status of Halliburton's estimating system prior to entering 
into future negotiations.''
    Nonetheless, 3 days later, the Corps issued a new $1.2 
billion contract to Halliburton.
    Mr. Reed, your January 13 memo asked the Corps to contact 
you before it entered into any further contracts with 
Halliburton. Do you have a recollection of anyone from the 
Corps contacting you about this matter before it signed the new 
contract with Halliburton?
    Mr. Reed. No, sir, I have no knowledge of being contacted.
    Mr. Waxman. Were you surprised when you learned that 
Halliburton just received this contract worth $1.2 billion?
    Mr. Reed. I wouldn't say I was surprised, sir. There are 
circumstances where contracting officers do have other ways of 
evaluating price and cost data. We are giving them our advice 
so we can explain to them what we saw as the risk in the 
contractor's proposals. If they had read our report and 
considered those risks and considered as well other data they 
may have had, I can't say that they did not have a sufficient 
basis to award the contract.
    Mr. Waxman. But they never talked to you about it?
    Mr. Reed. No, they did not.
    Mr. Waxman. General Strock, Mr. Reed says the Army Corps 
never contacted DCAA about its audit findings before giving 
Halliburton another $1.2 billion contract. Do you have any 
information to contradict this?
    General Strock. No, sir, I do not. I know the contracting 
officer did have the DCAA January 13 memo in his hands when he 
made this and considered it and documented the reasons for his 
decision.
    Mr. Waxman. Why didn't the Corps followup with DCAA?
    General Strock. I can't answer that. I was not in the 
process.
    Mr. Waxman. I can't understand how the Corps can operate 
this way. The government auditors have just found enormous 
problems with Halliburton's performance, and these are just 
ignored. We are talking about a contract that will cost the 
taxpayers $1.2 billion, yet it doesn't seem like the Corps even 
bothered to contact the DCAA before issuing the contract.
    General Strock, your Web site says when the Corps was 
deciding who to award this contract to, one of the key factors 
was past performance. Other key factors were Halliburton's 
management approach and its contract administration plan. I 
want to ask you how you could possibly have found there were no 
problems with Halliburton's past performance or its management 
approach or its contract administration plan. The DCAA audit in 
its warning said that the company can't accurately predict its 
costs. It also found significant deficiencies and systemic 
problems. That is not a good sign of past performance or good 
contract management, is it?
    General Strock. I can't comment on the basis for the 
decision. I do know the contracting officer had that 
information available to him. And generally, the position is, 
we make decisions based on substantiated claims, not purely on 
allegations.
    Mr. Waxman. At the briefing with my staff, we asked you to 
be able to answer these questions. Are you able to answer them? 
You don't have the contracting officer here. Did you contact 
the contracting officer, anticipating that you were going to be 
asked these questions?
    General Strock. I did speak with the contracting officer 
about whether or not they had possession of the 13 January 
memorandum and whether they considered that in their decision, 
and that was the answer I got. It was considered and reviewed 
and found to be an appropriate outcome.
    Mr. Waxman. And that satisfied you?
    General Strock. Yes, sir.
    Mr. Waxman. At the time the new contract was awarded, 
Representative Dingell and I had been bringing information to 
the Corps for months that showed Halliburton was charging twice 
as much for gasoline as it should. DCAA validated these 
concerns in December. I don't know how these overcharges 
figured into the assessment of Halliburton's past performance.
    The day before the contract was awarded, Halliburton, in 
fact, told the Defense Department that its procurement officers 
had been involved in a $6 million kickback scheme. Do you know 
if this was factored into the evaluation of Halliburton's past 
performance?
    General Strock. No, sir, I do not.
    Mr. Waxman. Well, does anybody know that?
    Mr. Zakheim. I can't speak to the evaluation. What I can 
say, however, is that, in fact, it was Halliburton that 
informed us of this, and therefore, we are taking appropriate 
action as a result. So they came forward. It certainly doesn't 
seem to me to be to the detriment of KBR that they reported on 
their own people.
    Mr. Waxman. Well, let's look at this thing. They report to 
you that their own employees were getting kickbacks of $6 
million. Your own audit people were telling you that there were 
systemic problems with Halliburton's handling of this whole 
business. You have this whole system of problems with 
Halliburton in the past, and so the next day, they are given a 
$1.2 billion contract, and the claim is they are given a $1.2 
billion contract because they had good past performance. How 
could they reach that conclusion?
    Mr. Zakheim. Congressman, in the first place, Halliburton 
identified two people out of I believe 19,000 that are working 
for KBR right now around the world. So I hardly think that 
means that the other 18,998 are in the same boat. They found 
the people themselves. They reported that.
    As General Strock said, certainly, I don't have visibility 
into how the Army Corps of Engineers makes a decision. But 
clearly, the fact that they identified these people, and we 
have taken appropriate action doesn't seem to me like being to 
their detriment.
    Mr. Waxman. We had the $6 million in kickbacks. We also 
heard about millions of dollars in meals that were being 
charged, but had not been served. We had an obscure Kuwaiti 
subcontractor given the gasoline contract. And one of the Army 
Corps Officials thought that was beyond her integrity to have 
that done. We had a systematic deficiency in accounting 
practices.
    They are under investigation by the Pentagon Inspector 
General, and we now also know they are under investigation by 
the Justice Department. Now those investigations by the Justice 
Department and the Inspector General and the State Department 
Inspector General, that is not just for overcharging the 
government. These are criminal investigations.
    That means there is something really wrong, fraud or 
criminal action not just Halliburton overcharging.
    Mr. Zakheim. Not necessarily. Let me take your points one 
by one. In terms of the meals, as Bill Reed has already 
indicated, there is a disagreement. KBR is within its rights to 
make its case, and that is still being evaluated.
    Isn't that right, Bill?
    Mr. Reed. That's correct.
    Mr. Zakheim. The issue and the outcome have not been 
settled.
    As for the officer, I told you earlier, I wasn't personally 
familiar with the so-called pressure. However, once we did 
become familiar with her letter, that was part of the reason 
that we referred this whole oil--$61 million--to the Inspector 
General. So we were the ones who referred it in part on the 
basis of something that we didn't have visibility into.
    Finally, in terms of your talking about investigations, of 
course, an investigation is simply that. It doesn't necessarily 
mean that someone is guilty. Very often--the Inspector General 
of DOD has told me this on several occasions--an investigation 
is undertaken just to clear someone's name. It is not at all 
clear that just because an investigation has been undertaken 
those people are guilty.
    Mr. Waxman. Let me ask you a question because you just 
raised an interesting thought in my mind. A minute ago I asked 
you if you knew about that letter from Mary Robertson, and you 
said you didn't know about it. And then you testified, on the 
basis of that letter, that you referred it to the Justice 
Department Criminal Division.
    Mr. Zakheim. I understood your question--perhaps I 
misunderstood you, Congressman--I understood your question to 
be whether I was aware of the pressures outlined in that 
letter, and I was not. Was I aware of letter? Yes, of course.
    Mr. Waxman. Chairman Davis asked you if you were aware of 
any charges of political pressure by anybody involved in this 
contracting issue. And here we have a letter that you have seen 
from someone working for the Army Corps of Engineers saying 
that it would violate her integrity to pay more than necessary 
and she is under political pressure but she doesn't want to 
give into it.
    Mr. Zakheim. I understood the question of whether I was 
aware of political pressure. The letter does not necessarily 
convey to me that there was pressure. There was an allegation 
of pressure, and it was referred to the Inspector General to 
see whether the allegation is valid or not.
    Mr. Waxman. I know that before anybody is convicted of a 
crime, it has to be proved beyond a reasonable doubt. But I 
don't think it should be the job of this administration to give 
Halliburton the benefit of the doubt in every case when they 
have a long record of charging for millions of meals that they 
didn't deliver, overpaying for gasoline they were bringing in, 
systemic deficiencies in their cost estimating system and your 
own auditors telling us there are big problems with the way 
they are handling their contracts in Iraq.
    I just want to ask one very clear question. When there are 
criminal charges being investigated, doesn't that indicate to 
you that it is not just an instance of poor judgment?
    Mr. Zakheim. Again, I can't speak to an investigation. On 
the other hand, what I can speak to is what I have seen in Iraq 
since I have been out there twice, most recently 2 weeks ago. I 
did see services provided, and I did see clean toilets, and I 
did eat decent food, and I didn't hear complaints from anyone 
about how they were being supported.
    It seems to me, in the larger context of what is going on 
with a massive tax that is taxing one of the larger companies 
in this country, it seems to me--and I have said this on the 
record before, that they are not doing a great job, but they 
are not doing a terrible job.
    Mr. Waxman. Well, you have pointed out that they are 
already at the budget ceiling of $18 billion, which is more 
than we realized they were getting in Iraq. That is a lot of 
money for you to have a clean toilet and a good meal in Iraq 
and for them to do the job they need to do. They need to do the 
job they are paid to do. We need you and them to protect the 
taxpayers in this country from overpaying. And we are worried 
whether we are getting that kind of service from people in this 
administration.
    Mr. Zakheim. Congressman, we are the ones that have found 
the discrepancies. We are the ones that referred them to the 
Inspector General. We have 25 auditors risking their lives out 
there. We are carrying out our responsibility.
    Mr. Waxman. But you are the ones who are also ignoring all 
the evidence including the report from your own audit team that 
the taxpayers are overpaying and that Halliburton is 
contracting with subcontractors and paying those subcontractors 
more than they should be paying.
    Mr. Zakheim. On the contrary, Congressman. With respect, I 
have to differ. If, indeed, it is proved that there is 
overcharging taking place, that money will be restored. That 
has already happened in several cases. In those cases where 
there is a dispute, it has to be resolved. But any money that 
is identified as having been overpaid is indeed being restored.
    Mr. Waxman. Do you think it was appropriate to issue the 
$1.2 billion contract without the Corps talking to DCAA when 
they sent an audit saying, ``Please talk to us first?''
    Mr. Zakheim. I believe General Strock answered that.
    Chairman Tom Davis. Let me make a comment. How many 
criminal investigations are being undertaken now by the IG's 
office? Any idea.
    Mr. Zakheim. I don't know if they're all criminal. There 
are four investigations all told.
    Chairman Tom Davis. Well, I mean ongoing.
    Mr. Reed. For the whole Federal Government?
    Chairman Tom Davis. For the whole Federal Government, 
right.
    Mr. Zakheim. I have no idea. We'd have to get you that for 
the record.
    Chairman Tom Davis. But it's a lot, isn't it?
    Mr. Zakheim. It's more than four.
    Chairman Tom Davis. It's more than a dozen, isn't it?
    Mr. Zakheim. I will have to get that for you for the 
record.
    Chairman Tom Davis. Absolutely.
    How many IGs are there?
    Mr. Zakheim. Quite a few. We'll get you that for the 
record.
    Chairman Tom Davis. Exactly. I mean all of us who have been 
in government contracts know that whenever you see anything 
suspicious--Mr. Reed, isn't that right, that you would refer to 
this?
    Mr. Reed. Yes. DCAA has made up to hundreds of referrals a 
year.
    Chairman Tom Davis. Thank you. That's what I'm trying to 
establish here. This isn't so out of bounds, particularly when 
the contractor himself comes to you and says, we think we have 
allegations with some of our employees. And they want to use 
that and blacklist them?
    We went through this. We had votes in the House on this 
issue before about blacklisting contractors over some 
allegation or some investigation before there's an 
adjudication, and this House voted opposite where Mr. Waxman is 
on that.
    Mr. Waxman. Would the gentleman yield?
    Chairman Tom Davis. I'd be happy to.
    Mr. Waxman. The House and the Senate faced supplemental 
bills and one the Senate had a provision saying there ought to 
be criminal penalties for war profiteering. The conference met 
and took that provision out.
    Chairman Tom Davis. That may be, but that wasn't the vote 
I'm talking about, the blacklisting regulations that were 
promulgated by the previous administration. And we've had votes 
on this and what----
    Mr. Waxman. No one is calling for a blacklist. What we're 
calling for is scrutiny----
    Chairman Tom Davis. Reclaiming my time, I----
    Mr. Waxman. Are you on your time?
    Chairman Tom Davis. I'm on my time.
    All I'm trying to say, Mr. Waxman, is--and I understand you 
are raising some important points here as we go through, but 
that's not a mark of past performance when an employer comes 
forward and says, look, we may have a problem with some 
employees, we may have a problem with the government that's 
trying to extort and make us go to one contractor, and they 
come forward to the government and disclose this. They 
shouldn't be punished for it. This is what you want contractors 
to do when they have problems like that.
    Am I right on that, Mr. Reed? Isn't that how you want a 
contractor to act?
    Mr. Reed. That's true. The DOD Inspector General has 
promoted this voluntary disclosure program for that very 
purpose, to encourage company management to take responsibility 
for enforcing its own internal controls.
    Chairman Tom Davis. Let me ask you this. Documentation in a 
war zone is sometimes a little more difficult to undertake, 
isn't it, than if you're sitting back in an office somewhere? 
Is that fair it to say?
    Mr. Reed. That would certainly be my expectation. You would 
not necessarily see the same type of documentation you would in 
an environment in the States.
    Chairman Tom Davis. And is Halliburton--since you let them 
know the standard of documentation you're now expecting in a 
war zone, are they shaping up, are they coming forward with 
better documentation?
    Mr. Reed. I wouldn't want to comment on this point. That's 
still a work in process. But they----
    Chairman Tom Davis. OK. They don't get paid unless they 
provide the documentation; isn't that correct?
    Mr. Reed. Well, we obviously in certain cases feel we have 
enough basis to suspend costs, which we have done in the case 
of the--the dining facilities. The company, though, has, I 
think, shown the right response in terms of stating to us what 
actions they are planning to take; and we're going to make sure 
they take those actions in a timely way.
    Chairman Tom Davis. Let me just get back--the reason you 
have a cost-plus fee, an award fee, fixed fee, whatever in some 
cases is--who fronts the cost in a contract of that type?
    Mr. Reed. Contractor--I may defer to Ms. Ballard.
    Chairman Tom Davis. Ms. Ballard, doesn't the contractor 
front the costs?
    Ms. Ballard. Yes, he does.
    Chairman Tom Davis. So in this case, the contractor, 
whoever it is--Bechtel, Halliburton, whoever--fronts the costs 
and then they submit reimbursements from what they have already 
upfronted; is that correct?
    Ms. Ballard. That is correct. And if the costs that they 
submit are not fair and reasonable, allowable or allocable, we 
do not pay those costs to the contractor.
    Chairman Tom Davis. Theoretically, they end up costing them 
money if they don't clear DCAA in their scrutiny and they don't 
clear your shop; is that fair to say?
    Ms. Ballard. Yes, that is correct.
    Chairman Tom Davis. And so there's no taxpayer money 
invested up front. It comes in the reimbursements and that's 
when the auditors come in; is that correct?
    Ms. Ballard. That is correct.
    Chairman Tom Davis. What a deal. It seems to me, under 
those circumstances, that's a pretty good vehicle for the 
government. We're not having the taxpayers upfront money, 
putting money at risk, until we see the audits and it's 
cleared. And it's not uncommon, from my 20 years of experience 
in government contracting, to see contractors come forward with 
costs and have them thrown right back at you from alert, 
trained auditors that are used to this and you argue about it 
from there. Is that your experience?
    Ms. Ballard. That is correct and that does happen.
    Chairman Tom Davis. I just want to put all of this in an 
appropriate framework for this. This is a war zone and things 
go on.
    I think Mr. Waxman has raised some important points. One 
thing he's talked about is the contracting officer that decided 
not to notify DCAA before they went ahead. I mean, we'd like to 
talk to that officer, like to have that officer come before the 
committee, but to find out what they weighed.
    And, General Strock, if you could make that available to 
us.
    Mr. Waxman. Just a correction. It's my understanding that 
Ms. Robertson did contact the contracting officer, her 
superiors, and urged them not to go forward and be pressured 
into the subcontract with Altanmia.
    Chairman Tom Davis. Let's find out. I think we need to 
get--and that can be a subject; we just need to find out what 
went into this.
    Obviously, whenever you have allegations of the type that 
are coming forward here, favoritism or something, given this, 
then we want to get to the bottom of it and see. I don't see 
that it's happened, but we still have some threads we have to 
follow through on.
    I think it's pretty clear from your testimony that there's 
no obvious evidence of this. From what I understand from Mr. 
Waxman's questions, the political pressure was on using a 
company in Kuwait, and I don't know under what circumstances 
they would have told us--the embassy or anybody else would have 
said, we have to use a certain oil company in Kuwait. But am I 
wrong? Aren't the Kuwaitis doing their own investigation on 
that?
    Mr. Zakheim. You're absolutely right. The Kuwaitis are 
investigating, and that just shows that there is a concern both 
here and there. I mean, we are investigating. There is a 
concern.
    Chairman Tom Davis. Not to cast aspersions, but isn't 
corruption not uncommon in that part of the world?
    Mr. Zakheim. I don't want to cast aspersions, Mr. Chairman.
    Mr. McHugh. Mr. Chairman, would you yield to a question 
from me?
    Chairman Tom Davis. I'd be happy to.
    Mr. McHugh. I get a little confused sometimes in my old 
age, but wasn't your question to the panel that Mr. Waxman has 
referred to, did they receive any political pressure from the 
administration to award the contract to Halliburton?
    Chairman Tom Davis. That's correct.
    Mr. McHugh. Now, did Halliburton, where this lady was 
employed, receive pressure to award it to a Kuwaiti firm, 
correct?
    Chairman Tom Davis. That's correct. I didn't ask that 
question.
    Mr. McHugh. I thought so and----
    Mr. Zakheim. To be clear, the contract officer was working 
for the government, but our answer was, that we were not aware 
of political pressure. She has made an allegation, and that is 
part of an overall referral to the inspector general precisely 
to get to the bottom of this.
    Mr. McHugh. She was working with Halliburton, but 
Halliburton already had the contract was the point. It was not 
so the administration was trying to enrich----
    Mr. Zakheim. No. Absolutely not.
    That's correct, Mr. McHugh.
    Mr. McHugh. But that was the suggestion that was made.
    Chairman Tom Davis. That's fine. Mr. Waxman, you have 5 
minutes.
    Mrs. Maloney, you're recognized for 5 minutes. Thanks for 
bearing with us.
    Mrs. Maloney. Thank you, Chairman Davis and Ranking Member 
Waxman.
    I just want to state that I've been fortunate enough to 
visit Iraq twice with Chairman Davis, in August and in 
February, and to meet with the troops and review the contracts; 
and the troops are really doing a remarkable job under very 
severe conditions, and we are thankful for their service and to 
your service.
    I would like to go back to Ms. Ballard, when you testified 
earlier that when a decision is made to give a monopoly 
contract, a sole-source contract, you make a determination.
    Was a determination made in the case of the sole-source 
monopoly contracts in Iraq? Was that procedure followed in the 
letting of those contracts.
    Ms. Ballard. Congresswoman, I need to be sure I understand 
your question. Are you speaking of the sole-source award to 
Halliburton, or are you speaking of the Parsons award in the 
north and the KBR award in the south?
    Mrs. Maloney. I'm speaking to all three.
    You said that when you make a decision to let a no-bid, 
sole-source contract, you make a determination that is 
appropriate to do that as opposed to having a competitive bid. 
That was part of your testimony that was part of the procedures 
that if you don't have a competitive bid, you make a 
determination that it's important for whatever reason, an 
emergency or whatever, to follow the other course; and my 
question was, was that determination made in all three 
contracts?
    Ms. Ballard. In the case of the Restore Iraqi Oil contract, 
a determination was made under the Competition in the 
Contracting Act that unacceptable delays existed and therefore 
a sole-source award was appropriate.
    Mrs. Maloney. Could we have an example or could we have a 
copy of the written determination, all three cases?
    Ms. Ballard. The LOGCAP contract is the one sole source 
and, yes, ma'am, there is a determination that we can make 
available.
    In the case of the Parsons award in the north and the KBR 
award in the south, those were not sole-source contracts. Those 
contracts were competed and, in fact, there were six offerers 
who competed for those awards.
    Mrs. Maloney. And I would like to see a copy of the 
determination and the types that you provided with a no-bid 
contract.
    Admiral Nash, when we were in Iraq----
    Chairman Tom Davis. There's no problem with supplying that 
is there?
    Ms. Ballard. No.
    Chairman Tom Davis. I just wanted to get that on the 
record. I just wanted make sure there's no problem with 
supplying that. They said there's not.
    Mrs. Maloney. And we had this conversation when we were in 
Iraq, and I asked and I believe the chairman also asked why we 
were not allowing Halliburton and Bechtel to compete for 
specific projects. At one point, you said we had to let these 
contracts because you had to get the people over there.
    Now they're both over there. Why couldn't we let these two 
companies compete? Would that not save taxpayer dollars?
    Mr. Nash. Some of the contracts under which they're working 
are not full and open, so therefore I can't use them in some 
cases. In fact, KBR, Halliburton is the contractor for the oil 
in the south. It was full and open competition; and they will 
in fact be doing the work down there.
    We will look at the opportunity, whether we can do some 
competition, but the goal is to be able to implement this work 
efficiently and effectively. So I guess the answer is, we can 
and we can't for those contracts that are not correctly--were 
not done in a way that the supplemental laid out. We won't be 
able to use them. So we'll take a look at that.
    Mrs. Maloney. I think that could save taxpayers' money.
    And General Strock, didn't the Army Corps recently award a 
construction contract for the Central Command to 10 different 
companies?
    General Strock. Yes, ma'am, we did, out of our 
Transatlantic Center in Winchester, VA.
    Mrs. Maloney. So, Admiral Nash, why did the administration 
choose to deviate from this practice?
    Admiral Nash. I'm sorry. I don't understand. We are using 
some of those 10 contracts right now to do work in Iraq with 
the supplemental money, because they were full and open 
competition.
    Mrs. Maloney. And now that Parsons and Halliburton have 
monopolies in the south and in the north, what's wrong with 
having these two groups compete, as opposed to cost-plus 
contracts in which there is really no incentive to save 
taxpayers' money?
    Admiral Nash. Well, if I may, all of these contracts have 
mechanisms so that we have tasks and those tasks are 
negotiated. So it's not the true cost-plus that they just send 
us a bill after they're done and we pay whatever it is.
    If I understand your question, why can they not compete for 
all of the oil work, whether they are working the north or the 
south--and that's what I said we would take a look at now that 
we have those in place--it depends on what the contract--what 
the contract clause is saying.
    And I will take a look at that, ma'am.
    Mrs. Maloney. When I arrived in Iraq on the very first--we 
actually were in Kuwait. The headline in the Kuwaiti paper was 
that Altanmia was being investigated by the Kuwaiti Government, 
by a unanimous vote of their parliament, over allegations that 
Altanmia was making profits of over $800,000 a day; and that's 
extremely troubling.
    Chairman Tom Davis. The gentlelady's time has expired.
    Mrs. Maloney. I just want to say, if I could, Mr. Chairman, 
that I truly I do believe that the American taxpayer owes a 
great deal of debt to Mr. Waxman and yourself for your diligent 
overview of taxpayers' money in these contracts.
    Chairman Tom Davis. Thank you very much. This isn't our 
last hearing, but we appreciate that.
    The gentleman from New York.
    Mr. McHugh. Thank you, Mr. Chairman. I'm getting confused 
again. I've been on the Armed Services Committee for 12 years. 
I serve as the chairman of the Total Force Subcommittee.
    I thought I understood LOGCAP. I heard the gentlelady from 
New York say ``sole-source,'' ``exclusive,'' ``no-bid,'' and 
other such colorful adjectives, ``contracts.'' Isn't the 
purpose and hasn't the purpose of LOGCAP always been to, after 
a competitive process, which happened here, and after the 
winner is announced, which was Halliburton in this case, you 
make use of those in extreme situations just as we did when I 
visited Haiti with General Sullivan, just as they did when I 
was with the Chief of Staff of the Army when I was in Bosnia, 
just as I did when I visited a K-2 in Uzbekistan, or the twice 
I've been to Iraq, or 10 days ago when I was in Afghanistan for 
2 days.
    Am I correct on that or am I really badly confused?
    General McManus. You're correct, sir.
    General Kern. Congressman, if I can elaborate on the LOGCAP 
contract, we're on LOGCAP 3 right now, which gives you an 
indication that this isn't the first time in this--as mentioned 
earlier, we've been doing this for 10 years and it has been 
competitively awarded.
    Mr. McHugh. Let me ask you that because you raised a point. 
This one was competitively awarded. I seem to recall about the 
time I went to Bosnia in 1997, there was a competitive award 
process run. DynCorp won that under the previous 
administration. The previous administration rejected that 
competition and thereafter awarded a true sole-source contract 
to Halliburton. Is my memory correct there?
    General Kern. DynCorp had the previous LOGCAP contract; 
that is correct. It was competed in 2001.
    Mr. McHugh. It was competed later, but in Bosnia, 
Halliburton was kept on the ground; is that not correct?
    General Kern. This is another confusing issue. There was a 
sustainment contract awarded in Europe for Bosnia. That was 
competed separately. That was different than the----
    Mr. McHugh. And who----
    General Kern. LOGCAP contract that we're talking about.
    Mr. McHugh. Who held that?
    General Kern. DynCorp held it previously, but the pieces of 
it were then recompeted.
    Mr. McHugh. And who held it for Bosnia?
    General Kern. I will have to make sure----
    General McManus. Congressman, I think this is important 
because LOGCAP won--that was a 5-year contract 1992 to 1996, 
Corps managed. Brown & Root Services won that competition then. 
There were four other companies that competed.
    During the period of time of that contract, we supported 
operations in southwest Asia, in Somalia and we began to work 
in the Balkans. That's an important thought because I'm going 
to come back to that in a second.
    Then on the LOGCAP, which you were talking about, the 
second iteration, LOGCAP 2, was the period 1997 to 2001. That 
again was competitively awarded, then to DynCorp; and there 
were three other defense contractors in that competition during 
this time period between the operations. And this is what we 
try to do: We go into an area with a contingency contract, when 
the requirements are unknown here, duration, and this gives us 
the flexibility and agility to deal with those changing 
requirements in the battle space.
    After about 2 to 3 years, with experience in the Balkans, 
you, sir, then made the decision to compete for sustainment 
purposes the continuation of that mission in the Balkans, which 
is separate from LOGCAP today, sir.
    Does that----
    Mr. McHugh. It does, but the point remains the same. There 
was a unique treatment in the Balkans that I suspect, if it 
were done today under the current administration, would somehow 
be characterized as special treatment because Halliburton was 
already there and obviously participated to advantage in that 
contract.
    General McManus. Yes, sir.
    Mr. McHugh. And that's the answer I could have gotten 3 
minutes ago. I appreciate it. But that is the key point.
    Now let me ask you another question. The cost-plus contract 
today, it's a 1 to 3 percent; is that correct? What was it 
under the previous administration.
    General McManus. Sir, let me--let me go back to LOGCAP 2, 
sir, if I may.
    Under LOGCAP 2----
    Mr. McHugh. I enjoy our travels.
    General McManus [continuing]. Lessons learned off of the--
each time we do this because you cannot compare each 
contingency we support. They're unique in their own right.
    Mr. McHugh. General, I'm not asking you to justify it. I'd 
just like you to answer what the cap is today.
    General McManus. It's 3 percent. It's a 1 percent base fee, 
2 percent award fee, which they compete for, that we've not 
gotten to yet.
    It was 8 percent in LOGCAP 2, so we drew----
    Mr. McHugh. Eight percent. So if you're concerned about the 
percentage, then actually Halliburton is receiving less under 
this administration than they did under the previous. And by 
the way, I think those charges, if anybody would make them, are 
ludicrous. I supported that initiative back then and I support 
it now, and in all those places, I've seen good work being done 
by men and women in uniform I couldn't be more proud of.
    And that doesn't suggest that Dov Zakheim and others don't 
have a lot of work to do on any contract, they do, but we have 
been there trying to work these out to the benefit of the 
American people. Somehow to suggest that an embassy who conveys 
the issues with the country, that they work to any corporate 
interest of America that is in that corporation is somehow 
criminal, then I'll tell you what we ought to do is go back, 
get Ben Franklin and everybody to Secretary Albright because 
they'd all be in jail.
    So I just think we ought to understand what the realities 
are today. These are not clear-cut issues whether you're 
dishing out meals or cleaning toilets, as--having clean 
toilets, as the ranking member said. This is incredibly 
difficult work, and you folks have difficult work, and I feel 
confident that at the end of the day you're going to make sure 
the taxpayers get what they deserve while we're taking care of 
our men and women in uniform.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you. The gentleman's time has 
expired.
    The gentleman from Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you.
    Recently two former Halliburton employees who worked for 
Halliburton's LOGCAP procurement office in Kuwait came forward 
with, I think, some disturbing information about a culture of 
overcharging. According to these whistleblowers, Halliburton 
officials frequently told employees that high prices charged by 
vendors were not a problem because the U.S. Government would 
reimburse Halliburton's cost and then pay Halliburton an 
additional fee. They referred to an informal Halliburton motto, 
``Don't worry about the price, it's cost-plus.''
    Examining the situation from a different angle, the GAO is 
reporting the same indifference to cost.
    Dr. Zakheim, if these accounts are accurate, would you 
agree with me that this is a completely unacceptable attitude?
    Mr. Zakheim. If they're accurate. And what we have done is 
taken this account and treated it as a hotline referral; and as 
you know, a hotline referral goes to the inspector general 
precisely to investigate this.
    One other point that I think is very important to make: We 
know that the courts have continually held that you cannot deny 
a contractor award on the basis of allegations. An 
investigation looks into allegations. You've got two guys 
here----
    Mr. Tierney. I don't want to interrupt you, but I don't 
think I said anything about denying contracts. I was simply 
asking you a question.
    Let me followup, because I understand that Mr. Reed 
immediately sent it over to the inspector general on a hotline 
referral, but what troubles me is, the inspector general is 
apparently doing nothing to followup on this.
    The minority staff contacted one of the whistleblowers 
yesterday--his name is Henry Bunting--and he said that no one 
from the inspector general's office has contacted him.
    Mr. Zakheim, how do you explain this? The allegations of 
the whistleblowers are serious; you've admitted that. Where is 
the followup?
    Mr. Zakheim. There will certainly be followup. They're very 
methodical. Their approach, as I understand it, and obviously 
I'm not working with the inspector general's office, but as I 
understand it, they are very careful, they assemble their 
facts, they interview people. I guarantee those two gentlemen 
are going to be interviewed.
    Mr. Tierney. Well, both Mr. Dingell and Mr. Waxman sent a 
letter explaining all of this in significant detail over a 
month ago--over a month ago.
    The whistleblowers also say that Halliburton employees 
deliberately keep purchase orders below $2,500 so they can 
avoid the requirement to solicit more than one quote, in other 
words, to avoid having vendors compete to supply the company 
with goods.
    They say that Halliburton's supervisors encouraged them to 
use a list of preferred Kuwaiti vendors even though many of 
these firms were unreliable or charged outrageous prices. Now, 
this letter is over a month ago and we've seen nothing come 
back.
    Mr. Bunting testified before the Senate Democratic Policy 
Committee last month. The same day, or virtually the same day, 
GAO investigators contacted the minority staff to ask for more 
information on how to contact Mr. Bunting and the other 
whistleblower. That's what I would think an investigator would 
do if they were serious about this, but no one from the 
inspector general's office has ever contacted Mr. Waxman or his 
staff to learn how to get in touch with these whistleblowers, 
and apparently no one has contacted Mr. Bunting despite the 
fact that they were put on notice over a month ago.
    Mr. Reed. Mr. Congressman, could I tell you one additional 
thing that is being done? I'm not sure where it stands with the 
IG, but in addition to the regular conduct that might have been 
suspected from the letters, we took it as an issue, as well, of 
normal contracting for DCAA to followup on this.
    So I have sent that letter to my audit office in Iraq. We 
have been looking--working with the Defense Contract Management 
Agency, that is responsible for administering the contracts and 
for approving these $2,500 awards. They have to sign off on 
every single one of them. So we have brought these very serious 
allegations to their attention, and we are working together 
with DCMA to see if we can validate and correct these 
situations.
    Mr. Tierney. I appreciate that, Mr. Reed. And I appreciate, 
Mr. Reed, your immediate referral to the inspector general's 
office. I think that was the appropriate action to take, and I 
think you should be commended for that.
    Will you be getting back in touch with the attorney--the 
inspector general to find out why this lapse has occurred or 
what's going on?
    Mr. Reed. We do normally receive periodic updates from 
hotline referrals. And, yes, sir, we will do that.
    Mr. Tierney. I thank you for that. I yield back.
    Mr. LaTourette [presiding]. I'm going to recognize myself 
for 5 minutes.
    I didn't have the opportunity to go with the chairman on 
his trip, but I did have the chance to be in Iraq in January 
with the Transportation and Infrastructure Committee to look at 
civil works projects. And before I ask a couple of questions, I 
want to just relay a story.
    There was a young lieutenant from Toledo, OH, who talked to 
me about the 2,000 civil works projects that had gone on in 
Iraq, and some of them have been mentioned--redoing schools, 
Operation Chalkboard, reopening hospitals, making sure 
hospitals were up and running, giving people running water that 
had never had running water in their life. I think the chairman 
in his opening statement talked about a wastewater treatment 
plan by General Odierno in the Sunni Triangle. And I made the 
observation to the lieutenant, I said, you know, lieutenant, I 
watch a lot of television, as I think we all do in my job; and 
I can tell you, back home when we do something swell, we as 
politicians have a band and a ribbon, and we all cut it with 
scissors, and we take the scissors home or the shovel home 
after the groundbreaking. How come I've never seen any of this 
on television? Why have you never had a ceremony?
    And the lieutenant said, we've had a ceremony for every one 
of those successfully completed civil works projects.
    I said, how come you think I'm not watching it back on 
television?
    He said, Congressman, we watch a lot of CNN and Fox here, 
because we've got it in Baghdad, and we've never seen it on 
television either; and our feeling is that the broadcast media 
waits by the scanner for one of our buddies to be injured and 
you'll see that on the news at night, but you'll not see our 
successes. So when you go home, it would be nice if you could 
tell people about the successes.
    So I'm keeping my promise today to the lieutenant from 
Toledo.
    You are doing an amazing amount of work in Iraq, and you 
know, I saw a guy on TV when I was there and he said, under 
Saddam Hussein I had electricity 24 hours a day and now I only 
have it 16 hours a day.
    And I asked the lieutenant, why is that?
    He said, because he's from Tikrit. Everybody in Tikrit had 
electricity 24 hours a day, but the guy in the next town had it 
zero hours a day, and so through our redundancy efforts, we're 
going to make sure that everybody's treated the same and 
everybody has it 16 hours a day.
    Now to my question. When the ranking member, Mr. Waxman, 
was making his opening remarks--and if I misquote him, I 
apologize and I'll be certain to yield to him--but talking 
about contractors' officers, and I think he said that 
reservists are going over and are being given a 2-week crash 
course in contract management, words to that effect.
    And, Ms. Ballard, I heard you talk about the contract 
officers that are in station. Is there a 2-week sort of 
correspondence crash course on how to administer these 
contracts? Are these contracts being administered by people on 
the ground in Iraq by professionals or the Keystone Kops?
    Ms. Ballard. Congressman, I have no knowledge of 2-week 
training crash courses to go over and be contracting officers 
in theater. In my experience, the reservists who come to work 
for us are usually put in positions where they have experience 
from their commercial occupations or from their military 
service. On the ground, our professionals come from the Defense 
Contract Management Agency, an agency I'm proud to have worked 
for, and I can say clearly that they do have professionals on 
the ground that administer these contracts and provide 
oversight to us.
    Mr. LaTourette. Thank you very much.
    And Admiral----
    General Kern. Congressman, could I add--I think I'd like to 
clarify----
    Mr. LaTourette. Sure.
    General Kern. There is a Reserve unit called the LOGCAP 
Support Unit, which I believe is what Congressman Waxman was 
referring to. It was the first time we had employed that unit, 
starting with operations primarily in Afghanistan, when we 
began the buildup of the LOGCAP work. That organization is 
comprised, however, of the professionals that was referred to, 
of DCMA auditors as well.
    I just met with them in Baghdad. They are on their second 
iteration of it. It's a multiservice, multicomponent unit 
composed of professionals. The professional PCOs are part of 
General McManus's office that oversees the contract. The ACOs, 
the administrative contracting officers, in theater, are 
professionals as part of DCMA.
    I'd let McManus describe it in more detail.
    General McManus. Sir, the LOGCAP Support Unit concept is a 
new edition, based again on lessons learned, because as we have 
to leverage this capability, we have to train our folks. We 
provide these planners to go into the theater, out to the base 
camps, to the units, if you will, 4th division, to the brigades 
and so forth. So as requirements are generated, these are the 
folks who work together to create the scopes of work.
    And so prior to their deployment, this is a case of having 
a new organization. We wanted to bring them up as currently as 
we could, because this is a case of forming, organizing and 
deploying, and have the support and get your skills at the same 
time. So this was an attempt to bring it up to speed.
    This is a new organization, new capability we're trying now 
to build for future operations, because it's making a huge 
difference for us as we work the requirements through this 
whole process from--from origin through completion.
    Mr. LaTourette. Well, General--either general--let me ask 
you this: Do you have confidence that these men and women know 
what they're doing? Are they watching the American taxpayers' 
buck on these contracts?
    General Kern. Yes, they are. And we have taken that from 
the previous lessons provided by GAO and others on how to 
improve the process. And that's why this unit exists today and 
that's why the training that we are using with them. The task 
order process we are using also breaks it down into further 
detail, and it is a complex process, to ensure that we have 
oversight of the entire operation.
    Mr. LaTourette. Thank you very much. I believe the 
gentleman from Massachusetts is recognized, Mr. Lynch, 5 
minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    I want to thank Chairman Davis and also Ranking Member 
Waxman for their good work in putting this together. I also 
want to thank the members of the panel for coming before us and 
helping us in our inquiry.
    I also had a chance to go into Iraq. I was actually part of 
the first delegation to go into Baghdad after the invasion. And 
I've got about 20 years in construction management, managing 
contracts.
    And a couple of things I know about no-bid and cost-plus 
contracts. No. 1, since there is no or very little competition, 
it's basically a guarantee for whatever contractor is anointed. 
The second thing, on a cost-plus contract, the profits are 
guaranteed and there really are no restraints on how much a 
project will cost. There are no internal restraints on the part 
of the contractor. So I think Mr. Zakheim would agree that the 
auditing function here, and Mr. Reed would agree, the auditing 
function is extremely important, because the more the company 
spends or the contractor spends, the more they're going to make 
on their percentage. So the auditing function is extremely 
important.
    Is that correct, Mr. Zakheim?
    Mr. Zakheim. Absolutely, sir. I agree.
    Mr. Lynch. In this case we have an auditing function where 
our--the DCAA wrote a recommendation to the Army Corps of 
Engineers and said--and I'm going to pull it right from the 
letter. It said, ``They have identified systemic problems with 
Halliburton's accounting, and it urged ``the DOD not to award 
further contracts to Halliburton without talking to the DCAA 
about Halliburton's accounting problems.''
    And the problem that I have is, this is the way the system 
is supposed to work, that the auditor is supposed to oversee 
what's going on and that the contracting authority is supposed 
to listen. But that didn't happen here.
    That didn't happen here, and another $1.2 billion went out 
to Halliburton and, in other cases, Brown & Root. Despite some 
problems that have been found in their operation, they continue 
to work without any correction or any restraints at this point.
    General Kern, I'd like to bring your attention to a couple 
of reports regarding several Halliburton employees who were 
caught taking kickbacks. They took them from a Kuwaiti company 
in exchange for steering contracts of that company; and as I 
understand it, Halliburton caught the officials engaged in 
these activities and reported them to the Defense Department; 
is that correct?
    General Kern. That's correct, Congressman.
    Mr. Lynch. Last week, General, your staff met with our 
committee staff in preparing for this hearing and our staff 
asked for the identity of those two individuals. Your staff at 
that time reported that they didn't have the information then, 
but they'd get back to the committee with the information.
    Unfortunately, we have been waiting and that has not 
happened, to my knowledge. Is that forthcoming or----
    General Kern. I was away last week, Mr. Congressman, so I 
don't know--have the precise answer. I promise you, I will get 
back to you, and if there is no legal reason why I cannot 
provide that, it will be provided.
    Mr. Lynch. I've got to tell you, I'm one of the Democrats 
who actually supported the action in Iraq, and I supported the 
money for our troops and for reconstruction, and I've got to 
tell you, I'm concerned right now. I'm concerned. I'm not 
somebody who has criticized the military or been reluctant to 
support you, but I've got to tell you, it's our responsibility, 
all of us, to protect the American taxpayer.
    General Kern. I agree with your concern.
    Mr. Lynch. I'm concerned.
    General Kern. And we are--I will promise you, and I have 
spoken a number of times with my command counsel about this 
specific incident, and it is going to be thoroughly 
investigated; and we will bring those concerns to the forefront 
for you.
    Mr. Lynch. Well, more than concerns brought to the 
forefront. I'd like to have an opportunity to talk to those 
individuals and find out how senior are those individuals who 
accepted the bribes from this Kuwaiti company. Do we have at 
least an indication of how senior those Halliburton officials 
are?
    General Kern. I do not have any indication of that. I know 
that it was brought forward. I know that it is under 
investigation, and I know that they have provided us 
compensation for what they believe was the amount of the bribe 
that was taken. But that is what we are going to ensure is 
investigated thoroughly.
    Mr. Lynch. I will conclude, Mr. Chairman.
    I keep hearing this: that the price is overcharged and then 
the penalty is to give the money back that we caught you 
stealing. That's just not going to get it. That's just not 
adequate.
    General Kern. Congressman, we agree with you 100 percent 
and that is, in fact, what is happening, that we are----
    Mr. Lynch. There've got to be more serious consequences 
than just, oh, we caught you stealing, give the money back. 
This is millions and millions of dollars of the taxpayers' 
money, and we have to have a better standard than that. And I'm 
just going to conclude with these remarks.
    I don't understand how you couldn't know the rank and the 
identity of these officials. These officials were at the very 
top of the procurement ladder. These people were handing out 
millions of dollars in taxpayers' money in the form of 
contracts.
    We know who these people are. That's why I say, my 
confidence has been shaken on this point, and we ought to put a 
lot of sunlight on this process, find out who these people 
were, find out how many contracts they oversaw, find out who 
the Kuwaiti contractors were that were bribing them. And are 
those subcontractors who provided the bribes doing other 
contract work in the country as well? We need some 
accountability here. That's all I'm asking.
    Chairman Tom Davis [presiding]. The gentleman's time has 
expired.
    But just to clarify, it was the--Halliburton came forward 
and said, we suspect bribery. Right? You wouldn't have known 
about it had they not come forward and said, We think there are 
employees--am I correct on that?
    General Kern. I would hope that our audit would have picked 
it up, as well.
    Chairman Tom Davis. Eventually, maybe.
    General Kern. Yes.
    Chairman Tom Davis. OK. The gentleman from California is 
recognized for 5 minutes.
    Mr. Ose. Thank you, Mr. Chairman.
    General Strock, your stars are confirmed by the Senate, are 
they not?
    Mr. Strock. Yes, they are.
    Mr. Ose. General Kern, the same? Your stars are confirmed 
by the Senate?
    General Kern. That's correct, sir.
    Mr. Ose. General McManus.
    General McManus. Sir, that's correct.
    Mr. Ose. Ms. Ballard, are you subject to Senate 
confirmation?
    Ms. Ballard. No.
    Mr. Ose. Are you a political appointee?
    Ms. Ballard. No, I am not.
    Mr. Ose. You're a civilian----
    Ms. Ballard. A career civil servant.
    Mr. Ose. OK. Long-term?
    Ms. Ballard. Twenty-nine years.
    Mr. Ose. You're almost permanent then, aren't you?
    Mr. Lucke.
    Mr. Lucke. I'm a career foreign service officer, not 
subject to Senate approval.
    Mr. Ose. Dr Zakheim.
    Mr. Zakheim. I was confirmed by the Senate.
    Mr. Ose. OK. Mr. Reed.
    Mr. Reed. I'm a career civil servant.
    Admiral Nash. I'm a private citizen back on duty here.
    Mr. Ose. As an admiral, you were confirmed by the Senate 
were you not?
    Admiral Nash. That's true.
    Mr. Ose. All right. I've always enjoyed sandcastles here. 
Let me just--I want to make sure I've got this correct here.
    Halliburton, it's been alleged, has some nefarious scheme 
going to pick the pocket of taxpayers. Now, if I understand, 
what you all have done is, they have submitted something for 
$2.7 billion, some contract here; you told them, well, it 
doesn't quite meet our expectations. So they came back at $2 
billion, saving the taxpayers $700 million. But that wasn't 
satisfactory either.
    Now, as I understand it, you've got to be nominated--who 
nominated you General Strock, to be a general?
    Mr. Strock. Sir, the President nominated me.
    Mr. Ose. The President----
    Mr. Strock. Of the United States.
    Mr. Ose. President Bush?
    Mr. Strock. I'm sorry, President Clinton.
    Mr. Ose. President Clinton nominated you to be a Brigadier? 
How about a Major--for your second star, did you go to 
President Bush?
    Mr. Strock. President Bush, yes, sir.
    Mr. Ose. General Kern, your fourth star was from President 
Bush?
    General Kern. That's correct, sir.
    Mr. Ose. General McManus.
    General McManus. Yes, sir. My second star was President 
Bush. I've been a general officer about 6 years now.
    Mr. Ose. All right. Let's see.
    Dr. Zakheim, you were nominated by the Bush-Cheney 
administration and confirmed by the Senate?
    Mr. Zakheim. Yes, sir.
    Mr. Ose. Admiral Nash, your stripes?
    Admiral Nash. President Clinton did both of my stars.
    Mr. Ose. So let me make sure I've got this right. The 
people--the Bush-Cheney administration, who nominated some or 
all of you for your stars or for your positions, under the 
sandcastle scenario, is doing all this heavy lifting for 
Halliburton, but then all you people are sitting there telling 
Halliburton they can't have the contracts that they otherwise 
are submitting? You're saying the contracts aren't specific 
enough or they aren't clean enough or they don't meet our 
requirements under FAR.
    Now, the sandcastle I'm trying to understand, as described 
by certain members on the other side, exactly how does 
Halliburton benefit when you guys return their contracts to 
them, when you say their contracts aren't good enough?
    General Kern, you're the four-star here. Tell me how that 
works. I'm missing some picture here.
    General Kern. Congressman, we take an oath to obey the laws 
of the President of the United States in orders from him and 
from the Constitution of the United States, and we are 
responsible to the American public to make sure that all of 
those things happen. So as our commander in chief, we follow 
the law and the orders of our administration, and we ensure 
that all the regulations that have come forth, such as the 
Federal Acquisition Regulation, provided by this Congress, and 
oversight are also met.
    So we will continue to make sure that both the taxpayers' 
money is well spent and the security of our Nation is met.
    Mr. Ose. General, I have actually gotten great comfort from 
the testimony here. It's the sandcastle allegations I'm trying 
to address.
    Dr. Zakheim, you're a political appointee. You ought to be 
looking out for, under the scenario of the sandcastles, the 
interests of a certain individual, but your department is 
sending the contracts back for further review. You're costing 
these people money. I mean, exactly what are you up to?
    Mr. Zakheim. Well, my understanding is, I support the 
President of the United States and the American people by 
looking after the taxpayers' dollar, and the only pressure that 
I'm aware of is the pressure that I put on poor Bill Reed here 
to keep going after anybody or anything that's untoward or 
might rip off the taxpayer.
    Mr. Ose. Which brings me to my point.
    Now, Mr. Reed, there have been allegations that things 
weren't forwarded to the IG or that the IG is supposed to 
report to you on their activities. If I understand correctly, 
any illegal behavior that you suspected, you have, in fact, 
forwarded to the IG; is that correct?
    Mr. Reed. Yes, sir, that's correct.
    Mr. Ose. Now once it's forwarded to the IG, is it within 
your domain to prosecute?
    Mr. Reed. No, sir.
    Mr. Ose. That's somebody else's job?
    Mr. Reed. That's correct, sir.
    Mr. Ose. Does the IG report to you?
    Mr. Reed. No, sir.
    Mr. Ose. So the IG is supposed to pick up the burden at 
that point and carry on?
    Mr. Reed. That is correct, sir.
    Mr. Ose. Are you aware of a contract that's been introduced 
or that the Corps entered into for recent----
    Chairman Tom Davis. The gentleman's time has expired.
    Mr. Ruppersberger.
    Mr. Ruppersberger. Yes, thank you.
    First thing, there's a lot of testimony about Halliburton 
and other issues which are very important and need to be 
addressed. I'm more concerned about where we're going now and 
in the future, because our men and women are at risk. We have 
other people there. We're trying to rehabilitate a country, and 
I think it's very important that we take the lessons learned 
and go forward.
    Now, I'm very concerned about--and I'm going to review a 
case right now, a contract, and I'm going to ask your comments 
on that, because I'm concerned about this contract because it 
affects what is happening now and in the future.
    Let me get into this issue. Major General Charles H. 
Swannack, Commander of the Army's 82nd Airborne Division, 
criticized the failure of U.S. Coalition Provisional Authority 
in Iraq to deliver equipment needed by newly formed Iraqi 
security forces.
    And by the way, I was just in Iraq a couple of weeks ago. 
You know that part of the insurgents' plan is not only going 
after our men and women, but after the men and women in Iraq, 
especially security, that are working with their country. So 
it's a very important issue.
    Now, Swannack said his division has successfully trained 
more than 10,000 Iraqis to be police security and border guards 
in the volatile regions stretching from Falluja to the Syrian 
border, but he said the forces lack the equipment needed to 
fight insurgents, which I assume was ammunition and guns and 
things of that nature, to protect the vast Iraqi border. 
Swannack voiced frustration because lack of equipment had 
hampered Iraqi efforts to secure the region.
    Now, the equipment was to be delivered under a 
controversial $327 million contract that the Pentagon canceled 
last week, a month--that could delay the process for months. 
That concerns me. These people are at risk right now.
    The contract had been awarded to a small Virginia firm with 
no history of arms dealing, and it is alleged that the company 
Nour, N-o-u-r, USA--and the President is A. Huda Farouki, F-a-
r-o-u-k-i, has close ties with Chalabi, a member of the Iraqi 
Governing Council and a close ally of some Pentagon officials. 
Again, that's alleged and I'm not asking you to comment on 
that.
    The contract was canceled after protests by competing 
companies that found Nour had claimed to be partners with high-
profile companies, an individual who said in interviews they 
had no links to the firm.
    Now, this was a quote that was made by the General, ``Not 
only are the security forces bravely leading the fight against 
terrorists; they are in some cases insisting on doing it 
alone.'' And I know that those of us who were over there saw 
the will of those Iraqi individuals who want to take control 
their own country. And the only way we can get our men and 
women out of that country is to get them to secure their own 
country, build the infrastructure that is necessary.
    But, anyhow, they are in some cases insisting on not doing 
it alone, not depending on coalition forces.
    Swannack said this: ``if we had the equipment for these 
brave young men, we would be much further along.'' That 
concerns me. Pentagon officials blaming--this is alleged--
irregularities in the contracting process for the cancellation 
and saying they were rushing to finalize a new contract, but 
they predicted it would take 60 to 90 days before a new 
supplier was selected. That concerns me. And that is an issue 
we need to look at, we need to evaluate it so that it doesn't 
happen.
    Here's what I would like: First thing, how was that 
contract put out to begin with, No. 1? How was the contract 
given to this company that really had no expertise? Who was 
involved with that?
    Where--and I'd like to ask, really--I guess, Mr. Zakheim, 
you're getting a lot of the heat today, but I'd like to ask, 
who was responsible for this type of contract?
    The men and women of Iraq are relying on us, our 
leadership, to provide them the resources that are necessary. 
Not only was this contract a bad contract, but we've got 60 to 
90 days where we have a general saying that these Iraqi 
individuals--I mean, these Iraqi security people cannot do 
their job. That's what I'm concerned about.
    We are going to deal with the Halliburton issues and all 
that; that will be around, and investigations will be done. But 
what about the future? That's very serious.
    And the other issue I want to ask, because I'm concerned--
my time is going to be up and I want to lay it out. I think the 
Iraqi Governing Council--I'd like to know how much money is 
given to them, if at all, that allows them to negotiate 
contracts using American dollars? I think that's an important 
issue. Using American dollars, how much influence do they have? 
Are they given any authority to contract with anyone with our 
American dollars?
    I also supported the $87 billion because I believe we have 
to finish what we started. Whether you are for or against the 
war, we're there and we have men and women that are doing a 
good job there; and it's a hard job and we understand that.
    So if you could address those issues--I think we need to 
have lessons learned, but let's deal with these kinds of 
situations. When you are affecting the security of these Iraqi 
security people and our men and women, that's serious.
    Mr. Zakheim. Congressman, let me address the question about 
what about the future. I think one of my colleagues can talk to 
you a little bit about the Nour contract, and I'm sure Admiral 
Nash can talk about how the Iraqis properly get involved in the 
contracting process.
    Regarding the future, we are as concerned, as you rightly 
are, that we can't just wait around for the process to play 
itself out. And frankly, we're caught here because, on the one 
hand, we want to have the proper procedures, the proper 
competition, all the things we've been hearing about, in order 
to protect the American taxpayer; and that takes time. On the 
other hand, you've got commanders in the field and our young 
men and women who are being shot at, and we've got to help them 
out immediately, and we have to keep finding that delicate 
balance.
    In this case, the one you raised, we are looking at 
alternative sources of financing, possibly out of the 
Development Fund for Iraq, that might help acquire some of this 
material, since the DFI, as it's called, is purely for the 
Iraqi people and this is for Iraqi security forces; and that, 
of course, we could implement much more quickly.
    So we are indeed trying to do exactly what concerns you. 
Let me turn to my colleagues----
    Mr. Ruppersberger. But my question was, how did this occur? 
How was that----
    Chairman Tom Davis. We're way over the time. I want to give 
him a chance to answer. I want to get----
    Mr. Ruppersberger. And don't forget the Chalabi issue, too.
    Ms. Ballard. Congressman, I'd like to say, first, that we 
have awarded over 1,300 contracts in Iraq, valued at $1.3 
billion, of which approximately 1 percent is appropriated 
dollars. The competition rate on those actions is 99 percent, 
and 65 percent of the awards have gone to Iraqi businesses as 
primes. And we've generated over 21,000 jobs. We've done this 
with currently 28 personnel on the ground in Iraq facing 
significant challenges in austere circumstances.
    By way of comparison, in 2002, the Robert Morris Center had 
roughly $2 billion in contracting actions and 305 people who 
worked those actions.
    The contracting process, we strive every day for greater 
excellence in that process. Clearly, our staff in Iraq, faced 
with challenges in austere circumstances, is making significant 
contributions to the rebuilding of Iraq.
    In those circumstances, with 1,300 contracts awarded, we 
have found the circumstance where offerers did identify 
concerns. The contracting process worked as it should; those 
circumstances were evaluated. We determined that action needed 
to be taken, and we took action. And the GAO, satisfied with 
our course of action, dismissed the protest.
    In response to your question with regard to what we will do 
to support the soldiers, as Dr. Zakheim has indicated----
    Mr. Ruppersberger. Let me stop you here because you're not 
answering my question.
    Mr. Chairman, I'm trying to get them to answer the question 
about the Nour contract.
    Chairman Tom Davis. I know. I know. And we've got time. 
We've got to move on. Let me try to get it in the rebuttal at 
the end. We've got 20 minutes aside at the end----
    Mr. Ruppersberger. I've got to take off. So if somebody 
could follow through with that. It's just the Nour contract and 
Chalabi.
    Chairman Tom Davis. OK. Thank you very much.
    The gentleman from Texas.
    Mr. Carter. Thank you, Mr. Chairman. I just got back here a 
little while ago from going over there with the chairman, and I 
want to say that I think that I saw miraculous things happening 
in Iraq, and I was very impressed with everything that I saw. 
And there's no better group of fighting men and women on the 
face of the Earth than the ones I got to talk with and have 
supper with, and I'm very proud to be associated with them.
    I've been hearing a lot of stuff here, and my background 
makes me listen for the magic words. And I hear words like so 
and so--it has been found that so and so ``took a bribe.'' It 
has been found that such and such, so and so--I'm asking--my 
first question is, are there any actual people who are supposed 
to be finders of fact who actually found that this happened, 
or--it sounds more like this should be said: Someone has 
alleged that these things are taking place. Is that a better 
use of the description than a finding?
    It may be as clear as it could be, but nobody has actually 
made a finding that would say that bad behavior has taken 
place. There were allegations that have taken place.
    Mr. Zakheim. I think in the main that's absolutely correct, 
and we've tried to stress that, that even an investigation is 
simply to look into what really went on.
    It's an investigation of allegations; you're absolutely 
right. With respect to the so-called ``kickbacks,'' that was 
presented to us by KBR and even that's being investigated, so--
--
    Mr. Carter. And it rightfully should be investigated before 
anybody is punished. I have never seen anybody in prison 
because somebody alleged that somebody did something. We 
generally went out and found out--had a finder of fact make a 
finding that they actually did that, like a jury or a judge or 
whatever procedures there may be in the Federal Government.
    Mr. Zakheim. Due process is part of our process.
    Mr. Carter. All of these things that we've heard about here 
today, including a question that was raised just a few minutes 
ago about an allegation that someone said that you're supposed 
to--don't worry about the cost because it's a cost-plus 
contract. That's being looked into is that correct?
    Mr. Zakheim. That's correct, sir.
    Mr. Carter. And, in fact, all the other allegations that 
have been raised here today, all those are turned over to the 
proper authorities to be investigated?
    Mr. Zakheim. Absolutely.
    Mr. Carter. And is anyone at the table here in charge of 
those investigations?
    Mr. Zakheim. In some cases, yes. When we're doing audit 
investigations, Bill Reed here does that. The inspector general 
is not at this table, but he certainly takes over those, as 
well.
    Mr. Carter. Right. But those then, as to the audit 
investigation, which there is someone at this table responsible 
for, would you say that's being sandbagged or is that a current 
investigation being carried on as we speak?
    Mr. Reed. The audit process is alive and well and being 
pursued vigorously with the support of all the contracting 
officers involved in these contracts.
    Mr. Carter. So we're doing the job--you are the only ones 
that can speak for this investigation, and we're doing the job 
that we're supposed to do. We're currently looking into the 
allegations that relate to the audit investigation.
    Mr. Reed. All of the contract audit issues are being 
pursued aggressively.
    Mr. Carter. So we're doing the job on that?
    Mr. Reed. Yes, sir.
    Mr. Carter. We've turned the others over to the proper 
authorities to be looked into.
    Does anyone have knowledge that these proper authorities 
are not looking into these allegations?
    Mr. Zakheim. No.
    Mr. Carter. So does everybody agree that, as far as you 
know, they are currently investigating these things on a 
reasonable timetable to investigate these kinds of allegations?
    Mr. Zakheim. That's correct.
    Mr. Carter. That's kind of what I assumed was right, but 
the sounds that were going around here didn't make it sound 
that way.
    Mr. Ruppersberger's contract question that he was talking 
about, that's a concern to me, too, because I was over there. I 
met those troops, and I was told the same thing, as soon as we 
get these guys geared up like we are, these guys are going to 
get out in the field and they're going to do a good job. So I 
also agree with Mr. Ruppersberger that we need to get those 
people supplied.
    And the kind of contract--and I don't know the particulars 
of that contract, but when we start talking about the first 
initial contracts that are involved over there in Iraq, 
basically the military says we have a theater, a dangerous 
theater, that has a lot of contingencies that we can't predict 
exactly what those contingencies are; and that's why we go 
through this type of contracting process, which we're calling a 
cost-plus contract. And if I'm wrong, correct me, because I 
sure can be.
    Is that right.
    General McManus. Sir, for contingency planning purposes we 
have a LOGCAP contract in region for those unknowns as they 
evolve.
    Mr. Carter. Right. And this is one of those unknowns that 
have evolved. So what can we do to make this an emergency 
situation to get these supplies to these troops that we've been 
training over there?
    Mr. Zakheim. Well, as I said, Congressman, we are looking 
at alternative sources of funding so that we can get the money 
more quickly, because the contracting process takes what it 
takes, and it's got to be done properly or else we will be 
answering questions as to why it was not done properly.
    But there are alternative sources and we are looking 
carefully at that to get the money so that we can get the 
equipment to those Iraqis. Because you're absolutely right; 
they're being shot at every bit as much as our people, if not 
more.
    Mr. Carter. I guess what I'm saying is, this wouldn't be a 
real smart idea to just let this out for bid for the next 6 
months to try to figure out who gets the highest bid. We've got 
an emergency. We've got to deal with it.
    Mr. Zakheim. And we're going to move on that.
    General Kern. Congress, I met with General Sanchez on that 
specifically this week on how we're going to get through that. 
We are going to move out.
    Mr. Carter. Thank you.
    Chairman Tom Davis. Thank you. Ms. Watson is recognized for 
5 minutes.
    Ms. Watson. Thank you so much, Mr. Chairman, for this 
hearing.
    I guess I will address this to Major General Strock, and 
just say yes or no. The Army Corps of Engineers awarded an 
initial no-bid contract to restore and operate Iraqi's 
infrastructure currently valued at $2.44 billion to Halliburton 
and its subsidiary, Kellogg Brown and Root.
    General Strock. The capacity of that contract was $7 
billion, but that's correct.
    Ms. Watson. And almost $1.4 billion has been obligated for 
fuel importation into Iraq?
    General Strock. Yes, ma'am.
    Ms. Watson. More recently, the Corps split the oil work 
into two competitive contracts, one for the north and one for 
the south. And the Corps awarded Halliburton the new $1.2 
billion contract to operate Iraq's oil industry in the southern 
half of the country?
    General Strock. Yes, ma'am.
    Ms. Watson. The Army Materiel Command has obligated over $4 
billion for logistic support in Iraq under Halliburton's 
logistical civilian augmentation program?
    General Kern. Yes, ma'am.
    Ms. Watson. And then I am very supportive of what all of 
you in the military and those assigned to build the 
infrastructure of Iraq and continue whatever we have to do 
militarilywise in Iraq. I did not support the war, but I 
support our troops, and I support our obligation.
    I am concerned about reports that we are hearing, and we 
heard them from Halliburton, which got the contract, that there 
were kickbacks, and as I understand, and I want someone out 
there to correct me, that the persons involved must have been 
at the highest level because they were in control of millions 
of dollars, maybe billions of dollars of government 
procurement. And so I would request that with all due speed 
that we weed out these wrongdoers. My job is to protect my 
constituency and their tax money, billions of dollars that are 
being spent 10,000 miles away, and we have infrastructure 
problems right here. I am going to ask you with all due 
diligence to weed out--I don't care if it is 2 or 18,000. We 
need to know. Apparently goes way up high, because the 
decisionmakers make decisions over millions to billions of 
dollars.
    And so to do the job in Iraq, it is costly. We understand 
that, and we support you. But I do not support the wrongdoers, 
I am suspicious because why Halliburton, no-bid contract, 
before we knew the people were on the ground, and you can trace 
an association to someone high up in the administration. Just 
the appearance of impropriety should not exist, but it 
happened, and we need to move on. But I would like the 
overseers, whoever is responsible, to immediately get back to 
us what steps are being taken, because it makes all of us look 
bad. And those who have the oversight and the auditing and so 
on, you look like you are not doing your job and you are not 
being responsible.
    So let's dig them up and identify them if they exist, and 
let's clean them up, and let's see that every dollar of 
taxpayers' money is used effectively and efficiently and in the 
best interest of America and Iraq.
    Thank you, and I yield back the rest of my time.
    Mr. Zakheim. I make one exception to one part of your 
statement, the part about the auditors, about not really being 
on top of it.
    Ms. Watson. Let me tell you what I meant. I want with all 
due speed for all of those--the buck stops here. I don't know 
who has the final oversight and who is going to do this 
investigation. It has not been cleared or clarified in what I 
have heard, so whoever is responsible. I am not blaming one 
person or the other. Dig out the wrongdoers, bring them to 
justice, and let's move on.
    Mr. Zakheim. We certainly could agree on that.
    Chairman Tom Davis. Mr. Van Hollen, 5 minutes.
    Mr. Van Hollen. Thank you, Mr. Chairman. And I want to 
thank all the witnesses for being here as well. I want to thank 
the chairman of the committee for leading the bipartisan 
delegation to Iraq recently, and I was pleased to join him on 
that trip.
    And, Admiral Nash, it was great to meet you there. And I 
want to thank you for doing hard work under very challenging 
circumstances. And we all agree, as we talked about today, that 
at the same time we want to make sure we protect the American 
taxpayer.
    And I want to delve into some issues that Congressman 
Waxman raised, because he has raised some very important 
issues, and I want to focus specifically starting with DCAA 
and, Mr. Reed, the contract where you concluded that there were 
about $61 million on potential unaccounted for charges. And I 
understand that DCAA did that around December 11 of last year; 
is that right?
    Mr. Reed. If you are addressing the fuel issue on the 
restructuring?
    Mr. Van Hollen. The KBR fuel contract, $61 million.
    Mr. Reed. Yes.
    Mr. Van Hollen. And you recommended at that time that the 
contractor disallow those $61 million in costs; isn't that 
right?
    Mr. Reed. No, sir. What we did was we issued a draft report 
to the company to get their response to what we believed was 
some poorly documented costs that they were billing to us. At 
the time, based on some data that we had, we felt that the 
impact could be as high as $61 million, and we asked them to 
justify that cost.
    Mr. Van Hollen. You are saying they should justify that 
cost; is that right?
    Mr. Reed. That's correct.
    Mr. Van Hollen. And you were going to recommend to the 
contracting officer that they justify that cost; is that right?
    Mr. Reed. We were going to receive the company's response, 
evaluate it, and if they satisfied us, we would make no 
recommendation. If they did not satisfy us, we would recommend 
the cost be disallowed immediately.
    Mr. Van Hollen. Eight days after that, the Army Corps then 
filed a waiver, which essentially exempted KBR from providing 
that supporting documentation; is that right?
    Mr. Reed. That's right.
    Mr. Van Hollen. In your experience, have you ever heard of 
a waiver being granted in that way especially after auditors at 
DCAA had found overcharges and were in the process of reviewing 
the charges?
    Mr. Reed. Let me clarify my previous answer. What we were 
looking for was for Kellogg Brown and Root to show us how they 
determined that was a fair and reasonable price. That may or 
may not have called for the submission of cost or pricing data, 
which the waiver was granted for. Certainly there were facts or 
indicators that if indeed we were locked in with a sole-source 
supplier, that we should get cost and pricing data. That was 
one of the points that had not been pinned down as to whether 
we were locked in with a sole-source supplier, although there 
were certainly indications. I will let the Corps of Engineers 
address the waiver.
    Mr. Van Hollen. Let me ask you, are you satisfied as of 
today that $61 million should not be disallowed, that the 
American taxpayer has been treated fairly?
    Mr. Reed. No, I am not satisfied, and there is an 
investigation underway by the IG. And once their work is done, 
it is turned back to us, we will continue our audit work.
    Mr. Van Hollen. Let me turn to the Corps, General Strock. 
It seems to me that if we wanted to get to the bottom of this, 
we would tell KBR, look, you're charging this amount of money. 
It is your subcontractor. You should be providing the 
supporting documentation.
    Why did we grant them a waiver.
    General Strock. A couple of factors. First of all, the 
chief of engineers as head of the contracting agencies is 
granted that waiver, and he was presented with the facts at the 
time he made the decision he thought was appropriate. The issue 
here is the cost and pricing data. We are informed that under 
Kuwaiti law, the subcontractors are not required to provide 
cost and pricing data, and we requested that, and that is the 
answer that we got, that the law disallows that.
    Mr. Van Hollen. Let me followup on that because, at least 
in my question, which is that we have independently tried to 
evaluate whether or not that is true, that amount equated to 
law, and Congressional Research Service, an independent agency 
here, has reached a different conclusion, and I am wondering if 
you could supply this committee, since the Army Corps reached 
that conclusion, with the specific provisions of Kuwaiti law 
that say they are prohibited--this subcontractor is prohibited. 
Have you seen that documentation yourself?
    General Strock. I have not seen the documentation. I have 
seen records of some of the conversations that went on from 
which we reached that conclusion.
    Mr. Van Hollen. If you could provide us with--because that 
was the primary rationale in disallowing this, and it seems to 
me it was reached very quickly. I understand Halliburton 
requested 1 day, and this waiver was granted the next. And I 
think that as important an issue as that, that the committee 
receive the legal support that was behind this decision. If 
that turns out not to be the case, that it is not barred by 
Kuwaiti law, would you review the waiver and ask KBR to provide 
the information?
    General Strock. Yes, sir.
    Mr. Waxman. Will the gentleman yield to me?
    The point is that we have asked for this information from 
the State Department and the Kuwaiti Embassy, and they have not 
been able to tell us about any Kuwaiti law that requires the 
contract to have been given out only to this one sole-source 
subcontractor.
    Chairman Tom Davis. That is part of the criminal 
allegation. He has gone to the Congressional Research Service, 
and they can't find this in the law, and obviously we would 
like to get to the bottom of this. And I am sure it is going to 
be part of the criminal investigation as well, but anything you 
can get us on that will be helpful.
    General Strock. May I clarify, this was not a sole-source 
subcontract? The contractor got three quotes for the fuel, and 
this contractor was selected as the low bidder on that.
    Chairman Tom Davis. I would hate to have seen the high 
bidder on that.
    Mr. Kanjorski. Thank you for your patience.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    I am going to direct questions that may not be directly 
applicable to what the purpose of the hearing is, but over the 
last several months, I have had returnees from the Iraqi war, 
both National Guardsmen and Reservists, called me and asked to 
have meetings with me, and some of them were very disturbing. 
One sergeant came in and related that his Reserve unit was not 
capable of getting the boots that fit them, and for a period of 
7 or 8 months while in Iraq never got the proper equipment, and 
he was firmly convinced that there is a prejudice between the 
real Army and the Reserve and National Guard forces that are 
over there in terms of getting material there like boots.
    Having walked in the Army in my past life, boots are pretty 
important. And it would seem to me--I am all for, you know, 
building some of their waterworks over there, but can you find 
out why we can't give boots and shoes to the soldiers that are 
in combat zones?
    And when you are doing that, I have at least 3 or 4 mothers 
and fathers who have contacted me over the last 9 months that 
they are literally buying protective vests for their sons and 
daughters that are in a combat zone because they are not 
available by the military. And these kids are getting shot at, 
injured, and in some instances killed because they lack this 
basic protective device. And it seems to me that somebody has 
to step up to the plate and ask some of the questions what's 
wrong.
    And finally, you are awarding all these contracts over 
there, and I understand we have Humvees that were never 
anticipated to be used in insurgencies. Why it was not 
anticipated that they may be used in insurgency situations is 
beyond me, but they lack armor. Can't you guys award a contract 
real fast to Halliburton for a couple of billion dollars to put 
half-inch armor on the bottom of these things so we don't have 
any more legs, arms or heads blown off? Don't come back and 
tell us, well, we awarded a contract, we are going to bring 
these things back, and 18 months from now we are going to have 
armed Hummers. We have people over there, and they are dying, 
and most of them will tell you that these explosive devices 
that are being placed along the road, they are dying not 
because they couldn't be protected; because the vehicles they 
are driving aren't properly armored. And I am sure we could 
find some unemployed welders and people in Ohio, Michigan and 
Pennsylvania, and I can get you a lot of them and perfectly 
willing to go over and do this work.
    Now, last, and probably you can't answer this, a disturbing 
news report about a month ago was talking about the 
extraordinary success that we are having with training 
policemen in the Iraqi services to provide security once we 
leave. And the whole story was about the fact that there were 
600 recruits hired under contract of approximately $150 million 
to train over a period of 5 or 6 months, these recruits, half 
of which resigned within 3 weeks of showing up. So they 
anticipated the graduating class would consist of about 300 
police officers being trained by contract by the United States. 
And if you take the $150 million, I came to the conclusion that 
is $500,000 per police officer.
    Now, you know, I got news for you. We have some police 
academies in Ohio, Pennsylvania and Michigan, and we have all 
kinds of aircraft going back and forth. If it costs us half a 
million dollars in Iraq to train a police officer, somebody is 
wacky. And if this contract is by Halliburton or by Bechtel, 
somebody ought to have the good sense to say half of a million 
dollars is ridiculous. We don't spend that amount to train a 
police officer in the United States, and there is no damn 
reason in the world we should throw taxpayers' money away to 
train them in Iraq.
    Can anybody tell me whether there is any factual basis for 
those types of costs in training security and police officers 
in Iraq?
    Mr. Zakheim. You asked four questions. I will try to handle 
the first three, and Mr. Lucke will try to address your fourth.
    On the boots issue, I have heard this before. I believe it 
is being taken care of, but I will get you an answer for the 
record because I don't know the exact specifics.
    You asked about the body armor. We expect to have basically 
175,000 kits in theater by the end of this month, that is to 
say March 2004, which will fully support the CENTCOM 
requirements. So it is not 18 months, it's this month.
    On the up-armored Humvees, we are ramping up production. 
Current production is about 138 a month. We will ramp it up by 
more than 50 percent.
    Mr. Kanjorski. Where are you doing this? Here?
    Mr. Zakheim. Yes.
    Mr. Kanjorski. Welding isn't a tough thing.
    General Kern. Could I answer that? Two points. One, every 
soldier today in Iraq has body armor. That was done by the end 
of January. The CENTCOM number goes beyond Iraq. It includes 
the people who are in Kuwait who would be transiting, and that 
is the number. So we have addressed that. General Schoomaker 
took that on as a personal issue. The Acting Secretary of the 
Army Mr. Brownlee took that on as a personal issue. And we 
reported to them every single day on the outfitting of those 
soldiers, boots, BCUs and the protective gear, and that has 
been done.
    Mr. Kanjorski. I hope it has been done, and if it has been 
done, congratulations. But, you know, what bothers us, where 
was the planning, where was the anticipation that there should 
have been enough body armor, there should be enough boots, 
there should be armored Humvees over there? Where was the 
planning behind this operation? There wasn't any? Nobody 
thought about this?
    General Kern. The original planning gave the body armor to 
those soldiers who would be in direct contact, infantry armor, 
artillery soldiers. The secondary planning which went beyond 
that is everybody in theater, including our civilians who are 
working in the theater right now, and there is where we fell 
short in the original planning.
    The other point on the Humvees, in addition to what Mr. 
Zakheim reported to you, we are producing armor kits in every 
depot. And I can't promise you that the one I have is producing 
it in Pennsylvania, but it is doing it in Sierra, out in 
California. We are doing it in Alabama. Armored kits--in 
addition to the new production Humvees, in addition to the 
Humvees, those kits are also being put on the family of medium 
tactical vehicles and the heavy equipment transport.
    So that is being done as quickly as we can from all sources 
we can, and we have gone to find those welders and sources of 
steel to make sure that does happen. We have taken that very 
seriously. We are not going to wait for the production.
    Chairman Tom Davis. OK. Thank you very much. We were 3 
minutes over. What I am going to do is move to summary at this 
point. Mr. Waxman is going to get up to 20 minutes for any 
additional questions, and I will summarize from there. And he 
can yield to any Members over there who still have questions 
under his time.
    Anybody feel they need to take a break right now? I guess 
otherwise we will try to go ahead and get it done.
    Mr. Waxman. I want to find out more about Altanmia. General 
Strock, you said that you agreed with the statement by 
Halliburton that this was an open and competitive process 
whereby they chose Altanmia as the subcontractor to provide the 
gasoline. Is that a fair statement of what your views are?
    General Strock. I have been informed that KBR solicited for 
quotes to three suppliers, and Altanmia was the lowest quote 
received.
    Mr. Waxman. Well, the Army Corps sent to us on January 6 
their justification for this claim that it was fair and 
reasonable, but in that justification it said Halliburton did 
not issue a public solicitation or a public request for 
quotations for the purchase of gasoline. Halliburton did not 
seek out all qualified bidders. Instead, Halliburton hand-
picked three companies and telephoned them informally on May 4 
to obtain quotes for the purchase of gasoline. And then on that 
same day, after they made these three calls, they chose 
Altanmia and requested the Corps' approval, which it received. 
Is that an inaccurate statement?
    General Strock. I think that's accurate, sir. We received 
three quotes and selected the smallest. I don't know the 
details. But I want to reiterate, the conditions at the time 
were long gas lines in Baghdad. Soldiers were getting attacked 
guarding those gas lines, and the contractor was told on May 
3rd that they were to begin delivering fuel, and they did it in 
a very short and compressed period of time.
    Mr. Waxman. According to your documents, Halliburton had 
three companies that they contacted. One was Altanmia, KAFCO 
and Monmar. The Defense Energy Support Center, which has been 
doing fuel purchases and transports in the Gulf for over 50 
years, said they had no knowledge of doing business with any of 
these three companies. The Defense Energy Support Center also 
told us that it does do business with several other companies 
in Kuwait, including TriStar, Mubarak and LeNouvelle. But your 
records do not show that Halliburton called any of these 
companies. Do you know whether Halliburton even contacted the 
Defense Energy Support Center to find out who they would 
recommend in the region?
    General Strock. No, sir, I don't know.
    Mr. Waxman. With a contract of this magnitude, a company's 
past performance and experience is clearly one of the most 
significant factors in the selection. What experience did 
Altanmia have in purchasing and transporting fuel?
    General Strock. I can't comment. I don't know.
    Mr. Waxman. If Altanmia had no prior experience, as we 
understand the case to be, how would they know even to call 
them for a price quote? Does someone at Halliburton know 
someone at Altanmia? Do you know anything about that 
connection?
    General Strock. No, sir, I don't.
    Mr. Waxman. Halliburton claims it was unable to locate any 
company in Kuwait that currently does fuel purchasing and 
transport for the U.S. Government, yet Halliburton was somehow 
able to find this other company, Altanmia, which had no 
experience and awarded a multimillion-dollar contract in less 
than 1 day. Does this process raise any eyebrows for you, 
General?
    General Strock. Certainly, sir, suggested that way, yes. 
May I just say, subsequent to that original award, the Kuwaiti 
Petroleum Co. refused to allow us to deal with anybody but 
Altanmia. And also the DESC traditionally deals directly with 
the Kuwait Petroleum Co., as I understand, and as the Kuwaitis 
prefer, so it was somewhat unusual that they would deal with a 
contractor, in this case KBR. So they prefer that the KBR not 
deal directly with the Kuwaiti Petroleum Co., but rather with 
the subcontractor.
    Mr. Waxman. Do you know who owns Altanmia?
    General Strock. No, sir, I do not.
    Mr. Waxman. Does anybody here know information about that?
    The record will indicate that no one responded.
    I have heard multiple allegations that the brother of the 
Kuwaiti Oil Minister had some sort of financial interest in the 
company. Do you know whether that is true?
    General Strock. No, sir.
    Mr. Waxman. Anybody else know whether it is true? Do you 
think it is important to know whether the Kuwaiti Oil Minister 
or his family had an interest in this company? Does anybody in 
the panel think it was important to know whether the Kuwaiti 
Oil Minister or his family had an interest in this company?
    Mr. Zakheim. I don't know if that would be the kind of 
question somebody would immediately ask. Certainly it wasn't 
the kind of thing that sprang to my mind when I looked at all 
this and passed it on and worked with Bill Reed on it, whether 
there was some family connection or something.
    Mr. Waxman. I raised this issue in a letter dated January 
15 to National Security Advisor Condoleezza Rice. I wrote that 
several sources had told us that Talal al-Sabah, the brother of 
the Kuwaiti Oil Minister, had financial ties to Altanmia. I 
wrote further that although this off-the-books arrangement 
appears to be undocumented, the sources claim that Mr. Al-Sabah 
is acting as a consultant for the company or as a hidden 
partner. I also said that some sources said that other members 
of the Kuwaiti royal family had ties to Altanmia. In response 
to my letter, Ms. Rice said this would be investigated by the 
Defense Department.
    General Strock, what steps have you taken to investigate 
these allegations since then?
    And, Mr. Zakheim, what steps have you taken?
    Mr. Zakheim. This is all part of the inspector general's 
investigation of this entire matter.
    Mr. Waxman. General Strock, do you know about any steps?
    General Strock. I am not sure if my command has taken any 
either except, as Dr. Zakheim said, to refer it to the 
investigator.
    Mr. Waxman. Another mystery has been why the Army Corps 
keeps saying Halliburton's gasoline prices are fair and 
reasonable in light of all the evidence to the contrary. On 
October 18, your spokesman Scott Saunders said that Halliburton 
was, ``getting the best price possible.''
    Let me take one stark example. We know the Defense Energy 
Support Center buys gasoline from Kuwait for 96 cents a gallon. 
Is it just the gasoline and not the transportation? And 
according to your office, Halliburton charges the U.S. 
Government $1.17 per gallon. To be clear, we are talking about 
the same Kuwaiti source. Yet Halliburton charges 21 cents more 
per gallon to buy the fuel.
    Explain to me why Halliburton prices are fair and 
reasonable in light of this large differential. Why isn't this 
an overcharge for the purchase of this commodity?
    General Strock. The support center purchases directly from 
the Kuwait Petroleum Co. We purchase from Altanmia, not the 
Kuwait Petroleum Co. I also understand that as our contractor 
suggested, they could get a better price if we could have a 
longer-term contract and more time to negotiate. The exigency 
of the situation prohibited that. It is my understanding that 
Altanmia buys on the spot market instead of buying futures in 
the fuel, and therefore that fuel is more expensive.
    Mr. Waxman. Do you know whether the energy support center 
buys on the spot market or has a long-term contract?
    General Strock. I don't know. They buy directly from the 
Kuwait Petroleum Co., as I understand it.
    Mr. Waxman. I am somewhat taken aback with the entire 
rationale for finding Halliburton's prices reasonable; hinges 
on the sham 1-day telephone competition in which Halliburton 
excluded more experienced companies from the bidding. General, 
let me----
    Chairman Tom Davis. Could I ask the gentleman to yield?
    Mr. Waxman. Not yet.
    Chairman Tom Davis. I will wait.
    Mr. Waxman. I am just trying to make sure I can get through 
these questions. Let me ask you to think of yourself not as a 
contract manager, but as a taxpayer for the moment. Doesn't 
there come a point where you have to say the U.S. taxpayer 
should not be forced to pay Halliburton far more than the U.S. 
Government pays for exactly the same product? Did you ever 
reach that point?
    General Strock. I am sorry. If you would repeat that, sir.
    Mr. Waxman. Are you troubled that Halliburton pays more for 
the gasoline that the government in the energy support center 
is paying for the same gasoline in Kuwait?
    Chairman Tom Davis. Let me ask a question. Mr. Reed, you 
are looking at that, aren't you? Doesn't DCAA look at the price 
they paid, and if you determine it is unreasonable, then you 
disallow, and they end up eating it?
    Mr. Reed. We were in the process of looking at this very 
issue and question when other matters came to our attention 
that resulted in us referring the whole matter to the DOD IG 
for investigation.
    Mr. Waxman. Mr. Reed, weren't you prevented from looking at 
this issue of Altanmia's prices because of the waiver?
    Mr. Reed. No, I don't think that is the way I would state 
it. We never got to that point because other matters came to 
our attention, and we referred it for investigation.
    Mr. Waxman. Let's step back for a minute. Halliburton says 
they are going to use Altanmia, and they did a bidding process, 
but it seemed like a sham bidding process. Now they are with 
Altanmia and overpaying compared to what others are paying for 
the same gasoline. And we would want the Defense Department to 
be examining this more carefully. But suddenly the Corps came 
in with this waiver that Mr. Van Hollen asked about, and the 
reason--there was a reason from the requirement to get the data 
from Altanmia about why they are charging these higher prices--
was that Kuwaiti law required it. So we don't know that 
information because someone said Kuwaiti law required that they 
not give this information.
    Now we have checked it out, and Mr. Van Hollen indicated 
that we can't find any evidence of Kuwaiti law that says you 
can't look at that point. I think we need a clarification of 
it, and I expect for the record we will find out what do you 
think--where you got the idea that Kuwaiti law prevents this 
information from being supplied. Since we're paying the bills, 
why do we have to go along with Kuwaiti law that says we have 
to pay whatever they charge and we can't explore why they are 
overcharging?
    Now, it appears that the underlying premise for the waiver 
is false. You may not agree to that, but I believe it is a 
false statement.
    The other premise that we had was that the Army Corps 
suggested that Altanmia was the only company the Kuwaiti 
Government would allow Halliburton to use to buy gasoline and 
transport it to Iraq. In addition, an Army Corps whistleblower 
claimed she was being pressured to negotiate future fuel 
contracts exclusively with Altanmia. Now, this morning's Wall 
Street Journal reports that the Kuwaitis sent a letter to 
Halliburton and to the Army Corps on January 25, 2004, 
recommending that you drop Altanmia and buy the gasoline 
directly from the Kuwait Petroleum Co. Yet it appears that the 
U.S. Government has continued to pay inflated prices for 
gasoline to Halliburton and Altanmia even though we didn't have 
to.
    Why wasn't Altanmia dropped in January as the Kuwaitis 
recommended, General Strock?
    General Strock. Sir, we awarded a task order on that same 
contract on March 2nd. We received a copy of that letter dated 
January 26 on March 4th, 2 days later. When we received that 
letter, we immediately suspended deliveries of fuel under that 
contract. However, when the fuel supplies dropped in Iraq in 2 
days, we purchased under that instrument an additional 7 days, 
which will expire 2 days from now. So we were forced by the 
situation we faced to go to the only source we have to provide 
this fuel for the Iraqi people.
    Mr. Waxman. The journal reports the letter was sent by DHL 
to the Army Corps officials at Camp Doha. And the letter was 
faxed to Halliburton on the same day, so that would have been 
January 25, 2004. And there is a time-stamped receipt.
    Have you gone back over your files to determine when you, 
in fact, received the letter?
    General Strock. I believe that has been done. And 
indirectly, I have heard that the letter was addressed to a 
contracting officer who had departed the command and therefore 
was not acted on by the people who followed. And it was only 
after it was brought to our attention on March 4th that we 
acted on it. It was also based upon the way in which it came to 
us and questioned the legitimacy of that letter. We confirmed 
just yesterday that, in fact, it was a legitimate letter, and 
we will comply with it, sir.
    Mr. Waxman. So because the letter got in somebody else's 
hands, we have spent how many millions of dollars extra for 
this gasoline that might have been saved if we had gone to the 
Kuwaiti Petroleum Co.? What was the figure? $300 million 
because someone at Doha wasn't working there anymore for the 
Army Corps? Is that your explanation?
    General Strock. No, sir, I would not necessarily reach that 
conclusion.
    Mr. Waxman. What is the current status of the Altanmia 
contract? Are we still paying them inflated prices as of today? 
And are we taking any steps to recoup the $300 million paid to 
Altanmia?
    General Strock. I can't answer the second part. We are 
still paying under that contract because of the circumstances 
in Kuwait. That delivery order we have out will expire 2 days 
from now. There is no other source.
    Mr. Waxman. What bothers me about the gasoline contract is 
that again and again what the administration and Halliburton 
have said turns out to be wrong. The Corps and Halliburton told 
us the prices were fair because there was full and open 
competition. We now know there wasn't real competition. The 
contract was issued in 1 day, and none of the established 
companies in fuel transport got a chance even to bid. 
Halliburton told us that the reason the energy support center 
prices were so low is they used military transport vehicles, 
whereas Halliburton had to use private contractors. We now know 
this is wrong. The energy support center used private 
contractors just like Halliburton. They just used much cheaper 
ones.
    We were told that the reason it was necessary to give 
Halliburton a waiver from providing cost and pricing data was 
that the Kuwaiti law prohibited Altanmia from providing this 
data. We now know, and you helped establish that you believed 
it, too, that this was false. We were told that the reason that 
Halliburton had to use Altanmia was that the Kuwaitis would not 
allow anyone else to have the contract. We now know that's not 
true.
    I see a pattern here that I don't like. I have not said it 
is a cover-up, but it troubles me that the administration and 
Halliburton keep putting out false and misleading information. 
The whole affair does not smell right. We clearly need a full 
investigation. Do you agree with that?
    General Strock. Sir, I agree we need a complete 
investigation. I don't agree with everything you have said, no, 
sir.
    Mr. Waxman. Who do you think ought to do that 
investigation? You think there ought to be an investigation. 
Who ought to do it?
    General Strock. I think it is in the hands of the IG at 
this time, and I understand the Justice Department has also 
been called in.
    Mr. Waxman. I would like to yield to Mr. Van Hollen 2 
minutes.
    Mr. Van Hollen. I just have a brief followup on the whole 
issue of granting the waiver, because as I understand it, the 
Corps has the discretion whether or not to grant the waiver. I 
have a very simple question, because we have been talking about 
the need to save the taxpayer money, and my question is, how 
did granting that waiver help protect the American taxpayer?
    General Strock. We followed an established process which 
does protect the American taxpayer. The situation in Iraq at 
the time when the chief engineer signed that waiver was felt to 
be urgent and compelling, that it had to be done, and this was 
the only source available. And again, I don't want to 
understate the importance of this decision, but the moneys 
applied to this contract are Iraqi moneys from the DFI, not 
American taxpayer money. And I understand that does not matter 
here, but this is not American taxpayer dollars.
    Mr. Van Hollen. Did the KBR say they would no longer be 
providing these services unless you granted the waiver?
    General Strock. I don't know the answer to that.
    Mr. Van Hollen. Why should the burden fall on the American 
taxpayer as opposed to KBR with respect to the decision of the 
Kuwaiti Government? I think it is clear there is a question 
about whether Kuwaiti law requires that they not disclose this 
information. I think it is clear that that may not be the case. 
Why should the burden fall on the American taxpayer as opposed 
to KBR as the prime contractor of what Kuwaiti law says?
    General Strock. I don't think this burden is falling on the 
American taxpayer. And second, as we indicated here, our 
process is to audit all of these proposals we get from the 
contractor. That has been initially done as irregularities have 
come forward. That will continue to be investigated. So in the 
end, I have confidence that the system will work as designed.
    Mr. Van Hollen. I agree we should continue to audit. That 
is why I am puzzled by the fact that you provided the waiver, 
because the waiver essentially said to KBR, did it not, that 
you don't have to provide the underlying documentation?
    General Strock. They did receive a waiver on cost and 
pricing data, which is permitted in the FAR, yes, sir.
    Mr. Reed. Notwithstanding the waiver, we would still expect 
KBR to justify how they determined the price to be fair and 
reasonable. Notwithstanding they didn't give us cost to pricing 
data, we would expect some other supporting data to establish 
the fairness of that price.
    Mr. Waxman. I would yield 5 minutes to Mr. Lantos. But 
before I do, we didn't get to some questions on Bechtel, and 
perhaps if you will join us to get some of the answers to some 
of the questions we wanted to ask USAID about Bechtel.
    Chairman Tom Davis. And we will leave the record open.
    We will recognize the gentleman.
    Mr. Waxman. Records and documents. We want both.
    Chairman Tom Davis. Gentleman from California.
    Mr. Lantos. Thank you very much, Mr. Chairman. Let me first 
express my respect and admiration for all of our military 
working and fighting in Iraq. I had the privilege of visiting 
the Baghdad area and up in Mosul, and my respect and admiration 
is unbounded.
    I would like to change the subject, if I may, to an 
entirely new area. Under Saddam Hussein one of the many 
restraints and restrictions of that despicable police state was 
on the rights of workers to organize and to be represented. I 
would be grateful if any of you, ladies and gentlemen, would 
tell me what we are doing with our contractors to ensure that 
in this new world, we are attempting to make sure workers' 
rights are respected and then enforced.
    Mr. Zakheim. Congressman, we will look into that. As you 
know, there are a number of programs that we are working in 
conjunction with our partners at AID and State that fall under 
the rubric of governance that have to do with everything from 
the rule of law to setting up courts and so on, and we will get 
you an answer for the record on that specific question.
    Mr. Lantos. I hope you can do better than that because you 
have been operating there now for over a year, and I would be 
deeply disturbed if my question would be the first time the 
question of labor rights emerged in the context of spending 
billions and billions of American taxpayers' dollars employing 
Iraqi employees.
    You wanted to say something.
    Mr. Lucke. I can tell you that we are very concerned about 
the rights of citizens and the participation--the fuller 
participation of Iraqi citizens in their own governance. We 
have been involved--we have been financing a $167 million local 
governance contract.
    Mr. Lantos. I am not asking about governance. I am asking 
about workers' rights. One of the most objectionable aspects of 
a police state is that it does not accept the concept of 
workers' rights. Stalin did not accept it. Hitler didn't accept 
it. And Saddam Hussein did not accept it. He did not want to 
see the emergence of independent and viable labor unions that 
would represent an alternative source of power and influence in 
society.
    Now we are attempting to bring about a metamorphosis of 
Iraqi society, which is a generational undertaking. You folks 
have been in charge of this now for about a year. Has the issue 
of labor rights, the right to unionize, the right to protect 
workers, been part of your discussion? Has it been part of your 
contracting with various contractors? When you deal with 
Bechtel or you deal with any of the others, do you discuss 
workers' rights? Do you discuss the right of Iraqi workers to 
unionize?
    Mr. Lucke. Workers' rights does not fall under any of the 
USAID contracts for now.
    Mr. Lantos. Under whom does it fall, since you are the one 
who signs the contract that gives the money to the contractors? 
Who else should deal with this?
    Mr. Lucke. There are many implementers of programs. My 
agency works only with appropriated dollars on contracts. CPA 
is an organization that works with ministries for the 
Provisional Government of Iraq. There is a Ministry of Labor, 
and I am quite sure that CPA, if they were represented here, 
could tell you about some of those programs that may be 
implemented with other funds, with funds or seized assets. 
There are no programs that I know of that are being implemented 
with appropriated funds, and not through AID.
    Mr. Lantos. But your testimony is, that the funds--what is 
the amount of funds under your control?
    Mr. Lucke. We have about $3.8 billion that we will 
eventually--have been promised now under the first supplemental 
and the second supplemental together.
    Mr. Zakheim. Congressman, I am going to turn over to 
Admiral Dave Nash, who heads the CPA Program Management Office. 
But before I do, there is another aspect that goes beyond 
contracting, and that is we now have the new administrative 
law, the TAL it is called, and that does provide for basic 
human rights. And that is the first step to what you are 
discussing, but I would like to have Admiral Nash talk about 
it.
    Admiral Nash. There is a Ministry of Labor, and there is a 
senior advisor to the Ministry of Labor, and we will get some 
information back to you. But I understand your question to be 
what are we doing about the contracts that we are letting. And 
I think the answer is, I will have to get back to you on that. 
They are being let just like the contracts are in this country, 
because all the contracts, at least the ones I am responsible 
for, are being awarded under the Federal acquisition 
regulation.
    Mr. Lantos. Our labor laws do not apply in Iraq.
    Admiral Nash. That's correct.
    Mr. Lantos. So it is the responsibility of CPA to see to it 
that Iraqi labor is protected.
    Admiral Nash. And I will carry that message back, sir.
    Chairman Tom Davis. Mr. Lantos, thank you for being 
patient.
    Mr. Waxman, thank you very much.
    And we obviously have a lot of concerns as we take a look 
at the amount of expenditure. I want to thank this panel. A lot 
of tough questions, some within your purview, some without the 
purview, but I think it shows the seriousness we have in 
Congress about overseeing contracting there.
    When you went over there, it was a mess. In fact, you have 
150,000 troops you have to house and feed and worry about 
telephone calls, transporting them across a difficult country, 
making a lot of snap decisions. There are mistakes that get 
made. I feel a little more confident as we go up and find them. 
In many cases the contractors under these cost plus contracts 
front the money up front and then come back for reimbursements. 
That makes me feel a little better about it.
    And, Mr. Reed, this is the first time I have had you before 
this committee, but having had contacts with the DCAA in my 
previous life, it is a pretty good organization. And if 
anything, we want you to take away from this, we want you to 
continue to do your job. We don't want any favoritism, and we 
are going to hold you accountable.
    We are going to be coming back on this. You have a very 
difficult task. When you said in your opening comments--when 
you spelled out the task for America in Iraq and getting that 
mission accomplished, you are doing the job. And along the way, 
you have to rely on contractors to do a lot of things, and by 
and large we have done a good job, but there are things that 
slip through. The whole Kuwaiti oil incident is something that 
if we don't watch contractors very closely, obviously if we 
could do this over again, this is something they should have 
come to you right away, and it would have been done 
differently.
    As we move forward, I think the warning is we need to be 
even more careful. And we want to work with Mr. Waxman to get 
to the bottom of exactly what happened there. And I know the 
Kuwaiti Government has their ongoing investigation. My 
understanding is in that part of the world, that nobody can get 
the cost and pricing data from any Middle Eastern country. I 
don't know if there is a law. I don't know if they strong-arm 
us, but we are going to make an effort to try do to it. And if 
there is any way to do it, we would like to get it, because it 
looks to me just on its face that something went wrong here. 
And I don't know if Halliburton might have been the victim, but 
that would mean the American taxpayers would be the victims, 
and Iraqi citizens at the same point who are shouldering much 
of that burden.
    It is a tough job, and I think as I have been over there on 
a couple of occasions now, see the job many of our contractors 
are doing. We didn't talk about some of the contractors that 
haven't gone too well besides one. It happens the Vice 
President was a past president of one company, and the focus 
has been on that, but every company doing business over there 
has their own concerns and their own problems, and some 
contracts have been terminated. Our focus doesn't need to be on 
everybody.
    We know it is a tough job, but we are looking and watching 
you. And we are going to come back and do followup hearings and 
investigations in May, and we wish you to continue to do the 
job. But if anything, we want you to err on the side of being 
tough and making sure that we are getting our dollars' worth on 
this. And as the situation gets a little bit more manageable, 
we expect, I think, as Mr. Waxman and others have talked about, 
a little more competition as we get into these, on some of the 
task orders and everything else, looking at some of the 
contracting vehicles. I think it is a little too early to make 
any definite determination on charging practices on the part of 
any company because they are all under investigation. And I 
have been in this business a long time, and what you hear and 
what may look on the surface, after it goes back and forth, 
hopefully this can be resolved, but it looks like we want you 
to stay tough. I guess that is our message to you as we move 
forward.
    I don't think I have any other questions at this point from 
our side, but we will have some followup requests for 
documents, and we may get some other written questions back and 
forth. And although Mr. Waxman and I don't agree on every 
aspect of this, I think every member of this committee wants to 
make sure that as we move forward, we learn from what has 
happened before. We proceed to get more efficient about the way 
that we contract, and we want to work together to that, and you 
are a critical part of that. I thank you for the job you are 
doing, and I want to reiterate this. You are doing a great job 
over there.
    Mr. Waxman. Mr. Chairman.
    Mr. Zakheim. Mr. Chairman, may I make one comment? And I 
think it is important so there be no misunderstanding. We are 
tough and, we do ask the tough questions, and you have seen 
that today. But there are an awful lot of dedicated contractor 
people, not just Halliburton and their 19,000, but all the 
contractors who are risking their lives as we speak, and we 
shouldn't minimize this. And, yes, we will get to the bottom of 
these issues, but we should be at the same time we look at it 
as being cognizant of the fact that these people are dedicated, 
that they are not deliberately trying to rip anybody off, least 
of all their fellow Americans, and they are sticking their 
necks out while we are sitting here.
    Chairman Tom Davis. We met some of the contractors over 
there as well and talked to them. It is a tough breed of cat. 
They uproot themselves from their family and their children to 
go over there to help the war effort. And let's not lose sight 
that the vast, vast majority of not just our people in uniform, 
but our civil servants and our contractors are there to 
accomplish a mission. But things still go wrong under those 
circumstances, and that is when we get involved and you get 
involved. I am confident that working together that we can try 
to resolve some of these issues.
    Mr. Waxman. I want to thank the members of this panel as 
well. We are doing our job when we have this kind of a hearing 
to try to raise these questions and get some answers. And I 
don't know that we got all the answers. I know we didn't get 
all the answers. We got only some. I think there needs to be a 
thorough investigation. And I look forward to working with the 
chairman in getting the answers we need.
    But I must tell you this. When we are asking our young men 
and women to put their lives on the line in Iraq, I don't want 
to see anybody enrich themselves unfairly. This is a situation 
where our country's interest is at stake, and lives are at 
stake, and we ought to make sure that the taxpayers are being 
protected and someone along the line is not just getting rich 
and profiteering in this war while our young people are dying 
every single day. Thank you very much.
    Chairman Tom Davis. I would just note that in terms of 
profiteering, this is just my perception coming off this, there 
might have been some decisions that could have been made 
differently downstream, but in the Kuwait situation, if there 
was a bribery there, no company was profiteering. You might 
have had an individual or two that has gone astray, might have 
paid too much for gas, but there was no profiteering on that. 
These were costs that were passed on. But as Mr. Waxman said, 
obviously, we all have an interest in making sure that doesn't 
happen.
    The vast majority of contractors are there for the right 
reasons. I commend you for the job you are doing for this 
country, and we thank you for being here today.
    This hearing is adjourned.
    [Whereupon, at 5:50 p.m., the committee was adjourned.]
    [The prepared statements of Hon. Carolyn B. Maloney, Hon. 
Wm. Lacy Clay, Hon. Jo Ann Davis, Hon. Ileana Ros-Lehtinen and 
additional information submitted for the hearing record 
follow:]

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 UNPRECEDENTED CHALLENGES: THE COMPLEX TASK OF COORDINATING CONTRACTS 
               AMID THE CHAOS AND THE REBUILDING OF IRAQ

                              ----------                              


                         TUESDAY, JUNE 15, 2004

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 11:20 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis of 
Virginia (chairman of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, Shays, 
Mica, Souder, LaTourette, Ose, Lewis, Ms. Davis of Virginia, 
Platts, Cannon, Schrock, Duncan, Deal, Miller, Murphy, Turner, 
Carter, Blackburn, Tiberi, Harris, Waxman, Maloney, Cummings, 
Kucinich, Mr. Davis of Illinois, Tierney, Clay, Lynch, Van 
Hollen, Sanchez, Ruppersberger, Norton, Cooper, and McCollum.
    Staff present: David Marin, deputy staff director/
communications director; Keith Ausbrook, chief counsel; Ellen 
Brown, legislative director and senior policy counsel; Robert 
Borden, counsel/parliamentarian; Rob White, press secretary; 
Drew Crockett, deputy director of communications; John 
Cuaderes, senior professional staff member; John Brosnan, GAO 
detailee; Teresa Austin, chief clerk; Brien Beattie, deputy 
clerk; Robin Butler, financial administrator; Allyson 
Blandford, office manager; Corinne Zaccagnini, chief 
information officer; Leneal Scott, computer systems manager; 
Phil Barnett, minority staff director/chief counsel; Kristin 
Amerling, minority deputy chief counsel; Karen Lightfoot, 
minority senior policy advisor & communications director; Anna 
Laitin, minority communications & policy assistant; David 
Rapallo, Alexandria Teitz, and Jeff Baran, minority counsels; 
Mark Stephenson, Nancy Scola, and Adam Bordes, minority 
professional staff members; Cecelia Morton, minority office 
manager; Teresa Coufal, minority assistant clerk; Christopher 
Davis, minority investigator; Theresa Foote, minority special 
assistant; and James Temple and Lawrence Atkinson, minority 
interns.
    Chairman Tom Davis. Good morning. I appreciate everyone's 
indulgence. The ranking member and myself have been trying to 
make this move as smoothly as we can for Members.
    The committee will come to order. We meet here today to 
look into the challenges surrounding the complex task of 
coordinating and executing contracts amid the chaos of 
rebuilding Iraq.
    Even before the conclusion of major military actions, there 
were plans for a massive effort to rebuild Iraq's 
infrastructure and government. Those responsible knew this 
endeavor would require an enormous amount of contractor 
support. Anticipating the worst, and recognizing the need for 
quick and decisive action, agency procurement professional 
properly invoked the carefully circumscribed statutory 
flexibilities designed to quickly provide urgently needed goods 
and services.
    I am referring here to contracts that were let just prior 
to or soon after the conclusion of major military action. The 
urgency and difficult circumstances surrounding the anticipated 
scenarios justified the use of limited competition or, in a few 
cases, single source awards. Although I am an advocate for full 
and open competition, Congress, in anticipation of war and 
other emergency scenarios, provided our procurement 
professionals with these flexibilities to deal with emergencies 
just like we had in Iraq.
    The rebuilding of Iraq is a very monumental task. Saddam 
Hussein spent decades frittering away his nation's vast wealth 
on himself and his Baath party cronies, while little or nothing 
was spent to meet the urgent needs of the Iraqi people. Decades 
of neglect and inaction turned this once great nation into one 
where the majority of people live in poverty and despair.
    However, with Saddam's ouster, we are witnessing a rebirth 
of Iraq. Freedom and liberation have brought a new sense of 
urgency to the Iraqi people; they understand what is at stake 
and we need to do our part to sustain freedom by rebuilding 
their nation.
    The task at hand is mammoth; it will be years before we are 
able to truly get Iraq running on its own. Yet, as each day 
passes, Iraqis are getting a better life thanks to the 
dedicated American soldiers and civilians working there. Our 
reconstruction efforts are well under way, even under life-
threatening conditions.
    Currently, there are many U.S. Government agencies working 
to improve conditions in Iraq. For example, the Department of 
Defense, the U.S. Army Corps of Engineers, and the U.S. Agency 
for International Development are all working to rebuild Iraq. 
There is no question that each of these entities is working in 
an extremely challenging environment. And although every day 
brings progress, we all recognize there are still major 
obstacles facing our military, government civilians and 
contractors.
    There are serious security concerns as well, and the simple 
necessities of life like water and electricity are only 
sporadically available in many areas. So it is no surprise that 
our normal acquisition support and oversight resources are 
sorely stretched. The committee is interested in the efforts 
made to manage, oversee, and coordinate acquisition activities 
to ensure that taxpayer money is being spent as effectively and 
efficiently as possible in this difficult wartime atmosphere.
    In addition to our ongoing work, the General Accounting 
Office has also been reviewing these efforts. A report on the 
challenges faced in awarding the contracts has just been 
issued. Another GAO report on the performance challenges faced 
by sustainment efforts is in the works.
    Huge amounts of money have already been or are about to be 
expended in our reconstruction efforts. We need to make sure 
that acquisition rules and the integrity of the processes are 
being followed. Congress has spent years streamlining complex 
government rules and regulations to make it easier for 
businesses to sell to the Federal Government, but did so in a 
way that carefully balances affordability, accountability, and 
accessibility to make sure taxpayer dollars are protected. It 
is our job, this committee's job, to make sure that is 
happening in Iraq.
    We hope to learn today how our acquisition system and the 
professionals who run it have responded to the challenges faced 
in Iraq. No one doubts that the circumstances are exceptionally 
difficult. I have seen the chaos on the ground there. The 
security situation is tenuous at best. On a daily basis, our 
military, civilians and contractors come under hostile fire. 
Our service men and women are being killed and wounded. A great 
number of contractor employees have also been killed, captured, 
or wounded. It is a major understatement to say that this is a 
difficult place to conduct business, but we are doing just that 
and we are slowly accomplishing our goals.
    Government contracting is difficult even under normal 
circumstances. Add in the urgency and the inherent dangers of a 
war zone and the challenge of acquiring urgently needed goods 
and services, and it becomes quite daunting. Through this 
hearing we hope to continue to separate fact from fiction, 
truth from rhetoric and, in turn, help make sure we are 
coordinating contract processes in Iraq in a way that ensures 
success and safety.
    I recognize that there have been mistakes. That is why we 
are holding hearings. That is why we are requesting documents 
and getting briefed on a daily basis. The contracting process 
is not always pretty, and decisions made under the pressure of 
combat are not always as lucid as those made under less 
threatening conditions. Nevertheless, the vast majority of the 
new contract awards were done properly. While there were some 
difficulties, particularly in the issuance of task orders under 
existing contracts, it is my understanding that while the 
procedures used may have been flawed in some cases, the awards 
themselves could clearly have been accomplished under other 
authorities. Not surprisingly, it also seems that the 
management and oversight of contract performance remains a 
thorny challenge due to the evolving needs on the ground, 
staffing difficulties, and an intimidating security 
environment.
    Many of the disputes that have been made public show that 
the contract oversight process is working. We need to let the 
give and take of contract oversight and management work. Make 
no mistake, overcharges cannot and will not be tolerated, and 
contractors need to establish systems and processes that 
protect the Government from waste and that maximize the reach 
of pressure taxpayer dollars. But we need to keep in mind the 
enormity of the effort involved and that it is being executed 
in a wartime environment where lives are at stake. This hearing 
is part and parcel of our functioning oversight process.
    As chairman of the committee, I would like to move beyond 
the politics, honestly explore the challenges the military and 
contractors face, and figure out how to overcome them. I am not 
new to politics; I understand why others feel the need to say 
the word Halliburton as often as humanly possible, but we have 
more than just one contractor in Iraq and lives are on the 
line. I would hope that our friends on the other side would 
agree and begin to move this debate in a more constructive 
direction, away from really what I would consider partisan 
politics that really serve the interest of a few.
    For the record, we have spent months working together with 
the minority on these issues. We have set up joint witness 
interviews with DOD personnel; we have submitted joint document 
requests; we have had joint GAO briefings and my staff has 
participated in joint whistleblower interviews; and we are 
trying to conduct these in good, constructive, bipartisan faith 
with our friends.
    On Sunday, Mr. Waxman sent a letter to the Vice President 
that included, in my judgment, unwarranted insinuations about 
improper contact between the Vice President's office and DOD 
contracting officials, something I am sure we will talk about 
today, allegedly based on a briefing by DOD officials. Just so 
we are clear, it was my staff, majority staff that set up and 
attended the briefing, and those who came over from DOD stated 
clearly that they had not experienced inappropriate influence 
from the Vice President or anyone in that office. We had no 
idea that the majority would send their own letter when we had 
been working together on these issues. It wasn't shared with us 
before it was released to the press, and we don't share that 
politically charged interpretation of what was said at the 
briefing. There are witnesses here today that can elaborate on 
that issue.
    I completely understand what is going on here in the 
political context, but I find it distasteful from our role as 
an oversight committee to choose oversight by press release or 
by leaking draft reports and confidential briefings. This is a 
strategy that, as the majority, we will not pursue and, if we 
ever become the minority, I hope as long as I am the ranking 
member, would not pursue.
    All you have to do is look back at the wide-ranging complex 
bipartisan oversight this committee has conducted over the past 
year and a half to understand why they have had to make, I 
think, some rather extreme statements to make their point that 
we don't think stands up for scrutiny, and we are not going to 
participate in that circus. We are going to continue to conduct 
responsible oversight, and I hope this hearing will serve as 
another step in that direction. I said this back in March at 
our last hearing on this issue, and it is worth repeating: I 
have no patience for fraud or abuse. I expect that any such 
instances that are proven will result in harsh punishment for 
the perpetrators. Since our last hearing, many of the limited 
competition contracts have been replaced by ones awarded 
through full and open competition. Emergency procedures are for 
emergencies only. When initial decisions were made, time was 
not our ally, but fortunately we anticipated this and were able 
to react in such a manner that assisted the war effort rather 
than hindering it. Our soldiers have benefited from this and 
lives have been spared because of this, and we need to keep 
that in mind as we conduct the oversight we are charged with 
conducting.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Tom Davis. Mr. Waxman, your opening statement?
    Mr. Waxman. Thank you, Mr. Chairman.
    In early March, this committee held its first hearing on 
Iraq contracts. I spoke at length at that hearing about the 
fundamental flaws in the administration's procurement strategy 
and the enormous waste of taxpayer dollars that was occurring 
in Iraq. Today, more than 3 months later, none of these 
fundamental problems have been addressed. We know more today 
than we did 3 months ago about how the administration has 
mismanaged the contracts to reconstruct Iraq, and what we have 
learned shows that the problems are even worse than we thought.
    The focus of today's hearing is the two largest Iraq 
contracts. One contract, called LOGCAP, was awarded to provide 
the military with logistical support, such as housing and 
dining facilities. The other contract, called RIO, was awarded 
to import fuel and restore Iraq's oilfields. Both of these 
contracts went to one well-connected company, Halliburton. In 
total, Halliburton has been awarded a phenomenal sum of money, 
over $7 billion, under these two contracts.
    In the course of our investigation into the Halliburton 
contracts, we have tried to look at the contracts from three 
different perspectives. One is the boots on the grounds 
perspective of the employees who work for the company; one is 
the flyover perspective of Pentagon auditors who scrutinize 
Halliburton's books to ensure that the taxpayer is not being 
overcharged; and one is the 50,000 foot perspective of the 
General Accounting Office, which has examined whether the 
Federal Government has the necessary safeguards in place to 
prevent waste, fraud, and abuse. All three perspectives come to 
the same conclusion: Halliburton is gouging the taxpayer, and 
the Bush administration doesn't seem to care.
    Yesterday I released the statements of five former 
employees of Halliburton. These individuals describe a company 
that acts like it is spending someone else's money, which is 
just what Halliburton is doing. Under the company's cost-plus 
contract, the more taxpayer money Halliburton spends, the more 
profit it makes. The examples of waste, fraud, and abuse 
provided by the former Halliburton employees are stunning. One 
former logistics specialist told us that Halliburton charged 
taxpayers $10,000 a day to house its employees in the five-star 
Kempinski Hotel in Kuwait. The same employees could have stayed 
in air conditioned tents like those used by our troops for less 
than $600 a day.
    A former convoy commander told us that Halliburton removed 
the spare tires from its brand new $85,000 trucks, and if one 
of the trucks got a spare tire, Halliburton would abandon or 
torch the truck. Can you imagine that? Halliburton's approach 
to fixing a flat tire is to buy a new truck. Another truck 
driver, James Warren, tried to do something about the waste and 
theft he observed. He called Randy Harl, the president and CEO 
of KBR, the Halliburton subsidiary operating in Iraq. Instead 
of investigating Mr. Warren's allegation, KBR fired him.
    The Pentagon auditors at the Defense Contract Audit Agency 
observed the same kind of problems that the whistleblowers 
report. In an audit that was completed last month, but withheld 
from Congress, DCAA found multiple deficiencies in 
Halliburton's billing practices. In one example, DCAA found 
that Halliburton submitted ``billings to the government for as 
much as three times the meals they actually served.''
    Well, last year, Representative John Dingell and I 
requested that the General Accounting Office review 
Halliburton's LOGCAP contract. Today we will hear GAO's 
testimony about the results of the investigation. GAO found 
widespread problems, including inadequate planning, little 
concern for costs, and poor contract management. Here is one 
example GAO told us about. Prior to the Iraq war, the military 
had a contract with a Kuwaiti company called Tamimi to provide 
meals to the U.S. troops in Kuwait. Before the war started, the 
Bush administration turned the contract over to Halliburton 
with the specific instructions that Halliburton subcontract 
with Tamimi to continue feeding the troops. According to GAO, a 
cost-conscious procurement official finally terminated the 
Halliburton contract this spring and they returned the contract 
to Tamimi. Well, when they finally got rid of Halliburton 
acting as a middleman, they cut the cost by over 40 percent. 
What purpose did Halliburton serve except to increase the cost 
that we were paying for the same meals being served by the same 
subcontractor who was doing it for 40 percent less?
    Our own investigation has exposed other examples of 
astoundingly bad contract management. In the March hearing, I 
objected to the Bush administration giving the job of 
overseeing the reconstruction contracts to private contractors. 
When I investigated further, I learned that the companies hired 
to oversee the private contractors had significant conflicts of 
interest. Parsons, for example, was hired to oversee its 
business partner, Fluor, while CH2M HILL was hired to oversee 
its business partner, Washington Group International. When you 
are hired to oversee your business partner, there is a good 
reason to believe that you may not want to be as vigorous in 
making sure that your business partner doesn't overspend the 
money.
    Well, these decisions have real consequences. Our troops 
have died in Iraq because they lack body armor and reinforced 
Humvees. We can't afford to throw away money on Halliburton 
when we don't have enough funds to adequately equip and protect 
our soldiers.
    Now, GAO will tell us today that the Bush administration 
did not have contingency plans in place for feeding and housing 
the troops. But the administration did have detailed 
contingency plans for running Iraq's oilfields. In fact, 
Halliburton was given the secret contract in November 2002 to 
develop these plans. Now, here is the message that sends about 
this administration's priorities: protecting Iraq's oil came 
before protecting our own troops.
    Many people have wanted to know what role the Vice 
President has played in all of this. For months he has denied 
any knowledge about Halliburton's contracts. He said, on 
television, and I want to quote him directly, this was on Meet 
the Press last September, ``Since I left Halliburton to become 
George Bush's Vice President, I have severed all my ties with 
the company, and as Vice President I have absolutely no 
knowledge of, in any way, shape, or form, contracts let by the 
Corps of Engineers or anybody else. I deliberately stayed away 
from any information on that.''
    The administration has also consistently maintained that 
Halliburton was selected for the Iraqi contracts by career 
procurement officers. But we now know that simply was not true. 
Halliburton was selected for the oil contracts by political 
appointees in the Bush administration, not by procurement 
officials, and the Vice President's chief of staff, Scooter 
Libby, was personally briefed on the contracts before they were 
issued.
    We don't know the full extent of the Vice President's 
involvement in the Halliburton contracts. All we know for sure 
is that what the Vice President has said so far is false.
    Now, that has come, in part, from a briefing that both the 
minority and majority staffs participated in. It was not a 
confidential briefing, and that briefing gave information that 
contradicted the statements that Vice President Cheney, and 
this administration have been making over and over again, and 
it contradicts sworn testimony given to this committee in 
March, when we held our last hearing.
    Americans cannot rely on the Bush administration to fix the 
contracting problems in Iraq. This administration is notorious 
for refusing to acknowledge mistakes or to hold officials 
accountable. In fact, as the Vice President's comments 
demonstrate, it is even hard to trust the administration to 
provide honest and full information. So it is really up to the 
Congress to look after the interest of the troops and the 
taxpayers, and the question I have is whether we are up to this 
challenge.
    Chairman Davis has taken some commendable steps. We have 
had a conversation as a result of the letter that we sent him, 
and he has now agreed that we will hold a hearing in July to 
bring in the whistleblowers identified by the minority before 
the committee. We will discuss exactly who will participate in 
that hearing and that will be something that we will discuss 
together. He has also agreed that Halliburton's CEO, David 
Lesar, and KBR's CEO, Randy Harl, will receive formal written 
invitations to testify before the committee. I think 
Halliburton ought to testify before this committee. If they 
think that some of this information is inaccurate, they ought 
to be here to say so under oath and to be questioned about it.
    Chairman Davis and I have discussed our concern about some 
other essential steps that I think we need to take. Three 
months ago, Chairman Davis and I wrote to Defense Secretary 
Rumsfeld and USAID Administrator Natsios to seek documents 
relating to the Halliburton and Bechtel contracts in Iraq. The 
administration failed to provide most of these documents. In 
fact, even when the administration finally did respond to 
portions of the request, it withheld key documents. I think we 
need to protect our rights to the documents and subpoena them, 
if necessary, so that we in this committee get those documents.
    We cannot conduct effective oversight by consent. The test 
of what we investigate should be what we need to do in order to 
fulfill our oversight responsibilities, not what the 
administration agrees to let us see. If we are going to do our 
jobs, we need to be far more assertive than we have been so 
far.
    George Will said something very wise in a recent column. He 
wrote, ``Failures are multiplying because of choices for which 
no one seems to be accountable.'' Although asking tough 
questions can be politically inconvenient, we will be doing the 
President no favor if we refuse to fulfill our Constitutional 
oversight responsibilities. Oversight can be painful at times, 
especially if you look at this whole issue from a partisan 
perspective. But it is an essential part of our system of 
checks and balances.
    I look forward to the hearing today. I look forward to the 
hearing we will have in July, and I hope that it marks the 
beginning, not the end, of our committee's work on Iraq 
contract oversight.
    Thank you very much, Mr. Chairman, for this chance to make 
the opening statement.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. Thank you, Mr. Waxman. I think that we 
have Members here expecting you to put some motions. I am going 
to allow members to submit opening statements for the record, 
and during your 5 minutes of questions, if you prefer to use 
that time for statements, we will do that; otherwise, we will 
dispense with additional opening statements. And I understand 
you have some motions.
    Mr. Waxman. Well, Mr. Chairman, before I do that, I want to 
welcome Representative Betty McCollum, who joins us today as 
the newest member of the Government Reform Committee. 
Throughout her career as a teacher, a city council member, and 
a member of the Minnesota House of Representatives, she has 
championed issues that are important to her constituents and to 
all Americans, and she has worked to ensure excellence in 
education, environmental protection, and health care access for 
all. And I am pleased she is joining us on this committee as a 
member of the Government Reform Committee, and she brings a 
wealth of experience and expertise to this committee, and I 
know all of us look forward to working with her.
    Chairman Tom Davis. Well, thank you, Mr. Chairman. Let me 
just say for the majority we are happy to have her here and 
look forward to working with her.
    Mr. Waxman.
    Mr. Waxman. Mr. Chairman, I think that we need to subpoena 
documents in order to get those documents submitted to our 
committee. You and I have had a conversation prior to this 
meeting about these documents. Some of these documents involve 
matters that you and I have both requested from the 
administration, and with regard to those documents, we have 
requested them; some have been given to us, but not all of 
them. And I think it is appropriate to demand them and to 
subpoena them if we can't get them voluntarily. And I would 
like to yield to you.
    Chairman Tom Davis. Thank you, Mr. Waxman. We still don't 
have a number of documents that we requested on March 26th. 
Some documents, which the minority was able to obtain anyway, I 
might add, actually post-dated March 26th and weren't included 
in that request. But what we don't have is the DOD cost 
estimate for Task Order 59; DOD reports on the Bechtel 
construction contract; determination to award a single, rather 
than multiple, award contract for oil infrastructure contract; 
various documents relating to the KBR contract for imported 
gasoline; and the aid reports on the Bechtel construction 
contract. By all right, the committee should have these.
    What I will say today is I would like to give the 
Department until June 30th to get those documents before us. If 
there is a security reason why they can't do that, or 
logistical reason, we would like them to come up and at least 
give us the courtesy of meeting with Mr. Waxman and myself to 
see why these documents shouldn't be forthcoming. And if we 
don't hear by that time, it would be my intent, I think, to 
move ahead with subpoenas, but we want to give them an 
opportunity to move ahead with that or to at least give us a 
reason why they shouldn't, which they haven't to date.
    Mr. Waxman. Well, Mr. Chairman, I want to put a list of 
some of these items in the record. We don't need to go through 
them now. You and I both requested the documents. You are 
suggesting that we give them until June 30th, and if they don't 
respond, either by coming forward and telling us why they can't 
respond or giving us the documents as we have requested, you 
will go forward with subpoenas, which you can issue on your 
own, without even convening a meeting of the committee, is that 
correct?
    Chairman Tom Davis. That is correct.
    Mr. Waxman. Well, under those circumstances, I don't see it 
necessary to offer a motion for the committee to vote on; I 
accept that is a reasonable course to fllow.
    Chairman Tom Davis. Let me just say to our friends at the 
Department that we need these documents. We are entitled to 
them under law, and we ought to have them, and it has been a 
joint bipartisan request. And there were other documents, I 
might add, that Mr. Waxman wanted to add to this that we did 
not join him with that weren't in this list, but these were 
jointly agreed to.
    Mr. Waxman. I have another motion for a subpoena that 
involves some other matters, if we can have them reported.
    Chairman Tom Davis. Will the clerk designate?
    Ms. Austin. Which one would you be referring to?
    Mr. Waxman. This is the one that involves the Vice 
President.
    Ms. Austin. Motion to subpoena Secretary of Defense Donald 
Rumsfeld for documents relating to DOD contacts with the Vice 
President's Office of the White House. Under House Rule 
11(2)(k)(6), I move the committee issue a subpoena to a 
witness, Secretary of Defense Donald H. Rumsfeld, to appear 
before the Committee on Government Reform on July 6, 2004, to 
produce certain documents relating to contracting and the 
rebuilding of Iraq.
    Mr. Waxman. Mr. Chairman, I ask unanimous consent that the 
motion be agreed to and considered as read.
    Chairman Tom Davis. Without objection, so ordered and 
considered as read.
    Mr. Waxman.
    Mr. Waxman. Well, Mr. Chairman and my colleagues, we have 
the right to move for subpoenas to get this information, and 
there are documents that we are requesting that we think you 
would, on reflection, agree that we ought to have. But in our 
conversation before this hearing, you expressed to us you 
haven't had a chance to review all of our requests to see 
whether you would support them. And rather than put this to a 
vote, if you will afford us the opportunity to discuss these 
requests and join us jointly in requesting the information, 
where you feel it is appropriate, and not only make the 
request, but back it up with a subpoena if the request is not 
agreed to in an appropriate amount of time, I would find that 
an acceptable way for us to proceed together in comity on this 
second group.
    Chairman Tom Davis. Well, Mr. Waxman, I always think we 
work better together as a bipartisan unit on these issues and 
try to take at least the partisan sting out of these. In 
addition to that, we have some disagreements on the documents, 
but in discussing this beforehand, I think there are some areas 
where we can agree to move forward, and I would be happy to 
work with you in that regard, as we have in the past.
    Mr. Waxman. Mr. Chairman, I think what you have suggested 
to us in good faith is helpful and constructive for us to 
proceed with together, and rather than put the committee to a 
vote that might well be partisan, and I so much don't want this 
to be partisan because it is our committee's responsibility on 
a bipartisan basis to do the investigation that is appropriate 
I will ask unanimous consent to withdraw my motion for a 
subpoena. We will discuss further the items. I want to make a 
case to you on each of the items and hope that I can get you to 
agree to jointly request them and back it up with a subpoena if 
the request is not honored.
    Chairman Tom Davis. I thank the gentleman. If there is no 
objection, the request will be withdrawn.
    Mr. Waxman. I have a third motion, and without offering 
that motion officially and withdrawing it, I do want to 
indicate to you that I would like to handle it in the same way 
we have handled the second one. It involves further request for 
Halliburton documents, and we would like to discuss them with 
you further, see if we can join together in a request for those 
documents, with the understanding that if we do request them 
jointly, and after an appropriate time if they are not 
forthcoming, that we will go to subpoena.
    Chairman Tom Davis. I look forward to working with the 
gentleman on his request.
    Mr. Waxman. Thank you.
    Chairman Tom Davis. We have not had an opportunity to 
review all of these at this point, and we have some 
reservations about some of the things that have come up, but 
there are others I think we can find some area of closure, so I 
look forward to working with the gentleman.
    Mr. Waxman. Well, I thank you very much, Mr. Chairman. I 
think that is the appropriate way for us to proceed, and I look 
forward to working with you. I want to make the case to you on 
each and every one of these, and hope I can get you to agree. 
That is all I can do, is make the case, and if you don't agree, 
you don't agree.
    Chairman Tom Davis. We have the same opportunity on your 
witnesses, so we have a lot of things to talk about. I 
appreciate it.
    Mr. Waxman. I appreciate it, and I do want to have you 
acknowledge that we are going to go ahead and have a meeting in 
July.
    Chairman Tom Davis. That is correct, we will have a July 
hearing.
    Mr. Waxman. Where we will have an opportunity for 
whistleblower testimony.
    Chairman Tom Davis. Of course. As I had indicated in 
previous hearings, we will.
    Mr. Ose. Mr. Chairman.
    Chairman Tom Davis. Yes. Gentleman from California.
    Mr. Ose. I have heard a lot of talk focused on a particular 
company, however, this contracting officer from our March 11th 
hearing was far larger than just one company. Am I to 
understand from your discussion that we are limiting our 
inquiries to one company?
    Chairman Tom Davis. Not at all. Not at all. In fact, some 
of the inquiries and the documents we have requested do relate 
to other companies.
    Mr. Waxman. If the gentleman would permit to yield to me, 
one of the documents we have requested involves Bechtel, which 
is the second largest contractor. We haven't received that 
information. It is impeding our investigation. But we are not 
just focused on Halliburton.
    Chairman Tom Davis. There are others as well. If the 
gentleman has any suggestions, as I know he does, we would be 
happy to look at those as we.
    Mr. Ose. Well, I am still waiting on answers to the 
questions we submitted through you and Mr. Waxman.
    Chairman Tom Davis. From DOD. Well, we can add that to our 
request.
    Mr. Ose. I would appreciate that.
    Chairman Tom Davis. Thank you.
    Is there any other discussion?
    Mr. Waxman. We also had questions from our side. I remember 
Mr. Lynch asked some questions and had a promise he would get 
the information. So I hope we will get that as well.
    Chairman Tom Davis. Well, why don't we make sure that staff 
includes that in our discussion, Mr. Waxman, as we move ahead 
and get it sent to the Department of Defense?
    As I said before, Members will have 5 legislative days to 
submit opening statements.
    We move forward to our first panel now. We are pleased to 
have the Honorable David M. Walker.
    This means no votes, to committee members. You are 
certainly encouraged to stay here for the testimony and 
questions, but you won't be needed for a vote.
    Thank you, Mr. Waxman.
    The Honorable David M. Walker, Comptroller General of the 
United States, accompanied by Mr. William T. Woods, Director, 
Acquisition and Sourcing Management, U.S. General Accounting 
Office, and Mr. Neal Curtin, the Director of Defense 
Capabilities and Management, U.S. General Accounting Office.
    As you know, it is our policy that we swear all witnesses.
    Mr. Ose. Mr. Chairman, if I may.
    Chairman Tom Davis. Yes, gentleman from California.
    Mr. Ose. I noticed in the context of your conversation with 
Mr. Waxman that you were issuing invitations to the July 
hearing to the president of a couple of companies. Are those 
same invitations going to the leadership of the other companies 
who are engaged in contracting?
    Chairman Tom Davis. Well, there are literally hundreds, if 
not thousands, of companies.
    Mr. Ose. Well, I am particularly interested in the 
companies Parini, UBS, and Washington Group.
    Chairman Tom Davis. Well, if the gentleman would work with 
us on that, we will see if we can accommodate his request. 
Would the gentleman agree to work with us on that?
    Mr. Ose. I would be happy to work with you.
    Chairman Tom Davis. All right, thank you.
    [Witnesses sworn.]
    Chairman Tom Davis. Mr. Walker, thanks for being with us 
and thanks for the good staff work you continue to do to shed 
some light on these issues. The issue of a report I know is 
sometimes subject to various interpretations, but we look to 
you here for guidance on these matters, and thanks for being 
with us.

   STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE 
   UNITED STATES, ACCOMPANIED BY WILLIAM T. WOODS, DIRECTOR, 
 ACQUISITION AND SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING 
OFFICE, AND NEAL P. CURTIN, DIRECTOR, DEFENSE CAPABILITIES AND 
           MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Walker. Thank you, Mr. Chairman, Ranking Minority 
Member Waxman, other members of the committee. It is a pleasure 
to be back before you here to discuss various GAO activities 
dealing with operations and rebuilding efforts in Iraq.
    I would like to summarize my statement. I believe all of 
you have been provided with the entire statement for the 
record, and hopefully all of you have also been provided a copy 
of the report that was released yesterday entitled, 
``Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures 
and Management Challenges.'' My testimony will address a 
summary of this report, as well as our work to date on various 
logistical support contracts on a global basis involving all 
four services.
    Before I discuss our findings, I would like to briefly 
touch upon the scope of these two efforts. First, given the 
widespread congressional interest in ensuring that Iraq 
reconstruction efforts are awarded properly and administered 
effectively, we initiated this review under my authority, 
meaning the review that I am referring to here, the report that 
was issued yesterday. Specifically, we judgmentally selected 25 
fiscal year 2003 contract actions. These 25 contract actions 
represented about 97 percent of the nearly $3.7 billion that 
have been obligated for Iraqi reconstruction through September 
30, 2003. We are currently working on looking at 2004 
contracting activity.
    With regard to our work on the military's use of global 
logistic support contracts, this work was initiated at the 
request of Ranking Minority Member Waxman of this committee and 
the ranking minority member of the Energy and Commerce 
Committee, Mr. Dingell. It is one of a series of studies we 
have done on the military's use of private contractor support 
deployed forces on a global basis. Importantly, we looked at 
this on a global basis; we look at it for all the services, and 
we did not target any particular region or any particular 
company.
    With regard of the award of fiscal 2003 Iraqi 
reconstruction contracts, we found that agencies generally 
complied with applicable laws and regulations governing 
competition when using sole-source or limited competition 
approaches to award new contracts. However, they did not always 
do so when issuing task orders under existing contracts. In 
several instances we found that contracting officers issued 
task orders for work that was not within the scope of the 
underlying contracts. The out-of-scope work under these orders 
should have been awarded using competitive procedures or, 
because of the circumstances involved, supported by 
justification for other than full and open competition in 
accordance with applicable legal requirements. In this regard, 
given the needs relating to and the challenges associated with 
the Iraqi reconstruction efforts, such justifications are 
likely possible, but needed to be made and documented in order 
to comply with the law and to protect taxpayer interest.
    We made several recommendations to the Secretary of the 
Army and the Secretary of the Defense with regard to the 
lessons learned in this report, and I am pleased to say that 
DOD has generally concurred with our recommendations and plans 
to take actions based on our recommendations.
    With regard to DOD's use of global logistic support 
contracts, we found mixed results in each of four critical 
areas that we reviewed, namely, planning, oversight, 
efficiency, and personnel matters. For example, we found that 
some DOD customers planned quite well for the use of contracts, 
following service institutions and including the contractor 
early in planning. Conversely, we found the use of the LOGCAP 
contract in Kuwait and Iraq was not adequately planned, nor was 
it planned in accordance with applicable Army guidance.
    We also found that while oversight processes were in place 
and functioning well in some places, there were several areas 
needing improvement, such as reaching an agreement on terms, 
specifications, and prices of services to be delivered. This is 
especially critical in connection with cost-based contracts.
    We also found that while some military commands actively 
looked for ways to save money, others exhibited little concern 
for cost considerations.
    Finally, shortages in personnel trained in contract 
management and oversight is also an issue of critical 
importance that needs to be addressed. Our report will make a 
number of recommendations when it is issued later this summer 
in this regard.
    In summary, Mr. Chairman, Ranking Member Waxman, and 
members of the committee, the United States, along with its 
coalition partners and various international organizations and 
donors, has undertaken an enormously complex, costly, and 
challenging effort to rebuild Iraq in an unstable security 
environment. At the early stage of these efforts, agency 
procurement officials were confronted with little advance 
warning on which to plan and execute competitive procurement 
actions. An urgent need existed to begin reconstruction efforts 
quickly, and the uncertainty as the magnitude in terms of the 
work required was evident.
    Their actions in large part reflected proper use of the 
flexibilities provided under existing procurement laws and 
regulations to award new contracts using other than full and 
open competitive procedures. However, with respect to several 
task orders issued under existing contracts, some agency 
officials overstepped the latitude provided by competition laws 
by ordering work outside the scope of the underlying contracts. 
This work should have been separately competed or, 
alternatively, justified and approved at the required official 
level for performance by an existing contractor. Importantly, 
given the war in Iraq, the urgent need for reconstruction 
efforts, and the latitude allowed by the competition law, these 
task orders reasonably could have been supported by 
justifications for other than full and open competition.
    Logistic support contracts have developed into a useful 
tool for the military services to quickly obtain needed support 
for troops deployed to trouble spots around the world. Because 
of the nature of these contracts, however, that is, a cost-
based contract arrangement, they require adequate planning and 
definitions of related requirements, as well as significant 
ongoing and active oversight by a variety of parties in order 
to make sure that they are meeting the needs of the forces in 
the most economic, efficient, and effective way possible under 
the circumstances.
    While the military services are using how to use these 
contracts well, in many cases the services are still not 
achieving the most cost-effective performance and are not 
adequately learning and applying the lessons of previous 
deployments. Because of the military's continuing and growing 
alliance on these contract vehicles, it is important that 
improvements be made in the planning and execution of these 
arrangements, and that related oversight be strengthened.
    I might note, Mr. Chairman, finally, that DOD contract 
management has been on GAO's high risk since 1992. There is a 
good reason for it: there are serious problems. They still 
exist. They are exacerbated in a wartime climate, and it is 
important that we continue to make progress to address these 
longstanding problems.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Walker follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Waxman, I think by agreement, I am going to yield 15 
minutes to you for questions, and then we will go with 15, and 
then we will go to the 5 minute rule.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    Mr. Walker, on the Army's LOGCAP global logistics contract, 
your team examined several important issues, including 
planning, cost and efficiency, oversight, and training. And as 
I read your testimony and heard what you had to say, you found 
significant problems with each in Iraq, and I want to walk you 
through some of these findings.
    For a logistics contract, such as LOGCAP, to be effective 
and efficient, it is crucial that planning be done ahead of 
time. And in the case of Iraq, planning should have been done 
regarding the number of troops, their locations, how many meals 
they would need, how much water they would drink, and how much 
housing would be required in various locations.
    Mr. Walker, you believe the Pentagon's prewar planning for 
LOGCAP was inadequate, is that correct?
    Mr. Walker. Our report finds that there were shortcomings 
with regard to the adequacy of planning for post-offensive 
operations. At the same point in time, I think we also have to 
look at the timeframes involved and try to understand that 
there wasn't a whole lot of time. But clearly planning was not 
as robust as it should have been or could have been.
    Mr. Waxman. You said that the use of LOGCAP in Iraq was not 
planned in accordance with applicable Army guidance, is that 
accurate?
    Mr. Walker. That is my understanding.
    Mr. Curtin, do you have anything to add on that?
    Mr. Curtin. Yes, sir, that is exactly right. The key issue 
is that the contractor needs to be involved early in the 
planning process under the Army guidance, and in this case the 
contractor was not involved at all until May 2003.
    Mr. Waxman. Mr. Curtin, isn't it true that our soldiers 
were eating MREs, meals ready to eat, through August and living 
in tents because there hadn't been adequate prewar planning for 
dining facilities and housing?
    Mr. Curtin. Well, they were clearly living in tents and 
eating MREs. That can be partially attributed to a planning 
problem, but remember also the environment that you had was 
very unsettled. It is not clear how much preplanning could have 
avoided that, but it certainly would have helped the situation.
    Mr. Waxman. It seems to me that there was actually far less 
planning for the safety, security, and welfare of our troops 
than for restoring and operating Iraq's oil infrastructure. 
Halliburton started planning for the oil infrastructure in 
November 2002, 5 months before the invasion. When did the 
planning for our troops begin under LOGCAP?
    Mr. Curtin. Well, the Task Order 59 under LOGCAP, which 
supports our forces in Iraq, was finally developed in May 2003, 
so that was after the actual military action, fairly late in 
the game, probably. But the problem we have even with that May 
2003 plan is that it has been having to change so frequently 
that it was not a very complete or comprehensive plan. There 
were nine changes to that task order.
    Mr. Waxman. Why did planning for our troops wait until 6 
months after the planning for Iraq oil?
    Mr. Curtin. I can't tell you; we never got a good answer to 
that. I don't know why it was done like that.
    Mr. Waxman. Well, these priorities just don't make sense.
    Chairman Tom Davis. I think it is important to note, Mr. 
Waxman, though, that the failure for them to do what they 
should have done with regard to the task orders doesn't mean 
that they weren't doing some planning. But clearly they were 
not nearly as far along as they should have been in many 
critical areas.
    Mr. Waxman. Well, they spent months preparing for plans for 
Iraq's oil infrastructure; they had briefings at the highest 
levels of the administration. Substantial resources were being 
devoted to planning for the oil, yet there was little or no 
planning under LOGCAP to provide for the basic needs of our 
troops during the same timeframe. And with all due respect, our 
priority should be protecting the troops, not Iraq's oil.
    I would like to ask you about cost control. This LOGCAP is 
a cost-plus contract, so Halliburton has its costs reimbursed 
and then receives an additional profit that is a percentage of 
its cost. Given the size of this contract, cost control is 
obviously crucial. Former Halliburton employees have come 
forward with information indicating that Halliburton made 
virtually no effort to control costs under LOGCAP in Kuwait and 
Iraq. For instance, they cited that brand new $85,000 trucks 
were being torched because of a flat tire and Halliburton 
subcontractors charged $100 per bag of laundry. More than one 
whistleblower has said that Halliburton managers told them not 
to worry about the price because it was all a cost-plus 
contract.
    GAO observed a lack of concern for cost considerations 
among LOGCAP managers in Iraq after the invasion. What did you 
find specifically?
    Mr. Walker. I think it is important to note that these are 
cost-based contracts, and to try to clarify my understanding of 
how they work. And I would ask, if Neal or Bill have a 
clarification, to jump in.
    First, that under these contracts, the contractors are 
reimbursed for their costs, which is full absorption costing. 
In other words, it is not just the direct cost, it is an 
overhead allocation and things of that nature. Second, they can 
receive a separate base fee, which is supposed to be based upon 
the estimated cost, not the actual cost, of what it would take 
in order to provide the services under the contract. And, 
third, they can receive an award fee or a success fee of up to 
a certain percentage based upon actual performance.
    The fact of the matter is that in order for these types of 
arrangements to work effectively, you have to plan up front as 
to what the nature and scope of the activities are going to be; 
you need to estimate a reasonable cost, and the fees should be 
based upon those numbers. To this point in time, quite frankly, 
they still haven't fully negotiated what the nature and scope 
of services would be, what the estimated cost would be, and, 
therefore, we have a higher level of risk than we should at 
this time.
    Last, I would say oversight is of critical importance as 
well.
    Mr. Waxman. Well, Mr. Walker, your staff gave a briefing to 
our staff and they said in Operation Iraqi Freedom costs were 
not significant concern in LOGCAP management until late in 
2003; there were no periodic reviews that had been conducted, 
which would be, for example, the validity of the requirements 
and that appropriate level of services; an award fee process 
was not in place for LOGCAP; and that Army plans June award fee 
board, which requires definitization of task orders. Is this 
accurate?
    Mr. Walker. There were serious planning and oversight 
problems.
    Mr. Curtin. You have described it very accurately.
    Mr. Waxman. When our troops are in major combat operations 
and in need of support, cost can't be the primary concern. But 
after a while it should be an important concern, and I don't 
understand how there can be a debate about whether costs should 
be considered. The whole point of having a contractor do this 
work, instead of the military, is to reduce costs. I want to 
ask you about a specific example I mentioned in my opening 
statement.
    In early 2003 there were was a Kuwaiti company called 
Tamimi. They had a contract with the Army to provide four 
dining facilities in Kuwait. In June 2003, Halliburton was 
given this work under the LOGCAP agreement, but they were 
instructed by the Army to use Tamimi, which was already there, 
as its subcontractor. And more recently the work was turned 
back over to Tamimi.
    When the dining facilities were turned back over to Tamimi, 
what happened to the price of the meals?
    Mr. Walker. My understanding is the total cost on that 
contract declined dramatically.
    Mr. Curtin. About over 40 percent by having a direct 
contract with the local contractor versus going through LOGCAP.
    Mr. Waxman. That doesn't sound to me like it was providing 
good value to the military. Certainly that is unfair to the 
taxpayers, to pay an extra 40 percent for the meals that had 
already been served by Tamimi before Halliburton got in to take 
its cut.
    Mr. Walker. Mr. Waxman, one of the things I think is 
important to note is you are correct that when you are in a 
wartime environment, there are certain issues other than cost 
that have to be considered, such as the safety and security of 
our troops. And in that regard, my son fought in Iraq as a 
captain in the Marine Corps, so I am very sensitive to that. At 
the same point in time, I think you rightfully point out that a 
lot of the services that we are talking about here aren't 
directly in support of the troops, or at least aren't in combat 
operations directly, and, therefore, we need to be concerned 
with cost. Cost does matter. At the same point in time, there 
has to be a balancing of various interests, I think, to make 
sure that we can accomplish our mission.
    Mr. Waxman. You have said that the Army did not instruct 
commands to look for ways to control cost under LOGCAP until 
December 2003. Why did they wait until 9 months after the 
invasion?
    Mr. Curtin. I can address that one to some extent, at 
least. I think the order you are talking about came down from 
the Department of the Army in December 2003 when they realized 
that fiscal year 2004 funding was tight and they were spending 
in Kuwait and Iraq at almost unsustainable rates. And they 
looked for dollar savings at that point, and that is what got 
them interested in dollar savings. And what we will be showing 
in our report is that when you look, when the Government looks 
for savings potential in these types of contracts, we almost 
always can find it; there are savings available if the 
Government provides the right kind of oversight.
    Mr. Walker. And a lot of it, Mr. Waxman, has to do with the 
nature and scope of services that are being provided, rather 
than necessarily the cost, per se, of those services. It can be 
both; both can result in savings.
    Mr. Waxman. But as I understand what you are saying, Mr. 
Curtin, there was no interest in holding down costs until 
December 2003, so they went practically the whole year without 
thinking about those costs.
    Mr. Curtin. It was not a priority. We did not see the 
emphasis at all.
    Mr. Waxman. Your team also stated that an award fee process 
was not in place for LOGCAP. How does this affect Halliburton's 
incentives to control costs?
    Mr. Walker. Well, my understanding is, again, the way that 
these cost-based contracts work is that the contractor is 
reimbursed for the direct cost, as well as an overhead 
allocation, so it is full absorption costing, which can affect 
their profitability, I might add, by being able to allocate 
part of your overhead expenses to the contract. Second, they 
receive a base fee, which is supposed to be based upon the 
estimated cost of the contract in order to provide some control 
and prevent abuse. Unfortunately, those haven't been defined 
fully yet. And, furthermore, they can receive an award fee of 
anywhere from zero up to a stated percent based upon actual 
performance based upon the individual facts and circumstances. 
And, again, those are supposed to be based upon the estimated 
cost, not the actual cost, in order to provide some type of 
checks and balances against potential abuse.
    And I might also add that all costs that are reimbursed are 
supposed to be ``reasonable costs,'' and, therefore, there is 
supposed to be not only a review by the contractor, but a 
review by DCMA and others to try to ascertain that in fact they 
are reasonable costs, because we shouldn't be paying somebody 
for something that is not reasonable or necessary.
    Mr. Waxman. Well, let me ask you, in conclusion on my 
questioning, about oversight and training. Army material 
command has a LOGCAP support unit to advise military commanders 
on how to use the contract. Is it true that reservists who had 
never heard of the LOGCAP contracts were given only a 2-week 
training course before being sent to the Middle East to provide 
contracting advice to commanders?
    Mr. Curtin. Yes, sir, I can comment on that. The initial 
team that went over at the time of the conflict was actually a 
well trained unit that does that type of operation. But when 
replacements came through a few months into the occupation 
period, those troops were the ones that had not had the 
experience and had just the 2-week orientation type training. 
So what you saw was a real thin layer of oversight capability 
there; once the first unit was gone, you lost your capability.
    Mr. Waxman. Well, were these reservists expected to prepare 
independent government cost estimates so that the Army would 
have its own numbers to compare to Halliburton's?
    Mr. Curtin. That is one of the functions they perform, yes.
    Mr. Waxman. Shouldn't experienced contracting specialists 
be preparing these estimates?
    Mr. Curtin. It is clearly better for the Government if they 
are experienced.
    Mr. Waxman. You also found that the Army approved a 6-month 
contract renewal worth $587 million in just 10 minutes and 
based this decision on just six pages of documentation. Is that 
correct?
    Mr. Curtin. Yes, sir. That was a meeting that my staff 
actually attended in Kuwait. In the press of business, the time 
available, the documentation was very thin and the time was 
limited; the committee was going through very different 
proposals, and they literally approved it in about 10 minutes.
    Mr. Waxman. Well, Mr. Walker, your testimony helps put a 
lot of what we have learned in perspective, because individual 
Halliburton employees have described anecdotes of egregious 
waste, fraud, and abuse. The Pentagon auditors are going to 
testify today, and they are going to tell us about systemic 
problems with how Halliburton kept its books and submitted its 
bills. But you have looked at the big picture and tried to 
assess whether the administration has the management and 
training in place to oversee Halliburton's contracts and 
control costs, and what you are telling us is that we have a 
serious problem. Essentially, Halliburton was given a blank 
check by this administration and has run up enormous costs at 
taxpayers' expense.
    I thank you very much for your testimony.
    Chairman Tom Davis. Thank you, Mr. Waxman.
    DOD has been on your watch list since 1992, is that 
correct?
    Mr. Walker. Contract management at DOD, correct, has been 
on our high risk list since 1992.
    Chairman Tom Davis. I think that is important to point out. 
There has been a longstanding issue.
    In terms of the flat tires and dumping the trucks, do you 
know what the military rules are on a convoy if there is a flat 
tire; do you know if they stop and change a tire there in the 
middle of a convoy, opening it up to an attack, or if the rules 
are to keep moving? Do you have any idea of that or should we 
ask the next panel?
    Mr. Walker. I think you should ask the next panel. I would 
imagine it would depend upon the security and environmental 
circumstances.
    Chairman Tom Davis. So there may be some satisfactory 
explanations why you abandon a truck when you have a large 
convoy of people coming, as opposed to sitting there and 
changing it and then opening yourself up to an attack. We will 
get that on the next panel.
    Did you find, in your review of this, and I think it is one 
of the largest reviews you have done, isn't it, of a contract?
    Mr. Walker. To date. We have many others underway.
    Chairman Tom Davis. Did you find any evidence of fraud or 
abuse on the part of the LOGCAP contractor in Iraq?
    Mr. Walker. We have not tried to ascertain whether or not 
fraud was involved, because fraud involves willful intent. Let 
us just say that there are serious problems, but I wouldn't go 
to that point in time. We don't have any evidence to say that 
there was willful fraud based upon the work that we have done 
so far.
    Chairman Tom Davis. Now, as I understand the way the 
contracting works in these areas, the contractor would get 
reimbursed only for reasonable, allocable, and allowable costs. 
And what so often happens in contracts, contractors will submit 
costs for reimbursement, but we have a catch-all system through 
the Defense Contract Audit Agency that will catch a lot of 
those and kick them back, is that correct, and say you are not 
getting reimbursed; you might have charged us for this, but we 
don't think it is reasonable? Did you find any evidence of DCAA 
stepping forward in this and doing their job?
    Mr. Walker. Well, there are a number of players that are on 
the field, not only the COTR and the DCMA, but also you can 
have subsequent audits by the DCAA, the Defense Contracting 
Audit Agency. Let us just say a lot of people are involved, but 
they are very stressed. There is absolutely no question that 
people are being asked to do a tremendous amount; they are 
trying to do the best they can with the resources and training 
that they have. But, frankly, the ratios we are talking about 
here, the volume is much greater, for example, than what was 
happening in the Balkans, and yet the number of people actively 
engaged on a ratio basis is much less. So I think there is 
clearly a challenge there.
    Neal, anything you want to add?
    Mr. Curtin. No, the same thing. It is an interesting 
comparison. We were trying to get a handle in this work on what 
would be the right number of people to have in these oversight 
positions for this type of situation, and there really is no 
criteria for it; it is a judgment by the agencies as to how 
much they can afford based on all their other priorities. And 
you mentioned the Balkans comparison. The size of the contract 
in Iraq is about 15 times larger than what it was in the 
Balkans, but DCMA has only----
    Chairman Tom Davis. And the casualty was much higher than 
that. The casualty rate much higher than it was in the Balkans 
on a percentage basis.
    Mr. Curtin. Absolutely.
    Chairman Tom Davis. Which obviously, under those kind of 
stresses, you would expect to see more mistakes, wouldn't you, 
and people trying to get the job done, and costs probably 
wouldn't be the same kind of factors if you are sitting behind 
a desk?
    Mr. Curtin. Yes, sir.
    Mr. Walker. It is a much more difficult environment, there 
is no question about that.
    Chairman Tom Davis. So you would expect mistakes to be made 
in order to accomplish the mission as a practical matter, 
wouldn't you?
    Mr. Walker. I would expect that mistakes would be made, but 
I also would expect that some of the checks and balances would 
hopefully correct some of those.
    Chairman Tom Davis. Well, that is right. And that is why we 
have you and that is why you have DCAA and you have your 
contracting officers' technical representative and people. 
Before the bills are actually paid, this goes through a lot of 
review, and we are part of that review process. But when you 
are out there in the battlefield trying to feed and clothe 
troops and the like, I think, as we found with the gasoline, 
the first thing you need to do is accomplish the mission. But 
along the way sometimes cost is the first casualty.
    Mr. Curtin. And it is interesting, too, because we have 
done work in the Balkans for a number of years, and what we 
have seen is a progression there. In the early years in Bosnia, 
it was a dangerous security situation and you saw some of the 
same problems. And we made a lot of recommendations back at the 
end of 2000 that have been taken to heart, and the Balkans 
contract, a similar type of logistic support contract, is 
actually working pretty well now; with a lot of oversight they 
have made a lot of improvements. We are right back where we 
were in the early days of the Balkans now in Iraq and Kuwait.
    Chairman Tom Davis. Considering all the circumstances here, 
how do you view the overall performance of DOD and the other 
agencies involved?
    Mr. Walker. I wouldn't want to give them a grade. I would 
say this, Mr. Chairman, that planning is a serious problem; 
that oversight is a serious problem; that as has been the case 
for many years, contract management is a high risk area; as has 
been the case for many decades, DOD is an A+ on fighting and 
winning armed conflicts, but they are a D on economy, 
efficiency, transparency, and accountability. And I think one 
of the problems that we have here is for any system to work, 
including this type of system, you have to have incentives for 
people to do the right thing, adequate transparency to try to 
hopefully assure they do, and accountability if they don't. And 
I think it is particularly an acute problem when you are 
dealing with cost-based contracts, and I think we need to learn 
more of the lessons from the past and apply them more 
rigorously, those lessons learned, and I hope that they will do 
that.
    Chairman Tom Davis. Particularly regarding the challenges 
with the LOGCAP contract in Iraq, do you have any assessment of 
whether the customers of LOGCAP, how they view the performance 
of the contractor?
    Mr. Walker. My understanding, and I would ask for Neal to 
jump in, is that most of the customers are satisfied, because 
most of the customers are looking from the standpoint of are 
they getting their services in a timely and acceptable manner.
    Chairman Tom Davis. Which is the most important factor, 
isn't it?
    Mr. Walker. Well, it is clearly a critical important 
factor, but I do think cost is important.
    Chairman Tom Davis. Well, I didn't say. I am just saying 
first of all you have to accomplish the mission, and at least 
in that sense this was fulfilled. We can argue about costs, and 
that is what we are here to go over, and hopefully we have 
enough checks and balances in the system that we will look that 
over, and a contractor who ignores that, it will be to their 
detriment.
    Mr. Walker. In the final analysis, Mr. Chairman, as you 
know, we face significant deficits, and to the extent that 
there is any waste, there is an opportunity cost associated 
with that.
    Chairman Tom Davis. You stated, in connection with the task 
order that was issued under the LOGCAP contract to KBR for the 
planning efforts for the Iraqi oil infrastructure mission, that 
it was beyond the scope of the contract. I notice that in 
commenting on your report, that DOD does not agree with your 
conclusion on that. Given this disagreement, would you consider 
is it unusual or at all alarming that lawyers within DOD 
wouldn't agree with you on this issue, or is this commonplace, 
auditors versus lawyers on these kind of issues?
    Mr. Walker. My understanding is they agree with us on one 
issue and that there is a disagreement within the Department on 
another. The issue that they agree with us on is that the type 
of services that ultimately would have been provided under the 
all infrastructure program were not covered under the LOGCAP 
contract. So they agree with us on that. Where there is a 
disagreement, and I understand there is a difference of opinion 
within the Department of Defense, as to whether or not you 
could allow for planning under this contract that wasn't 
otherwise coverable by the LOGCAP contract itself. And in our 
view, we believe that you should not, that it was only 
anticipated that you would be able to provide for planning for 
services that could and would be rendered under the normal 
LOGCAP contract, and there is general agreement that these 
types of services would not be rendered under LOGCAP contract.
    Is that correct, Bill?
    Mr. Woods. Can I jump in on that?
    Mr. Curtin. Sure.
    Mr. Woods. There was a disagreement within the Department, 
and as we point out in our report, these are issues of contract 
administration, these are issues of judgment, and these are 
issues where reasonable people can look at the same set of 
facts and come to different conclusions.
    Chairman Tom Davis. As we see up here as well.
    All right. Well, thank you very much. We have a vote on. 
What I will do is dismiss this panel and we will move to the 
second panel when we return here in about a half an hour. So I 
will recess right now.
    Mr. Waxman. Mr. Chairman, let me just ask if they can wait 
around. I know we want to get on, but other Members may have 
questions. I just want to protect their rights.
    So if you would wait here until we come back.
    Chairman Tom Davis. Well, we will try to move as quickly as 
we can though if anybody comes back, we will talk on the floor; 
if not, I will move the next panel.
    Mr. Walker. Thank you, Mr. Chairman.
    [Recess.]
    Chairman Tom Davis. There's been a coup, and I am going to 
start. We are back in session. I think Mr. Waxman had the 
floor.
    Mr. Davis, I am going to recognize you for 5 minutes, and 
then I will take some time.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Mr. Walker, how are you?
    Mr. Walker. Well. Thank you, Mr. Davis.
    Mr. Davis of Illinois. Good.
    GAO examined Halliburton's task order to prepare 
contingency plans for Iraq's oil infrastructure and 
Halliburton's sole source contract to implement those plans, 
and that is what I would like to talk about for a moment. It is 
my understanding that usually the military develops a 
requirement, and that requirement is turned over to Career 
Procurement Office, who figure out how to meet the need. Career 
civil servants than award a contract or issue a task order, 
preferably after competition. A key responsibility of the 
career procurement officials is to determine who should get the 
contract.
    Mr. Walker, is that your understanding, that it is 
generally career civil servants, and not political appointees, 
that decide who gets a contract?
    Mr. Walker. That is my understanding. That is correct. The 
responsibility for awarding contracts and running the 
procurement process is typically done by career civil servants.
    Mr. Davis of Illinois. Then if that is the case, it appears 
to me that very different procedures were used to award 
Halliburton's contingency plan and task order. Michael Mobbs, a 
special advisor to Under Secretary of Defense Douglas Fife, 
recently revealed that he made the decision to choose 
Halliburton. He selected Halliburton based on informal contacts 
with Government officials and retired corporate executives.
    Do you think it is unusual for political appointees to 
select a contractor purely on the basis of informal 
conversations with Government officials and formal corporate 
executives, if that was the case?
    Mr. Walker. If that was the case, it would be unusual, if 
that was the case.
    Mr. Davis of Illinois. Isn't the normal practice to have 
career procurement officials decide which company receives a 
task order or contract?
    Mr. Walker. My understanding is that is the normal course. 
As we said, typically, contracts are awarded by career civil 
servants.
    Mr. Davis of Illinois. It is also my understanding that the 
White House usually stays out of procurement decisions and is 
not given the opportunity to influence those decisions. Is that 
the understanding?
    Mr. Walker. That is also correct, sir.
    Mr. Davis of Illinois. The administration certainly has 
claimed that there were absolutely no contacts between the Vice 
President's office and the officials who awarded the contracts 
to Halliburton; however, this appears to be inaccurate. 
According to Mr. Mobbs, in October 2003, he presented his 
conclusion that Halliburton should be awarded the task order to 
the Deputy's Committee, a group of senior level Government 
officials that included Scooter Libby, the Vice President's 
chief of staff, in order to give them an opportunity to veto 
his plan on political grounds.
    Do you think it is unusual for Defense Department officials 
to give political appointees an opportunity to veto procurement 
decisions on the basis of political sensitivity?
    Mr. Woods. Can I? Do you mind?
    We have not spoken with Mr. Mobbs in connection with the 
description of events that you just outlined. We did come 
across, in the course of our review, a classified memorandum 
for the record that was authored by Mr. Mobbs that outlined the 
rationale that went into the selection, the course of events 
that they decided to take in regard to the contingency task 
order. That memorandum, for the record, recognized, and we 
reported in our recently released report, that once they made 
the decision to go with a particular contractor for the 
contingency planning task order, that would pretty much decide 
who would eventually get the larger contract to actually 
execute the contingency plan.
    Mr. Davis of Illinois. I guess the bottom line question 
then becomes are there instances where political sensitivities 
are deemed appropriate when making a selection or a decision, 
even though this might be outside the normal range or the 
normal process that is used?
    Mr. Walker. I think the bottom line is that when you are 
making contacting decisions, they should not be made for 
political reasons. And we don't have any reason to believe that 
was the case here. I think it is important to understand that 
it depends upon the timing and the nature of the 
communications. There could be communications, but were those 
communications FYI in anticipation of the fact that there could 
be significant press interest and activity as a result of the 
decisions, or was it more than FYI? And that is the key; what 
were the nature and extent of the communications. Merely that 
there were communications doesn't necessarily mean there is a 
problem, per se.
    Chairman Tom Davis. Thank you. The gentleman's time has 
expired.
    I would just note that sometimes congressional offices are 
notified of contracts before they are announced. We have no say 
in who gets this contract, but we are given a heads up if it is 
a contractor in our district. And that has been fairly routine 
since before I came here.
    Let me just ask a question before I give Mr. Souder his 5 
minutes.
    Is there any evidence that the White House played any role 
in this decision?
    Mr. Walker. We have not tried to conduct an investigation 
as to whether or to what extent.
    Chairman Tom Davis. You didn't find any evidence that they 
did, did you?
    Mr. Walker. No. And that was beyond the scope of what we 
tried to do.
    Chairman Tom Davis. But you didn't undercover anything, in 
the course of talking to anyone, that would have indicated 
that?
    Mr. Walker. We have come across the document that Bill 
mentioned. We have come across one email, but, again, the 
nature of the documents that we have come across are more from 
the standpoint of FYI, this is going to happen.
    Mr. Woods. That is correct.
    Chairman Tom Davis. You didn't see anything in the 
documents, and I think it is the same documents that Mr. Davis 
had, that indicated do you approve of this or anything like 
that, it was more this is what is happening?
    Mr. Woods. That is correct, sir.
    Chairman Tom Davis. Thank you very much.
    Mr. Souder, you are recognized for 5 minutes.
    Mr. Souder. Thank you. And I wanted to basically make some 
opening comments that we weren't able to do at the beginning, 
through the chairman's agreement, and also respond to a couple 
of things that have occurred, as somebody who has been a member 
of this committee for some time.
    One, I wanted to reiterate what Chairman Davis said about 
mission first. And certainly at the beginning of a mission and 
when the danger is greatest, the mission is especially first, 
and cost second. I thought that the statement from Mr. Curtin 
about the Balkans was very informative. In other words, they 
saw the same problems in the earliest stages when there was the 
greatest danger to the troops, and then you come in and you try 
to clean it up as best as possible. But when you are pushing 
for security and speed, that you have a slightly different goal 
at the beginning of a battle than you do at the end.
    I also want to share my frustration with the 
administration's lack of general responsiveness to documents to 
this committee. I think every subcommittee chairman has been 
frustrated with this administration and the lack of 
responsiveness, and you can see that today. On the other hand, 
we are not doing fishing expeditions; we are not doing 
political control. We are actually an oversight committee that 
is trying to get that information. And I agree with the 
statement of Mr. Walker that the Defense Department has had 
this problem--I was elected in 1994--certainly since 1994. When 
I was vice chair of the subcommittee that had defense and 
narcotics together with it, when now Speaker Hastert was 
chairman of that, we had tremendous problems in Defense 
Logistics Agency trying to get any kind of accounting out of 
the Defense Department because of the national security 
reasons. They seem to think more that they are exempt to some 
of the oversight.
    On the other hand, we have to allow, particularly when they 
are in a shooting war and when the contractors have now gotten 
involved in a shooting war themselves. I think it is fairly 
safe to say that when we hear a hotel example, you know, the 
troops, with all due respect, and I have had several killed 
from my district and I have hundreds and thousands there now 
from Indiana and from my area of Indiana. They at least have 
some armored Hummers; they have some defense weapons. We are 
sending contractors who now are in effect, there is no front 
line to this war. They are getting beheaded, for crying out 
loud. You know, they may not be able to stay in a secure place 
except in Kuwait. They may not be able to stand there by their 
vehicle if it brakes down, because they don't want to be 
beheaded. Their families don't want them to go in the first 
place. I have people who work not for Halliburton, that I know 
of, but for other contractors over there, and their families 
don't want them there.
    Yet, what we hear out of the other side is speed, speed, 
speed. Why is it taking so long to rebuild Iraq? How come this 
is taking so long? Why do you have to do this? And then the 
second you say, OK, we are going to do speed, they go, oh, 
cost, cost, cost. Now, you can't have it both ways. You can't 
have our contractors out there taking their lives at stake with 
no protection, or minimal protection, not knowing where they 
are going to get hit, and then expect them to behave like they 
are working in some kind of safe environment in Indiana; it is 
a different type of thing.
    Now, one other frustration I have here, and I realize that 
these hearings are partisan in nature to some degree. No matter 
who the administration is, the other party has to do that. I 
have tremendous respect for the ranking member of this 
subcommittee; I think he is a man of high integrity and he 
works aggressively to make sure we hold the administration 
accountable. But I sat here under 6 years of the Clinton 
administration, when there were people not in danger, when we 
were looking at travel office budgets with hundreds of emails 
going out to Members of Congress and to other people talking 
about how contracts were given and how they weren't given. And 
what we saw mostly out of the other side was a tremendous 
defense of that. Here, we are not talking about any known cases 
other than what it looks like is tremendous sloppiness, lack of 
preplanning. And, by the way, on preplanning, in reading Bob 
Woodward's near--the closest thing we have to tapes in the Oval 
Office anymore are Bob Woodward's books. When you go through 
his books and listen to that, maybe, just maybe the 
administration, while the war plan was there, didn't have 
enough preplanning for some of the followup because they didn't 
expect that they were necessarily going to have to put the 
boots on the ground; they were hoping for another solution. 
And, by the way, we were probably going to be called in on the 
oil even if we didn't send the troops in, because had they been 
U.N. troops, had they been NATO troops, had they even been the 
Iraqis themselves overthrowing Saddam Hussein, the oil, as an 
amendment was offered in this Congress by a Democratic Member 
of this Congress, supported by the entire other side said, we 
have to have that oil revenue to support that country. So 
regardless, whether we had preplanning for boots on the ground 
and how we were going to do MREs and what kind of tents we were 
going to have, we had to protect the oil because probably these 
firms were going to be called in no matter who the government 
of Iraq was, no matter who the troops were going to be.
    Yes, there should have been more preplanning. Yes, it is 
terrible how they over-billed for MREs, and that is why you all 
are there to try to do it. And we need to get the documents and 
we need to hold them accountable. But I find it appalling to 
have this turned into some kind of a political show, where the 
administration is fingered for things, without talking about 
what is actually happening to the contractors on the ground, 
the pressures they are under that we have not seen anywhere. I 
have never heard of contractors being beheaded on television, 
of the dangers that they are exposed to right now. And then to 
kind of be ``two penny ante'' about this when they are under 
that kind of pressure is a disgrace.
    Chairman Tom Davis. The gentleman's time has expired. Thank 
you very much.
    Mr. Walker. Mr. Chairman, could I mention something 
quickly?
    Chairman Tom Davis. Yes, Mr. Walker.
    Mr. Walker. First, I agree with you, Mr. Souder, that 
mission first. Costs do matter, however, especially as time 
moves on. But I think, like most things in life, we need to 
look at value and risk, and we have to recognize that many of 
the services being provided here, the nature of the services 
vary, the timing of the services vary, and the location of the 
services vary. I have been in Iraq; I have been in Kuwait. The 
situation is very different in Kuwait than it is Iraq. And so I 
think we have to apply the facts and circumstances, because you 
get different conclusions based upon applying those facts and 
circumstances based on these factors.
    Thank you.
    Chairman Tom Davis. Mr. Shays.
    Mr. Shays. Thank you very--I think you need to go----
    Chairman Tom Davis. No, we had 15 minutes on my side, and I 
broke for the recess. I was going to let you finish and then we 
will move over here.
    Mr. Shays. Thank you.
    Mr. Walker, when you first came in there was a lot of 
controversy as you tried to straighten out your office and get 
it aligned in a way that you thought would be more effective, 
and I noticed you stopped getting criticism when you started 
wearing that pin with the flag and the Marine on it on your 
lapel, which reminds me of what Newt Gingrich told me. He said 
periodically he would take issue with what the Marines were 
doing, and he always lost in the battles on the floor of the 
House. So he just tried to figure out what they wanted and then 
he championed them.
    So in that spirit I would like to know, first, would you 
summarize the biggest criticism or two you have with the 
procurement process, and would you please summarize your 
biggest commendation or two with the procurement process?
    Mr. Walker. Well, I guess I would say that in the context 
of the subject that we are dealing with today, inadequate 
planning and inadequate oversight. I would also say that you 
have to recognize that there are examples included in our 
testimony where various parties have done their job well and 
where they have defined the appropriate scope of the services, 
where they have nailed down an estimated cost, and where 
everybody has done their job well, and where they periodically 
reviewed the contract to determine whether or not the nature 
and scope of the services should be revised and whether or not 
the costs are reasonable. One example I would give you is the 
Balkans to give you one example of where the system worked 
well, where there was a review that resulted in significant 
savings to the taxpayers and yet the needed services were 
provided to the troops.
    So I would say planning and oversight are the biggest areas 
of challenge, but I think we also have to recognize that while 
we have certain broad-based problems, there are examples of 
people doing their job well, and those should not go unnoticed.
    Mr. Shays. So is that your only response, is your biggest 
saying, job well done? What is the thing that we did best when 
it came to procurement? You've told me what we have done worst.
    Mr. Walker. In this particular context or overall?
    Mr. Shays. Yes. In the context of Iraq.
    Mr. Walker. Bill.
    Mr. Woods. I would say that we demonstrated that we 
collectively, as a Government, demonstrated that the procedures 
that we have in place, the laws that the Congress has put in 
place are flexible enough to be able to accommodate contracting 
under very, very difficult circumstances. In 14 of the new 
contracts that we looked at, they were all awarded either on a 
non-competitive or limited competition basis, but by and large 
they were all done in accordance with the way the laws require 
them to be made.
    Mr. Walker. And I would say the ability to act 
expeditiously when the circumstances required.
    Mr. Shays. No matter what administration is in power, no 
matter what Congress is in power, this system has to act 
quickly, and what I am hearing you say is, for the most part, 
the job was done well. There is really a question of was it bid 
in the case where it could have been and was there 
overcharging, and I am struck by the fact that the system 
worked well in catching the overcharging. Do you have fear that 
there is a lot of overpayment that we are not being made aware 
of; that we have just scratched the surface?
    Mr. Walker. There are a lot of players on the field, Mr. 
Shays, a lot of inspector generals, DCMA obviously is involved, 
DCA is involved, as well as ourself. I think we are in the 
early stages of understanding the nature and extent of the 
challenge here. And as I mentioned before, contract management 
has been on the high risk for many years. I think the risks are 
particularly acute when you are dealing with a situation of 
urgency and when you are dealing with a cost-based contracting 
arrangement.
    Mr. Shays. So you are basically testifying that you are 
concerned there could be a number of instances where we paid 
more than we should have had to have paid. That is kind of what 
you are suggesting.
    Mr. Walker. That is correct. And I think there are two 
dimensions of that. One dimension is were the services needed, 
because in the absence of nailing down the requirements and the 
specifications as to the services, in the absence of coming up 
with what a reasonable estimate of cost would be for that, you 
don't have an effective control mechanism. And there is a 
shared responsibility for that, and the Government has a 
responsibility for not having done that.
    Mr. Shays. My time is running out and I just want to say, 
particularly to the point of Mr. Souder, I have been to Iraq 
five times, and usually we come in from Kuwait or Amman, 
Jordan, and I am in interaction with these consultants, these 
contractors, and they are very brave people. They are outside 
the umbrella of the military, in the communities in many cases, 
and they may have some security, but they are not in the green 
zone, they are out in the red zone doing their jobs, and I 
think we all know that.
    Chairman Tom Davis. The gentleman's time has expired.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    Mr. Walker, five former Halliburton employees recently came 
forward with firsthand knowledge of waste, fraud, and abuse 
under Halliburton's LOGCAP global logistics contract with the 
Army. For instance, a former Halliburton convoy commander and a 
former truck driver explained that brand new $85,000 
Halliburton trucks were abandoned or torched if they got a flat 
tire or experienced minor mechanical problems because 
Halliburton removed spare tires from trucks and performed no 
maintenance.
    If these accounts are accurate, don't they indicate a 
serious lack of cost control under the LOGCAP contract in Iraq?
    Mr. Walker. I think it is appropriate that somebody review 
and investigate the actual facts and circumstances here, and I 
understand that this committee is going to hold an oversight 
hearing as well to look further into some of these specific 
assertions.
    Mr. Clay. Let me ask you about a former Halliburton labor 
foreman, who said that Halliburton exercised virtually no 
supervision over a Jordanian subcontractor that was building a 
dining facility in Fallujah. He said that he would go to the 
site and take a few pictures each day, but that no one else was 
doing any supervision at all.
    Doesn't this lack of subcontract oversight leave the 
taxpayer vulnerable to overpricing and doesn't it increase the 
chances that our troops will be left with inadequate 
facilities?
    Mr. Walker. Obviously, that is a matter of concern as well 
that should be reviewed.
    Bill, did you want to add something?
    Mr. Woods. I don't think we are in a position to speak to 
the specific allegations, but I think the subsequent hearing 
that the panel plans to hold will provide an opportunity to get 
into that.
    Mr. Clay. OK, well, another example. Former employee of the 
subcontracts department in Kuwait revealed that employees were 
instructed to pay subcontractor invoices and to extend 
subcontracts without evaluating whether prices were reasonable 
and without verifying that services and equipment were actually 
being delivered. She also said that Halliburtonsite managers 
were denied access to the subcontract documents they needed to 
provide proper oversight of the subcontractor.
    If this account is true, Halliburton isn't considering 
appropriate subcontractor management in Kuwait, is it? Are they 
considering proper management of subcontractors in Kuwait?
    Mr. Walker. You are getting to a level of detail, Mr. Clay, 
that was beyond the scope of the work that we did, and I think 
it is important to note that we tried to deal at the high 
level, as Mr. Waxman talked about, looking at overall contract 
award for new contracts, for task orders, also for the global 
logistical contracts. There are other players that are looking 
at a much greater level of detail and the type of issues that 
you are dealing with, some of the other inspector generals, 
than we are.
    Mr. Clay. Well, Mr. Walker, these are serious allegations 
that we have discussed and just some of the revelations the 
former employees were willing to share with the committee 
today. Despite the fact that these individuals were stationed 
in different locations in Iraq and Kuwait, and worked in 
different departments, their independent accounts all portray 
Halliburton as a company with a near total disregard for costs 
and poor or nonexistent subcontract management and oversight, 
and I think these claims should be fully investigated. You had 
something to do with awarding the contract. Did you have 
something to do with awarding?
    Mr. Walker. With awarding these contracts? No. That would 
be a separation of powers problem. No.
    Mr. Clay. Well, but you have a responsibility to oversee 
them, don't you?
    Mr. Walker. Well, there are a lot of people that have a 
responsibility. I mean, obviously there is a contracting----
    Mr. Clay. You are not shirking your responsibility, are 
you?
    Mr. Walker. Oh, no.
    Mr. Clay. OK.
    Mr. Walker. Keep in mind, Mr. Clay, we work for the 
Congress, and we are part of the oversight mechanism to try to 
help get facts for the Congress to be able to do its job. So we 
have no management responsibilities here. We don't have any 
responsibility for awarding the contracts; we don't have any 
responsibility for managing the contracts; we don't have any 
responsibility for reporting on the contracts.
    Mr. Clay. Well, wait a minute. When you hear these 
allegations, does a red flag come up?
    Mr. Walker. Absolutely. And one of the things that I have 
asked my colleagues with regard to some of these issues is who 
is following up on these types of issues. I think that is a 
relevant question. Because as I mentioned before, there are a 
lot of players on the field. You know, we have the CPAIG, we 
have the DOD and Army IG, we have the State IG, we have the 
AIDIG. There are a lot of players on the field, and so I want 
to make sure we are not bumping into each other.
    Mr. Clay. What has been DOD's response?
    Mr. Walker. Mr. Clay, I would respectfully suggest you 
ought to ask DOD what their response is.
    Mr. Clay. Well, they will be next.
    Mr. Walker. They are going to be next; they are up next.
    Mr. Clay. What has been their response to you?
    Chairman Tom Davis. The gentleman's time has expired. You 
will get a chance to ask DOD in the next panel.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    I would like to followup on some of the questions that Mr. 
Davis of Illinois raised, because we heard statements from the 
administration early on that with respect to the Halliburton 
contracts, that contract was chosen by civil servant, as 
opposed to political appointees, and my understanding is some 
recent information has come to light that suggests that is not 
the case.
    What is your understanding with respect to Michael Mobbs' 
involvement in selecting Halliburton for the purpose of the 
task order?
    Mr. Woods. If I could take that one. We did come across a 
memorandum for the record authored by Mr. Mobbs, and it was a 
memorandum that brought together some of the discussions that 
were held by a group called the Energy Infrastructure Planning 
Group. I do not know all of the members of that group, but I do 
believe that some of them were contracting professionals of the 
type that would award contracts. But there were other people in 
that group who represented customers, if you will, program 
officials and people that were familiar with the requirements 
process. And it was the job of that group to define what the 
requirements were and to devise a strategy for addressing those 
requirements.
    Mr. Van Hollen. Do you know was it a group decision with 
respect to awarding the task order contract, or was that an 
individual decision? Do you know? Do you have any information 
that would cast light on that question?
    Mr. Woods. I do not know, sir.
    Mr. Van Hollen. You do not know.
    Based on your experience in Government contracting, is the 
normal practice to allow the civilians, the nonpolitical 
individuals with the department to make the final decisions 
with respect to contract awards?
    Mr. Woods. Well, the selection decisions are certainly made 
by the career professionals, and they run the procurement 
system. But that is not done without close coordination with 
the people that draft the requirements, and those can be people 
at any level of the organization.
    Mr. Walker. But the final decision is typically made by 
career officials.
    Mr. Van Hollen. And do you know for certain, in this case, 
whether the final decision was made by career officials or 
whether it was made by somebody else?
    Mr. Woods. No, I do not know, sir.
    Mr. Van Hollen. The document that you mentioned, does the 
committee have that document, do we know?
    Mr. Woods. I do not know if the committee has that. At the 
time that we were doing our work, that document was classified, 
and it is my understanding that document is still classified.
    Mr. Van Hollen. All right. My understanding is there are a 
number of documents that the committee has requested that GAO 
has, is that right? Not that we have requested of GAO; that the 
committee has requested of the administration.
    Mr. Walker. I don't know that to be the case. As you know, 
generally the information that we have is restricted until we 
end up issuing the related report. I would be happy to have a 
conversation with the appropriate players on the committee as 
to whether or not that is the case.
    Mr. Van Hollen. OK. Because I have been told by our staff 
that is the case.
    Mr. Waxman. Would the gentleman yield? This is a document 
that we have requested and we want to get, and we hope that we 
can work with the chairman to obtain that document.
    Mr. Van Hollen. My point, I guess, is it has been requested 
from the administration by at least some members of the 
committee, and I guess GAO has a copy; we don't. But that is 
one of the documents.
    Chairman Tom Davis. Is it your understanding, Mr. Waxman, 
if I may, that we have a document that the committee is 
seeking? Is that your understanding?
    Mr. Waxman. I think that is the case, yes.
    Chairman Tom Davis. Well, I think we should have a 
discussion with our staff. Part of the issue is whether or not 
we have already completed our work and issued our report in 
accordance with our protocol. So I think we should have a 
separate conversation.
    Mr. Van Hollen. If I could ask, Mr. Chairman, just with 
respect to the issue of the oversight of some of these 
contracts and what the practice is with respect to contracting 
out the oversight process. Ranking Member Mr. Waxman raised 
some examples in his opening statement where Parsons was hired, 
I believe, to oversee some of the business that was being done 
in Kazakhstan and other places by one of its business partners.
    My question to you is do you believe that is appropriate, 
to contract out the oversight process to someone who has a 
business relationship with an entity that they are providing 
the oversight of? And are you aware of these examples that were 
raised?
    Mr. Walker. I am not aware of this example. I would say I 
think looking at independence issues and business relationships 
is a factor that should be considered in determining whether 
and to what extent you should award a contract. Now, obviously 
it depends upon what the nature of that business relationship 
is, the materiality of that business relationship, etc.
    And I guess I would ask Bill if you have anything to add.
    Mr. Woods. Well, fundamentally it is the Government's 
responsibility to administer and oversee contracts, and the 
Government cannot and should not walk away from that 
responsibility. That is not to say that they, from time to 
time, should not seek the assistance of contractors. They may 
have particular expertise in certain areas that may be of 
assistance to the Government in carrying out that 
responsibility, but when they do that, they need to make sure 
that the proper controls are in place and that they are 
particularly vigilant in guiding against potential conflicts.
    Chairman Tom Davis. The gentleman's time has expired.
    Mr. Van Hollen. All right. Thank you, Mr. Chairman.
    Chairman Tom Davis. Ms. McCollum can yield to you if you 
have a followup.
    Gentlelady from Minnesota, welcome to the committee. You 
are recognized for 5 minutes.
    Ms. McCollum. Thank you, Mr. Chairman. Thank you for the 
time.
    Chairman Tom Davis. She can yield to you if you would like.
    Ms. McCollum. I find it rather curious that in the press it 
reports, in several news articles, that there was an Army 
lawyer who was very concerned about the way that these 
contracts were being let; made a statement, in fact, that the 
contracts should be held differently, that they should not be 
awarded the way that they were to Halliburton. Did you come 
across any of this? I find it in CBS News and other places on 
the Internet. Did you come across that at all?
    Mr. Walker. My understanding--and I would ask for Bill to 
followup--is that we did ascertain as a result of our review 
that there were certain differences of opinion within the 
Department of Defense and, in fact, within the Army General 
Counsel's Office as to whether or not it was appropriate to 
issue a contract dealing with the planning for the oil services 
and the oil reconstruction, and that there were differences of 
opinion that exist within the Office of General Counsel of the 
Army as well as within the Department as a whole, but that 
ultimately the General Counsel of the Department of the Defense 
made the decision that he did feel that it was legal.
    Ms. McCollum. Is the general counsel for the Department of 
Defense--I am new to the committee--are they civilian or are 
they career military? That individual who made the decision to 
override, are they a political appointee or are they career 
military?
    Mr. Woods. I believe that the Department of Defense senior-
most counsel is a political appointee, but these were made----
    Ms. McCollum. So a political appointee.
    Mr. Woods. No, no. These were made--the memo that we saw 
was made by a career person in the Department of Defense 
General Counsel's Office. This was a career individual who 
ultimately decided that, yes, this contingency planning task 
order was within the scope of the LOGCAP contract, and that----
    Ms. McCollum. After discussions with the political 
appointee, it sounds like.
    Chairman Tom Davis. I just want to clarify this for the 
record, since we're all under oath. So, Bill, just to confirm, 
there was a difference of opinion between the counsel for the 
Army and for the Office of the General Counsel for Secretary of 
Defense, but you are saying the documentation we have does not 
deal with the general counsel, it deals at a career level where 
the decision was made?
    Mr. Woods. That is correct. It was not the general counsel 
for the Department of Defense.
    Chairman Tom Davis. All right. That is important. I think 
it is important for you to understand that.
    Ms. McCollum. That is helpful to know.
    Mr. Waxman. Would the gentlelady yield to me?
    Ms. McCollum. Yes, I will yield.
    Mr. Waxman. But as I understand it, GAO thinks that the 
original career lawyer that thought the planning was outside 
the scope of the LOGCAP contract, and that was his position, 
and that is the one you believe is the correct decision.
    Mr. Walker. Our view is that the action that was taken was 
not in accordance with the law, and our view is consistent with 
the original Army general counsel person. At the same point in 
time I think it is also important to note that while we believe 
that it was not in accordance with the law, we also believe it 
is likely that it could have qualified for one of the 
exceptions, given the urgency and the conditions that existed. 
They didn't attempt to do that, but it is likely that they 
could have qualified for that.
    Mr. Woods. That is correct.
    Ms. McCollum. Thank you. Reclaiming my time.
    I find this urgency and state of emergency rather 
interesting, when this was a war that we chose to go into, 
where there was no urgency or emergency, imminent threat by 
Iraq to our country.
    Could you please tell me, sir, I have been kind of 
concerned about the inventory, the manifest shipping things 
that I have read not only in news articles, but in the letters 
that were provided. When you were doing your investigation, I 
know that you said you weren't charged with finding fraud and 
abuse, and once again I would want to know who is responsible 
for finding fraud and abuse. We can't have the fox watching the 
hen house and expect everything to be caught. But inventories, 
shipment, over-billings, it appears when people who worked 
either as military personnel or civilian personnel made 
questions, people who were familiar with how inventories and 
shipping receipts should be handled, they were told, oh, don't 
worry about it.
    What did you find in your investigation?
    Mr. Walker. I think the way to respond to that, 
Congressman, is the whole concept that we saw in the early 
stages of the operation there in Iraq was to get the mission 
done, and there wasn't the cost consciousness which would have 
resulted in the kinds of questions you are raising until at 
least December 2003.
    Ms. McCollum. Well, sir, I would beg to differ that this 
has something to do with cost, but it also doesn't. If I am at 
the 101st Airborne in Mosul and I have ordered protective gear 
or I have ordered food or I have ordered ammunition, I would 
certainly hope that when it comes to me, I get the amount, the 
quantity, the size of what I have ordered. And without any 
shipping manifests going along with these convoys, I find that 
pretty hard to say that our soldiers were in fact being served 
very well. In private business they are used constantly.
    Chairman Tom Davis. Thank you. The gentlelady's time has 
expired.
    Mr. Walker. I think one has to keep in mind that there is a 
difference between whether or not they got what they wanted and 
whether or not what they wanted was appropriate and acquired at 
a reasonable cost; and there are differences there.
    Chairman Tom Davis. I think the testimony was already that 
they seemed to have gotten what they wanted, that the needs of 
the client were met. The question you deal with is cost.
    Mr. Walker. With regard to things like kevlar vests and 
things of that nature, those aren't the kinds of things that we 
are talking about under this contract; those aren't the types 
of products or services that are being provided here, it is 
more like housing, it is more like food, which are obviously 
important.
    Chairman Tom Davis. Mr. Waxman and I each get a minute to 
sum up.
    Mr. Waxman.
    Mr. Waxman. Mr. Chairman, I think GAO has done a good job 
in helping us understand the issues and also in identifying 
issues I think we need to pursue. GAO has said that decisions 
about who gets contracts should be made by career people, but 
Mr. Mobb, who is a political appointee, said he made the 
decision to use Halliburton, so this is clearly an issue that 
we need to investigate. GAO said there is a difference between 
an FYI communication to the White House and a communication 
that seeks White House assent, but Mr. Mobb told us that the 
White House was briefed so that White House officials could 
object, and that is more than an FYI communication. So this is 
an other issue we need to investigate.
    I want to return to the question of whether there were 
contract irregularities in the issuance of the Halliburton 
contract. I think these are questions that we need to pursue 
not just with GAO, but with others. There is a question of this 
career lawyer who's view was overturned, that this 
bootstrapping, of giving authority under the LOGCAP contract in 
October 2002 to do the planning in fact meant that they would 
get the sole source contract the next March. So in that first 
contract, that seems to me a question of whether a career 
person's decision was made or whether that was elevated. And so 
I think we need to learn more about it, maybe have Mr. Mobb and 
others here to pursue these matters before we draw any 
conclusions about it.
    Chairman Tom Davis. Thank you.
    I gleaned something different. First of all, we need to 
remember Halliburton had LOGCAP under previous administrations 
that had been awarded. We have heard testimony that in their 
analysis they found no fraud or abuse. That wasn't what they 
were primarily looking for, but they didn't uncover that.
    We have another panel coming up that I think will be able 
to talk at length about some of the questions that maybe this 
panel wasn't charged to look at.
    And the fact that you sometimes have, not just career 
people, but that you had Schedule C or others make decisions on 
contracts is not a rarity in Government contracting, 
particularly at the higher levels as some of this goes up. This 
wasn't awarded in secret in the sense that this was secret, it 
was classified. And when you are doing classified things, 
anything that you put out in the public, the enemy knows about 
and everybody else, and you can understand why this was done in 
a classified way.
    We appreciate the insights that this has brought Mr. 
Walker, we appreciate the work that you and your group have 
done on this and look forward to working with you on others.
    I am going to dismiss the panel at this point. We will take 
a 2-minute recess as we assemble our next panel. Thank you.
    [Recess.]
    Chairman Tom Davis. We have Mr. Lawrence Lanzilotta, the 
Principle Deputy and Acting Under Secretary of Defense, 
Comptroller; Mr. William Reed, the Director of the Defense 
Contract Audit Agency, U.S. Department of Defense; we have Mrs. 
Deirdre Lee, who is the Director of the Defense Procurement and 
Acquisition Policy and worked at OFPP in the previous 
administration, here with the Department of Defense.
    I understand, Mr. Lanzilotta and Ms. Lee, you do not have 
prepared testimony, you are here for questions, is that 
correct? You are welcome to say anything.
    Tina Ballard, who has been here before, the Deputy 
Assistant Secretary of the Army; General Paul Kern, Commanding 
General, U.S. Army Materiel Command; and Brigadier General 
Robert Crear, Commander, Southwestern Division, U.S. Army Corps 
of Engineers.
    It is our policy all witnesses be sworn before your 
testimony, so if you would rise with me and raise your right 
hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much. I think everyone 
is aware of the rules. Mr. Reed, I guess we will start with 
you. Any comments?
    Mr. Lanzilotta. Mr. Chairman, if I could, I just have a 
very short opening comment.
    Chairman Tom Davis. That would be fine.

STATEMENTS OF LAWRENCE LANZILOTTA, PRINCIPLE DEPUTY AND ACTING 
 UNDER SECRETARY OF DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF 
    DEFENSE; DEIDRE LEE, DIRECTOR, DEFENSE PROCUREMENT AND 
 ACQUISITION POLICY, U.S. DEPARTMENT OF DEFENSE; TINA BALLARD, 
      DEPUTY ASSISTANT SECRETARY OF THE ARMY (POLICY AND 
 PROCUREMENT), U.S. DEPARTMENT OF DEFENSE; GENERAL PAUL KERN, 
   COMMANDING GENERAL, U.S. ARMY MATERIEL COMMAND; BRIGADIER 
 GENERAL ROBERT CREAR, COMMANDER, SOUTHWESTERN DIVISION, U.S. 
ARMY CORPS OF ENGINEERS; AND WILLIAM H. REED, DIRECTOR, DEFENSE 
       CONTRACT AUDIT AGENCY, U.S. DEPARTMENT OF DEFENSE

    Mr. Lanzilotta. Mr. Chairman, I am here to discuss the 
Department of Defense oversight of contracts related to 
military operations and reconstruction of Iraq. The Department 
of Defense gives the utmost seriousness to its oversight of 
contracts. In an environment as fast-moving and as difficult as 
Iraq has been, contracting can be extremely complex, and that 
makes oversight especially important. The Department has a 
number of strong organizations, policies, regulations to 
fulfill its contract oversight responsibility. Our task is not 
only to identify contract issues, but also to prevent future 
occurrences of problems we identify, recover any excess 
charges, and take appropriate action to protect the 
Government's interest.
    The role of the Under Secretary of Defense Comptroller in 
contracting oversight comes primarily through the Defense 
Contract Audit Agency [DCAA]. DCAA's mission is to provide all 
contract audit and financial advisory services related to DOD 
acquisition of goods and services.
    Other DOD organizations, notably the Defense Contract 
Management Agency and the DOD Inspector General, also play 
important contract oversight roles and work closely with DCAA. 
Additionally, the Under Secretary of Defense for Acquisition, 
Technology, and Logistics is responsible for contract policies 
that help ensure the Department obtains the best value when 
acquiring equipment and services, and is also responsible for 
DCMA.
    In Iraq, the Army and DCAA are strategic partners in the 
oversight of contractor performance. The Army, as executive 
agent for all the Department's reconstruction requirements in 
Iraq, is responsible for contract and program management 
activities there. DCAA, which is co-located with Army personnel 
in Baghdad, evaluates contractor proposals and performs audit 
procedures on contractor-incurred costs. In addition, DCAA 
personnel are available upon request to assist contracting 
officers on all phases of the contracting process.
    In the first 8 months of fiscal year 2004, DCAA issued 285 
audit reports related to Iraqi reconstruction contracts. Of 
these 285 reports, most have not had significant findings; 
however, the large number of these DCAA reports underscores the 
seriousness of the Department's contract oversight. The 
findings that DCAA has made has led to actions including 
changes in processes, rejection of unsupported proposal costs, 
reductions in billed costs for potential unreasonable 
expenditures, and referral of suspected irregularities to the 
DOD Inspector General for investigation.
    Contractor performance in Iraq has not been perfect, nor as 
bad as some characterize. Many contractors that have not had 
problems in performing their domestic DOD contracts have had 
difficulties in adjusting to the unique environment in Iraq. We 
are working with these contractors to help them resolve their 
problems in Iraq, but we are also taking whatever actions are 
necessary to protect the Government's financial interest.
    In regarding the Army contracting, I understand that this 
committee has expressed concern about an email from Mr. Steven 
Browning of the Army Corps of Engineers. Mr. Browning prepared 
a memo in response to your concerns, and with your permission, 
Mr. Chairman, I would like to submit it for the record.
    Chairman Tom Davis. Without objection.
    [The information referred to follows:]

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    Mr. Lanzilotta. In closing, I want to underscore that we in 
the Department of Defense are absolutely committed to an 
integrated, well managed contracting process in Iraq. We will 
not tolerate the billing of costs that are not properly 
documented or supported. If internal control systems are 
deficient, we will continue to use protections, such as 
contract withholdings, to safeguard our interest, and we will 
provide whatever personnel and budget resources are needed to 
enforce the integrity of this process.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Lanzilotta follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Reed, welcome back.
    Mr. Reed. Thank you, Mr. Chairman. Mr. Chairman, members of 
the committee, my statement for this hearing will center on the 
Defense Contract Audit Agency's oversight of contracts related 
to military operations and reconstruction in Iraq.
    DCAA has been an integral part of the oversight and 
management controls instituted by DOD to ensure integrity and 
regulatory compliance in Iraq-related contracting. DCAA's 
services include professional advice to acquisition officials 
on accounting and financial matters to assist them in the 
negotiation, award, administration, and settlement of 
contracts. It is important to note that decisionmaking 
authority on DCAA recommendations resides with contracting 
officers within the procurement organizations who work closely 
with DCAA throughout the contracting process.
    Since April 2003, DCAA has worked with all U.S. procurement 
organizations supporting Iraq reconstruction to establish the 
resources and planning information needed to carry out required 
audits of contract costs as they are incurred and billed. These 
organizations include the Coalition Provisional Authority 
[CPA], the Army Materiel Command, the Army Corps of Engineers, 
USAID, and the State Department. This coordination has enabled 
DCAA to build a universe of all Iraq-related auditable 
contracts, which is a significant step toward ensuring that 
needed audit procedures are timely and comprehensive.
    DCAA currently is responsible for providing Iraq-related 
contract audit services to both DOD and other Government 
organizations at 56 contractors holding more than 80 prime 
contracts with contract ceiling amounts of $34.6 billion and 
funding to date under these contracts of about $12.4 billion.
    To carry out the extensive and time-sensitive audit 
requirements, DCAA has implemented new planning and 
coordination procedures to effectively integrate audit work 
between the new Iraq Branch Office, opened in May 2003, and 
more than 50 DCAA CONUS Audit Offices with cognizance of 
companies performing contracts in Iraq. The Iraq Branch Office 
itself now has 22 auditors, and will increase to 28 auditors by 
the end of June.
    As has been noted, during the first 8 months of fiscal year 
2004, DCAA has issued 285 audit reports related to Iraq 
reconstruction contracts. These reports address forward pricing 
proposals, adequacy of contractor internal controls and 
business systems, as well as compliance with acquisition 
regulations and contract terms. Especially important has been 
DCAA's in-country testing of contractor timekeeping, 
subcontract management, and cash disbursement procedures which 
represent immediate risk in the provisional approval of interim 
contract payments. In the balance of my statement, I will 
present some of the more significant examples of what we have 
found in these audits, beginning with the largest contractor, 
Halliburton, Kellogg Brown & Root.
    KBR has been awarded Iraq reconstruction contracts with 
ceilings totaling more than $18 billion under two major 
programs: Logistics Civil Augmentation Program [LOGCAP] for $10 
billion, and Restore Iraqi Oil for $8.2 billion. DCAA has been 
providing continuous contract audit oversight on both programs.
    The first area I want to address is estimating practices. 
DCAA has identified significant deficiencies in KBR's 
estimating practices related to the award of subcontract costs. 
Earlier this year, after consultation with the contracting 
officer, DCAA returned two major task order proposals worth 
more than $3 billion to KBR because they were inadequate for 
the purpose of negotiating a fair and reasonable price. On 
January 13, 2004, DCAA notified the appropriate Government 
contracting officials that KBR's subcontracting estimating 
process and procedures were considered inadequate. Currently, 
DCAA is in the process of performing a comprehensive review of 
the entire estimating system to address this matter as well as 
other possible deficiencies.
    KBR's deficiencies in estimating subcontracts are 
contributory factors in potential dining facility overpricing 
and delays in definitization of task order prices under the 
LOGCAP contract, both of which I would like to comment on next. 
They were also a contributory factor in potential gasoline 
overpricing under the Restore Iraqi Oil contract as explained 
in Dr. Zakheim's testimony before this committee on March 11, 
2004.
    Turning to the dining facility subcontract costs, DCAA has 
identified issues related to the reasonableness of negotiated 
subcontract costs for dining facilities, which I will refer to 
hereafter as DFACs. KBR has been unable to support the 
reasonableness of subcontract prices or the appropriate billing 
methodology intended in its subcontracts. The DFAC 
subcontractor costs exceed $800 million and are continuing to 
increase. KBR awarded contracts to several subcontractors to 
provide dining facility services at more than 60 locations 
throughout Iraq and Kuwait. The DFAC subcontractors generally 
charge for meals at a negotiated fixed meal cost--per person--
using various headcount schemes including estimated camp 
population, estimated numbers from the subcontract statement of 
work, and billeting records to set the number of billed meals. 
These billed headcount numbers exceed the actual meals served 
by at least 19 percent according to KBR's own studies and could 
be as high as 36 percent based on ongoing DCAA analysis. KBR 
has been unable to support the intended billing methodology or 
how it may relate to the fixed cost per meal negotiated with 
its various subcontractors.
    Initially, DCAA and KBR agreed on a withholding of $176.5 
million until additional supporting data could be provided by 
KBR, $140.7 million that KBR voluntarily withheld from future 
billings and $35.8 million that DCAA suspended on current 
billings. KBR performed an internal analysis and estimated that 
billed meals exceeded actual meals served based on headcount--
boots through the door--by approximately 19 percent. However, 
KBR asserts that the excess meals are allowable, primarily 
because the various task orders under the LOGCAP contract do 
not specify a specific billing methodology. While KBR has since 
renegotiated the terms of most of the DFAC subcontracts to 
establish a ``boots through the door billing methodology,'' 
they have begun now to resubmit their voluntary withhold under 
the original subcontracts.
    DCAA found substantial deficiencies in the data provided by 
KBR and believes cost should continue to be suspended related 
to the original subcontracts until additional support and 
analysis can be completed. Therefore, DCAA has currently 
increased its suspended DFAC costs to $186 million.
    We are continuing to evaluate additional supporting 
information provided by KBR and will be issuing final 
recommendations to the contracting officer on the first of 
several of these DFACs in the near future. Depending on our 
conclusions, DCAA may either reinstate the suspended cost or 
convert the suspension to a disallowance. If a disallowance is 
recommended, this will provide the basis for the contracting 
officer to evaluate and decide the merits of the dispute.
    KBR has voluntarily disclosed a possible violation of the 
Anti-Kickback Act by two of its employees. KBR has already 
reimbursed the Government for the estimated impact of $6.3 
million, but has failed to provide data necessary for DCAA to 
verify the accuracy of that amount. We have brought this to the 
attention of the DOD IG, which is in the process of reviewing 
the matter as part of its normal Voluntary Disclosure Program 
process.
    Due to urgent requirements, most of the LOGCAP task orders 
were issued as undefinitized contract actions. The FAR limits 
contract reimbursement to a maximum of 85 percent until a 
contract price is definitized to adequately protect the 
Government's interest in effective cost management. DCAA found 
that KBR had never applied reimbursement limitations to 
undefinitized LOGCAP task orders and brought the matter to the 
Army contracting officer's attention. She agreed to apply the 
clause on a prospective basis to LOGCAP task orders depending 
on KBR agreeing to a firm schedule for submitting the required 
proposals. Currently, a mutually agreeable schedule has been 
established and KBR proposals are being submitted for audit. AS 
of this date, the LOGCAP contract has 36 task orders with an 
estimated value of $8.2 billion that require proposal audits 
and final price determination. Of that amount, DCAA has 
received and is in the process of auditing 28 proposals with an 
estimated value of $7.6 billion.
    DCAA recently completed a comprehensive billing system 
review at KBR. The audit report was issued May 13, 2004, with 
an overall opinion that the billing system is inadequate in 
part. As a result, KBR is not authorized for direct billing and 
is required to continue to provide all billings to DCAA for 
provisional approval prior to submission for payment. Key 
issues disclosed during our audit included: not effectively 
monitoring subcontract billings, for example, DFAC costs; 
inadequate written policies and procedures for the billing 
system; and failure to adjust billings for changes in indirect 
rates. DCAA will continue to monitor all aspects of the billing 
system until these matters are resolved.
    Turning to another contractor, Titan Corp. Titan was 
awarded a contract valued at $402 million to provide linguist 
and translator services to the U.S. Government, mostly in Iraq. 
Titan presently has over 4,400 linguists working in Iraq. 
Recently DCAA audits disclosed deficiencies in Titan's labor 
distribution system which records costs for Titan employees. 
DCAA also found that Titan lacked procedures for adequate 
tracking of hours worked by foreign national consultants. Based 
on these findings, the DCMA contracting officer implemented a 
10 percent withhold on all of Titan's labor and consultant 
costs until all identified deficiencies are corrected and bills 
to the Government are based on adequate internal controls. The 
resulting withhold amount could be as much as $4.9 million on 
future billings depending on the timeliness of the needed 
improvements. In addition, DCAA recently discovered that Titan 
was not adjusting their provisional billing rates to actual 
rates at the end of each fiscal year. Titan agreed to make the 
necessary billing adjustments of $937,000. Last, Titan recently 
informed us they will adjust previously billed costs for the 
Titan employee and subcontractor employee named in connection 
with potential abuses at Abu Ghraib Prison. These reductions 
are scheduled to be made by June 18, 2004, and include Titan 
and subcontractor costs totaling over $178,000.
    DCAA is expanding its audit coverage at another contractor, 
CACI, based on recent disclosure of additional contracts 
awarded to the company. Since August 2003, the Department of 
Interior, at the request of the Army, has awarded 11 task 
orders under a GSA Supply Contract for Information Technology 
services for interrogation and intelligence gathering effort in 
Iraq. At least three of these tasks related to the 
interrogation of Iraqi prisoners. Billed costs as of March 2004 
under these task orders is $12.7 million, with a total funded 
contract value in excess of $60 million. DCAA is reviewing the 
potential misuse by CACI of the GSA schedule contract on this 
Department of Interior contract that is funded by the Army 
since ``interrogator'' type effort is not a function provided 
by CACI in their GSA schedule. We understand the GSA and 
Department of Interior inspector generals have initiated 
reviews of this matter as well.
    Turning to another company, Washington Group International. 
In support of the Restore Iraqi Electricity Program, WGI 
received a contract totaling $309 million. As a result of a WGI 
proposal to definitize this contract, on February 13, 2004, 
DCAA reported to the Corps of Engineers' contracting officer 
that WGI had substantial subcontract estimating problems. On 
February 26th, the DCAA also reported to the contracting 
officer that WGI's estimating system deficiencies were 
significant and required immediate contractor attention. Since 
that period, DCAA and the Corps have worked closely with WGI to 
correct estimating system deficiencies and obtain improved 
subcontract cost support. While WGI has made excellent progress 
in providing additional documentation for the majority of the 
unsupported costs, DCAA has suspended over $11.5 million of 
billed costs because WGI has been unable to support the 
reasonableness of certain security-related subcontract costs. 
In addition, DCAA has suspended $4.9 million on a separate 
contract related to costs billed for undefinitized task orders. 
As discussed earlier, the FAR limits contract reimbursement 
until a contract price is definitized to adequately protect the 
Government's interest. DCAA is working closely with the Corps 
of Engineers and WGI to address these issues.
    In closing, I want to underscore that I am committed to 
working with other DOD organizations to ensure an integrated, 
well-managed contracting process in Iraq. The Department will 
not tolerate the billing of costs that are not properly 
documented and supported. If internal control systems are 
deficient, we will continue to use protections such as contract 
withholdings and cost suspension to safeguard the Department's 
interest. Rest assured that I will provide whatever resources 
are needed for DCAA to continue to provide contract audit 
oversight in Iraq.
    In sum, I believe that DCAA has been vigilant about 
contract oversight and protecting the taxpayers' interest. I am 
committed to making sure this continues. I look forward to 
addressing whatever questions or comments you may have on this 
oversight. Thank you.
    [The prepared statement of Mr. Reed follows:]

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    Chairman Tom Davis. Thank you very much.
    Dee, do you want to say anything? Ms. Lee.
    Ms. Lee. I have a brief statement.
    Chairman Tom Davis. That would be fine. Welcome.
    Ms. Lee. Good afternoon, Mr. Chairman, members of the 
committee. I am Deidre Lee, Director of Defense Procurement for 
the Department of Defense. I am appearing before this committee 
today to provide information on Iraq contracting actions taken 
prior to the designation of the Army as executive agent.
    As you know, many of you from your personal visits to Iraq, 
much has been accomplished and progress continues to be made. A 
vast array of projects improving water, electricity, health 
care, and education are ongoing. The Iraqis will assume 
governance on June 30th, and many ministries have already made 
the transition. On June 8th, Iraq assumed full authority for 
the national oil sector.
    Much of this work is accomplished through contracts, 
contracts with Iraqi citizens and Iraqi companies, as well as 
with United States and coalition companies. As we all see on 
the news every day, operations in Iraq are dangerous and 
complex. Conditions remain harsh for our soldiers and 
civilians, including our contractors, and security remains a 
constant challenge.
    As our in-country knowledge and operations have matured, so 
have our contracting strategies. The contracting strategies 
employed were those proper for the urgent mission support and 
protection of our troops. In the last 18 months, we have moved 
across the spectrum from prewar classified planning through 
urgent and compelling orders to full and open competition 
emphasizing inclusion of small business and Iraqi employment.
    Procurement actions involving Iraq's oilfields are an 
example of this compendium. In December 2001, Kellogg, Brown & 
Root won a competition for the Army's Logistics Civil 
Augmentation Program. We all call that the LOGCAP contract. 
This contract was the third contract in a series of competitive 
contracts, and they provide capability to support global 
contingencies. We have been doing this since 1992.
    In the fall of 2002, a classified requirement to develop a 
contingency support plan for repair and continuity of 
operations of the Iraq oil infrastructure was identified by 
CENTCOM. A task order under the KBR LOGCAP contract was issued 
on November 11, 2002 by a contracting officer. The order, for 
planning only, was determined to be within the scope of the 
global contingency support contract.
    In February 2003, based upon urgent operational need, a 
sole source letter contract consistent with FAR requirements 
was issued to KBR for pre-positioning of resources such as 
firefighting equipment to enable rapid response in the event of 
oil well fires or other critical damage.
    In early March 2003, still in the mission preparation stage 
but moving across this continuum, although for imminent 
urgency, a sole source indefinite delivery, indefinite quantity 
contract was awarded to KBR. Task orders were issued against 
the contract for additional pre-positioning and after the war 
started for work required to support the mission of repair and 
continuity of operations. As noted by GAO, negotiation of this 
contract on a sole source basis was approved and documented as 
required by the Federal Acquisition Regulation.
    In June 2003, the strategy for competitive procurement to 
support oil infrastructure in Iraq was approved, resulting in 
competitive awards in January 2004 to Parsons Iraq Joint 
Venture for the north and KBR for the south. Work under these 
contracts is ongoing today.
    Iraq contracting is not without issues, as we have 
discussed this morning and continued to the afternoon. The 
witnesses here today will talk about ongoing audits and 
performance monitoring, and what steps we are taking to make 
sure that money is spent wisely and results are delivered. 
Government contracting is not a simple process, even in the 
best of conditions. The Congress has given us numerous laws 
which govern the contracting process, and has recognized and 
authorized specific flexibilities to be applied in certain 
circumstances. Operation Iraqi Freedom is an example of these 
circumstances and of how our people successfully responded to 
meet urgent mission needs.
    Thank you. I would be pleased to answer any questions.
    [The prepared statement of Ms. Lee follows:]

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    Chairman Tom Davis. Thank you very much.
    Ms. Ballard, welcome back.
    Ms. Ballard. Thank you, sir.
    Good afternoon, Chairman Davis, Representative Waxman, and 
distinguished members of the Committee on Government Reform. 
Thank you again for this opportunity to report to you on the 
U.S. Army's role in contracting and the rebuilding of Iraq. I 
respectfully request that my written statement be made a part 
of the record for today's hearing.
    Mr. Chairman, I will be brief. The Army, as executive 
agent, continues to make progress in an extremely difficult 
situation by providing contracting and program management 
support both in Iraq and in the United States. We continue to 
procure all non-construction items and services to meet the 
humanitarian needs of the people of Iraq, as well as the 
economic reconstruction and repair of Iraq's infrastructure.
    Have we accomplished this tremendous task without missteps? 
No, we have not. But I would like to take a moment to make a 
few comments on the recently released GAO report on Iraq 
contracts.
    We have been in Baghdad for only 10 months, under desperate 
and dangerous conditions. To date, we have awarded over 2,800 
contract actions valued at more than $11 billion, and the GAO 
reported concluded with only four recommendations. I am very 
proud of the fact that the Army Field Support Command took 
positive steps in advance of the report to initiate a process 
for definitizing outstanding task orders under the LOGCAP 
contract in a timely manner. Additionally, we are taking 
proactive measures to address the other three recommendations.
    Our contracting personnel on the ground in Iraq now total 
65 individuals, more than double what was there when we 
previously visited the committee. There are multi-service and 
civilian personnel in Iraq. They are brave, dedicated 
volunteers who are doing an outstanding job under very 
dangerous conditions.
    I would like to highlight some of the reconstruction 
accomplishments that we have made since last March. Ms. Lee has 
highlighted several, so I will be very brief.
    Mr. David Nash reported on June 11 that more than 14,000 
Iraqis are employed thus far in the rebuilding of Iraq. As Ms. 
Lee indicated, we are making significant progress in buildings 
in health, oil, electricity, security, and water. Our 
accomplishments help to continue the citizens' improvement and 
movement toward governing themselves and sustaining, operating, 
and maintaining their own infrastructure. This in turn will 
help our soldiers, sailors, airmen, and Marines to return home 
sooner.
    This concludes my opening remarks, Mr. Chairman. I would be 
pleased to answer any questions.
    [The prepared statement of Ms. Ballard follows:]

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    Chairman Tom Davis. Thank you very much.
    General Kern, thanks for being with us.
    General Kern. Chairman Davis, Congressman Waxman, 
distinguished members of the committee, thank you for the 
opportunity to update you on the LOGCAP, Logistics Civilian 
Augmentation Program. I request that my written comments be 
submitted for the record.
    The LOGCAP contract is executed by the Army Field Support 
Command, one of my subordinate commands. As noted, this is the 
third award of the LOGCAP contract. The first, which was 
awarded in 1992, was to Brown & Root, administered by the Corps 
of Engineers, covered the Southwest Asia Pipeline, Somalia, and 
the Balkans. The second contract, which was awarded in 1997, 
was awarded to Dyncorp and was administered by the Army 
Materiel Command, my command. It covered East Timor, 
Philippines, and Colombia.
    LOGCAP III was awarded in 2002, as noted, and is 
significantly different both in magnitude, where the others 
were in the order of a few hundred millions and this is in the 
order of a billion dollars; the others were direct contracting 
and this one includes the management of significant number of 
subcontractors, many of them for third-country nationals. It 
includes operations in Afghanistan, Kuwait, Iraq, Djibouti, 
Uzbekistan, Turkey, and the Republic of Georgia.
    I recently did meet with the GAO and reviewed the report 
which they had previously reported to you in the earlier panel. 
They were very helpful in pointing out some areas that we 
needed to improve, as they have been since the earlier LOGCAP 
contracts, and which we are continuously working for lessons 
learned and to make an improvement in the way we do business.
    I would like to put in context, however, a few of the 
comments, but note that I do agree with their assessment that 
we need better planning and better training of our personnel.
    First, if we remember March of last year, when we began the 
operation, there were two contingency parts of the plan: one 
with the 4th Infantry Division to come in from the north 
through Turkey, and the second on who went first, the Air Force 
or the ground operations. In a play at the scrimmage line, the 
ground operations went first. Critical lesson learned from 1991 
was to protect the infrastructure and, hence, the importance of 
making sure that we had a plan in place for ground operations 
to ensure that the oil infrastructure was protected in the 
early phases of the battle. This in part answers the question 
of why that planning document was critical in those early 
phases.
    The second point that we note there, that the contingency 
contracting is different than procurement in the continental 
United States, and, hence, we have adapted to the lessons 
learned to make sure that the many subcontracts in our 
cooperation with DCAA, DCMA, and Defense Finance and Accounting 
System are all working toward prompt payment and correct 
oversight. This is an area which I think needs continual review 
as we look at how we do contingency contracting in the future.
    I would also note that we were concerned about process, 
procedures, and costs early on. In June 2003, just 3 months 
after we initiated hostilities, I asked my inspector general to 
oversee the operation of the LOGCAP contract both from the 
process standpoint and from our ability to meet the needs of 
the users. They reported back to me in December and I 
instituted corrective action that they had found through the 
Army Field Support Command, General McManus. General McManus 
and I also visited the commanders in Kuwait and Iraq in 
September 2003, with an expressed purpose of looking at the 
lessons learned from the Balkan operations on how costs and 
scope of work could be controlled, and we worked that with the 
commanders on the ground.
    There is no issue that we disagree in substance, but there 
is in the context of which those operations did occur. We also 
are looking today that the contracting officers have been asked 
to support the war fighters requirements, and when there is a 
disagreement in opinion provided by the legal community, as 
described earlier, the contracting officer is going to look for 
the best method of executing the contract, which is the case 
when we have a difference of opinion, he chose the opinion 
which would allow him to execute the contract in favor of the 
war fighters.
    Finally, we do have strong partnerships with the Defense 
Contract Management Agency, which has increased the number of 
personnel supervising the contract, and we have met with both 
their civilian and military leaders to continually review 
whether we have them in the right places and the adequate 
numbers.
    DCAA, as described by Mr. Reed, continues to play a 
critical role in the oversight and audit of the rough orders of 
magnitude estimates and the actual execution against the 
billing processes which is submitted by KBR. We agree and have 
been working with KBR, Kellogg, Brown & Root, for some time now 
to improve their billing processes both so we can finish the 
proposals and get to definitization quickly.
    Finally, we are continually learning on the part of 
Kellogg, Brown & Root on managing significant subcontractors, 
and on the part of the Government in executing contingency 
contracts over a broad distance throughout Southwest Asia on 
how to do our job more effectively for our war fighters.
    And I would add one last note, that this past month, 
earlier in this month, we conducted a memorial exercise in 
Kuwait for the lost members of Kellogg, Brown & Root. This is 
not contracting under peacetime conditions, these are tough 
conditions which they operate.
    Thank you.
    [The prepared statement of General Kern follows:]

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    Chairman Tom Davis. Thank you very much.
    General Crear.
    General Crear. Mr. Chairman, Congressman Waxman, members of 
the committee, I am Brigadier General Robert Crear, Commander 
of the Southwest Division, U.S. Army Corps of Engineers. I am 
honored to appear before you today to testify on the work of 
the U.S. Army Corps of Engineers in concern with our coalition 
partners and the Iraqi people. Our mission was to extinguish 
fires, repair, restore, and rebuild the oil infrastructure in 
Iraq, and provide vital supplies of diesel, gasoline, kerosene, 
and propane in order to meet the demands for humanitarian 
assistance, and to maintain stability and ultimately to save 
lives. We also had the mission to work closely with the Iraqis 
to enable them to be able to take over this vital mission.
    I returned last November, after serving 9 months as 
Commander of Task Force Restore Iraqi Oil [RIO]. The task force 
consisted of approximately 120 U.S. Army Corps of Engineers 
personnel, active duty military, U.S. Army reserves, coalition 
forces, Department of the Army civilians, over 500 contractor 
personnel from Kellogg, Brown & Root, and about 60,000 Iraqi 
oil workers. U.S. Army Corps of Engineers was assigned the 
mission in late January and we immediately started to plan to 
implement the contingency support plan. Our advance party 
deployed in mid-February, followed by the main body in early 
March. We had the distinct pleasure of working with Central 
Command, the Office of Humanitarian and Reconstruction 
Assistance, the Coalition Provisional Authority, the Combined 
Forces Land Component Command, Combined Joint Task Force 7, 
USAID, many NGO's, and other coalition partners.
    Early on, we met with Central Command and the Combined 
Forces Land Component Command staff before deployment. They 
were able to give us then the combatant commanders' intent and 
heighten our sense of awareness and urgency for the mission. 
They wanted to ensure that before hostilities took place, in 
the event of hostilities, there would be enough equipment on 
the ground to be able to start putting out fires, to be able to 
assess the conditions as soon as the facilities could be 
secured by the forces, and also provide a capability to train 
coalition forces on actions to take in that type of 
environment.
    The environment I will describe. In the first Gulf war we 
saw how Saddam Hussein set ablaze over 700 oil wells and caused 
a spill of over a million barrels of crude oil in Kuwait and in 
the Gulf. Given the size of Iraq, planners knew that should 
Saddam employ the same tactic, it would be nightmare for 
coalition forces in order to execute the tactical mission; it 
would cause unnecessary delay, could bog down the particular 
forces, and ultimately cost the death of coalition soldiers. 
That is why it was imperative to have a plan to execute the oil 
restoration and be able to put out the fire mission.
    The good news is that the coalition forces were able to 
seize and secure the infrastructure before Saddam could go and 
do significant damage. However, what we found were not oil well 
fires, but significant damage due to looting. It was estimated 
to be about $1.4 billion in overall damage, and about 85 
percent of that due to looting. We also found out that the 
infrastructure was suffering from years of neglect, misuse, and 
mismanagement. Added to that was the lack of consistent 
electricity that directly affected oil production. 
Additionally, there was no phone system for communications, 
water, trains. These were conditions that made even the work 
that would seem to be easy hard in Iraq.
    The looting was total. Entire buildings were emptied of 
their contents, meaning they were looted with only the steel 
frames remaining. They took everything in total, anything to 
value, to include wires out of the walls. And this was true of 
most public facilities, to include the 13 operating companies 
and their facilities in the oil infrastructure. Needless to 
say, Task Force RIO faced considerable challenges dealing with 
this catastrophic situation, as did other coalition forces.
    The entire country, about the size of California, was our 
area of operation, and as we made repairs to this fragile oil 
infrastructure between the southern fields in Rumaila and the 
northern fields in Kirkuk, each task force personnel rose to 
the occasion. They were subject to personal hazards with 
movements throughout the country. I visited our wounded 
personnel, both military and contractor personnel, in field 
hospitals and I mourned the death of others.
    Some of the accomplishments that I will highlight to you 
and am very proud to talk about is that we had civilians and 
contractors on the ground in Iraq Day 2 of the war, and they 
continue to remain there and continue to operate to restore the 
infrastructure. By April 13, all oil well fires were 
extinguished. By mid-April we had re-established the 
leadership, re-employment of the north oil companies in Kirkuk 
and the south oil companies in Basra, producing the first oil 
for export by June 22nd. We are now at the prewar level of 
production, since March, producing over 2 million barrels of 
crude per day. Revenues being produced are about $1 billion per 
month since June. This goes to the Development Fund of Iraq for 
use by the Iraqi people.
    A mission that we had not planned for, but were faced with, 
was the shortage of refined products. We have imported refined 
products by the billions. We have prevented a humanitarian 
disaster, a forced security issue for our coalition forces, and 
loss of life.
    I was happy to see recently that as of June 8 the Oil 
Ministry is the first Iraqi ministry to become fully functional 
and responsible for its future direction. That would not have 
happened without the efforts of the task force. And by the end 
of May we had executed over $2.5 billion to restore the oil 
infrastructure. I note that most people don't realize $1.7 
billion of that came from the Development Fund of Iraq, and not 
taxpayers' dollars, and most of that money went to import the 
fuel into the country.
    I am enormously proud to lead men and women of the U.S. 
Army Corps of Engineers, and I am continually inspired by their 
technical and diplomatic skills and their selfless service. On 
the ground there is only one team, consisting of coalition 
forces and civilians, contractors to include KBR, and Federal 
employees united with one purpose: to make Iraq a better place 
for the Iraqi people. Those that have deployed always say two 
things: that they volunteered because they knew they could make 
a difference and, two, I can't wait to get back. I have also 
witnessed what happens when they return: they bring a renewed 
energy and enthusiasm that is clearly evident as they 
accomplish their work back home. I am proud to have been part 
of such a team with such a vital mission. Progress is 
staggering.
    Thank you very much.
    [The prepared statement of Brigadier General Crear 
follows:]

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    Chairman Tom Davis. Well, thank you very much.
    Let me just ask each of you, did the fact of the Vice 
President was a former CEO of Halliburton influence the 
selection of Halliburton and KBR in any way?
    Mr. Lanzilotta.
    Mr. Lanzilotta. No, I know of no instance.
    Mr. Reed. Not to my knowledge.
    Ms. Lee. No.
    Ms. Ballard. No.
    General Kern. I know of no incident.
    General Crear. No, sir.
    Chairman Tom Davis. Were you or anybody in your office 
pressured by any political appointee or high official in the 
administration to award any contract or task order to a 
particular firm, or go easy on any contractor in carrying out 
contract oversight activities?
    Mr. Lanzilotta. No.
    Mr. Reed. No.
    Ms. Lee. No, sir. In my 29 years of Government service, I 
have frequently had congressional remarks, but I have never----
    Chairman Tom Davis. I didn't ask that, Ms. Lee.
    Ms. Lee [continuing]. I have never had an executive 
department direct, no.
    Chairman Tom Davis. OK. Thank you.
    Ms. Ballard. No, sir.
    General Kern. No, sir.
    General Crear. No, sir.
    Chairman Tom Davis. Mr. Lanzilotta, will you walk us 
through the KBR as one of the contractors selected to assist 
Government in planning of the Iraqi war continuances?
    Do you want to yield to Ms. Lee on that?
    Ms. Lee. Could you repeat the question, sir?
    Chairman Tom Davis. I just wonder if you could walk us 
through the selection of KBR, how they were selected, so 
everybody can understand that this didn't come down with a memo 
from the Vice President's office to reward his former company. 
Could you walk us through how KBR was selected? I think it is 
important for everybody to understand how this happened.
    Ms. Lee. Certainly, I will give an overview, and then 
General Kern may want----
    Chairman Tom Davis. And let me ask you, Ms. Lee, since you 
are talking. You were a political appointee in the Clinton 
administration, is that right?
    Ms. Lee. Yes, sir.
    Chairman Tom Davis. And you are a professional career 
officer?
    Ms. Lee. Yes, sir.
    Chairman Tom Davis. Thank you very much.
    Ms. Lee. The first LOGCAP contract, when we are talking 
about the competitive contract in 2001, was a standard 
competition, where we would run a competition, contractors 
would propose. To the best of my knowledge, we received three 
proposals that were evaluated; the contract was awarded. A year 
later the decision, when we were discussing how to in fact 
support, first identify the mission. I think one of the things 
we kind of get a little confused here is what are the 
operational requirements. And those are very broadly discussed 
across the Department possibly, and probably beyond the 
Department, is do we really need to be prepared to do 
protection oil infrastructure. Those requirements are 
discussed. Once it is determined that, yes, that is a 
requirement, the contracting team gets involved and says, OK, 
how do we properly structure the business arrangement to 
support that.
    In this particular case, after much discussion and a legal 
opinion, we determined that, for urgency and some other good 
and valid reasons, to issue an order against this existing 
LOGCAP contract.
    Chairman Tom Davis. And who is the contracting team, are 
these basically career civil servants?
    Ms. Lee. Yes, sir. A contracting officer would be awarded, 
a contracting officer civil servant. I am aware of no political 
appointees that have been contracting officers.
    Chairman Tom Davis. Any active duty military involved in 
this?
    Ms. Lee. Could be active military as well.
    Chairman Tom Davis. OK.
    General Kern. If I could add, Mr. Chairman, to that. It was 
the decision of that discussion of the requirement that Ms. Lee 
referred to which resulted in the use of the LOGCAP contract. 
Prior to its use, however, there were a number of opinions 
which were debated back and forth between the command counsel 
and my headquarters of the Army Materiel Command, the 
Department of the Army General Counsel's Office, and the DOD 
General Counsel's Office. And so we have three different legal 
discussions that were going as to whether it was in the scope 
of the contract or not.
    In the opinion of my command counsel, he thought it was 
outside of the scope. In the opinion of the further 
discussions, it was decided that it was in the scope of the 
contract to proceed for the planning only. But the decision 
also said that we should proceed further with a requirement for 
a sole source award only with a justification and approval of 
that, which required us to go through a second process and a 
second contract effort; and that is the process which was 
followed. The contracting officer, looking at all those 
opinions, made the decision first to use it for the Brown & 
Root contract, the KBR contract for LOGCAP for planning, and 
then to ask for a J&A for approval to go forward from that 
position. That was the process.
    Chairman Tom Davis. Now, it appears at one point, I don't 
know if any of you would have firsthand knowledge, that there 
were officials notified that the decision was made to award it 
to KBR, officials in the administration were notified prior to 
that. Is that a normal procedure in a large contract of this 
nature?
    General Kern. Mr. Chairman, as you noted earlier, that is a 
normal procedure. We notify the Congress and the White House 
when we have contracts to be awarded.
    Chairman Tom Davis. The Vice President's office in this 
case. Evidently there is some allegation that they knew about 
it. Do you know anything about that?
    General Kern. I have seen the same information that you 
have. I couldn't tell you anything more about what may have 
taken place.
    Chairman Tom Davis. It didn't strike you as out of the 
ordinary?
    General Kern. The notification process has appeared to me 
to be very normal.
    Chairman Tom Davis. All right.
    Dee, you have been involved in this for years. Is that out 
of the normal, to involve Members of Congress or the 
administration? And would you tell them this was happening or 
would you say this may happen, or do you have any input, or how 
does that work?
    Ms. Lee. Sir, you were right when you mentioned earlier we 
have a very kind of formal internal procedure when a contract 
is ready to get awarded. In fact, we award it after the old 
day's close of the market, late in the day; we notify Congress 
before, we make the phone calls. There is actually a process 
and it includes public affairs in many cases so that the 
Congressman with the winner in their district can in fact 
notify them. So there is a process. And it would be quite 
normal to follow that process.
    Chairman Tom Davis. Yes, General Crear.
    General Crear. Sir, the other thing you could add to that 
is that at that time we were in a contingency planning mode, at 
that time the contingency plan was classified, and so we needed 
to have the contractor be able to let people know what mission 
they were going to be able to do in order to hire people. And 
so to get that to happen, they had to do notifications. They 
felt, certainly, that if the contingency plan is going to be 
declassified so you can hire personnel, then we wouldn't want 
KBR or Congress to find out about that we actually had a 
mission in the Department of Defense to secure the oil without 
letting you know that from us first, and that was really the 
purpose of getting the declassification and the notification.
    Chairman Tom Davis. How did Mr. Mobbs become involved in 
this? Can anybody explain that?
    Ms. Lee. I do know Mr. Mobbs. My first recollection of this 
was actually from my then-boss, Pete Aldridge, and it was the 
summer of 2002, very late in the summer, maybe even early fall; 
and he said we have a classified project I want to talk to you 
about, and he said basically what we are doing is planning to 
support, should there be fires and the time being appropriate, 
when we enter conflict, and said we are looking at how to do 
that; and, in fact, we assigned a contracting person to work 
with their team just to go through what the plan was, what the 
requirement was, and how it could be properly contracted for.
    Chairman Tom Davis. And the fact that this was classified 
strikes this as probably appropriate in this case?
    Ms. Lee. Yes, sir, given the timing.
    Chairman Tom Davis. OK.
    Let me yield to Mr. Ose for just a few questions.
    We are doing 15 minutes on a side, so this is part of our 
15.
    Mr. Ose. Thank you, Mr. Chairman. I appreciate the 
opportunity to have some time. I, in particular, want to direct 
my questions to Ms. Ballard.
    I know that the chairman and the ranking member have asked 
you about this previously, but subsequent to the September 11th 
hearing there were questions put forward. I can't express quite 
accurately the depth of my dissatisfaction with the fact that I 
do not have answers to questions 3 months old, even though we 
are now having the second of a series of hearings. I presume we 
are going to have another one in July. And I am curious whether 
or not I am going to have answers to my questions by the time 
we have that third hearing.
    Ms. Ballard. Congressman, I too am very disappointed that 
the answers have not been provided to you. We have discussed 
this. The answers are in review and you will have them, sir. If 
I have to walk them over here personally, you will have them.
    Mr. Ose. Well, I haven't moved since the last time we 
gathered, so you can still find me at that same spot.
    Ms. Ballard. Yes, sir.
    Mr. Ose. I want to make sure that--rather than belabor the 
point, if you can get me answers to the questions that I have 
already asked, I will be able to pursue a line of questioning 
accordingly.
    But, Mr. Chairman, I have to say I have done my fair share 
of contracting for my own account, and with all due respect to 
these witnesses, when I have control of the checkbook, I get my 
answers before I write checks. And I have to tell you I am just 
dissatisfied.
    Chairman Tom Davis. Well, I think Ms. Ballard is going to 
make every effort to get you answers as expeditiously as 
possible. Thank you.
    Let me ask you. I am still puzzled on Mr. Mobbs' role in 
this. I have gotten different conflicting opinions. Was he a 
decisionmaker in this or is just a guy who is popped off in the 
press? What was his role in this?
    Ms. Lee. Mr. Chairman, I know his role to have been in the 
Department, in working in our planning shop, our planning 
organization, we had a group of people, pre-conflict, saying 
what is it we need to do. Now, there has been some discussion 
here in this meeting today saying, well, you know, you focused 
on oil, but what about the operations themselves. Those 
operations were planning for the operation, as General Kern has 
talked about, that is done by the combatant commanders, and 
they were planning their own operation in accordance with 
whatever direction they were given.
    This particular planning piece was kind of that 
infrastructure planning as to how do we get ready. And I know 
Mr. Mobbs, working in the planning organization, was kind of 
the head of that planning group to figure out how to support.
    Chairman Tom Davis. So it is your understanding he was more 
of a big picture guy than the contracting officer with the 
warrant out there.
    Ms. Lee. Yes, sir. As we do with all our contracts, we have 
a requirements group and we kind of hash out what is it we 
really want to do, what are the parameters for that, and then 
from a contracting standpoint, OK, if that is what you want to 
accomplish, what is the right business arrangement.
    Chairman Tom Davis. A couple other questions occurred to 
me. One is when a truck would go down with a flat tire in a 
convoy, was it Army procedure at that point that we don't stop 
and repair the tire, we keep the convoy moving at that point, 
rather than stop and prepare, because that was danger, or was 
that a contractor decision? This has been an allegation by 
someone who hasn't appeared before the committee formally but 
has been interviewed.
    General Kern. The convoys have taken different context over 
time. As we moved our forces centrally into the Baghdad region, 
we were running numerous convoys between Kuwait and Baghdad 
that would be up to 300 vehicles a day moving, primarily 
focused on fuel and munitions, sometimes carrying food and 
parts. It is normal practice for convoys like that to carry 
spare vehicles, with the assumption that something would break 
down on that long a route, and those highways are not exactly 
like Interstate 95. So you expect that you are going to be 
under rough conditions.
    If you remember, because the part that I cannot precisely 
tell for you is the timing of when that occurred, because this 
spring those convoys started coming under considerable attacks. 
Bridges were taken out; convoys had to be replanned around 
them. More security was provided to those convoys as those 
attacks intensified. So at one point in time we actually 
stopped running them and were flying supplies into Baghdad. So 
there were periods in there in which the tactical commanders 
were making decisions in conjunction with the convoy commanders 
about the security on that route and what would take place. And 
so in some cases they may have decided that a security 
arrangement said it was too dangerous to stop and try to 
recover a vehicle, and it was better to decommission it than 
let it fall into the hands of those who were attacking it. But 
I cannot precisely tell you because each convoy was run under a 
different set of security conditions during that period.
    Chairman Tom Davis. Mr. Reed, let me ask you how many of 
the 285 audits referenced in your testimony were related to 
Halliburton KBR, any idea?
    Mr. Reed. I don't have a specific number, Mr. Chairman, but 
I would be happy to get that for you for the record.
    Chairman Tom Davis. Can you give me a ball park? Was it 5, 
30?
    Mr. Reed. I would say probably in the neighborhood of 20.
    Chairman Tom Davis. OK. And a referral to the IG, is that a 
rare thing in your business; is it a unique thing; is this a 
once in a year happening or does this happen more often?
    Mr. Reed. To put it in some perspective, I believe in 
fiscal year 2003 we issued approximately 60 referrals. Some 
years we have issued several hundred. So that gives you some 
perspective on the question.
    Chairman Tom Davis. As a general counsel to a contractor, 
you are on the receiving end to one of those, but then the 
process would be able to go to the IG, and then if they see 
anything, they would refer to Justice would be one possible way 
to handle it, correct?
    Mr. Reed. That is correct, because a referral is not a 
conviction, it is merely that the auditor has some reason to be 
concerned, and he is turning it over to experienced 
investigators who have the wherewithal, as well as the legal 
advice, to judge whether there has been a violation of civil or 
criminal law.
    Chairman Tom Davis. And I want to make sure I am clear 
about the relationship between the DCAA auditors and the 
contracting officer. It is my understanding that the DCAA 
auditors act as professional advisors to the contracting 
officer on cost, pricing, and related matters. The contracting 
officer is free to take that advice or not. For example, DCAA 
may find there is an overcharge of, say, $1 million. The 
contracting officer can agree or not based on his or her 
judgment. Any action against the contractor would be initiated 
by the contracting officer rather than DCAA?
    Mr. Reed. Yes, that is correct. Many, in fact, most of the 
contract issues that DCAA raises are judgmental issues that 
involve advice of not only DCAA, but also technical people, 
engineers and so forth. And we fully expect that the 
contracting officer is going to be advised by others, and in 
most cases attempt to negotiate an issue where there is not 
certainty. Where no one party is absolutely right or wrong, we 
negotiate it.
    Chairman Tom Davis. And my time is up, but this can get 
pretty complicated, can't it, sometimes between the lawyers and 
the accountants in terms of judgments?
    Mr. Reed. Yes, sir.
    Chairman Tom Davis. Thank you very much.
    Mr. Waxman, you have 15 minutes.
    Mr. Waxman. Thank you.
    Mr. Chairman, your first question today of each of the 
members of this panel was whether any influence took place from 
the Vice President's office, and each one responded no. But 
this is a very different question than you asked in the March 
hearing. This is what you asked in the March hearing: I want to 
get this on the record, and everybody is under oath. Have you 
or anyone in your office ever discussed with the Vice President 
or with his office the award of a contract for Iraqi 
reconstruction prior to any contract being awarded? And General 
Schrock said, ``No, I have not;'' General Kern: ``No, sir, I 
haven not;'' General McManus: ``No, sir, I have not;'' Ms. 
Ballard: ``No, sir, I have not;'' Mr. Zakheim: ``No, sir, I 
have not;'' Mr. Reed: ``No, sir, I have not;'' Admiral Nash: 
``No, sir, I have not.''
    Is that the testimony of each of you today? And the 
question, of course, let me repeat it, is: Have you or anyone 
in your office ever discussed with the Vice President or with 
his office the award of a contract for Iraqi reconstruction 
prior to any contract being awarded.
    Mr. Reed. My answer remains the same.
    Mr. Lanzilotta. My answer remains the same as Dr. Zakheim 
gave at the previous hearing.
    Ms. Lee. No, sir, I have never met the Vice President or 
talked to him. It would be an honor, but I have not.
    Mr. Waxman. No, that is not the question of you. Would you 
or anyone in your office?
    Ms. Lee. Not that I know of.
    Mr. Waxman. OK.
    Ms. Ballard.
    Ms. Ballard. No, sir, not that I know of.
    Mr. Waxman. OK.
    General Kern. My answer remains the same. I know of no one 
in my office who has talked to.
    General Crear. Sir, not me or anyone in my office.
    Mr. Waxman. The problem is that we have now got additional 
information from Mr. Mobbs, and Mr. Mobbs told our staff 
collectively that he tried to make a decision as to who ought 
to have this planning contract in October 2002, and so he 
talked to different people on his own. He talked to oil 
executives, he talked to DOE, and maybe others as well, to try 
to figure out who would do the best job. And he said there were 
three companies that could have done the job: Bechtel, Fluor, 
and Halliburton. And he thought Halliburton would be the best 
one to choose, and he went to this deputies committee made up 
of representatives from the political side of each office, 
including Scooter Libby, who is the political chief of staff of 
the Vice President of the United States, and other deputies and 
secretaries in charge of State and Defense, and whoever else 
was at the meeting. And he went to them to get their assent, 
their agreement that this would be OK to ask Halliburton to do 
this planning, and they didn't object. And then he went to the 
career people and said this is the decision, we want to award 
this to Halliburton. In fact, he even wrote what is called the 
justification and approval document and gave it to the career 
people.
    Do any of you know facts to contradict what I have just 
said?
    Mr. Lanzilotta. Sir, on the deputies committee meeting, I 
wasn't at the deputies committee meeting, but I was told two 
things were made clear.
    Mr. Waxman. Wait a second, you were told by somebody else, 
but you weren't at the meeting.
    Mr. Lanzilotta. That is correct.
    Mr. Waxman. Now, you have said that you know about a 
deputies meeting. Was somebody there at the deputies meeting 
from the Vice President's office that you know of?
    Mr. Lanzilotta. I was told there was a representative from 
the deputy's office.
    Mr. Waxman. Well, I just asked you the question, which Mr. 
Davis asked last time, have you or anyone in your office ever 
discussed with the Vice President or his office the award of a 
contract. So you know somebody in your office had discussed 
with somebody in the Vice President's office?
    Mr. Lanzilotta. No, that isn't what I said.
    Mr. Waxman. OK.
    Mr. Lanzilotta. I didn't say that anybody in my office was 
at the deputy's committee meeting or anybody in my office has 
ever talked to the Vice President or his office concerning this 
contract, or, for that matter, concerning any matter.
    Mr. Waxman. Do you know what was discussed at the deputies 
meeting?
    Mr. Lanzilotta. But I was told from the deputies meeting 
that two items were discussed when this came up. I was told 
one, that it was perfectly made understood that this 
conversation of the deputies meeting would not be shared with 
the Vice President and two, that the Vice President wouldn't 
have any involvement in the contract. And that was made known 
to all the members at the deputies meeting.
    Mr. Waxman. And when were you told that?
    Mr. Lanzilotta. I was told that today.
    Mr. Waxman. So it is not contemporaneous with October 2002, 
it is contemporaneous with a hearing that points out that 
perhaps there was more involvement with the Vice President's 
office and people in this administration than they ever let on. 
Let me just read to you what----
    Mr. Lanzilotta. Well, may I clarify that? It wasn't until 
yesterday that I was even told I was coming to the hearing, and 
so I have done some research in preparation for the hearing.
    Mr. Waxman. Well, let me ask you this. Who told you this?
    Mr. Lanzilotta. Pardon me?
    Mr. Waxman. Who told you this information about the 
deputies meeting?
    Mr. Lanzilotta. I got this from Mr. DiRita.
    Mr. Waxman. And who is he?
    Mr. Lanzilotta. He is the Acting Public Affairs Officer.
    Mr. Waxman. Of?
    Mr. Lanzilotta. Department of Defense.
    Ms. Lee. Mr. Waxman, if I may.
    Mr. Waxman. Was this fellow that told you about it at the 
meeting, to your knowledge?
    Mr. Lanzilotta. I don't believe he was.
    Mr. Waxman. So you are telling us that somebody who wasn't 
at the meeting told you a story about what happened at the 
meeting.
    Mr. Lanzilotta. Well, I think I made it clear that I got it 
from somebody else. I never meant to represent that I was there 
or knew anybody there.
    Mr. Waxman. No, no, no. Did the fellow who told you about 
this, Mr. DiRita?
    Mr. Lanzilotta. DiRita.
    Mr. Waxman. Do you know whether Mr. DiRita was at that 
deputies meeting?
    Mr. Lanzilotta. I don't know.
    Ms. Lee. Sir, if I may. Again, one of the things in 
contracting that is not at all unusual for a requirements 
organization or a program manager or a mission needs person, in 
fact, it is encouraged under the Federal Acquisition Regulation 
and the new FASA, is to go around and do what we call market 
research and say who could do this kind of work, who is in this 
kind of business; and then the technical community discusses 
that requirement and learns more about the marketplace before 
we make a buy.
    In this particular case, my understanding is that is the 
kind of discussion that was ongoing, which is--What is it we 
really need to do? How do we fight fires? What would happen if? 
What would that requirement look like.
    Mr. Waxman. No, I think it is absolutely reasonable, and I 
am not charging, because I don't know enough information, that 
there was any wrongdoing. What I am pointing out is that Mr. 
Mobbs' report to us is inconsistent with the statements we have 
heard from the Vice President and people in this administration 
who told us they didn't know anything about it, they were never 
involved, their office wasn't involved, and it was done by only 
career people. So that is the point I am making.
    We have made a document request for additional information 
that has been submitted to the Vice President and the President 
and others, and that will help us; we will know more after 
that.
    Mr. Reed, I want to go to you, because you were here last 
March and you talked about, at that time, that there were major 
problems with Halliburton. You issued a report on December 31 
and then a memo on January 13th highlighting deficiencies in 
the way Halliburton and its subcontractors estimated their 
costs. Halliburton argued that these were only isolated 
problems; you disagreed, calling them systemic and significant. 
You said they were so serious that you warned other Pentagon 
agencies not to negotiate further contracts with Halliburton 
until they talked to you.
    Mr. Reed, I would like to know whether the problems you 
identified in December and January have now been remedied, 6 
months later. Let me ask you have you received information from 
Halliburton that has caused you to change the conclusions in 
your December or January reports?
    Mr. Reed. We continue to work the issue with Halliburton. 
It is not resolved yet. And I wanted to point out in regards to 
our comment about ``not awarding until you talk to us.'' It is 
important to put that in the context of what we really were 
seeking, that is for contracting officers to ask us to assist 
them in evaluating estimates, particularly, in those areas 
indicated potential deficiencies in those estimates. And so if 
someone had contacted us, we would have said, ``would you like 
us to assist you in evaluating the pricing information or the 
cost data.'' It was not DCAA's intent that the contracting 
officer not award a contract unless DCAA said yes, OK.
    Mr. Waxman. That wasn't really the point I was asking 
about. I was asking about an opinion you issued the last time 
you were here and in those two memos, and you said the problems 
were systemic and significant. What I want to know is do you 
think there are still systemic and significant problems with 
Halliburton estimating systems as far as you are concerned?
    Mr. Reed. Yes, sir, those problems continue; they are not 
resolved.
    Ms. Lee. Sir, if I may.
    Mr. Waxman. I would like to pursue some questions with Mr. 
Reed first, and then we will let you jump in on this.
    Your May 13th report, which is the most recent report on 
Halliburton, instead of the company's estimating system, you 
focused on its billing system, how they bill the Government for 
their work, and again you found significant problems, and I 
want to read from your report. ``Our examination disclosed 
several deficiencies in KBR's billing system resulting in 
billings to the Government that are not prepared in accordance 
with applicable laws and regulations and contract terms. We 
also found material invoicing misstatements that are not 
prevented, detected, and/or corrected in a timely manner. As a 
result, KBR is not authorized for direct billing and will be 
required to continue to provide all billings to DEAA for 
provisional approval.''
    What does it mean that Halliburton has major problems with 
both its estimating system and its billing system? Are the 
problems compounded?
    Mr. Reed. Well, they do overlap somewhat, in the sense that 
costs that are proposed ultimately will be billed. If there are 
issues in terms of the reasonableness of the cost when you are 
evaluating the proposal, those same issues, if they are still 
not unresolved, would then become a billing issue when they 
actually started to bill the costs.
    However, the cause of the issues that we are talking about, 
with in Halliburton in terms of its cause I would say, as I 
testified in the earlier hearing, I believe, that Halliburton 
is a company whose business base expanded extremely rapidly. 
Their own management recognizes that their prior business 
systems were not adequate to keep pace with the rapid award of 
contracts that they received because of the contingency. 
Therefore, there is no dispute by KBR that their business 
systems need to be improved in several areas.
    Mr. Waxman. In your May 13th report you discuss 
Halliburton's inability to exercise control over 
subcontractors, and I want to read again from the report: ``KBR 
does not have adequate control over subcontract billings our 
audit activity has identified inadequate or nonexistent 
policies and procedures for notifying the Government of 
potential significant subcontract problems that impact 
delivery, quality, and price. KBR also does not monitor the 
ongoing physical progress of subcontracts or the related costs 
and billings.''
    One of the whistleblowers that we hope to hear from who 
came forward, Mike West, was a labor foreman for Halliburton, 
and he reported that Halliburton hired a Jordanian company to 
build a dining facility, but nobody from Halliburton supervised 
the work. He said he was sent over once a day to take a few 
photos. If Mr. West's account is accurate, it seems to track 
closely with your broader finding about Halliburton's failing 
to monitor the ongoing physical progress of subcontracts, 
doesn't it?
    Mr. Reed. Yes, sir, it is certainly related. There are 
contracting officials who should be on the ground. At the prime 
level we refer to them as contracting officer technical 
representatives who do oversee the progress of the work on the 
ground.
    Mr. Waxman. We have another whistleblower who wants to 
remain anonymous who claims that a subcontractor charged 
Halliburton millions and millions of dollars in completely 
made-up costs. He reports that there was nobody there to check 
on the subcontractor's billings and the whole line items were 
simply made up out of thin air. This case too seems to be 
consistent with DCAA's broader conclusions.
    Mr. Reed, if we make these individuals available to you, 
would you be willing to examine their cases further to 
determine whether specific remedial action is necessary?
    Mr. Reed. We certainly would. We will explore every single 
allegation and do the necessary fact-finding.
    I would point out that if these deficiencies exist, every 
one of these costs, when they are billed to us, are going to be 
audited by DCAA. If there is no support for these subcontract 
costs, as this individual apparently is stating, I guarantee 
you we are not going to allow that to be billed.
    Mr. Waxman. Ms. Ballard, you wanted to say something?
    Ms. Ballard. Yes, sir. On the question of contractors 
responding to the estimating system, points made by DCAA, it is 
our practice in contracting per the regulations, sir, that DCAA 
provide us a formal report on those estimating system issues, 
and then the contracting officer has an obligation to allow the 
contractor to respond to those allegations and to take 
corrective action relative to them.
    Mr. Waxman. Thank you.
    Mr. Reed. May I add one other thing? I think I should 
state, to be totally fair to both parties here, that when I 
said that the estimating issues were not resolved, it does not 
mean that KBR has not done anything. We are making progress, 
but we are not satisfied yet, and there is further to go.
    General Kern. Could I add a comment too, Mr. Waxman?
    Mr. Waxman. Sure.
    General Kern. Remember we set out and General McManus laid 
out for you the last time a definitization schedule. Part of 
that we would like to have done sooner, but the issue has been 
getting adequate cost data from KBR that DCAA will support. And 
while we have seen improvements, neither the contracting 
officer working to definitize those task orders nor the data 
that they have provided to DCAA has been adequate, and I think 
what you see in process is good government. We have an auditing 
process overlooking it, we have a contracting officer who is 
doing their job making sure that we are not going to pay for 
things that we should not pay for.
    Mr. Waxman. Thank you.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you, Mr. Waxman.
    Let me ask Mr. Reed two things. First of all, Mike West, we 
may have an opportunity to examine him in July, his 
allegations. It is not uncommon in these situations, is it, 
when materials maybe don't match up, the personnel gets there 
first and they are waiting for the materials, or vice versa? We 
saw this on our plane over there, where we had plenty of air 
conditioners, but we didn't have the air condition repair man. 
These can be logistical nightmares, particularly in the early 
parts of a conflict, is that----
    Mr. Reed. Mr. Chairman, it sounds like you have been in the 
Army. I have been in the Army too.
    Chairman Tom Davis. I was in the Army.
    Mr. Reed. And we know that is the case; that the logistics 
stream is very effective, but it is not perfect. Personnel 
deployment has the same difficulties, especially where you are 
sending volunteers. It is important to note that we are asking 
civilian professionals to get up off their couch, watching 
their football games, and risk their lives and go to Iraq on a 
voluntary basis right now. So that is a process that does take 
a little bit of time to get people----
    Chairman Tom Davis. I am just trying to give a perspective 
of how things, when you are sitting there as an armchair 
quarterback, it looks so easy, but when you are out there in 
the arena, sometimes things get a little complicated; and that 
is really where you come in. You come in and examine these 
things, and you take a look at what is reasonable, what is not 
reasonable. You don't know how many meals you are doing when 
you are pricing you are going to serve, correct? You don't know 
what the logistics are going to be; people are going to be 
there week to week. You come back and examine this and you say, 
well, you gave us a bill that was too high, or sometimes they 
are amended upwards. Is that fair?
    Mr. Reed. I think that is fair. It is also fair to note 
that the main point was that the troops needed to be fed.
    Chairman Tom Davis. You have to feed them, No. 1, right?
    Mr. Reed. You have to feed them. We will worry about the 
accounting, the billing and the auditors later. But the main 
thing is the commanders were right to say our troops need hot 
meals; and that was what KBR was tasked to do. We will 
ultimately get to the fair price for those meals. That is our 
process.
    Chairman Tom Davis. Now, as I understand it, most of the 
matters that we are discussing are still under discussion with 
the contractor and a lot of these issues are still open, is 
that right?
    Mr. Reed. Yes, sir.
    Chairman Tom Davis. Many of these reports raising these 
issues have not been made public, or they have been made public 
because of just the scrutiny we have gotten? Making them public 
in a preliminary stage is not the usual practice, is it?
    Mr. Reed. No, sir. All of DCAAs reports, its formal 
reports, are issued for official use only, and they are 
protected under the U.S. Code to protect contractor proprietary 
data. There is a very specific process that must be gone 
through before these types of reports should be made public.
    Chairman Tom Davis. But some of these preliminary reports 
still have been leaked, it appears; not to me, I might add, to 
the minority in this case.
    Mr. Reed. I believe the only instance I am aware of 
involved a DCAA draft report on the reconstruct Iraqi oil 
gasoline issue. I have never seen anyone show me they had that 
draft report.
    Chairman Tom Davis. It has been referred to a lot, though.
    Mr. Reed. It has been referred to a lot, but to my 
knowledge that report has not--I have not seen anyone possess 
it who should not have it.
    Chairman Tom Davis. Now that you have the resources in 
place and your organization is able to work with contractors 
and contracting officers to get a better picture on the ground, 
would you say, as far as you are concerned, the process is 
beginning to gel and beginning to work?
    Mr. Reed. Absolutely. We are making progress every day.
    Chairman Tom Davis. There are some allegations, I think, 
that Halliburton and KBR are somehow trying to enrich 
themselves through these Iraqi contracts. Are you satisfied 
that at the end of the day the taxpayers will be protected from 
any unwarranted overcharges?
    Mr. Reed. With reasonable assurance, yes. And by that I 
mean, of course, nobody audits 100 percent of everything, but 
we do audit a substantial amount, and the techniques we use 
will assure that ultimately the taxpayers' interest, with 
reasonable assurance, will be protected.
    Chairman Tom Davis. And, Ms. Ballard, let me ask you a 
similar question. Are you satisfied with the oversight 
mechanisms that have been established to oversee work performed 
by contractors in Iraq?
    Ms. Ballard. Yes, sir, I am satisfied with the oversight 
that has been provided, and I am also satisfied that we have 
taken significant positive measures to increase the oversight 
that is provided in Iraq.
    Chairman Tom Davis. Because ultimately that is what we look 
to. There are always going to be disputes that we have, as you 
know, Federal Acquisition Regulations, pages and pages of rules 
and regulations to resolve these disputes, and I think at the 
end of the day you can point fingers and you can make a lot of 
allegations. We just want to make sure that the taxpayers 
aren't paying more than they ought to be paying and that the 
services are being provided, particularly for our troops, but 
to accomplish our mission. The rest of it, it is an election 
year, and we also have a responsibility to oversee this and 
call you up here and make sure you understand that we are 
looking at these things. That is part of the ongoing 
responsibilities of this committee, whatever the 
administration.
    OK, I am ready to recognize the gentleman from 
Massachusetts, Mr. Tierney, for 5 minutes.
    Mr. Tierney. Thank you, Mr. Chairman. I thank the 
individuals for testifying.
    In November 2002, Halliburton received a task order to 
develop a secret contingency plan to restore and operate Iraq's 
oil infrastructure. The task order was issued under the Army's 
LOGCAP global logistics contract, which is used to provide 
services like laundry and meals to the troops. GAO has 
determined that the administration violated Federal procurement 
law when it issued this task order because LOGCAP's contract 
isn't broad enough to include contingency planning for oil 
infrastructure.
    General Kern, you are in charge of that Army Materiel 
Command which administers the LOGCAP contract, so let me ask 
you isn't it true that a career lawyer from the Army Materiel 
Command wrote a memorandum concluding that the LOGCAP contract 
should not be read to encompass contingency planning for the 
operation of Iraq's oil infrastructure?
    General Kern. It is true that one of my legal officers 
within the Command Counsel Office offered an opinion that he 
did not think----
    Mr. Tierney. Did you see that memorandum when it was 
issued?
    General Kern. I did not see it until after it had been 
worked through the contracting channels, which would be normal.
    Mr. Tierney. Would you provide a copy of that document to 
the committee?
    General Kern. If it is fair that I can, I will, yes.
    Mr. Tierney. Well, will you?
    General Kern. Unless there is some legal reason I cannot, I 
will provide it, yes.
    Mr. Tierney. OK, that is a better answer. Thank you.
    Isn't it also true that when the memo was forwarded to the 
Army's Deputy of General Counsel for Procurement, he was 
inclined to agree that the contingency planning was outside the 
scope of LOGCAP?
    General Kern. His initial opinion said yes, he agreed with 
him, and there was ensuing discussion that said in both his 
opinion and in discussing it further with the OSD General 
Counsel, three lawyers now involved, that it was right on the 
margin of being allowable.
    Mr. Tierney. So he, at first, was inclined to agree that it 
was outside the scope, but then the Defense Department's 
general counsel weighed in and the career lawyer backed off and 
had his recommendations objected to, is that right?
    General Kern. I am not going to try to put words in any 
lawyer's mouth, which I know I would fair anyway. They were all 
in a set of negotiations with one another determining if this 
was allowable.
    Mr. Tierney. But the sequence was the first----
    General Kern. But the senior attorney in the group from the 
DOD General Counsel's Office ruled that it was.
    Mr. Tierney. So he overruled the other fellow, right?
    Mr. Lanzilotta. Sir, could I maybe add something to this? 
These are all career lawyers that come together. This is a 
judgment call that these lawyers get together. When we sit down 
there and say overrule, it seems like we put more definition to 
it than what there is. This was a gray area.
    Mr. Tierney. Well, let me interrupt you for a second. The 
sequence as we understand it is that first the Army's Deputy 
General Counsel for procurement agreed that the contingency 
planning was outside the scope of LOGCAP. Then he met with the 
Defense Department's general counsel and they weighed in and 
the original lawyer's objections were rejected. So he had an 
opinion, and then they met and then the opinion was changed.
    Mr. Lanzilotta. But I happen to know the general counsel 
lawyer that we are talking about here and I have the highest 
regard. He is a career civil servant and he understands these 
issues. I work in these issues in fiscal law all the time.
    Mr. Tierney. Are you saying that wasn't the sequence, then?
    Mr. Lanzilotta. Well, that is the sequence.
    Mr. Tierney. OK.
    Mr. Lanzilotta. But the thing is this is an ongoing 
discussion that goes on among these lawyers.
    Mr. Tierney. I understand that. And I just wanted to 
establish what the sequence was on that. And I guess my next 
question, General Kern, that general counsel's attorney was 
somebody who worked with Michael Mobbs, isn't that right?
    General Kern. I cannot tell you that they do or not. They 
worked in the Office of the Secretary of Defense.
    Mr. Tierney. As did Mr. Mobbs.
    General Kern. Yes. But that is a very large office. And I 
have no idea whether he was included in that discussion. I 
would be surprised if he were.
    Mr. Tierney. General Kern and General Crear, I wanted to 
ask you a particular question. Both have oversight of LOGCAP 
and RIO, respectively. Can you explain to us or share with us 
the pay differential and the benefit differential between 
private contractors that provide services under those programs 
and enlisted servicemen and women in Iraq performing similar 
duties? We have been told that the salaries for the private 
contractors range as high as $80,000 for truck drivers and 
$120,000 for convoy commanders. Are those accurate figures? 
Would you provide us information on such payment and benefit 
differentials to this committee when you get an opportunity? 
And explain to us a little bit about whether or not that is the 
situation.
    General Kern. I cannot precisely tell you whether those are 
correct differentials. I can tell you under general 
circumstances, particularly in an international operation, 
regardless of whether you are at war or not, that a contractor 
will make more money than a uniform person. The second set of 
issues which we know are significantly impacting the ability to 
hire people today are the liabilities which they must assume 
under war zone conditions, and in some cases it has been very 
difficult for them to even one, get people to sign up for the 
job and two, to get the coverage for them for their insurance.
    Mr. Tierney. And I understand all of those risks. 
Obviously, our men and women are taking those risks everyday. 
What I guess I wonder is what can be done about those relative 
pay scales and what effect does it have on the morale of our 
troops, our men and women who are working at one pay scale and 
may be protecting the lives of others making substantial 
amounts of benefits and moneys more than they are.
    Chairman Tom Davis. The gentleman's time has expired.
    Mr. Tierney. If I could just have an answer to my question, 
Mr. Chairman.
    Chairman Tom Davis. Sure.
    General Kern. I don't have a precise answer for you. Our 
soldiers work side-by-side with the contractors and with other 
DOD civilians on a day-by-day basis, and I can tell you what 
they don't do is usually compare paychecks. What they are 
usually comparing is the conditions in which they are operating 
and trying to get the mission done.
    Chairman Tom Davis. And let me just say this committee 
discussed that when we were working on the NSPS, the National 
Security Personnel System. The fact is everybody gets paid more 
than our uniform soldiers over there. Civilian employees doing 
the same thing are generally paid at a much higher level for 
the kind of work than you would get doing a private or a Spec 
4, somebody doing that, unfortunately.
    Mr. Tierney. Well, I look forward to having that 
information so we can see just how substantial the 
differentials are.
    Chairman Tom Davis. That is beyond the scope of this 
committee in terms of looking at these contracts, but that, 
unfortunately, is a fact. But the goal was to make soldiers 
soldiers, not to have them doing other things. We have many who 
have criticized the administration for not having enough 
manpower. We are having to have the soldiers be soldiers here.
    Mr. Ose, you are recognized for 5 minutes.
    Mr. Ose. Thank you, Mr. Chairman.
    I am intrigued by a line of questioning that the ranking 
member pursued earlier. If I got it verbatim, he asked each of 
you whether or not, relative to Mr. Mobbs, you have any 
knowledge to disprove Mr. Mobbs' allegations. Let me rephrase 
that. Mr. Mobbs has made some allegations about conduct between 
certain offices at the Pentagon and certain offices at the 
White House. Do you have any knowledge to prove those 
allegations? Mr. Lanzilotta. Rather than prove the negative, do 
you have anything to prove the positive?
    Mr. Lanzilotta. I am sorry, I really don't understand the 
question.
    Mr. Ose. OK. Mr. Mobbs has made some allegations regarding 
contacts that were made between certain parties. Are you aware 
of that?
    Mr. Lanzilotta. When talking with Mr. Mobbs, I only know 
from a brief conversation, I don't have a lot of firsthand 
knowledge. I know that he did talk to career and non-career 
people versus Halliburton----
    Mr. Ose. Are you aware of Mr. Mobbs' allegations regarding 
the Vice President's office?
    Mr. Lanzilotta. He told me----
    Mr. Ose. Mr. Mobbs?
    Mr. Lanzilotta. Mr. Mobbs that it was the same as given in 
his previous testimony, it was more in the terms of 
notification of a contract award.
    Mr. Ose. OK, well, I want to just run through this. So you 
don't have any knowledge to prove Mr. Mobbs' allegations?
    Mr. Lanzilotta. I have no firsthand knowledge.
    Mr. Ose. Mr. Reed, do you have any knowledge that would 
prove Mr. Mobbs' allegations? You were asked whether you have 
anything to disprove it. Do you have anything that would prove 
his allegations?
    Mr. Reed. No.
    Mr. Ose. Ms. Lee.
    Ms. Lee. No, sir. I can't speak for Mr. Mobbs.
    Mr. Ose. Ms. Ballard.
    Ms. Ballard. No, sir.
    Mr. Ose. General Kern.
    General Kern. Sir, I never heard of Mr. Mobbs until 
yesterday.
    Mr. Ose. General Crear.
    General Crear. No, sir, no firsthand knowledge.
    Mr. Ose. So we not only have no knowledge to disprove his 
allegations, we have no knowledge to prove it.
    Mr. Lanzilotta.
    Mr. Lanzilotta. In talking with Mr. Mobbs, though, he tells 
me that there was no inappropriate contact made.
    Mr. Ose. I know that. It is a political year, and I just 
want to make sure we get this flushed out properly in the 
course of the record.
    There have been many elected officials who have been 
involved in elective office during the time in question of the 
Vice President's tenure at Halliburton. For instance, Senator 
Boxer has held significant amounts of stock in Halliburton, 
almost consistent with Mr. Cheney's tenure at Halliburton. Do 
you have any knowledge of Senator Boxer weighing in to 
influence the award of any of these contracts to Halliburton, 
Mr. Lanzilotta?
    Mr. Lanzilotta. No, I do not.
    Mr. Ose. Mr. Reed.
    Mr. Reed. No, I do not.
    Mr. Ose. Ms. Lee.
    Ms. Lee. No, sir.
    Mr. Ose. Ms. Ballard.
    Ms. Ballard. No, sir.
    Mr. Ose. General Kern.
    General Kern. No, sir.
    Mr. Ose. General Crear.
    General Crear. No, sir.
    Mr. Ose. OK. Senator Feinstein's husband, Mr. Richard 
Bloom, is a significant shareholder in Parini and UBS. Do you 
have any knowledge of Senator Feinstein weighing in regarding 
the award of contracts to Parini or UBS, Mr. Lanzilotta?
    Mr. Lanzilotta. I do not.
    Mr. Ose. Mr. Reed.
    Mr. Reed. No, I do not.
    Mr. Ose. Ms. Lee.
    Ms. Lee. No, sir.
    Mr. Ose. Ms. Ballard.
    Ms. Ballard. No, sir.
    Mr. Ose. General Kern.
    General Kern. No, sir.
    Mr. Ose. General Crear.
    General Crear. No, sir.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. Let me just do a 
followup on that, because I am a little bit confused.
    Mr. Lanzilotta, earlier on questions from Mr. Waxman, you 
stated that you got your information from Mr. DiRita and that 
you didn't speak to Mr. Mobbs.
    Mr. Lanzilotta. Pardon me?
    Mr. Lynch. Is that true or false?
    Mr. Lanzilotta. I spoke to Mr. DiRita concerning the 
deputies committee meeting and what was said at the deputies 
committee meeting. I spoke to Mr. Mobbs as to what his contact 
was with the Vice President's office.
    Mr. Lynch. OK. All right. Just so I am clear. All right, 
thank you.
    First of all, I want to thank the panel for helping the 
committee with its work.
    General Kern, at the committee's last meeting, on March 
11th, we had an opportunity to have a brief conversation on the 
record, and I asked you about two Halliburton employees who 
took kickbacks from a Kuwaiti subcontractor in the amount of 
about $6.3 million in exchange for steering contracts to that 
Kuwaiti company, and I asked you for their identity, and I also 
asked you for the information on the Kuwaiti company to find 
out if they are doing similar things in other areas. Here is 
what I asked you. I said, we put a lot of sunlight on this 
process to find out who these people were, and we need to do 
more of that. We need to find out how many contracts they 
oversaw, we need to find out who the Kuwaiti contractors were 
that were offering these bribes or kickbacks, and we need to 
find out are those subcontractors who are providing these 
bribes doing other work in the country as well, and obviously 
we need to find out who these employees are.
    And in response to my question you stated, ``I promise you 
I will get back to you.'' Unfortunately, sir, with all due 
respect, I have not heard from you. It has been a couple of 
months now and I just want to ask you why that is.
    General Kern. Mr. Lynch, one, I was under the assumption 
that our offices had gotten back to you and given you the 
information which I was given, which was an advisory from the 
Department of Justice, because they have this under 
investigation, that I could not provide you the information at 
this time because it is an active investigation.
    Mr. Lynch. An active criminal investigation?
    General Kern. An active criminal investigation by the 
Department of Justice.
    Mr. Lynch. It is a little bit inconsistent. I just want to 
explain. We have had situations like this before with Mary 
Robinson. We were investigating the situation where the 
Kuwaitis were charging us 100 percent over what we should have 
been paying for gasoline from certain Kuwaiti contractors. This 
committee, both the majority and the minority leaders had Ms. 
Robinson, who was also under a criminal investigation, she came 
in, testified. I will point out that her testimony was expected 
to be favorable to the administration, but she was offered to 
the committee even though it was in the midst of a criminal 
investigation.
    So I am just curious why these two individuals who--
Halliburton has already paid the money back, the $6.3 million 
that they received in kickbacks. I don't know what the Kuwaitis 
got on the deal, how much they got, but the kickbacks have been 
paid back to the Government. And I am just curious why we can't 
get the identity of these folks. This is not a criminal 
investigation, this is a congressional investigation. I just 
want to know the identity of these folks and how widespread 
this practice of bribing our people, Halliburton's people 
through these Kuwaiti contractors.
    General Kern. Mr. Lynch, one, I have to believe that the 
lawyers in the Department of Justice are giving me good advice 
so that I do not prejudice the ongoing investigation so that we 
all see that this comes out the way we think it should 
equitably. Second, I do know that there is a threshold 
associated with these investigations where the fraud issues of 
$10 million changes, and we have not proved yet what the amount 
that has been alleged as being involved is the right amount, 
and I think that is one of the critical factors in this 
particular investigation. And if I could, I will bring one of 
my counsels over to your office and we can talk about this in 
more detail.
    Mr. Lynch. That would be terrific. OK, general, let me ask 
you, then. We have other Federal departments that are 
investigating this misconduct.
    General Kern. That is correct.
    Mr. Lynch. Have you shared that information with them?
    General Kern. We have shared all the information with them, 
yes.
    Mr. Lynch. OK.
    Let me ask Mr. Reed, then. Mr. Reed, have you gotten 
information regarding the identity of these two employees that 
took the $6 million, or some such amount, from these Kuwaiti 
contractors? You are doing the audit here for the Department of 
Defense. Have you got the information?
    Mr. Reed. No, we haven't, but that is not unusual. When a 
matter of this nature is being investigated, the identities of 
the parties, both the ones who may have taken the kickbacks as 
well as the ones who may have given the kickbacks, is not 
publicly disclosed or provided to people outside of the 
investigation, because to do so might compromise an 
investigative approach of the criminal investigators or whoever 
else is investigating. So I would not expect to be told that 
kind of detailed information.
    Mr. Lynch. Let me be clear here.
    Chairman Tom Davis. The gentleman's time has expired.
    Gentleman from Maryland, he can yield to you.
    Mr. Van Hollen. Mr. Chairman, I would be happy to yield a 
moment to my colleague.
    Chairman Tom Davis. OK.
    Mr. Lynch. OK, so, Mr. Reed, you haven't been given the 
information.
    General, can you tell me what department are you sharing 
this information with if it is not with the contract auditing 
wing of the Department of Defense?
    General Kern. It is the Department of Justice.
    Mr. Lynch. OK.
    All right, in deference to my colleague, my kind colleague, 
I want to end my questioning. Thank you.
    Chairman Tom Davis. The gentleman from Maryland is still 
recognized.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    Mr. Lanzilotta, I just want to followup on some of the 
statements you made this morning. I understand you were not 
working at the Defense Department, or were you, at the time of 
the 2002 meeting, the deputies meeting?
    Mr. Lanzilotta. I was not at the deputies meeting. I was 
working at the Department of Defense.
    Mr. Van Hollen. OK. And can you tell me what individuals 
you have spoken to about what took place at the deputies 
meeting? You mentioned earlier today that you had gotten some 
information from the public affairs officer, Mr. DiRita, I 
believe, is that right?
    Mr. Lanzilotta. He is the only one.
    Mr. Van Hollen. OK. Did you ever have any conversation with 
Mr. Michael Mobbs about the meeting?
    Mr. Lanzilotta. About the deputies meeting?
    Mr. Van Hollen. Yes.
    Mr. Lanzilotta. No.
    Mr. Van Hollen. About anything that took place at that 
meeting.
    Mr. Lanzilotta. Not concerning that meeting.
    Mr. Van Hollen. OK. I am trying to get a sense, and anyone 
on the panel who has information about this, if you could jump 
in, but my understanding is that Michael Mobbs was the 
presenter at the deputies meeting that took place in 2002, 
where they discussed this. Does anyone have any information to 
contradict that assessment?
    Ms. Lee. I was not at the meeting, sir.
    Mr. Van Hollen. I am sorry?
    Ms. Lee. I was not at the meeting.
    Mr. Van Hollen. Have you had any conversations with anybody 
about what took place at that meeting?
    Ms. Lee. Just a discussion. In fact, when we were prepping 
yesterday, there was a discussion yesterday that said what 
happened here, and we got into discussing it, that was the 
notification. I still characterize that as here is an 
operational question: is this what we want to do operationally. 
In fact, do we want to be prepared to fight fires in Iraq. And 
that is my understanding that was the discussion. Any 
subsequent discussion would have been a notification of we are 
getting ready to declassify and do some things that have been 
discussed here.
    Mr. Van Hollen. OK. I think the reason this is important 
is, as Mr. Waxman said, no one has made any allegations about 
influence from the Vice President's office taking place at that 
meeting, but the earlier statements suggested that there was 
almost a firewall between the political appointees and the 
professional civil servants with respect to the Halliburton 
contracts. And the information that has come out more recently 
suggests that there was not a firewall. Now, that may be 
standard practice for the contract officers to be talking to 
other people in the decisionmaking capacity, but getting this 
story right, it seems to me, is important because there have 
been statements that were made that were interpreted that Mr. 
Mobbs essentially made the decision, took it to the deputies 
meeting, and then went on and told the contracting officers 
essentially this is what we want, do it, give it to 
Halliburton.
    And so as I understand, none of you are in a position to 
really tell us whether that is the way events unfolded or 
whether they didn't. I guess we need other witnesses to 
followup on that.
    Ms. Lee. No, sir, but I can tell you we have been working 
for years to try to get the requirements organization and the 
contracting organization to work together to make sure we 
support the mission properly, something we have been working 
on.
    Mr. Van Hollen. No, I understand that is important, but it 
is also important, I think you would agree, to make sure that 
these decisions are insulated as much as possible from the 
political process in terms of who gets a contract award. And 
people have bent over backward within the administration to 
make statements representing that is in fact how it happened, 
without any political influence, and so that is why some of 
these recent facts coming to light I think have raised a lot of 
serious questions about exactly how things unfolded there.
    If I could, Mr. Chairman, I would like to yield to my 
colleague, Mr. Lynch.
    Chairman Tom Davis. Mr. Lynch, you have another minute.
    Mr. Lynch. Just to go back, General Kern and Mr. Reed. We 
know that there was mishandling here, that there was over $6 
million in kickbacks that were paid to Halliburton employees. 
You won't tell me the names of the individuals. I can't find 
out the names of the Kuwaiti companies involved. I can't find 
out if they are doing other work other places. I can't 
understand why someone won't tell me what other contracts these 
two individuals were overseeing.
    Can you at least tell me, either of you, have we severed 
all contracts with this company, this Kuwaiti company that has 
been paying kickbacks to Halliburton employees? Can you at 
least tell me that?
    General Kern. Sir, I cannot tell you that. Part of what you 
are asking me is to presume that we have already judged that 
they are guilty, and I can't do that until the investigation 
takes place to make any judgments against them. And I can't 
prejudice the investigation while it is ongoing by divulging 
information which is not under my purview, but under the 
investigator's purview right now.
    Chairman Tom Davis. Thank you. The gentleman's time----
    Mr. Lynch. So have we suspended the contracts or anything 
like that?
    General Kern. What I can assure you, Mr. Lynch, is that 
this is being pursued by our Government to do the right thing 
legally, and at the right time I think it all will be shared 
with you. We are watching this very closely to do the right 
thing.
    Chairman Tom Davis. Thank you. The gentleman's time has 
expired.
    There are hundreds of contracts under dispute right now. If 
you were to suspend all of these, the Government would never 
get anything done. That is the nature of contracting; that is 
why we have the DCAA and these other groups to come in 
afterwards and look at the forward pricing and compare it to 
the reality on the ground. I think normal procedures are 
working.
    Ms. McCollum, you are recognized for 5 minutes.
    Ms. McCollum. Thank you, Mr. Chairman.
    In looking at part of the testimony from the Brigadier 
General, you talk about the planning prior to war. On page 2 
you talk about ``Prior to war, we originally expected that we 
would have to repair the damage caused by military action, deal 
with the resulting humanitarian crisis, set a stage for a new 
Iraqi government to oversee further exploration production, 
refining, distribution facilities for the oil.''
    Did you have any contact with the State Department? I 
understand the State Department had made contingency plans. Did 
you look at any of them, were they consulted?
    General Crear. We did not look at any State Department 
plans that I know of.
    Ms. McCollum. OK, thank you. Then I have a concern and a 
question. I too had the opportunity to go to Iraq, and our 
servicemen and women are heroes trying to do a difficult job 
under very difficult circumstances. Our civilian contractors, 
our civilian employees in the Department of Defense and State 
Department all face grave danger in trying to do their jobs, as 
well as it is day-to-day life or death for many Iraqi citizens. 
But when I was in the dining hall, I have to wonder because it 
crossed my mind so often when I saw the civilian employees 
there. That was the day that Al Rashid had first been shelled 
inside the green zone; it was a very, very tense situation. And 
I looked at these civilian employees and I looked at all these 
soldiers I had been with and I thought, geez, what happens? 
What happens if there is civilian contract employees when a 
situation goes to gunfire? Who is responsible for the safety of 
the civilian contractors? How does our soldiers' role become 
challenged? Because many of the soldiers that I spoke with 
said, ma'am, I don't know whether I am a humanitarian worker, a 
police officer or soldier today. How does that get sorted out 
and who is responsible for their security in situations like 
that, and who is paying for the contractors' security in the 
convoy situations?
    General Kern. Let me try to answer that question for you. 
First, the combatant commander in the theater is responsible 
for the security of the people----
    Ms. McCollum. I am sorry, there is something wrong with the 
acoustics, sir, and I am not understanding you.
    General Kern. The combatant commander is responsible for 
the security of the people in his area of operation, and that 
includes the civilians, DOD, and contractors. In some cases 
within the green zone, you are in Ambassador Bremer's area, and 
he has hired other people to provide security within his 
immediate vicinity. So you have a two-tiered kind of operation 
that is going on there, one in the immediate CPA facilities, 
and then in the area of operations, and depending upon when you 
were there would depend upon who the commander was in charge of 
that particular area.
    We have, in the case of security for the convoy operations, 
placed a uniformed soldier in the cab with the contractors 
riding those since last April, when security became much more 
of a problem for those convoys. So we have changed and we have 
worked that out with KBR, and they have placed one of their 
personnel in theater to look at very particularly the security 
of those operations on a daily basis.
    Ms. McCollum. Sir, thank you. And I am not trying to be 
flippant about this, but it sounds very complicated at a time 
when you might not know what is happening around you or what 
your orders might be to respond to fill in to a line or to do 
something that you have a group of American civilians that I 
would think, from meeting the, as I said, terrific soldiers 
that I met, would feel conflicted about what they may or may 
not need to do. And they follow orders and they would do the 
best job that they could under the circumstances, but we have 
really changed contracting. First the Department of Defense was 
contracting out what civilians would typically do. This is the 
first situation, to my knowledge, where we have so many 
civilian contractors working side-by-side, described in some of 
the testimony here as part of our troops, in other words, as 
part of the military, when the military used to perform many of 
these functions with people who had been through boot camp, who 
did know what to do, and we have civilians who don't. And I 
find that rather a concern.
    And that brings me to my other question. Do you have a 
summary on what happened with the contractors that is available 
to either this committee or Members of Congress on the prison 
situation?
    General Kern. I am not sure that I fully understand what 
you mean do I have a document that describes. We have many 
thousands of contractors there working on very different kinds 
of operations. And I share your concerns about how we run that 
whole security operation. Some of them are field service reps 
that do technical contracting in support of operations; some of 
them are the civilians working for the CPA and the 
reconstruction effort, as well as State Department and other; 
and then we have the third level of the support kind of 
contractors that are running services that we have. So there 
are lots of different categories, and I don't have a single 
report that covers that.
    Chairman Tom Davis. Thank you very much.
    Thank you, Ms. McCollum.
    Mr. Waxman, you want to give a summary?
    Mr. Waxman. Well, Mr. Chairman, I think this panel has been 
very helpful, and I want to thank them for their participation 
in the hearing today. A lot of people ask why is there so much 
passion, why do we care so much about this issue. At a time of 
massive budget deficits and stories about our troops not 
getting everything they need to support them in Iraq, when I 
hear about these egregious situations where there are 
overcharges by Halliburton and anyone else, it really gets me 
angry. And when I hear from the DCAA, telling us there are no 
internal controls to stop the overcharging, the DOD hasn't done 
enough to prevent this sort of thing from happening, from 
stopping waste, fraud, and abuse, I think the whole situation 
is ripe; it is a perfect situation for those contractors that 
want to take advantage and overcharge for them to do it, 
somewhat like what we had in California with the energy crisis. 
We had a situation where the energy suppliers could overcharge 
us. People said it wasn't happening, it couldn't be, and now we 
know from the internal tapes of the discussions at places like 
Enron and some of these other companies that they knew what 
they were doing.
    Well, I think what is missing is accountability, and that, 
to me, means that we in the Congress have to be more 
aggressive, hold hearings, get the documents, and pursue the 
truth. And, Mr. Chairman, I want to thank you for your 
commitment to doing that and your willingness to continue 
pursuing the matter, because I think that is a very serious 
part of our job as Members of Congress.
    Chairman Tom Davis. Mr. Waxman, thank you.
    Let me thank our panel for this.
    Let me just note this committee originally started as five 
different committees, all overseeing the expenditure of 
Government funds, and in the 1950's was consolidated in the old 
Government Operations Committee. In 1995 they consolidated 
Civil Service Committee and the D.C. Committees and molded us 
into one, but one of our primary objectives is to oversee 
waste, fraud, abuse in Government expenditures, and that is 
what we are doing.
    From what I have heard, I don't see any real strong 
evidence of fraud or political favoritism, but there is always 
waste when you are dealing with contracts of this magnitude in 
a war zone; there are things that may be in the calm of the day 
might have been done differently. Our job is to now come back 
and examine these. We hope that it is a learning experience for 
you.
    The one thing Enron didn't have to face was DCAA. We can 
see from Mr. Reed and his troops that are over there we are not 
going to pay a penny more than they can substantiate, and that 
there are literally hundreds of millions of dollars in dispute 
in the one contract that has been highlighted today, and there 
are hundreds of other contracts where there is money in 
dispute, where people make decisions in a war zone that, on 
reflection, maybe the taxpayer shouldn't be responsible for.
    So, Mr. Reed, we are glad you and your cohorts are here. Go 
to it. As Mr. Waxman said, these are Federal tax dollars that 
are taken from hardworking people, and we don't want them 
wasted.
    We will be doing more oversight on this, as we discussed at 
the beginning of this.
    Mr. Waxman, thank you for your cooperation. I thank the 
members for their perseverence, as well.
    This meeting is adjourned.
    [Whereupon, at 3:40, the committee was adjourned, to 
reconvene at the call of the Chair.]
    [The prepared statements of Hon. Katherine Harris and Hon. 
Dutch C.A. Ruppersberger follow:]

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 UNPRECEDENTED CHALLENGES: THE COMPLEX TASK OF COORDINATING CONTRACTS 
               AMID THE CHAOS AND THE REBUILDING OF IRAQ

                              ----------                              


                        THURSDAY, JULY 22, 2004

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, Shays, 
Burton, Ros-Lehtinen, McHugh, Mica, Souder, LaTourette, Ose, 
Lewis of Kentucky, Jo Ann Davis of Virginia, Platts, Cannon, 
Schrock, Duncan, Deal, Miller of Michigan, Murphy, Turner of 
Ohio, Carter, Blackburn, Tiberi, Harris, Waxman, Lantos, Owens, 
Towns, Kanjorski, Sanders, Maloney, Cummings, Davis of 
Illinois, Tierney, Clay, Watson, Lynch, Van Hollen, Sanchez, 
Ruppersberger, Norton, Cooper, and McCollum.
    Staff present: David Marin, deputy staff director/
communications director; Keith Ausbrook, chief counsel; Ellen 
Brown, legislative director and senior policy counsel; David 
Young, counsel; Robert Borden, counsel/parliamentarian; Rob 
White, press secretary, Drew Crockett, deputy director of 
communications; John Cuaderes, senior professional staff 
member; Edward Kidd, professional staff member; John Brosnan, 
GAO detailee; Teresa Austin, chief clerk; Brien Beattie, deputy 
clerk; Allyson Blandford, office manager; Leneal Scott, 
computer systems manager; Andrew Stein, legal intern; Phil 
Barnett, minority staff director; Kristin Amerling, minority 
deputy chief counsel; Karen Lightfoot, minority communications 
director/senor policy advisor; Anna Laiti, minority 
communications and policy assistant; Jeff Bara, Rosalind 
Parker, and David Rapallo, minority counsels; Mark Stephenson 
and Nancy Scola, minority professional staff members; Earley 
Green, minority chief clerk; Jean Gosa, minority assistant 
clerk; and Cecilia Morton, minority office manager.
    Chairman Tom Davis. Good morning. The committee will come 
to order, and I want to welcome everybody this morning to our 
full committee oversight hearing entitled, ``Unprecedented 
Challenges: The Complex Task of Coordinating Contracts Amid the 
Chaos and the Rebuilding of Iraq.'' This is the fourth in the 
series of hearings this committee has held on the challenges 
involved in the execution of contracts for rebuilding Iraq amid 
the chaos and dangers of war.
    Just a few short weeks ago, the Coalition Provisional 
Authority turned over the reins of government to the people of 
Iraq. This transition to self-government shows that our 
commitment to the Iraqi people is genuine and real. Yet we 
still have much to accomplish, and the road ahead is still 
difficult and perilous. American soldiers and civilians 
continue to lose their lives protecting freedom. Make no 
mistake, as long as we have the resolve to finish the job, I am 
certain we are going to prevail.
    As a major part of our mission to bring peace to Iraq and 
the surrounding area, we have committed a substantial amount of 
taxpayer money. To that end, we rely on our military and 
civilians to carry out day-to-day activities which are 
essential to security and the rebuilding process. The military 
has been nothing short of superb and the unsung heroes are the 
many civilians in Iraq, who, like the military, work tirelessly 
and under very dangerous conditions.
    The majority of civilians working in Iraq are private 
contractors. The sacrifices these people make are inspiring, 
and I believe history will give them the credit they deserve 
for changing the face of this region.
    I can't emphasize how hard it is to conduct normal business 
in Iraq, and yet we continue to make progress. Nevertheless, 
whatever the danger and no matter the difficulties, we demand 
that contractors doing business in Iraq do so in accordance 
with the governing laws and regulations. I can understand how 
the difficulties of a war zone can lead to poor recordkeeping. 
I know there are those individuals who think they can turn a 
quick but questionable buck because they hope the fog of war 
will cover their actions. And, yes, there are bad apples who 
can turn up wherever opportunity presents itself. Such 
opportunism cannot be condoned.
    We are having this hearing today because there are those 
who believe we have a company, in this case Kellogg Brown and 
Root, that is wasting tax dollars or abusing its contracting 
role, or even defrauding the U.S. taxpayer. From what I have 
seen to date, I happen to disagree. I have yet to see any 
serious evidence of this, but we do have reviews going on 
across the spectrum with Defense Contract Audit Agency and 
others, and as allegations are brought to us we need to make 
sure these are forwarded on to the appropriate officials who 
are trained in these areas to review them and to make sure the 
taxpayers aren't fleeced.
    What I see and what we have seen to date are occasional 
failures to communicate, inattentiveness in adhering to strict 
business procedures, and a clearly less-than-perfect accounting 
process. Of course, in a perfect world, we would have 
contractors that would accomplish the mission and maintain 
perfect peacetime business practices with the appropriate paper 
trails. But even when the best business practices aren't 
maintained, the taxpayer is still protected because our 
government procurement system prohibits reimbursement to KBR or 
any other contractor until they have shown the military that 
the costs presented, as determined by the contracting officer, 
are reasonable, allocable to the contract, and allowable under 
the government's cost principles.
    We have seen a display of this process through the various 
Defense Contract Audit Agency reports on cost issues that have 
been made public. To me, these reports show that the oversight 
process is alive and working. They reveal issues of contract 
interpretation, cost reimbursements that are not at all unusual 
in large, complex, cost-type contracts.
    The last hearing we held on Iraq contracting, a little more 
than a month ago, explored those issues with those responsible 
for contract management and oversight. Because of the 
overheated political atmosphere surrounding the war in Iraq, 
and a misplaced concern about the use of KBR as a contractor in 
particular, we are holding yet another hearing on Iraq 
contracting. But this time, instead of contracting experts, we 
are hearing from so-called whistleblowers who will air their 
complaints against KBR. We will also hear the firm's reaction 
to those complaints.
    Today, we will hear from representatives of Kellogg Brown 
and Root, a subsidiary of the Halliburton Co., and the prime 
contractor on two of the larger contracts associated with 
Kuwait and Iraq, the LOGCAP and initial Restore Iraqi Oil [RIO] 
programs.
    I want to publicly thank KBR for testifying today. They 
come of their own accord. I, for one, still believe that if it 
weren't for the fact that the Vice President was the former--
and I emphasize former--CEO of the parent company, we probably 
would not be here today. Politics is driving this agenda, and I 
suspect that not even the truth will keep detractors at bay.
    Despite this, KBR has decided to answer under oath 
allegations that continue to be shopped to the media. In fact, 
I want to highlight that point by submitting for the record, if 
there is no objection, a Washington Post article dated July 20, 
page A-15 under the White House Notebook, by Dana Milbank 
titled ``The Kerry Campaign One-Word Weapon.'' The gist of the 
article is how the Democrats are using Halliburton as fodder 
for the Presidential campaign.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6407.156
    
    Chairman Tom Davis. However, before we hear from the 
representatives of KBR, we will first hear testimony from 
former employees who believe they personally witnessed waste 
and abuse. I think it will become clear that these individuals 
are not experts in government contracting, but they have, for 
various reasons, something against the company. Although the 
minority has worked with these witnesses for a long time, in 
the case of Ms. deYoung who is here, the minority knew of her 
allegations 8 months ago. They were brought to our attention 
only 2 months ago. At that time, the ranking member wanted an 
immediate hearing without allowing us to evaluate their claims 
and determine whether a hearing would be appropriate.
    After a preliminary evaluation, we agreed to a hearing 
involving some of the whistleblowers, only to see that the 
whistleblower statements were on their Web site, which also led 
to the appropriate television news interviews. Again, all 
without any concern for the validity of the statements. In 
other words, the minority was more about the sensational 
accusations getting out to the media than in the actual fact-
finding that this committee is generally equipped to look at.
    We decided to hold this hearing and have the whistleblowers 
testify and to help put this in context to help us move beyond 
the rhetoric and to try to get to the truth of the matter. I 
have asked my staff to verify their accusations, even though I 
thought it should have been incumbent on the minority to do 
this.
    For those who came hoping to hear witnesses' firsthand 
evidence of waste, fraud and abuse by KBR, in my opinion you 
are going to have to brace yourself for some disappointment. 
The accusations leveled by the whistleblowers against KBR, both 
in their written testimony and through personal interviews, are 
either in some cases flat-out wrong, or are minor or a naive or 
myopic view of contracting in a wartime environment.
    Ms. deYoung's experiences in Kuwait led her to accuse KBR 
of waste and abuse. Her claims focus on what she calls poor 
oversight of the subcontractors, who she believes were fleecing 
the taxpayer. She also claims that KBR wastefully leased a 
five-star hotel for its employees, when the employees should 
have been staying in air-conditioned tents on U.S. military 
bases.
    Ms. deYoung is quick to jump to conclusions without 
understanding the whole story. As for leasing the five-star 
hotel, KBR is guilty of this, but let me put that in context. 
I've been to Kuwait, a couple of times. In Kuwait, most hotels 
start at the five-star level. Kuwait is not like any country 
you've ever been to. It's rich. That's why Saddam wanted it so 
badly. It seems that KBR had little choice. The only real 
choice was to pick the particular five-star hotel. And what Ms. 
deYoung did not know was that KBR wanted to be stationed on the 
base, and had even requested to house employees on that base. A 
military base is more secure than a hotel and the base was 
where the work is.
    As I understand it, the military, for good reasons, didn't 
want KBR on the base. By the way, I understand these hotel 
rooms had many occupants. So it wasn't like a suite for an 
individual; sometimes up to five or six people were in a room 
at a time.
    The majority of her allegations concern subcontract 
administration. In her interview with committee staff, she 
painted herself as a contract specialist who uncovered 
subcontractors overcharging for goods and services. I think you 
will look at the math skills, and maybe there is a little to be 
desired there. She attacks the kind of contracts the minority 
has been touting. The accusations surrounding soda and laundry 
are tied to fixed-price contracts. Again, this all seems to be 
explainable, or, at worst, relatively minor when the entire 
story is told.
    Mr. Mike West's problems started early with KBR. He claims 
that prior to starting with the company, he negotiated a 
starting salary of $130,000, only to learn his salary would be 
$82,000 per year, based on a 12-hour day, 7-day-per-week 
schedule. Although Mr. West felt he was cheated, he decided to 
accept the salary and join KBR as a labor foreman. In his 
interview with the committee staff, Mr. West often complained 
that he had to wait; wait to get from point A to point B, wait 
to be assigned work, wait to get a ride back to the States.
    Well, as a former member of the military myself, I'm 
familiar with this feeling. We used to call it, when I was in 
the Army, ``hurry up and wait.'' Hurry up and wait isn't waste 
and abuse; it's, unfortunately, part of the logistical 
challenges that are presented when working with the Army that 
changes its mind more often than not.
    Mr. West did eventually work, but he didn't like the work 
and he left after 2 months. The experience left a bad taste in 
his mouth, so he quit. Obviously, this type of environment 
didn't suit him. Unlike working in the States, the atmosphere 
in Iraq was not conducive to his plans being carried out like 
clockwork. It's just the opposite.
    In the early days after the war, adapting to the situation 
was more the rule than the exception. I know my colleagues who 
traveled with me to Iraq can verify this is true.
    James Warren and David Wilson are truck drivers who drove 
convoys in Iraq. They both have similar stories, and I see 
their similarity extends to the lawyers that they brought with 
them today. The gist of these gentlemen's allegations has to do 
with what they see as waste and abuse of taxpayer assets. They 
claim that poor maintenance and the lack of proper spare parts 
led to trucks breaking down, and a lack of interest in 
conserving assets resulted in disabled vehicles being destroyed 
onsite rather than fixed or towed. After all, these were not 
KBR's trucks, so why should they care.
    Again, what we have here are accusations made with very 
myopic tunnel vision. I think we will see when we have the 
opportunity to hear the whole story, that most of the actions 
of the contractor were likely out of its control, and make 
sense given the security concerns in running convoys through 
Iraq in hostile fire.
    Yes, it makes sense to retrieve a truck, and I understand 
how a professional truck driver loathes seeing a piece of 
equipment like that being destroyed. However, an $85,000 truck 
is simply not worth a life, whether it's one of our soldiers or 
a civilian who might be in harm's way without the protection of 
an entire convoy. Mr. Warren and Mr. Wilson ought to be 
grateful that they returned from Iraq unharmed.
    These truck drivers, like the rest of these whistleblowers, 
believe that what they saw while working in Kuwait and Iraq 
were not simply examples of paperwork problems or the hurry-up-
and-wait environment, but were, instead, the result of wanton 
and careless disregard of KBR toward American taxpayer funds.
    Our acquisition system is a complex web of regulations and 
safeguards put in place to protect the taxpayer. A person with 
a view of only a small part of an entire process cannot see 
that there are many players and considerations involved in 
decisions that, in wartime especially, might sometimes overlook 
some formalities to ensure the mission is accomplished and that 
no one gets hurt.
    Unfortunately, even with these goals in mind, this conflict 
has cost 47 KBR employees their lives. I believe that tunnel 
vision, inexperience, and naivete are behind many of the 
allegations we will hear today. But to be honest, I fear some 
are here because they have ulterior motives, whether it's a 
book or a try at the litigation lottery jackpot. Today, the 
truth will come out. I tried to convince the minority that 
there was not much here. But, again, there are some who have a 
different view of this and think that oversight advances their 
political agenda.
    As we saw clearly in past hearings, the contract oversight 
process is hard at work here. All the charges under the LOGCAP 
contract will come under the scrutiny of government auditors, 
career employees trained to ferret out waste, fraud, and abuse, 
and they are not going to be paid unless the contracting 
officer is confident that they are reasonable, allocable to the 
particular contract, and allowable under the government's cost 
principles.
    Our second panel today is made up of representatives of 
Kellogg Brown and Root, a subsidiary of the Halliburton Co. KBR 
is the major prime contractor on executing the Army's LOGCAP 
program.
    LOGCAP was established in 1985 to manage the use of various 
civilian contractors who perform services in support of DOD 
missions during times of war and other military mobilizations. 
LOGCAP has been used to support DOD missions from Somalia to 
Afghanistan to Iraq. It was used effectively during military 
operations at Bosnia and Kosovo. The effort in Iraq is the 
largest in the history of the LOGCAP program. As of last May, 
the estimated value of the contract services in Iraq is $5.6 
billion. The LOGCAP contractor in Iraq provides such logistics 
and engineering services as food preparation, laundry, housing, 
and construction in support of military operations.
    This particular contract, held by KBR, is the third 
iteration of the Army's LOGCAP contract. The first was awarded 
to KBR in 1982, the second was awarded to DynCorp in 1994, and 
the current contract awarded to KBR in 2001 competitively. I 
think it is important to keep in mind that all three of these 
contracts were awarded under competitive acquisitions.
    The LOGCAP contract was awarded on a cost-plus award fee 
basis. Such contracts provide that the contractor is only to be 
reimbursed for reasonable, allowable, and allocable costs 
incurred as prescribed in the contract.
    A cost-plus award fee contract provides financial 
incentives based on performance. The logistical needs of our 
military in Iraq and Kuwait are massive, time sensitive and 
ever changing. In order to meet these needs, KBR must be able 
to react swiftly. These requirements dictate the use of such 
cost-type contracts. Cost-type contracts are commonly used 
where, as in Iraq, urgency and uncertainties do not permit 
costs to be estimated with sufficient accuracy to permit the 
use of fixed-price contracts.
    Indeed, defense auditors have criticized KBR for inadequate 
cost estimating and problems with its accounting and 
documentation practices. There are a number of outstanding 
issues concerning KBR, particularly concerning food service. 
These types of issues often arise in the context of cost-type 
contracts and are part of the normal contract oversight 
process. The issues tend to be exacerbated here because of the 
large amounts of money involved and the extremely difficult 
conditions in Iraq.
    KBR has told committee staff that they were prepared to 
answer all the questions relating to the whistleblowers and 
other allegations that have been leveled against them through 
the press or by congressional critics. These include answering 
dining facilities charges, kickback schemes, gasoline 
subcontracts, and other allegations of overcharging. We look 
forward to hearing their side of the story today and taking 
appropriate questions from Members.
    In closing, I want to ask that everyone here, especially my 
colleagues and the members of the media, stick around and 
listen to our third panel witness, Dr. Steven Kelman of Harvard 
University. Dr. Kelman is the Weatherhead professor of public 
management at the Harvard Kennedy School of Government, and the 
former director of the Office of Federal Procurement Policy in 
the Clinton administration. He is above the political fray. Dr. 
Kelman is here to offer some general observations about our 
acquisition system and its operations in a wartime atmosphere 
in Iraq.
    The minority has questioned the contracting activities in 
Iraq, and I can think of no better person to testify as to 
whether or not our acquisition system and its contract vehicles 
can do the job in Iraq. In many ways, Dr. Kelman's testimony is 
the most important here today.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Tom Davis. Mr. Waxman, I recognize you for an 
opening statement.
    Mr. Waxman. Thank you, Mr. Chairman. Today is the 
committee's third hearing this year on Halliburton's contracts 
in Iraq, and I want to begin by commending Chairman Davis for 
holding this hearing. The Bush administration is notoriously 
opposed to oversight, so it has taken independence and a 
commitment to oversight for our chairman to agree to hold this 
hearing.
    Halliburton holds the two largest contracts in Iraq: a $5.6 
billion contract called LOGCAP, to provide support services to 
the troops; and a $2.5 billion contract, called RIO, to restore 
Iraq's oil fields. Yet from the very beginning, these two 
contracts have been plagued by mismanagement and inflated 
billings.
    There is an old saying, ``Don't miss the forest for the 
trees.'' But sometimes the reverse is true. You have to study 
the individual trees to really understand the forest. That is 
why this hearing is so important. The administration's approach 
to the reconstruction of Iraq is fundamentally flawed. It is a 
boondoggle that is enriching a lot of contractors but not 
accomplishing enough on the ground, and there is no better 
window on what is going wrong than Halliburton.
    Halliburton is an $8 billion microcosm that symbolizes the 
administration's misplaced priorities. Our troops are clamoring 
for body armor. But when it comes to Halliburton, GAO has found 
that there were no spending limits. Two years ago, the 
administration started the drum beat for war by providing 
Congress and the American people with misleading information 
about the threat posed by Saddam Hussein and his alleged links 
to al-Qaeda. We know now that what we were told was unreliable 
and often wrong, but we didn't know enough to correct the 
mistakes until after the fact. We can't let that happen again.
    The administration says it has a highly sophisticated plan 
for rebuilding Iraq, but in fact it is doling out monopoly 
contracts worth millions to private contractors, squashing 
competition that could discipline prices, and paying millions 
of dollars to so-called oversight contractors who are the 
business partners of the very companies they are supposed to be 
monitoring. We know this is occurring, but where is the 
outrage? This committee is investigating, but no one else is, 
and no legislation is moving to fix these problems.
    Yesterday, Mr. Dingell and I released two reports about 
Halliburton's contracts. This is what they reveal. Halliburton 
is gouging the taxpayers. And aside from the independent 
auditors at the Defense Contract Audit Agency, the Bush 
administration doesn't seem to care. The whole justification 
for hiring private contractors and private companies like 
Halliburton is that the companies can save the taxpayers money. 
But Halliburton has turned this principle on its head.
    In April, a government agency took over the responsibility 
of importing gasoline into Iraq. My staff's investigation 
revealed the agency is now doing this job at a fraction of what 
Halliburton charged. Here is one example, which is illustrated 
by a chart over to the left.
    Both Halliburton and the Defense Energy Support Center used 
the same company, Altanmia, to import gasoline from Kuwait into 
Iraq, but Halliburton billed $1.30 in transportation charges 
for every gallon trucked across the border while the Defense 
Energy Support Center is paying just 42 cents per gallon, less 
than one-third of the price.
    The GAO report released yesterday is a top-to-bottom 
indictment of how the administration has mismanaged 
Halliburton's LOGCAP contract. The GAO found that the 
administration's planning was ``ineffective and piecemeal;'' 
that there were no spending limits for LOGCAP until spring 
2004; that ``It is difficult to know how much the contractor 
has actually spent;'' and that the military officials 
responsible for oversight had ``little or no training.''
    Here is a telling fact. We know from last month's hearing 
that the administration started to plan for taking control of 
Iraq's oil fields in the summer of 2002, months before the war 
began, yet GAO's report reveals that there was no contingency 
planning for feeding and housing our troops until May 2003, 
after the fall of Saddam. Those are not the priorities of most 
Americans.
    Today, we are going to hear from a panel of former 
Halliburton employees. They will describe their firsthand 
experiences working for Halliburton in Iraq and the instances 
of waste, theft, and mismanagement they personally witnessed. 
It is not easy to come before a congressional committee and 
blow the whistle on these kinds of abuses, and I want to 
commend them for their candor and their patriotism for 
appearing here today.
    What they will say to us in their testimony in a few 
minutes is not the first indication that waste is going on. 
They are telling us from the inside perspective what we have 
seen from an outside perspective from three different audit 
agencies, the DCAA, the CPA IG and the GAO. Now, those are 
letters, but the Defense Contract Audit Agency works in the 
Pentagon, the Coalition Provisional Authority is the 
organization that was running the government in Iraq, now more 
behind the scenes, and their Inspector General has told us the 
same thing, as has the General Accounting Office. All three 
audit agencies have told us Halliburton is wasting our money. 
They have told us from their outside review. The witnesses, who 
are whistleblowers, are going to tell us from their insider 
perspective. They are not telling us something new, they are 
just telling us something from a different perspective.
    And for the first time Halliburton officials will testify 
before Congress, and I especially welcome their participation. 
There can be two sides to every story, and I look forward to 
learning Halliburton's side of this one.
    But let me contrast the fact that the witnesses who are 
whistleblowers were not allowed to testify before, because the 
majority wanted to talk to them at length to review what they 
had to say and also to try to find any evidence they could to 
try to discredit them. Well, I suppose that is not politics. 
But Halliburton witnesses were not open to any substantive 
review by our staff in advance and we are not complaining about 
that. Witnesses who have something to say ought to come 
forward, we ought to hear their testimony, and we ought to be 
able to ask them questions. And sometimes the questions--to get 
out the truth--are going to be hostile or adversarial. But I 
wanted to just compare the two panels of witnesses that we have 
today.
    I want to conclude by addressing the role of the Vice 
President and the allegations that the attention and criticism 
Halliburton has received is politically motivated. My focus and 
my concern has been for the U.S. taxpayer. We are spending tens 
of billions of dollars in Iraq, and the company with the two 
largest contracts is Halliburton. If you want to know whether 
the taxpayers' interests are being protected, you have to 
follow the money, and in this case the money leads to 
Halliburton.
    Last September, Vice President Cheney appeared on national 
television and said ``I have absolutely no knowledge of, in any 
way, shape, or form, of contracts let by the Corps of Engineers 
or anybody else in government.'' Senior government officials 
assured the public that Halliburton's no-bid contract was done 
by career civil servants.
    Well, I accepted those assurances at face value, and many 
Americans did also. But we now know those assurances were 
false. The decision to give Halliburton the sole-source Iraq 
oil work was made by a political appointee, not career 
procurement officials, and the Vice President's chief of staff 
received an extensive briefing. These revelations fundamentally 
change our oversight responsibilities.
    A shrewd politician once said, ``Fool me once, shame on 
you. Fool me twice, shame on me.'' We've been fooled once by 
the White House about the role of the Vice President and 
political appointees in the Halliburton contract. Now we need 
to investigate to learn the full story.
    Today, we will take another step forward, and a big one, in 
our oversight of contracting in Iraq. And I commend the 
chairman for holding this hearing and look forward to working 
with him as our investigative efforts continue.
    I also want to ask, Mr. Chairman, that the reports that Mr. 
Dingell and I released yesterday be made a part of the hearing 
record.
    Chairman Tom Davis. We will be happy to make it part of the 
record, but just make it clear that these are minority views. 
Be happy to include it as part of your statement.
    Mr. Waxman. Yes, as part of our statements, we will include 
the report.
    [The information referred to follows:]

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    Chairman Tom Davis. Without objection, so ordered.
    Mr. Waxman. Mr. Chairman, I have completed my opening 
statement, but I want to bring to the attention of the members 
of the committee a motion that I am going to make for a 
subpoena.
    Since March 2003, administration officials have repeatedly 
said there are absolutely no contacts between the Vice 
President's Office and the Pentagon regarding Halliburton's 
November 2002 task order to develop a contingency plan for 
Iraq's oil infrastructure and its March 2003 no-bid contract to 
implement that plan. Administration officials also have 
consistently said that career civil servants were responsible 
for choosing Halliburton to conduct the planning and oil 
infrastructure work.
    My motion that is before us--and maybe you want to report 
it so it is before the body, and I can then continue with my 
opening statement--is a request for a subpoena.
    Chairman Tom Davis. The motion offered by the gentleman 
from California is in order under House Rule XI clause 2(k)(6). 
Mr. Waxman and I have talked about this prior. We talked about 
it yesterday and today. That rule states that the chairman 
shall receive and the committee shall dispense with requests to 
subpoena additional witnesses. Pursuant to that rule, the 
chairman may determine the timing of the consideration of such 
request.
    At this time, the motion shall be considered as entered, 
and the committee will consider the motion offered by the 
gentleman from California today.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. If we want to try to set a time 
certain, Mr. Waxman, here at the conclusion of the third 
hearing?
    Mr. Waxman. I will leave it to the discretion of the Chair 
to determine a time certain, so long as it is fairly noticed to 
all Members on each side of the aisle.
    Chairman Tom Davis. Let me say 2 p.m. We should be through 
with the third panel, and we will have Members here for a vote 
at 2 p.m. on Mr. Waxman's motion.
    Mr. Waxman, you may address it, and then I'll address it, 
and we can then move on to our witnesses.
    Mr. Waxman. Mr. Chairman, I want to play a video excerpt 
from a hearing we had in March. On this tape you will hear 
Chairman Davis ask each witness whether there were any contacts 
with any person in the Vice President's Office before any 
Halliburton contract was issued.
    Could we have that videotape?
    [Videotape shown.]
    Mr. Waxman. The facts, however, depict a very different set 
of circumstances. We now know that the Vice President's Office 
had contacts with the Defense Department in October 2002, prior 
to the award of the contingency planning task order, and in 
March 2003, prior to the award of the sole- source contract.
    Vice President Cheney's chief of staff, Scooter Libby, was 
briefed about the proposal to issue the November 11 task order 
to Halliburton and was given the opportunity to object. 
According to a Pentagon e-mail and the author of that e-mail, 
the Defense Department also coordinated with the Vice 
President's office in March 2003 before the award of the sole-
source contract to Halliburton.
    So while the administration said for months that there were 
no contacts between the Pentagon and the Vice President's 
Office, we now know that there were contacts on at least two 
occasions. We also know that a political appointee, Michael 
Mobbs, not career civil servants, made the decision to award 
the task order to Halliburton, knowing that the company that 
did the planning would receive a sole-source contract to 
implement the plan.
    Mr. McHugh. Would the distinguished ranking member yield?
    Mr. Waxman. No, I won't at this point.
    Chairman Tom Davis. Let him finish his statement first.
    Mr. Waxman. The claims of the administration that the Vice 
President's Office knew nothing about Halliburton's contracts 
have been contradicted by the facts. That is why it is 
essential for the administration to disclose all contacts 
between the Vice President's Office and the Defense Department 
relating to these contracts.
    Mr. Chairman, at the last Iraq contracting hearing, I moved 
to subpoena these documents. After you agreed to consider a 
joint request, I withdrew that motion. You have since notified 
me that you will not join me in a joint request. Given the 
importance of these documents, I am left with no choice but to 
renew my motion to subpoena them.
    Mr. Chairman, I am not claiming the Vice President exerted 
inappropriate influence over the award of these contracts. We 
don't have enough information at this point to answer that 
question. The point is that the administration has repeatedly 
asserted that there were no contacts at all between DOD and the 
Vice President's Office regarding Halliburton contracts. The 
Vice President himself said this. We now have clear statements 
that this is not true. We have the right to know, and I think 
the duty to know, the extent of those contacts.
    Chairman Tom Davis. Thank you. Mr. Waxman, let me just add 
that where we agreed to issue subpoenas did not include the 
Vice President. Those were on previous issues we had talked 
about. I just said I would look at this and work with you.
    But, look, over the past year, I have tried to establish a 
reasonable strike zone on this issue. This is our fourth 
hearing. We have jointly requested and received thousands of 
pages of documents and participated in dozens of joint 
briefings. But the minority, led by the ranking member and his 
staff, keep trying to stretch the strike zone and make it wider 
and wider and wider, and there comes a time where we have to 
say we are not going to let it go any further. And this is an 
attempt, in my opinion, to embarrass the Vice President in an 
election season.
    The Washington Post article by Dana Milbank said, ``There 
is seemingly no charge the Bush campaign can level against John 
F. Kerry that will not produce a one-word retort: Halliburton. 
Kerry's proposed tax increases? Halliburton. Kerry's vote 
against Iraq war spending? Halliburton. Kerry's anti-terrorism 
credentials? Halliburton. Kerry's ties to Hollywood liberals? 
Halliburton, Halliburton, Halliburton. Halliburton, said 
Kerry's spokesman, Chad Clanton, will always be the fire Dick 
Cheney can't put out. That is certainly the Democrats' hope as 
they try to portray the oil services company once run by Vice 
President Cheney as a metaphor for all things anti-Bush. When 
Cheney spoke about health care in Toledo, Kerry forces held a 
counter rally saying `health care, not Halliburton.' '' And it 
goes on and on and on.
    We have already received the most important and relevant 
information on this question at two hearings and a joint 
briefing that no influence was exerted by the Vice President's 
Office on a decision to award the RIO contract and task order, 
and that the decision was made by career acquisition personnel. 
The Vice President's Office may have been notified the contract 
was coming, as our congressional offices are when there is a 
contract awarded in our districts. These assurances that there 
was no improper communication were given under oath. If I were 
to agree with this motion, I am fearful the minority's witch-
hunt would continue.
    When Mr. Mobbs spoke to staff, not under oath by the way, 
the minority heard what it wanted to hear. I don't see his 
statement that White House staff in a pro forma fashion 
received notice of an imminent award as amounting to a hill of 
beans. The question is one of efforts to exert influence, and 
there is no evidence that there was any effort to exert 
influence.
    So I understand you have the right to ask for a subpoena. 
We all understand the election season is upon us, and I think 
we will schedule a vote for 2 p.m., if that is convenient with 
Members here, so Members can be here and can vote appropriately 
on it. And we will postpone the vote until that time.
    Thank you. Mr. Waxman.
    Mr. Waxman. Mr. Chairman, if I might just respond briefly.
    Chairman Tom Davis. Sure, please.
    Mr. Waxman. Briefly. I just want to point out the reason I 
showed the tape is that the first time in any of the hearings 
that the question of the Vice President came up is when you 
asked each of the witnesses, under oath, whether they knew of 
or had any contact, or their office had any contact with the 
Vice President, each witness answered your question under oath 
in the negative. Now we have information to the contrary, from 
an interview we had with a political appointee at the 
Department of Defense that shows a contradiction of the facts.
    I have not heard you deny any of the facts that we have put 
forward. You have only suggested that it is political. Well, I 
think asking these questions is our responsibility. It is our 
responsibility to get to the truth, even if it might be 
embarrassing. And I don't know if it will be. But it is our 
responsibility to get to the truth, to do the oversight that is 
necessary, and that is why I think the subpoena ought to be 
issued, since we are not jointly requesting it nor are they 
volunteering to give us the information to clarify the record.
    Chairman Tom Davis. I just don't see any ambiguity here. 
The Vice President's Office may have been notified that a 
contract was forthcoming, which routinely happens to executive 
branch personnel and certainly to Members of Congress, but in 
no way is there any indication that there was any influence. 
And I take the people who testify here under oath, who are 
career Federal employees, at their word. So I am going to 
oppose the subpoena, but the committee will have an opportunity 
to vote on that today at 2 p.m.
    And thank you, Mr. Waxman.
    We are now ready to move to our first panel. We have four 
scheduled witnesses, I see three are hear, so if you would rise 
with me. Mr. James Warren is a former truck driver for KBR; Mr. 
David Wilson, who is a former truck driver for KBR; and Ms. 
Marie deYoung, who is a former logistics specialist at KBR.
    Mr. Burton. Mr. Chairman, may I make an inquiry please?
    Chairman Tom Davis. Yes.
    Mr. Burton. Mr. West is not here, and I had questions for 
him. Is he going to be here, do you know?
    Chairman Tom Davis. Let me ask the minority. He is a 
minority witness. Is Mr. West----
    Mr. Waxman. Mr. Chairman, we don't know why he's not here. 
Maybe he'll still----
    Chairman Tom Davis. We don't know. If he comes in, we will 
swear him at the appropriate point.
    I would say for Mr. Waxman, that to come before a committee 
and face questioning under oath, we appreciate your willingness 
to do that.
    [Witnesses sworn.]
    Chairman Tom Davis. We have a light down here in front of 
you that will be green. Generally, we allow 5 minutes for 
witnesses. If you have a written statement, the entire 
statement will go in the record and the questions will be based 
on that. But when the light turns orange, that means 4 minutes 
are up. When it turns red, 5 minutes.
    We would appreciate your summarizing, but this is important 
testimony, and if you feel you need to go over it I won't gavel 
you, but it just moves things along.
    Mr. Waxman and I have also agreed we would have a half-hour 
of questioning on each side to be controlled by myself and the 
ranking member that we will be able to yield out, so that we 
can get a continuity of questions instead of going back and 
forth. Is that correct, Mr. Waxman?
    Mr. Waxman. Yes.
    Chairman Tom Davis. Mr. Warren, we'll start with you. Thank 
you for being with us.

  STATEMENTS OF JAMES WARREN, FORMER TRUCK DRIVER, KBR; DAVID 
  WILSON, FORMER TRUCK DRIVER, KBR; AND MARIE DEYOUNG, FORMER 
                   LOGISTICS SPECIALIST, KBR

    Mr. Warren. You're welcome. My name is James Warren. Thank 
you for the opportunity to speak with you about my work as a 
truck driver in support of our troops in Iraq. I have given a 
signed statement to the committee staff. I would like to read a 
summary of that statement, and will then answer any questions 
you may have.
    I worked as a truck driver for Kellogg Brown and Root in 
Iraq from October 2003 to the end of March 2004. Before coming 
to Iraq, I worked as a truck driver for 13 years. For 11 years 
I worked for private trucking companies, including Builders 
Transport, Cal-Ark International, and Truck Service Inc.
    Mr. Waxman. Mr. Warren, would you pull the mic a little 
closer to you? Some of the Members are having a hard time 
hearing. Thanks.
    Mr. Warren. For 2 years I worked as an independent truck 
driver. During my time in Iraq, KBR didn't seem to care about 
what happened to its trucks. KBR bought its trucks new, usually 
Mercedes or Volvos, with virtually no mileage on the odometers.
    KBR removed the spare tires from the trucks on my convoys. 
I don't know why they did this, but one convoy, one of the 
trucks got a flat tire. Since we didn't have any spares, we had 
to leave the truck on the side of the road. As someone who has 
been in trucking for 13 years, I do not understand how a 
company could ditch a brand-new truck because they didn't have 
a spare tire. No trucker I know would have been that careless 
with his own truck.
    For the first 4 months I was in Iraq, it was common to 
torch trucks that we abandoned. The Army torched the trucks, 
even though we all carried chains and could have towed them to 
be repaired.
    Basic maintenance was nonexistent. The only maintenance I 
saw done was changing tires and some electrical work. The 
biggest problem was that KBR provided no air filters, fuel 
filters, or oil changes for these trucks. Especially in Iraq, 
these trucks should have been getting replacement filters and 
oil changes on a regular basis.
    By the time I left Iraq, about 6 months later, the truck 
assigned to me had 59,000 miles on it and never got a single 
oil change. The joke from one of the two or three mechanics we 
saw working out of the Conex container, was ``We may not have 
any filters, but Iraq has plenty of oil.''
    On a lot of the convoys there were empty trucks. Normally, 
convoys had 28 flatbed trucks. There were plenty of times we 
would run with seven, eight, or even a dozen empty trucks. 
Sometimes we had to carry equipment and supplies out of Camp 
Anaconda. We called this retro. We would also have empty trucks 
both coming and going, which didn't make any sense. One time 
there were 27 empty trucks in one convoy. It just didn't seem 
like there was good planning about where things were going and 
when. This was a major waste of time and money, and it put us 
and our military escorts in danger for absolutely no reason. 
Thank you.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Mr. Warren follows:]

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    Chairman Tom Davis. Mr. Wilson.
    Mr. Wilson. My name is David Wilson. I appreciate the 
invitation to this committee to speak about my experience 
working as a truck driver in support of our Armed Forces in 
Iraq. Last month, I gave a signed statement about this 
experience to the committee's staff. Today, I will give a 
summary of that statement and answer any questions that you may 
have.
    I was an alternate convoy commander and a convoy commander 
for Kellogg Brown and Root [KBR], in Iraq from November 2003 
until March 2004. I arrived in Kuwait at the end of October and 
went to work in Iraq the first week of November as part of 
KBR's sustainer mission, delivering supplies within Iraq under 
its LOGCAP contract with the military.
    I ran over 100 missions during my employment with KBR. 
While I was in Iraq, I saw problems with KBR's mission. In my 
opinion, the company did not adequately plan how they were 
going to do this job. I arrived in Iraq 6 months after the war 
and they still did not have the right personnel and equipment 
in place.
    KBR ran two convoys each day, each in a different 
direction. The convoys usually had 28 trucks with trailers and 
two bobtails. These trucks were used for recovery, and they 
went from Camp Cedar II in southern Iraq to Camp Anaconda, 300 
miles to the north above Baghdad. We also stopped at Camp 
Scania, which is a mid-point station between Cedar II and 
Anaconda. The problem with having only two crews was that if 
one had problems, there would be nobody there to pick up the 
sustainer the next day.
    When I arrived at Camp Arafjan--we called it Truckville--in 
Kuwait last November, I noticed there were about 50 to 100 
brand-new trucks sitting there unused. I was told that KBR 
brought these trucks into Kuwait to use in the convoys. Five 
months later, when I came home, a large number of trucks were 
still there, not being used. These are $85,000 or more Mercedes 
and Volvo trucks that are marked KBR-owned assets. I have been 
told that KBR could not get the right tags to license the 
vehicles to do business in Kuwait. I don't know if KBR billed 
the U.S. Government for these trucks, but they were not used 
for a third or fourth crew on the Cedar to Anaconda sustainer 
convoys.
    As every other trucker working on these convoys will tell 
you, KBR had virtually no facilities in place to do maintenance 
on the trucks. It was like their whole preparation was to buy 
the trucks, hire the drivers, and let the rest take care of 
itself. There were absolutely no oil filters or fuel filters 
for months on end. I begged for filters but never got any. I 
was told that oil changes were out of the question. The lack of 
maintenance was a major problem for trucks doing daily runs on 
Iraqi highways.
    In addition to being the convoy commander, I also drove a 
truck. During one convoy, my truck shut down because my fuel 
filter was completely clogged. Luckily, we were at the mid-
point station at Camp Scania, and I got an Army bobtail to pull 
me inside the barriers. At that point, I borrowed a fuel filter 
wrench from a local Iraqi and I removed the fuel filter myself. 
I ran gasoline through it to clear it out, and then I found 
some ether to clear it out further. I learned this from my 
years in trucking. At any rate, I was able to replace the 
filter and at least get the truck going again. But when I got 
back to Camp Cedar and requested a new fuel filter, they 
refused. They said ``Your truck's running now, isn't it?''
    I am 100 percent certain that if we had been out on the 
open Iraq highway instead of near Camp Scania, we would have 
lost that truck, and all because of an $8 fuel filter. I have 
no idea how KBR or the military were planning these convoys, or 
how they dealt with all the lost equipment and supplies. 
Basically, all they were looking for was the number of trucks 
with freight on them.
    A related problem was that KBR would run trucks empty quite 
often. Sometimes they would have five empty trucks, sometimes a 
dozen. One time we ran 28 trucks and only one had anything on 
it. Nobody knew why we were hauling empty trucks around, but it 
definitely caused extra wear and tear, which just made 
maintenance a bigger problem.
    Personally, I came under fire myself, including mortar 
fire, IEDs, and shrapnel bouncing off my truck, so I know from 
firsthand experience the dangers. Our convoys had rocks thrown 
through the windshields, we had Iraqis attack us on the roads, 
and in some cases our drivers were seriously injured. Mike 
Stroud, one of my drivers, got hit with IEDs a couple of times 
and managed to drive through it. That wasn't always the case, 
however. I lost a good friend of mine, Al Kaden, who got killed 
driving an SUV for KBR.
    In March, my job was terminated. The documents terminating 
me stated that this was because of a breach of the business 
code of conduct, when supposedly I failed to report vehicles in 
my convoy that ran Iraqis off the road.
    The problem with that was that both KBR and the military 
made clear to everyone that was in the convoys that this was 
what we were supposed to do. They would say, we can't tell you 
to do this, but just remember that if you get captured, you 
will be raped, beaten, raped again, and beaten again. So if you 
need to put vehicles off the road, that's what you need to do. 
Although I never witnessed it, I know trucks ran Iraqis off the 
road.
    Finally, although I was a convoy commander, KBR did not pay 
me a convoy commander's salary, but a regular truck driver's 
salary. I don't have any way of knowing whether KBR billed my 
time to the U.S. Government as a truck driver or a convoy 
commander.
    This information basically repeats the information I 
provided to the Government Reform Committee on June 2, 2004, 
when I was willing to testify, if required. Thank you.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Mr. Wilson follows:]

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    Chairman Tom Davis. Ms. deYoung, thanks for being with us.
    Ms. deYoung. My name is Marie deYoung. Mr. Chairman and 
distinguished members of the committee, thank you for this 
opportunity to testify on issues related to the Halliburton 
LOGCAP subcontracts department in Kuwait. And, I emphasize, 
Kuwait not Iraq.
    Since receiving my commission through Officer Candidate 
School in 1984, I served more than 10 years in the military as 
a chief of services, a commander, a chaplain, and, last, as an 
operations officer. I attained the rank of captain, and, yes, I 
published two books about women in the military. I am currently 
pursuing a doctorate in education leadership and public policy 
analysis.
    During my time with Halliburton, I came to the conclusion 
that very poor subcontract management practices were evident in 
every phase of the company's work, from the negotiation and 
drafting of subcontracts to the oversight of subcontract work 
and implementation of inventory and property controls, as well 
as to the management of data, costs, and the proper closure of 
each subcontract.
    As a matter of policy, the Kuwait Document Control 
Department made only a few subcontract documents available to 
operations management. That's in the first year. And then only 
shells, without specific delivery or performance schedules. 
Lack of subcontract documentation made it impossible for site 
supervisors to properly manage their subcontracts.
    After receiving negative publicity about subcontracts, 
Halliburton established a Tiger Team to address these problems. 
When the Tiger Team examined a subcontract, they just checked 
to make sure all the forms were in the file. The Tiger Team 
looked at subcontracts with no invoices and no confirmation 
that the products contracted for were being used. Instead of 
investigating further, they often recommended extending the 
subcontract and, I will add, adding funds.
    At one point, KBR Tiger Team members told us to bring 400 
expired subcontracts up to date. The staff was instructed to 
cut change orders and requisitions to extend subcontracts 
without verifying if site managers and subcontract 
administrators had already updated the file or determining if 
equipment or services were still needed. We were instructed to 
pay invoices without verifying whether services were delivered.
    I personally told a KBR Tiger Team member not to pay an 
invoice that I knew was a double billing because I helped set 
up another subcontract through which the services were properly 
delivered. The long-term KBR employee told me I didn't know 
what I was doing, and she proceeded to cut a change order and 
an invoice payment and authorization for the wrong account, 
under the prodding of the vendor who had not provided the 
services.
    Halliburton rarely collected adequate information from 
subcontractors to justify payment of their invoices. When I 
attempted to properly verify invoice terms before setting up 
payment authorization, I was chastised. Management's intent was 
to pay the old accounts as quickly as possible and to close 
them, because only open accounts were being audited by the 
government.
    Given these practices, it is not surprising that I observed 
significant waste and overpricing. Under a subcontract with La 
Nouvelle, a Kuwaiti company, Halliburton was paying a fixed 
price of between $1 million and $1.2 million per month for 
laundry for a facility in Kuwait. Because there wasn't very 
much laundry to be done, Halliburton was paying La Nouvelle 
about $100 a bag for a 15-pound bag. At the same time, 
Halliburton was paying $28 per bag under a separate contract 
with the same company, and this laundry originated in Iraq, not 
in Kuwait.
    In August 2003, Halliburton entered into another 
subcontract with La Nouvelle to provide cans of soda with ice 
for a hospitality bar at the same facility in Kuwait. La 
Nouvelle charged for 37,200 cases of soda per month, at a cost 
of about $1.50 per case. However, La Nouvelle delivered only 
37,200 cans, and the sodas were just dropped off, without ice 
or a hospitality bar.
    Only after I insisted that there was a problem did the 
Tiger Team confirm this overpayment. Meanwhile, Halliburton 
procurement and Tiger Team staff live at the five star 
Kempinski Hotel while the troops in Kuwait live in tents. It 
costs about $110 to House one KBR employee per day at the 
Kempinski while it costs the Army $1.39 per day to bunk a 
soldier in a leased tent. The military requested that 
Halliburton move into tents, but Halliburton refused.
    During my 5 months working on subcontracts in Kuwait, I've 
tried to correct some of these practices, but the Halliburton 
corporate culture is one of intimidation and fear, and I would 
add, as I experienced this morning, a little bit of ridicule. 
When I approached my new interim subcontracts manager with 
concerns about overbilling and duplicate accounts for the same 
service, he fearfully said, I think you are trying to make this 
company look bad. When I began to make progress in getting La 
Nouvelle to revise its invoices downward to reflect actual 
costs for services provided, La Nouvelle complained to the vice 
president who headed the Tiger Team. She had me taken off the 
La Nouvelle accounts.
    I brought my concerns to the Government Reform Committee 
because it is critical that our troops, and I will add our 
truck drivers and other personnel in Iraq who work for KBR--
that they receive the services that they need and deserve. 
Every dollar that is squandered because of waste, fraud or 
abuse is a dollar that we do not have for critical equipment 
and supplies for our troops.
    Mr. Chairman, I've prepared additional remarks, including 
more detailed knowledge and analysis of the Kuwait LOGCAP 
project. I request that you add this statement to the official 
record of these proceedings so your committee can in good faith 
consider this information in its ongoing review of contract 
operations in Kuwait and Iraq.
    [The prepared statement of Ms. deYoung follows:]

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    Chairman Tom Davis. Do we have a copy of that additional? 
We are happy to look at it. It would be good to have the 
committee members look at it so we can ask questions based on 
that. And without objection, it will be entered in the record.
    Committee staff get that.
    Thank you all very much for being here.
    Mr. Waxman, we are going to start on our side, and we will 
take a half an hour. And I would yield 15 minutes to Mr. 
Schrock.
    Mr. Schrock. Thanks to all of our witnesses for being here 
today. I am particularly interested in the circumstances 
surrounding the allegation made about operations of convoys 
with KBR drivers. Most of my questions will be addressed to Mr. 
Wilson and Mr. Warren, and I can see that the both of you have 
a good deal of time under your belts driving trucks in the 
United States; is that correct?
    Mr. Warren. Yes.
    Mr. Wilson. Yes.
    Mr. Schrock. Neither of you is still in the employ of KBR; 
is that correct?
    Mr. Wilson. That's correct.
    Mr. Warren. That's correct.
    Mr. Schrock. And I believe in both of your cases, Mr. 
Wilson and Mr. Warren, your employment was terminated by KBR 
for violations of their business code and improper behavior in 
Iraq; is that correct?
    Mr. Wilson. I was terminated for breach of the code of 
business conduct.
    Mr. Warren. I couldn't tell you exactly why I was 
terminated.
    Mr. Schrock. Your testimony does not mention it, but am I 
safe in saying that both of you in your experience working for 
KBR, this is the first time you have ever been in a war zone?
    Mr. Warren. For me, it is.
    Mr. Wilson. Yes.
    Mr. Schrock. In your statements, you both wrote that you 
believe the practice of Army personnel purposely using 
incendiary devices destroying trucks that could not keep up 
with the convoy was wasteful; is that correct?
    Mr. Warren. Yes, sir.
    Mr. Wilson. No, sir. I never stated that.
    Mr. Schrock. Mr. Wilson, I see from your written testimony 
and you so state that you personally were in convoys that came 
under attack from mortar fire, IEDs and such; and I believe you 
testified you and other drivers were injured working for KBR; 
is that true?
    Mr. Wilson. Yes, sir.
    Mr. Schrock. Iraq is unlike any other driving experience in 
the United States?
    Mr. Wilson. Similar to New York on occasion.
    Mr. Schrock. Mr. Wilson, in your testimony you stated you 
had a convoy of 28 trucks accompanied by armed military escort 
vehicles. Am I safe in assuming that all of your convoys were 
escorted by uniformed military personnel, heavily armed and 
responsible for the security of your convoy during your drives?
    Mr. Wilson. Yes, sir, we had excellent escorts.
    Mr. Schrock. Mr. Warren, I would imagine your experience 
with the convoys would be similar to those of Mr. Wilson; is 
that correct?
    Mr. Warren. That's correct.
    Mr. Schrock. I was privileged to spend 24 years in uniform, 
including time in Vietnam, and I have been a close observer of 
this war and of every major conflict this country has been 
engaged in for the last 30 years.
    My assessment would be that convoys such as the ones that 
you participated in are safer when they are moving forward as a 
single unit, presenting a more difficult target and able to be 
secured by your military escorts as a single unit. Would you 
gentlemen agree with that?
    Mr. Wilson. I would agree with it to an extent. The size of 
the convoy in the situations has a lot to do with it. Our 
number of escorts was limited. We had, on the average, three to 
four vehicles with armed personnel in them at one time--a 28 
truck convoy. I am sure, if you have been in that situation, it 
stretches quite a distance.
    Mr. Schrock. But did you feel safer when you were moving 
than when you were standing still?
    Mr. Wilson. Depending on the area we were in. Generally we 
felt safer moving.
    Mr. Schrock. As a member of the Armed Services Committee 
and former military officer myself, I cannot imagine a 
situation in which a military commander anywhere would require 
a security detachment assigned to protect a convoy to place 
either the civilian contract drivers under his charge or his 
military personnel in danger if he believed that the 
environment was too dangerous to halt the entire convoy while 
maintenance was performed on a disabled vehicle, can you?
    Mr. Wilson. Sir, that is not the way we did that. If we had 
a vehicle with a problem, say the vehicle was in 15th position 
in the convoy and the vehicle had a problem in that position, 
that vehicle would pull off to the side of the road, a military 
escort would immediately go to that vehicle. I would take the 
rest of the convoy and continue up the road until my escort, 
who was generally the NCOIC, would determine that we were in a 
safe enough location that we could go into a box formation and 
stop and wait for them to decide if they were going to be able 
to recover that vehicle or they were going to have to abandon 
it.
    Mr. Schrock. Do you agree with that?
    Mr. Warren. Yes.
    Mr. Schrock. I believe the loss of a relatively expensive 
truck in Iraq is certainly unfortunate and certainly wasteful. 
We are going to explore the maintenance practices more 
extensively with the second panel. However, I would not trade a 
single truck in Iraq for the life of either an American 
civilian or a soldier. And as a military commander, I would 
certainly not endanger an entire convoy of trucks, their 
drivers or other military personnel under my command, if I 
believed that the threat from insurgents precluded recovering 
that vehicle.
    Do you believe that perhaps when you witnessed trucks being 
purposely destroyed, it was because the Army believed it was 
tactically necessary to do so?
    Mr. Warren. In my opinion, I don't think it was necessary 
to do so. Maybe the Army or KBR.
    Mr. Schrock. Were you in on the military planning to make 
this decision?
    Mr. Warren. No, sir.
    Mr. Schrock. Mr. Wilson.
    Mr. Wilson. I don't know of any instance in which the Army 
took it upon themselves to destroy a KBR asset. Every instance 
that I am aware of when that happened, the NCOIC talked to the 
convoy commander; and we did work closely together, and we made 
decisions together.
    Mr. Schrock. You think they maybe took that action because 
it was in the best interest of the convoy and your best 
interest to protect your lives and the lives of the soldiers 
who were assigned to you all?
    Mr. Wilson. As far as destroying the trucks that were left? 
No, sir, that wasn't the intent on destroying the trucks. The 
intent in destroying those vehicles was so that there would be 
nothing left for the Iraqis to use against us. People would 
come out of the sand--we would call them the ``sand people''--
when we had a truck break down like that, wearing their native 
garb, and you would never see any tools or anything like that.
    By the time we would leave, I would have NCOIC tell me they 
were thugs.
    Mr. Schrock. So what I hear you saying is, destroying it 
might prevent the enemy from taking parts of the chassis, for 
instance, for their use?
    Mr. Wilson. I didn't consider them the enemy. They were 
civilians.
    Mr. Schrock. If you can figure out what civilian is an 
enemy and which one is not an enemy, we need you up here to 
help us with that. I don't know how anybody could control that.
    Mr. Wilson. That wasn't my job. That was the Army.
    Mr. Schrock. They were the ones who were making the 
decisions.
    Don't you think it is a little capricious for us to sit 
here in this air-conditioned room questioning the tactical 
decisions of our military personnel charged with protecting 
lives in Iraq.
    I believe your life is worth far more than $85,000 as well 
as every single life of every American in Iraq. Do you agree 
with that assessment.
    Mr. Wilson. I agree with you.
    Mr. Warren. I agree.
    Mr. Schrock. Perhaps there is a little more to this 
situation than there would be had these trucks been driving 
down some big interstate in California and Texas; don't you 
agree?
    Mr. Warren. Much different.
    Mr. Schrock. No pun intended, but I want to shift gears 
here for a second. In your written testimony, you both stated 
that running convoys with some empty trucks was wasteful and 
inappropriate, or the convoys would sometimes arrive at the 
scheduled location to find that the unit they expected to be 
there was gone. Is that true?
    Mr. Wilson. We didn't necessarily discover they were gone. 
We were told that was the reason we were hauling retro back 
from Anaconda to Cedar II to later be transported back to 
Kuwait. A lot of times this was new material and a lot of times 
it was used-up material, was the way they referred to it.
    We just generally questioned at one time why we were taking 
new equipment back to Kuwait, and we were told that it was 
considered retro and the reason that happened is maybe the unit 
that had ordered had rotated out.
    Mr. Schrock. Let me state again, as I understand your 
responsibilities in Iraq, I believe you were hired to drive 
trucks in a military convoy, correct?
    Mr. Wilson. Correct.
    Mr. Warren. That's right.
    Mr. Schrock. So you did not participate in the decisions on 
what needed to be transported on a given day or where it needed 
to go?
    Mr. Warren. That's correct.
    Mr. Wilson. That's correct.
    Mr. Schrock. I would surmise the military commanders with 
greater situational awareness knew what each individual unit 
needed and where they needed it and they made those decisions. 
After all, they were plugged in to the military command 
structure and were responsible for deploying and equipping 
military units in Iraq as well as for the security of those 
units.
    Deciding how to fight the war was the military's 
responsibility, not yours; is that correct?
    Mr. Wilson. Absolutely right.
    Mr. Warren. Uh-huh.
    Mr. Schrock. That is what I thought.
    Is it conceivable to think that perhaps in that situation, 
a military commander with a job to do, a mission to complete, 
might have made a judgment that it was more important to have 
those trucks available at point A so they could move supplies, 
even if they had to come from point B without carrying any 
cargo on them? Isn't that a possibility?
    Mr. Wilson. That is one possibility, yes, sir.
    Mr. Warren. I would agree. I am not in charge of the 
logistics and stuff like that. I don't know why they do stuff 
like that.
    Mr. Schrock. Do you think it was possible that a unit may 
have to pick up and leave on short notice because they had 
received military tasking and leave without waiting for your 
supplies to arrive? Is that a possibility in a war zone?
    Mr. Wilson. Yes.
    Mr. Warren. Possibly.
    Mr. Schrock. Did you think that perhaps those trucks had to 
run empty for a reason because when you were engaged with 
insurgents in a fast-moving, fluid environment like the war we 
have in Iraq, sometimes the logistics and the judgment of the 
truck drivers have to take second place to the mission of the 
military units that you were supplying?
    Mr. Wilson. As far as the number of trucks?
    Mr. Schrock. That the military requirements for what they 
do with those trucks take precedence over what the truck 
drivers might think needs to be done.
    Mr. Warren. Sure.
    Mr. Wilson. Sure.
    Mr. Schrock. Very different than driving on our highways 
around here, I can assure you.
    You both mentioned theft of supplies from the convoys. Is 
it safe to say that the majority of this occurred when the 
trucks were in Army camps during the evenings?
    Mr. Warren. The stealing was going on in Army camps, and 
while en route to Army camps. Both instances.
    Mr. Wilson. It happened in staging lanes at the Army camps 
as well as on the road.
    Mr. Schrock. Did either of you witness this theft either on 
the road or in the camps at night?
    Mr. Warren. Yes, sir.
    Mr. Wilson. Yes, sir.
    Mr. Schrock. Did either of you participate in that theft at 
any time?
    Mr. Warren. No, sir.
    Mr. Wilson. No, sir.
    Mr. Schrock. Of course, I certainly cannot endorse the 
unauthorized removal of supplies from military convoys by U.S. 
military personnel, but the experience I had in Vietnam, I can 
tell you that I believe that this is a fact of military life in 
a wartime environment since the dawn of time. When I was in 
Vietnam we called it comsho.
    If troops saw parts that they needed and they were in the 
staging area and they needed to put the equipment back 
together, they took it. They didn't take it for their own 
benefit, but for the folks they were trying to protect and to 
defeat the enemy. And we must do all we can to limit this.
    However, I just wanted to clarify with both of you, 
gentlemen, that you were hired to drive trucks and that was 
your responsibility and KBR's responsibility and that did not 
include management of the inventory you were assigned to haul 
nor were you or KBR, to the best of your knowledge, responsible 
for the purchase, delivery or receipt of this cargo. You just 
drove the trucks.
    Mr. Warren. That's correct.
    Mr. Wilson. I made that statement in my statement.
    Mr. Schrock. Mr. Wilson, you testified you did not have any 
details about what you were carrying in the truck. Could that 
be because, in fact, you were not responsible for the cargo 
manifest, that the control of the inventory was the 
responsibility of the Army and not yours?
    Mr. Wilson. Yes, sir.
    Mr. Schrock. I would think that the reason that you as a 
KBR employee or KBR as a company, for that matter, was not 
charged with security is the same reason that you were not 
charged with fighting the war, because you did not have the 
training or the tools to do that. And gentlemen, you both took 
issue with the decision to not containerize most of the 
shipments on the trucks that were military--that the commanders 
and the logistics officers----
    Mr. Warren. Yes.
    Mr. Wilson. Yes.
    Mr. Schrock. The way I understand the situation, you and 
your colleagues were hired to drive trucks under the command of 
our military personnel, under the security they provide, so our 
troops could carry rifles and do the jobs they were trained to 
do?
    Mr. Warren. That's correct.
    Mr. Wilson. That's correct.
    Mr. Schrock. I believe we will hear testimony shortly from 
the second panel that the Army required that open, flatbed 
containers be used to facilitate easy loading and unloading and 
there is certainly a reason for everything.
    Now Mr. Wilson, Mr. Warren, as we briefly discussed 
earlier, both of you were terminated for cause by KBR. May I 
ask, do you know the exact details of why you were terminated?
    Mr. Warren. In my instance, I don't know why I was 
terminated. What happened was, I was--I had made a phone call 
with Mr. Harl one evening, I believe it was in mid-March or the 
first part of March, somewhere around that timeframe. I spoke 
to him on the phone, and I was telling him about--that I felt 
like I was being pushed out the door, like--and I wanted a fair 
hearing, you know, to present my case.
    And what happened was, security wanted to talk to me about 
running people off the roads in convoys and I would not 
disclose the names of who was doing that. And I was transferred 
to Kuwait, and I stayed in Kuwait for a period of approximately 
2 weeks; and after 2 weeks, I was terminated. And I was told to 
sign some paperwork by the KBR, and I refused to sign them; and 
they would not tell me why I was terminated because I did not 
cooperate with them in the termination process.
    Mr. Schrock. I believe my time has expired.
    Chairman Tom Davis. Mrs. Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    Ms. deYoung, I will come to you first. And I would like to 
ask you some questions specifically about your background and 
work product, since many of your allegations and conclusions 
seem to draw from what you claim is expertise in government 
contracting and procurement and subcontract administration.
    Your resume, which I am going to ask the Chair to enter 
into the record, lists your last employment at Camp Bondsteel 
Kosovo.
    [The information referred to follows:]

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    Chairman Tom Davis. Without objection.
    Mrs. Blackburn. From what you have written on your resume, 
you were an administrative assistant there; and your two 
previous jobs were as musical director for elementary, junior 
and high school bands. And your work with our Lady of the Lake 
University, you designed brochures, a Web site and a 
newsletter. And prior to that, you describe your experience as 
a chaplain.
    Your resume does not indicate that you are a specialist in 
procurement or contracting, although the closest you come to 
procurement expertise seems as a shopkeeper over 20 years ago. 
You have never been a contracting officer or a contract 
specialist, have you?
    Ms. deYoung. I do not claim to be a contracting specialist. 
I said I was a logistics specialist. I base my testimony on 
firsthand documentation and documents.
    Mrs. Blackburn. You have never been a procurement 
specialist?
    Ms. deYoung. I was asked by the manager, who was the 
president of the Contract Management Association, to be his 
assistant in subcontracts. And he, ``favored my tough 
investigative skills to help him get the truth about the 
subcontracts.''
    Mrs. Blackburn. You might have received some logistics 
training in a correspondence quartermaster course while you 
were in the Army. I don't believe you have ever received any 
extensive formal training in government contracts.
    Ms. deYoung. On-the-job training there and also--and 
Congresswoman, also you are leaving out part of my resume. I 
managed a government grant, $213,000, Federal grant that 
President Bush awarded to my Center for Women. It was a 
government contract.
    I managed grants for the Army. I managed construction for 
the Army in 1984. I helped build the child development center, 
a $1 million project, and renovate----
    Mrs. Blackburn. Even though you have had some experience 
with contracts as part of your other work experience, isn't it 
true that you don't have the expertise that a contracting 
officer, contracting specialist or an auditor would have? Is 
that correct?
    Ms. deYoung. Congresswoman, half of the people in the 
subcontracts department have not been certified. And a 
subcontract specialist----
    Mrs. Blackburn. You are not answering the question that I 
am asking.
    Ms. deYoung. Am I certified auditor, no. And I never 
claimed to be, ma'am.
    Mrs. Blackburn. In your statement posted on the minority's 
Web site, you explained that your position was a writer, 
logistics center writer for operations and briefings. Being a 
writer seems to be something supported by your resume and your 
work experience. And it seems logical that a writer would write 
reports on various subjects.
    The job you were hired for was not to buy products and 
services for Halliburton or KBR or act as a procurement officer 
or subcontracts administrator, was it?
    Ms. deYoung. I was hired to do logistics on the operations 
side. They moved me to subcontracts because of the audits, to 
help the managers to prepare for audits, because they, ``needed 
the help desperately.''
    Mrs. Blackburn. You make multiple allegations regarding 
KBR's Tiger Team. Are you aware of Tiger Team's recommendations 
and how they were implemented?
    Ms. deYoung. Which recommendations? I describe specific 
accounts, and I provided documentation to the committee of 
specific accounts where recommendations--for example, one 
contract, No. 23, the recommendation was to add money, extend 
the subcontract even though the Tiger Team member said, there 
are no invoices in there, that nothing has been paid. On 
specific accounts, recommendations were made without any 
research to add money, to pay bills, and there was no evidence 
that the services had been provided.
    There was no investigation.
    Mrs. Blackburn. Ma'am, are you aware of the recommendations 
the team made and how those were implemented? Yes or no? Are 
you aware of the Tiger Team's recommendations that were made 
and how those were implemented, yes or no?
    Ms. deYoung. I did not see implementation.
    Mrs. Blackburn. Thank you. When companies notice a problem 
in a particular area and when companies notice there is a 
problem in a particular area of operations, they might send a 
team of experts to try to solve that problem. And you allege 
that Halliburton and KBR lacked adequate subcontract 
documentation.
    So could that not be the reason that they sent the Tiger 
Team in there to try to fix that?
    Ms. deYoung. The experts were not looking for 
documentation. All they did was go down checklists to see if a 
form had been signed. They were not matching invoices with 
records of inventory. They were not matching invoices with 
records of services being provided. And that, to me, was 
inadequate supervision. And both the GAO and DCMA and DCAA were 
complaining about that.
    I am a corroborating firsthand witness who observed that.
    Mrs. Blackburn. We understand that in February 2004, you 
were--you asked to be reassigned to the procurement department.
    Ms. deYoung. No, ma'am. I requested to go to Iraq to be on 
the operations side of the house.
    Mrs. Blackburn. Isn't it true you were turned down for the 
position because you had no procurement experience? And, 
further, isn't it true when the company asked you questions 
about basic subcontracts administration, such as the difference 
between a subcontract and a purchase order, you were unable to 
answer them and you ultimately agreed that you were unqualified 
for the position?
    Instead, we are going to hear that you were given an 
administrative job of helping the subcontracts administrator 
gather documents and information. You were never given the 
title of subcontracts administrator, were you?
    Ms. deYoung. I did not ask to go to the contracts 
department; I was put there. I wanted to go to Iraq to be in 
logistics, which is my specialty. The reason I was put there 
was because I, ``had the ability to fix problems'' as I had 
done with subcontracts out at Camp Udairi. I did not ask to go 
there. I had asked to be assigned in Iraq in logistics.
    Mrs. Blackburn. You were never given signature authority 
over any contracts, right?
    Ms. deYoung. No, I was not. But I was asked to monitor and 
correct problems, to create ITFs and cut change orders and to 
prepare reports for the manager.
    Mrs. Blackburn. Let's go specifically to one of your major 
allegations, which concerns contractors staying in very nice 
hotels. And you have this on your supplemental statement.
    Many members of this committee have been to Kuwait and I, 
for one, have noticed that the hotels are of nice quality with 
good amenities. It is my understanding that KBR requested that 
the military provide lodging for its employees at Camp Arafjan 
in the tents, but we are told there was no room.
    I expect the witnesses will also testify that it was KBR's 
intention to have the company employees lodging in a central 
location for security reasons, very obvious security reasons, 
as well as for logistical reasons. Most employees actually 
worked at the camp and required transportation there from their 
hotels.
    Were you aware that employees were sometimes housed three, 
four and five to a room?
    Ms. deYoung. The hotels that I described, they were housed 
one to a room unless there were social relations going on.
    Mrs. Blackburn. Are you aware that sometimes they were 
housed three, four, five to a room?
    Ms. deYoung. When you say room, a room--they are villas. 
And in those hotels that I----
    Mrs. Blackburn. I have a copy of the contract with me, and 
I understand that testimony from KBR will corroborate this. And 
I can see that without having access to the entirety of this 
information regarding KBR's housing options, a person might 
think that the employees were taking the government for a ride.
    Ms. deYoung, would you agree if what I told you about KBR's 
option for housing is true, employees staying in centralized 
hotels might actually be the most fiscally responsible and 
secure arrangement for the circumstances in which they were 
working?
    Ms. deYoung. Army officers and managers of the project were 
communicating in March that the Army had asked them to move 
into tents, not to build a man camp, not to continue the 
hotels. And retired General Peterson had meetings. I was 
sitting adjacent to the courtyard where all of the managers 
came and these meetings were discussed.
    Various managers continually repeated----
    Mrs. Blackburn. That is not the information I asked for, 
and I am going to ask that we put a copy of the subcontract 
into the record.
    [The information referred to follows:]

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    Chairman Tom Davis. Without objection.
    Mrs. Blackburn. In the written and oral testimony you have 
provided for the committee, you state that it cost $110 to 
house one KBR employee per day at the Kempinski Hotel. You 
provided, through the minority, a copy of what seems to be the 
subcontract between KBR and the Kempinski Hotel, and I will 
enter those records so we have that.
    And looking at the subcontract, it seems that the hotel 
rooms were priced per room and not per employee. And as I said 
before, the committee expects to hear testimony later in the 
hearing stating that as many as five people stayed in the 
rooms.
    Would you agree that if the rooms were charged per night 
regardless of the number of occupants and that several 
employees shared many rooms, that your cost estimate would be 
high?
    Ms. deYoung. I would ask that you have line-for-line 
documentation of every instance where they were paying for 
``five persons per room.'' They were five per villa.
    Mrs. Blackburn. I would like you to answer the questions as 
they are asked.
    Ms. deYoung. If that was true, I would say yes, but it is 
not true.
    Mrs. Blackburn. Let's talk about soft drinks.
    Your second allegation concerns wasteful spending on a 
contract to provide our soldiers with soda. You allege that a 
subcontractor charged KBR for 37,200 cases of soda per month at 
$1.50 per case and delivered 37,200 cans of soda instead. You 
believe that KBR failed to maintain adequate quality control 
over the goods and services it was receiving from 
subcontractors; isn't that correct?
    Ms. deYoung. That is correct.
    Mrs. Blackburn. It is my understanding after reviewing the 
subcontract, and I am not an expert in contracting, that the 
subcontract did not specifically call for cases or even cans of 
soda. The subcontract seems to indicate that the subcontractor, 
La Nouvelle, was required to provide up to 1,000 soldiers per 
day with a bag that contained two cans of soda, 2 pounds of ice 
and nonglass cups.
    Given what the subcontract provides, how did you arrive at 
$1.50 per case versus the $1.50 per can prices?
    Ms. deYoung. I arrived at that by taking the logs which you 
have in your records and doing the math.
    Now, as I pointed out, if the contract had been done 
according to the terms, the payment was still inflated by two 
to three times what it should have been. You have the logs, and 
if you compare the logs to the actual statement, you can see. 
Anybody who has done--I have been a restaurant manager.
    Mrs. Blackburn. ``Cases'' is not mentioned anywhere on 
this, and I understand that KBR was still unsatisfied with La 
Nouvelle's performance of the subcontract. And I expect we are 
going to hear testimony from the second panel that KBR 
suspended further payment and withheld over $110,000 in 
payments on this specific soda contract.
    Now, you have already said that you did not believe that 
KBR was keeping its subcontractors accountable, correct?
    Ms. deYoung. I'm sorry?
    Mrs. Blackburn. You said you did not think that KBR was 
keeping its subcontractors accountable?
    Ms. deYoung. That is a fact.
    Mrs. Blackburn. Wouldn't you agree that if, in fact, KBR 
withheld payment from La Nouvelle as a result of La Nouvelle's 
incomplete performance on the contract that KBR was, in fact, 
ensuring that money wasn't being wasted for services that were 
not received?
    Ms. deYoung. When I brought that contract to the 
investigating team, I was ridiculed for an extended period of 
time; and after a week, when I persisted and insisted that this 
was just one example of how----
    Mrs. Blackburn. Would you agree that the money was 
withheld?
    Ms. deYoung. The 4 months that I brought to them were paid. 
I have no knowledge--until the day that I left, until the 
testimony was made public, I had no knowledge that they had 
corrected it.
    Chairman Tom Davis. Time has expired.
    Did you share this with government auditors?
    Ms. deYoung. I'm sorry?
    Chairman Tom Davis. Did you share this information with the 
government auditors?
    Ms. deYoung. I did not. This instance I shared with the 
Tiger Team investigative team and with management.
    Chairman Tom Davis. The only people, outside of Halliburton 
and KBR, that you shared this with was with this committee?
    Ms. deYoung. Yes.
    Chairman Tom Davis. Not to government auditors and so on 
that would be auditing these contracts?
    Ms. deYoung. No.
    Chairman Tom Davis. Mr. Waxman, you are recognized for 30 
minutes.
    Mr. Waxman. I want to thank you for being here. You are 
doing a service, but you are feeling a discomfort from the 
questions that I have been hearing asked of you. You would 
think with the kind of questions that you have had that you 
have made all this up. I guess that's what the Republicans are 
trying to suggest.
    It was interesting also from the last questions, she talked 
about specifics of what we are going to hear from the next 
panel, the Halliburton panelists. Well, this sounds like the 
Republicans had a private meeting with the Halliburton 
witnesses to go over what they're going to say. We weren't 
invited to that meeting, but we have tried to work together 
with the staffs on both sides to interview witnesses. But I 
want to go through some points, because obviously you didn't 
make all this up.
    Since last December, government auditors have produced a 
series of reports that have found widespread, systemic problems 
with every aspect of Halliburton's work in Iraq, from 
accounting and billing practices to subcontractor management to 
exorbitant overcharging. And I am going to list a few of these.
    In December, the Defense Contract Audit Agency prepared a 
draft audit that found Halliburton was overcharging for the 
gasoline it was importing from Kuwait. The draft report found 
$61 million in overcharges. DCAA concluded that Halliburton had 
not demonstrated that they did an adequate subcontract pricing 
evaluation prior to award of the Altamira contract.
    On December 31, the auditor at DCAA issued a flash report 
concluding that Halliburton's cost estimating system was 
deficient and that a $2.7 billion Halliburton proposal did not 
contain accurate, current and complete data regarding 
subcontractor costs. DCAA concluded the estimating deficiency 
is not a one-time occurrence; it's systemic.
    In January, the DCAA review warned agencies throughout the 
Pentagon that they should not negotiate any further contracts 
with Halliburton until they check with DCAA to make sure these 
problems were addressed.
    In May, DCAA examined Halliburton billing practices. This 
audit found systemic deficiencies in the way Halliburton 
prepares and submits its bills to the Federal Government.
    In June, the Inspector General of the Coalition Provisional 
Authority issued an audit that found that Halliburton was 
overcharging for unauthorized and unnecessary expenses at a 
five-star hotel in Kuwait. That was the Inspector General of 
the Coalition Provisional Authority, reporting on the same 
example that you have given us, Ms. deYoung.
    And just yesterday, GAO completed its audit and GAO found a 
pattern of recurring problems with almost every aspect of 
Halliburton's work on the LOGCAP contract to supply the troops 
with essential services. And GAO raised problems with cost 
control, subcontracts, and a host of other areas.
    That is six audits by three different independent auditors, 
all of whom reached the same conclusion: Halliburton has been 
repeatedly overcharging and overbilling the U.S. taxpayers.
    And I ask, Mr. Chairman, that these audits be made part of 
the hearing record.
    Chairman Tom Davis. Absolutely. It will be put in the 
hearing record.
    [Note.--The report entitled, ``Military Operations, DOD's 
Extensive Use of Logistics Support Contracts Requires 
Strengthened Oversight,'' may be found in committee files.]
    [The information referred to follows:]

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    Mr. Waxman. Now, what you bring to this committee is a 
different perspective. The auditors come in after the fact and 
their conclusions are based on a review of the invoices, 
purchase orders, and billing records. But each of you worked 
inside the company and saw these problems happen in real time, 
so you are able to provide a completely new perspective to this 
committee. Some of the Members may not want to hear this 
perspective, but it corroborates what all these auditors had to 
say.
    What I would like to do is ask you about some of the 
auditors' conclusions and see whether you agree with them and 
whether you observed the kinds of problems they described when 
you were on the ground in Iraq and Kuwait.
    In the audit GAO issued yesterday, GAO found Halliburton 
had no spending limits for LOGCAP until the spring of 2004, a 
year after the end of the war. You were over there during this 
timeframe. I would like to ask each of you, from your 
perspective, do you think GAO is right when it says that 
Halliburton had no spending limit?
    Mr. Warren, do you know?
    Mr. Warren. I don't know, sir.
    Mr. Wilson. I wasn't involved in any of the contracting 
procedures. I couldn't honestly answer that question.
    Mr. Waxman. Do you think they showed a concern about how 
well the money was being spent?
    Mr. Wilson. At the camp that I was at with the supervisors 
that I had at that time, no, sir.
    Mr. Waxman. Mr. Warren.
    Mr. Warren. Personally, it seemed like there was no end in 
sight for the money being spent. It was just nothing but the 
best.
    Mr. Waxman. How about you, Ms. deYoung?
    Ms. deYoung. I was in Kuwait and these gentlemen were in 
Iraq. There was no regard for spending limits, but the 
priorities were backward. Luxuries, KBR came first, soldiers, 
the people in the field were second.
    Mr. Waxman. People in the field?
    Ms. deYoung. KBR people. KBR people.
    Mr. Waxman. The DCAA audit from May found systemic 
deficiencies in Halliburton's billing practices.
    Ms. deYoung, you were working in Halliburton's subcontract 
office and were involved with billing issues. Based on your 
experience on the ground, do you agree with the auditors at 
DCAA that there were billing problems?
    Ms. deYoung. Absolutely.
    Mr. Waxman. Halliburton argued to DCAA that these were 
isolated problems. DCAA disagreed and concluded that they were 
systemic.
    Based on your experience, do you know who is right, DCAA or 
Halliburton?
    Ms. deYoung. DCAA was right. They were systemic because 
they were using manual systems rather than automated systems.
    Mr. Waxman. What about the CPA Inspector General who found 
the overcharging at the Kuwait hotel? You found similar 
problems yourself at the five-star Kempinski Hotel in Kuwait; 
is that correct?
    Ms. deYoung. Yes.
    Mr. Waxman. The chairman said in his opening statement that 
Halliburton wanted to move out of their five-star hotels and 
into the tents on the base; they wanted to move to the cheaper 
quarters.
    This is the exact opposite of your testimony. You said the 
military asked Halliburton to leave the hotel, so there is a 
contradiction here. Can you explain this difference?
    Ms. deYoung. Halliburton wanted to build man camps, which 
are a cut above what soldiers were living in. Soldiers were 
living in tents. The Army, the DCAA was telling our management, 
come and live in tents with us. And when the man camps go up 
for soldiers, you can have man camps. But our manager said 
``no.'' We had a retired general over there as a manager who 
met for days with key staff and they couldn't come to an 
agreement; and he finally went up north to Iraq.
    Mr. Waxman. Halliburton is going to come before us in this 
next panel, and Republicans seem to know some of the details of 
what they are going to say.
    Chairman Tom Davis. Will the gentleman yield on that?
    First of all, every briefing we have had, we have invited 
you. And second, there is testimony unlike Ms. deYoung's 
testimony, which she put out today after she appeared here. 
Their testimony was made available to the minority, and it's in 
our books and it's in your books. You have the same testimony.
    I don't want to leave the impression that we know something 
about Halliburton that you don't. Every meeting we have had, 
you have been invited to, and their testimony is in the record 
books for the public to read today.
    I want to clarify that.
    Ms. deYoung. Chairman Davis, please know that the extended 
statement I have is all based on documents that I have 
previously provided, that I understand both sides do have.
    Chairman Tom Davis. And we have entered it in the record.
    Mr. Waxman. When we hear from Halliburton and they say 
things that we may know about from their statement or we may 
hear for the first time, we will get a chance to ask some 
questions.
    Do you have any suggestion for questions we ought to ask 
them?
    Ms. deYoung. To ask Halliburton? I would ask them why, if 
they knew that they could not handle the $7 billion--why did 
they sign up for a $7 billion contract which--from the day I 
was hired, they knew it was going to be $7 billion. That number 
was used up front, this is a $7 billion contract.
    Why did they sign on--why, with 10 years of experience in 
LOGCAP, being a world class oil services company and government 
contractor, did they sign on with manual requisition systems, 
with individual data bases rather than an enterprise data 
system and with inadequate personnel? And if they made a 
decision to do this as a subcontract operation, which a number 
of Tiger Team managers did tell me that this is the wave of the 
future, why did they continue to hire all of these logistics 
personnel, operations personnel, when these things were being 
subcontracted out?
    They should have hired a couple of hundred subcontract 
managers instead of people who do operations.
    Mr. Waxman. That will be helpful.
    Today's Washington Post had a couple of articles. On the 
front page, there is a story about the military might run out 
of money before the end of the year. The article says that one 
of the reasons is, ``The Army is having trouble paying for the 
escalating costs of the logistics contract with Halliburton.'' 
This is why so many Members are concerned about the kind of 
waste and abuse that you have described.
    And this is the headline, ``War Funds Dwindling, GAO 
Warns.'' We are running out of money for essential military 
operations at the same time that companies like Halliburton are 
squandering millions by putting their employees up in five-star 
hotels and paying $45 for a case of soda.
    Another article in the Washington Post recounts the 
experience of another former Halliburton employee, who is not 
testifying today, John Mancini. Mr. Mancini was a procurement 
supervisor in Halliburton's LOGCAP office in Kuwait, and 
according to the Washington Post, Mr. Mancini observed 
Halliburton employees pay inflated fees for cell phone services 
and buy hundreds of rolls of duct tape at $60 each. He 
concluded that no one at Halliburton was making sure that 
government money was wisely spent.
    I want to make those comments so people don't think that 
you are just making all this up.
    I yield to my colleague, Mr. Ruppersberger.
    Mr. Ruppersberger. Thank you, Mr. Chairman and Mr. Waxman. 
I think what is important here is that we follow the facts and 
review what has happened in the past so we can move forward and 
do things the right way.
    You are talking about accountability of taxpayers' money. 
That's an important issue. More important than that right now 
are the resources we give to our troops, and that's what's 
important. So let's get into the area of fact.
    Ms. deYoung, it's true you were a chaplain and an officer 
in the Army before you went to work for Halliburton?
    Ms. deYoung. That's correct.
    Mr. Ruppersberger. You have firsthand experience of 
Halliburton's subcontract management because you worked in the 
LOGCAP subcontracts department in Kuwait, correct?
    Ms. deYoung. That's correct.
    Mr. Ruppersberger. You have met with the committee staff 
and briefed them on the problems you found. You provided your 
observations and conclusions and supplied the committee with 
scores of documents to support your claims?
    Ms. deYoung. That's correct.
    Mr. Ruppersberger. I would like to walk through some of 
those with you. Let's talk about Halliburton's poor, what is 
alleged, poor subcontract management.
    Is it true you and other employees were told to extend 
subcontracts and increase their value even though no one had 
determined if equipment or services were still needed?
    If you're going to answer the question, stick to the facts.
    Ms. deYoung. Yes, that is correct. I will give an example: 
one contract, 23, people on the Tiger Team who had no 
background whatsoever in government contracts, accounting 
government work; contract 23 was for forklifts and other 
equipment, and there was no evidence that these things had ever 
been used. And the Tiger Team auditor suggested that--no 
invoices had been paid--pay the invoices and extend the 
subcontract, as if this thing was actually operational.
    Mr. Ruppersberger. Were you instructed to pay the invoices 
even though no one could confirm the services were actually 
delivered?
    Ms. deYoung. Yes, exactly. And my point was, you don't do 
that. I sent a letter up to the Vice President saying, this is 
not the way to go. We need to go account by account, look at 
the documents, check with the end users, Is the equipment 
there?
    Mr. Ruppersberger. Who was the Vice President, and do you 
have a copy of that letter?
    Ms. deYoung. Yes, I do. And if I haven't forwarded that 
one, I'll be very happy to forward it. Vice President Burnell 
and also John Cowings were there.
    Mr. Ruppersberger. Did you get a response to that letter?
    Ms. deYoung. John Cowlings eventually sent a little note 
saying thank you for your experience.
    Mr. Ruppersberger. That letter would be important as 
evidence. You testified that Halliburton site managers were 
denied subcontract documents?
    Ms. deYoung. I'm sorry?
    Mr. Ruppersberger. You testified that Halliburton's site 
managers were denied subcontract documents so that you could 
see what the subcontract was about and so you could manage it.
    Ms. deYoung. That is correct.
    Mr. Ruppersberger. How could they properly manage the 
subcontracts without these documents? How could anybody you 
work with do that?
    Ms. deYoung. They couldn't. I'll give you an example.
    DCMA out at Camp Udairi, they were building the tower and 
there wasn't a contract in place. The construction managers who 
were overseeing couldn't get a copy of the contract. DCMA 
actually fought to get a copy of that contract so that the Camp 
Udairi staff would have production schedules, time schedules.
    Mr. Ruppersberger. Did you complain to upper level 
management about this?
    Ms. deYoung. All of us complained and finally Tom Crum 
promised----
    Mr. Ruppersberger. Who is Tom Crum?
    Ms. deYoung. He is the vice president of the Middle East.
    When all of these things were becoming public and coming to 
a head, he finally, in meetings with the site managers in 
February, promised them we would get subcontracts. But I can 
send you e-mails that were as late as end of March and early 
April; people in Iraq who knew me were sending me e-mails 
because they still couldn't get copies of their dining 
facilities contracts.
    Mr. Ruppersberger. Were these isolated problems, in your 
opinion, or were they more of intimidation? What were these 
problems?
    Ms. deYoung. As far as----
    Mr. Ruppersberger. Isolated problems or--was this one or 
two incidents or was this a culture of what was occurring?
    Ms. deYoung. It was systemic.
    Mr. Ruppersberger. And what do you think the reason was 
that you did not receive their subcontracts?
    Ms. deYoung. In some cases, it directly was related to 
fraud. The people who have been terminated that we know were 
the perpetrators of fraud, their names are on them, and--for 
example, the laundry.
    When I raised the questions about laundry, I kept telling 
the procurement managers who were above me, we have independent 
records to corroborate this. When our auditors put two and two 
together, they are going to say you weren't managing this 
properly.
    I sent forward a copy of our daily operations report that 
has the amount of laundry that was listed. When I sent that 
forward and showed them that we have independent ways of 
corroborating this information, my immediate manager said, go 
get the data. I went out to the laundry personnel and got the 
data. And they said to me, for the year prior, they had tried 
to look at this and tried to have input, and the people in 
subcontracts refused to let them see it. They said they had no 
business getting involved. This is $1.2 million per month.
    Mr. Ruppersberger. You were an employee of Halliburton, and 
the DOD was responsible for managing Halliburton or hiring 
Halliburton to provide the resources and the services that were 
needed.
    At any time, did you see anyone in the DOD and the Army get 
involved in this process or try to see what was occurring and 
whether we were getting what we were paying for?
    Ms. deYoung. DCAA was asking questions. And, Congressman, 
you are opening up a door here if I may explain something that 
is very frustrating to me. I have been subject to audits, when 
I ran Army day care centers. Auditors come in and they look at 
your books directly.
    Mr. Ruppersberger. The price of management, accountability.
    Ms. deYoung. And yet in this system here, with private 
contractors, all of the information is getting filtered through 
government operations people, and I think that is the first 
correction that needs to be made. These auditors need to be 
able to come right in and take a look at your books the same 
way they would if I was running an Army day care, an Army guest 
House or an Army chaplain fund.
    Mr. Ruppersberger. Based on your observations, are you 
saying that you didn't see the Army involved at all in any of 
these issues that you were concerned about?
    Ms. deYoung. I saw the Army asking the questions. And then 
the KBR, personnel who were in government operations, were 
trying to filter the information down. And I provided e-mail 
examples where managers were instructing me to filter down the 
information, only give them what they ask, which is not what 
they need to know in order to know whether or not waste, fraud 
and abuse has happened.
    Mr. Ruppersberger. Let me ask you this. During this process 
when you were employed by Halliburton and you were raising 
issues that you were concerned about, were you ever reprimanded 
for providing too much information?
    Ms. deYoung. I was verbally chastised.
    Mr. Ruppersberger. Who chastised you and what occurred?
    Ms. deYoung. The first example was the laundry incident, 
and I decided to just go ahead and put everything in writing, 
because that way I would have a record, and I sent the 
information forward anyway by e-mail. But the managers were 
basically saying, you are giving too much information.
    DCAA started to ask about the transportation mission, and 
they wanted to have all subcontracts related to transportation 
to find out what the true cost would be. Once again, I gave 
them a whole list of everything that they would need, types of 
contracts.
    I was told in that meeting, that's too much. All we want to 
do is give them this piece. What they needed to know was this 
much. And I was basically removed from that activity because I 
was providing too much information.
    Mr. Ruppersberger. Let's get into the laundry. Under one 
subcontract, Halliburton was paying a Kuwaiti company called La 
Nouvelle a fixed price of over 1 million a month to do laundry 
at one facility. And because there wasn't much laundry to be 
done, Halliburton was paying on average of about $100 a bag; is 
that correct?
    Ms. deYoung. That's correct.
    Mr. Ruppersberger. Is it true that laundry was much cheaper 
under other subcontracts even when the laundry came from Iraq 
rather than Kuwait?
    Ms. deYoung. That's correct, and that is with the same 
company. I was negotiating with them trying to get them to come 
to terms with that. And the original argument was that there 
was no data and no way of tracking it, it was a war. This 
contract was in Kuwait, it was not in Iraq. And when I was able 
to produce data that their own subcontractors had left with us, 
that was the point at which they could see that the 
discrepancy, that we had records to prove that this was a 
serious overcharge.
    Mr. Ruppersberger. Did Halliburton try to renegotiate the 
contract at that point?
    Ms. deYoung. They did not. And for an entire year--and that 
includes Tiger Team people--for an entire year on that one line 
item, there is only one letter saying, gee, your prices are too 
high generically.
    Mr. Ruppersberger. In your opinion, we were not getting 
what we were paying for?
    Ms. deYoung. Absolutely not.
    Mr. Ruppersberger. And there were other subcontracts that 
were a lot cheaper?
    Ms. deYoung. Absolutely.
    Mr. Ruppersberger. You were asked about soda and you 
discovered that La Nouvelle was charging Halliburton for 37,200 
cases of soda per month, but only delivering 37,200 cans. I 
want you to testify to that because under examination before, 
there was a discrepancy. And I want you to be able to tell your 
story about it.
    The way I look at it, Halliburton was paying an average of 
$45 for a case of soda.
    Ms. deYoung. That's exactly what they were paying. The 
concept of a hospitality table, it looks suspicious. Soldiers 
don't really get treated that well anywhere in the Army. And 
the contrast between how they live and how Halliburton lives 
would shock you. If your son or daughter was over there, you 
would be very upset. But if we provide that and if everything 
worked out fine, OK.
    The first evidence that I had was monthly bills, monthly 
invoices that said there were 37,200 cases. I thought this is a 
perfect contract, it's done well, there's supporting 
documentation.
    I looked at the supporting documentation, and it's only 
37,200 cans, no matter how I added, subtracted or divided. And 
for 4 months this thing was paid. It came out to the price of 
about $45 per case of soda.
    Over there in the desert, I was in the desert, soldiers 
could get cans off the shelf for 30 cents. You could get a case 
of soda for $1 or $2. It made no sense to me that Halliburton 
was paying about $45 a case.
    Mr. Ruppersberger. When you informed Halliburton's 
investigative Tiger Team about this, what was their response?
    Ms. deYoung. They tried to make it look like I didn't know 
how to do these things. You know the old routine, you are a 
chaplain, you pray. You probably don't know anything about this 
business.
    Mr. Ruppersberger. I don't know the routine, but if that's 
what it is.
    Ms. deYoung. Well, here's the thing. When you are a parish 
minister or when you're a chaplain in the Protestant world--
maybe not in the Holy Ghost church, but in the Protestant 
world, it is just the way the government should be. A year in 
advance, you plan out your expenses for your education, for all 
of those things. You plan out your expenses and then you have 
to live by that budget.
    I said this to a number of managers. There is no reason in 
the world why Halliburton can't do real-time data management, 
because they already have a ROM where they estimate what their 
budget is supposed to cost. When I ran Army day care centers in 
the 1980's, every month I got statements saying this is what 
you are supposed to spend. Here's what percentage you have 
spent to date.
    We didn't have that. And we should have had it 25 years 
later.
    Mr. Ruppersberger. I thank you for your testimony and your 
courage in coming here today. I know it is difficult. 
Hopefully, the committee will follow the facts and get to the 
results of fiscal accountability and getting the resources that 
we need for our men and women in Iraq.
    Mr. Ruppersberger. One thing with respect to you, Mr. 
Warren and Mr. Wilson, I think the question on the issue that 
was raised about these trucks is not what happened after the 
trucks were broken down, but the question is why they broke 
down to begin with.
    And the first question is whether you feel it is the Army's 
responsibility or Halliburton's in what happened before the 
trucks even broke down. So we have to deal with this issue to 
begin with. Do you have an opinion?
    Mr. Warren. I am not for sure whose responsibility it was 
to make sure these trucks were maintained. But Halliburton, 
KBR, they had built garages in Camp Cedar II and Anaconda. They 
had these garages built with maintenance crews there onsite. 
And the whole time I was over there, these maintenance crews 
were just limited in what they can do. They wouldn't--all they 
would do is just change a tire. They would do a little bit of 
electrical work and that was basically it. We had lots of 
mechanics over there.
    Mr. Ruppersberger. It seems to me it is an issue of 
management accountability and planning. Truck drivers' lives 
are at stake over in Iraq, too. And I want to thank you for 
your service to our country in Iraq.
    Mr. Waxman. I want to yield to my colleague, Ms. Watson.
    Ms. Watson. I want to say to the three of you who are brave 
enough and courageous enough to come forth, do not be 
intimidated by the questioning. Just stick with the truth. When 
you distort or lie, you forget which one you told. So if you 
come with the quest of telling the truth, you will be OK.
    Our responsibility here is for oversight. And my dear 
friends on the other side will come to the floor and talk about 
waste, fraud and abuse.
    I was suspicious that the former company of the Vice 
President got a contract, sole source, unbid. We didn't know 
anything about it until they were on the ground in Iraq. So I 
come into this with great amount of suspicions. How did that 
happen?
    I understand today we have spent $65 billion already in 
Afghanistan and in Iraq. And I understand that because of the 
budget crunch, it will have an adverse impact on our military.
    I love our military. They are the best in the world. We 
need to treat them like that. And I find it outrageous that 
Halliburton would put its people up in a hotel. We can quibble 
how many were in the room, but by the fact that they were 
paying over $100 U.S. dollars per day and our fighting forces 
were in tents, there is something that really troubles me 
there.
    Now, I listened very closely to the testimony of the 
drivers. You are not military men. You are not in on the 
command and command tactics; is that true, Mr. Warren? Mr. 
Wilson.
    Mr. Warren. That's true.
    Mr. Wilson. Ma'am, as a convoy commander, I did discuss 
intelligence with my NCOIC, and we did make decisions on 
whether we would travel a particular route or not, together. 
And we worked well together.
    I was very impressed by our military over there, and I was 
very happy to have the regular Army as my escorts over there; 
and they did an excellent job. Several times the decisions that 
we made saved lives because we decided not to take a route and 
wait it out, and other convoys did take that route and were 
attacked.
    Ms. Watson. I think it might have been Mr. Warren, just 
correct me if I am wrong--that your truck broke down because 
there was not a filter.
    Mr. Wilson. That was my truck, ma'am. It was because of a 
plugged fuel filter that I had been asking to be replaced, and 
I was told repeatedly there weren't any replacements at that 
time for that filter on that truck and I kept running the truck 
to complete the mission until the truck actually stopped.
    Ms. Watson. Do I understand these are brand-new trucks?
    Mr. Wilson. Yes, ma'am. The trucks that I ran when I 
originally started running the sustainer mission, we picked up 
in Kuwait and transported to Iraq with our personal effects in 
those trucks; and those were the trucks that we started the 
mission with.
    Ms. Watson. And you were traveling on very rough terrain, 
sandy, dry, scraggly terrain.
    Mr. Wilson. The roadways, they actually had rather 
impressive roadways over there, but you were surrounded by 
desert and did get caught in dust storms. And probably our 
worst place to have the trucks operating was on the bases. In 
Cedar II, it is a dust bowl.
    Ms. Watson. Wise management would say, you need filters.
    Mr. Wilson. The trucks need extra maintenance not less 
maintenance.
    Ms. Watson. The other point I didn't quite understand is 
why they took the spare tires off the trucks.
    Mr. Wilson. Ma'am, I couldn't answer that for you, you have 
to ask KBR that. I know for a fact when I picked up those new 
trucks in Kuwait to go into Iraq to begin this mission, the 
first thing we did was take the trucks to Truckville. We pulled 
up beside a Conex and put those tires in the Conexes. I thought 
maybe they were going to ship them to Cedar in those Conexes, 
but I never saw those tires again.
    Ms. Watson. This is a question for all three of you.
    Did Halliburton's Tiger Team do anything to correct these 
problems or to eliminate the waste? Anyone that would like to 
respond.
    Ms. deYoung. I think I may be the only one who worked with 
them.
    No, they did not.
    Chairman Tom Davis. Ms. Watson, your time has expired.
    Ms. Watson. Thank you very much, witnesses. Thank you Mr. 
Chairman.
    Chairman Tom Davis. We now go to the 5-minute rule, where 
Members have 5 minutes. Are you all OK? We'll try to wrap it up 
quickly, because we have two more panels and we have votes that 
may cut this short.
    But let me ask, Ms. deYoung, your allegation the DCAA can't 
look at private contractor records. Under the contract they are 
allowed to look at contracting. What do you mean by that?
    Ms. deYoung. What I mean is that all of this information--
what was happening--DCAA, GAO, they would send information 
requests, it would go to a government operations team. Their 
request would come down----
    Chairman Tom Davis. Government operations team are who?
    Ms. deYoung. KBR staff. And then they would send the 
request down to procurement management. The procurement 
management would try to gather the data. And the way that they 
would accumulate the data is where you have this breakdown.
    Chairman Tom Davis. OK. But under the contract itself, if 
you read the contract, they are allowed--the government is 
allowed to come in and look directly at the books. Often they 
go to the contractor and say get us these answers. But I wanted 
to clarify that.
    Ms. deYoung. Oh, I appreciate that. And I'm suggesting--I'm 
here to fix problems. I'm not here to say KBR doesn't deserve 
that job. I'm just saying we need to fix the problems.
    Chairman Tom Davis. Now, let me ask you this. I have an e-
mail you sent to Mr. Lesar. Is that his name?
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    Ms. deYoung. Yes, sir.
    Chairman Tom Davis. Where you note a couple of things. ``As 
a former personnel officer and former chaplain in the Army, and 
as a relatively new employee, I am grateful for your efforts to 
communicate your concerns.'' ``As a published author who 
campaigned against previous malignant press/political campaigns 
against army soldiers, I know that you are at a great 
disadvantage, because the political slurs are masked as 
legitimate public policy debate.'' And this was December 13th.
    Ms. deYoung. Yes, sir.
    Chairman Tom Davis. ``I only worked for the company 3 
months in Kosovo.'' So I gather this is after you had left 
Kosovo?
    Ms. deYoung. Yes, sir.
    Chairman Tom Davis. So, ``I only worked for the company 3 
months in Kosovo, and so, I am not eligible for your employee 
contest to improve this great company. But, as a pretend 
contestant, I would like to give you feedback about the recent 
media slurs against Kellogg Brown.''
    And you go on and on, but never in this do you offer any of 
the complaints that you are offering here. And you note in 
another e-mail, back in March, this is again after you had 
left, ``Please know that KBR folks really do good work for the 
Army, because they care too. They are all doing a great job, 
and their spirit and determination is very strong.''
    Now, how do we reconcile all that with where you are today?
    Ms. deYoung. Very easy, sir. And there is nobody more 
disappointed than me. I had everything to lose by coming home 
and coming here. That letter was written the day before we 
flew--the day before Saddam's capture was announced and we flew 
over to Kuwait. And in the personnel briefings they talked 
about greed: Why are you taking this job? You want money, 
money, money. And that is why you are taking this job. And I 
suggested to him, as you can see in that letter, scrub that. 
Scrub that.
    Second, I believed at the time--the folks on your side of 
the aisle there are assuming I'm a Democrat. Please do not 
assume that. I believed at the time that this was a political 
slur; OK? And I didn't--because what I saw and what I wanted to 
participate in was first-class support to the soldiers. And 
that's what Kosovo, even though it's very expensive, that was 
happening in Kosovo.
    I get to Kuwait, and in the subsequent testimony, we are 
experiencing time and again situations where, for example, for 
over a month we could not repair a roof. A simple--you know, a 
simple temporary structure, a roof, because we didn't have 
screws and a ridge cap. A ridge cap costs about $30, and they 
could have been gotten off the economy.
    Chairman Tom Davis. But these e-mails are long after you 
had left Kosovo. I mean, not Kosovo, long after you had left 
Kuwait. Excuse me.
    Ms. deYoung. The e-mail----
    Chairman Tom Davis. These e-mails are after your 
experiences over there.
    Ms. deYoung. The e-mail to Dave Lesar is before I went to 
Kuwait.
    Chairman Tom Davis. Well, one is dated April 1, 2004.
    Ms. deYoung. No, no, no. The original--it's about December 
13th, the original. It may be a copy of how I sent it home to 
myself. But the original e-mail to Dave Lesar was on December 
13th. It was the day before I flew.
    Chairman Tom Davis. February 26, February 20. And you don't 
mention any of these issues.
    Ms. deYoung. And I had not--I went down to subcontracts. I 
was working in subcontracts on the outside until March 1st.
    Chairman Tom Davis. Did you ever send any of this stuff to 
the President himself?
    Ms. deYoung. He came, and I went and shook his hand.
    Chairman Tom Davis. But you never mentioned any of this in 
the e-mails? You had e-mails back and forth with him, of 
course, but did you ever mention this there, or did you just 
keep it down here and wait till later on to tell the committee?
    Ms. deYoung. Oh, no.
    Chairman Tom Davis. Because you didn't tell government 
auditors. We know you didn't inform the government auditors.
    Ms. deYoung. The government auditors were trying to get the 
same information I was trying to provide them. They were trying 
to get that information, and I was trying to provide it. And 
when I saw internal shutdowns, that is why I came to this 
committee.
    When Dave Lesar came, sir, and truck drivers, after the 
four men died, to include a guy who was in my cohort, named 
Fish, truck drivers were trying to tell him how unsafe it was. 
They were being shot at, and other instances were being 
discussed. And when that information was not considered, and 
when the information was not considered by the Vice President, 
whom I had sent e-mails to, that's when I made a decision.
    I continued to receive e-mails until my last day, saying 
only give out this amount of information. You are asking too 
much. That's when I came to the committee.
    Chairman Tom Davis. Ms. McCollum, you are recognized for 5 
minutes.
    Ms. McCollum. Thank you, Mr. Chairman.
    Mr. Warren, you did call the CEO.
    Mr. Warren. Yes, ma'am.
    Ms. McCollum. And in your conversation you tried to convey 
to him that there were problems, and you did show that there 
were problems with that. You reported that to him. What was his 
response to you?
    Mr. Warren. I had reached him when he just got out of a 
board meeting, and at that time when I called him, I was having 
problems in my own convoy. I was a very, very outspoken critic 
to safety, to my supervisors and to my foremen and to just 
about everybody, to the maintenance of the trucks.
    I was involved in an accident while I was over there, and I 
felt like I was being pushed out the door because they just 
wanted me gone. And I wanted to speak to Mr. Randy Harrel and 
express to him my concern about my employment. And in the 
course of our conversation I brought up some of the problems we 
were having.
    He thanked me for bringing it to his attention. He was very 
nice to me, and he just seemed like he was in a hurry; that he 
needed to go. And he promised me, he said, well, I assure you 
of one thing, Mr. Warren, I won't leave you over the grease to 
burn. And I took that as a fair shake. I would get a fair 
shake, anything that pertained to me.
    So after a couple of weeks I was transferred to Kuwait, 
thinking I was getting a new job assignment. And after 2 weeks 
in Kuwait, I was terminated.
    Ms. McCollum. Did you ever see any evidence that someone 
had, from the company, come out and talked to the drivers and 
to others to say, you know, we need to do everything possible 
we can do to stop these thefts from occurring? Was there any 
difference in the amount of thievery you saw before or after 
your phone call?
    Mr. Warren. No. As a result, whenever I was called in to 
security, I thought they were going to address the concerns 
that I spoke to Mr. Harrel about. I thought they were going to 
talk to me in private. It wasn't nothing about that. It was 
about who have I seen run people off the roads? Or I was told 
that--they told me that they were in the know; they have some 
eyewitnesses that made statements that I know who was running 
them off the road, and they wanted me to give names.
    Ms. McCollum. OK. Well, thank you, Mr. Warren.
    Gentlemen, could I ask you, in your opinion, were any of 
the trucks that you saw that stopped functioning or that were 
torched due to the fact that the air filter gave out--I mean, 
you are experienced drivers. I'm sure you talked to the other 
drivers of the trucks. Was it air filters, just general 
maintenance, that was not being done in these areas?
    Mr. Wilson. Yes, ma'am, there were problems in general 
maintenance. In particular, in my truck, when I was a convoy 
commander shut down because of filters. It wasn't air filters 
in my case, it was fuel filters. Diesel engines are sensitive 
to fuel filters. If the fuel filter stops up, the engine won't 
run. It will shut down.
    Ms. McCollum. Thank you. Ms. deYoung, I know you were asked 
some questions about the different levels and all that. I have 
many years in retail management. I usually see things that, if 
they are contracts, it says ``contract'' on the top of the 
form, and if it is a purchase order, it says ``purchase order'' 
on the top of the form. And I am assuming Halliburton, being a 
private sector company, wouldn't be that different from the 
major companies that I worked for.
    You can tell the difference between a contract and a 
purchase order, and you know how to match up to do basic 
inventory; is that not correct?
    Ms. deYoung. Absolutely. And because of my expertise in it 
or ability to do it, if I'm not certified, the subcontracts 
manager, who was the president of the National Contract 
Management Association, who is new there and trying to fix 
problems, he had me do investigations. He had me look at every 
single purchase order and subcontract to fill out reports for 
him.
    Ms. McCollum. So it is easy to do when all the paperwork is 
there, to find out what came in and what went out.
    I would just have one comment I would like to make. Thefts 
occur, and you did say in your testimony, and it was mentioned 
by one of the members here, that in times of war sometimes 
people come and purloin things. Well, in times of war, if you 
are delivering something to one of the units and they are 
counting on that being there, it makes a difference as to 
whether or not that piece of equipment arrives. So thefts 
should be prevented.
    Mr. Warren, thank you for trying to make them stop that.
    Mr. Waxman. Ms. McCollum, would you yield to me for 1 
second?
    Ms. McCollum. Yes.
    Mr. Waxman. I just wanted to ask the two gentlemen, do you 
know of other drivers of trucks that worked with you that have 
similar stories?
    Mr. Warren. I have many friends that would be associates I 
worked with that would say the same thing.
    Mr. Waxman. Well, if you have any of these names and phone 
numbers that you are willing to supply to the committee, we 
would appreciate it. Because we would like to see if others 
have experienced the same thing.
    Chairman Tom Davis. The gentlewoman's time has expired. The 
gentleman from Indiana.
    Mr. Souder. First, let me say that if I have ever heard a 
hearing where the forecast of what we were going to hear today 
and what we have heard are substantially different, it is this 
hearing. We have been hearing over and over about all these 
different allegations. Two of the five witnesses didn't show. 
The one I was supposed to question, which had this huge dollar 
amount there, when we actually get into the details and go over 
it from a business standpoint, quite frankly, he didn't 
realize, like the two gentlemen here with the trucks, that the 
military was making the decision, not Halliburton. He didn't 
realize that the cost he was projecting was incorrect, and he 
didn't have any proof that if there was a problem, it was 
Halliburton or KBR that had anything to do with it; that it was 
in fact inside his company, if there was a problem. So he 
begged off today not to come. We don't know why the other 
witness is not here.
    And with all due respect, while it is very difficult for 
you to come forward, and quite frankly, I'm a little confused 
as to why the two of you were terminated in the truck 
incidents, because running Iraqis off the road, if you felt you 
were in danger, doesn't seem like much grounds for termination 
for such a lay observer. At the same time, you've acknowledged 
here under oath that you didn't realize that the military was 
making the decisions on how many trucks would go or whether 
they were empty. You didn't realize that the military was 
making the decision as to what was going onto the trucks. And 
your cases, really, in the big picture of things, are more or 
less irrelevant.
    There are things that need to be dealt with that the 
military felt that they needed certain actions, and maybe we 
should be calling the military in, but what this hearing was 
hyped was that somehow Vice President Cheney is corrupt and 
President Bush is corrupt because contracts went to 
Halliburton, and Halliburton was enriching themselves. And not 
a single fact today showed that. In fact, Ms. deYoung, who 
actually makes what I believe are some fairly serious charges 
that we need to look into and they need to be continued to be 
looked at, because we need to make sure money is spent 
accurately and that the right bills are paid, but as you look 
at that, the fact is, as you said, you would not necessarily 
say that KBR shouldn't keep the contract or that Halliburton 
shouldn't. What they need to do is correct errors in their 
process.
    Furthermore, what we have heard today does not adjust for 
the fact that in the first days of that war, Members of this 
body, including critics of the administration, and people here 
today, were saying, oh, we have to make sure that the oil wells 
don't explode, and we have to make sure that money gets into 
the Iraqis flow. And then they say, well, there are too many 
guys standing around. In case something happened, the military 
wanted to make sure that they had the guys around. They said, 
oh, we need to make sure the electrical grid works. So the 
thing is, get everything you can, pay whatever price to get in 
there, even if it hadn't worked for a long time, and then we 
criticize the company because they paid too much to get the 
materials there on a rapid basis.
    This body and the American people have been pushing the 
military and the contractors past even the point of safety, 
where we see them beheaded and captured and other types of 
things. Yes, they are making more money, but you know what, you 
can't pay most Americans enough money to go over there and risk 
the chance they are going to die, and without adequate 
protection. And so the contractors in my book are as much 
heroes as our soldiers, because they do not have the same 
security.
    Now, a lot of what happened, and always happens, and it is 
happening around the world with our military in every zone 
there is, in the early days, quite frankly, speed is the most 
important thing. Second, we always have problems with 
maintenance, particularly in the first parts. And the reason we 
need auditors with integrity, who then match it up, is that 
after and as the mission changes, and as you get stabilized, 
you make sure there wasn't fraud in that process of overpaying; 
that indeed it was because there was a need to overpay, to 
maybe get the speed with a contractor that was relatively 
reliable because we couldn't spend the time checking out the 
normal low bidder that you would do in a normal situation with 
a retail store. I grew up in retailing, too.
    You know, I had time and the ability to plan ahead. Here 
there isn't with these type of things. But as time goes on, if 
we are not correcting the maintenance questions, if we are not 
correcting the overbilling questions, if we are not doing 
better management to forecast the cost, if we find out that we 
are paying more than we should have paid, then those 
adjustments should occur. And to the degree that people like 
Ms. deYoung and you all help us sort that out, that is helpful 
to this committee. To the degree this becomes a witch hunt, 
which in fact this hearing has become--and that every time we 
seek out other people who have complaints so we can bring them 
up here and then find their complaints aren't valid.
    Now, it isn't your complaints aren't valid that there are 
empty trucks, but the fact is we don't know. We don't know why 
the military asked for that, but it had nothing to do with 
Halliburton and the hearing. And even that last question for 
seeking information had the implication that somehow this has a 
tie back to the political arena.
    Ms. deYoung. Can I respond to that, sir?
    Mr. Souder. This hearing would not be occurring if it 
wasn't politically motivated. That's the fact. We would have 
done it in a different way. We would have looked at the 
auditors. This show hearing, and the reason the press is here 
today, is because of the allegations made in the opening 
statements, not because of your information.
    Yes.
    Ms. deYoung. Sir, I would like to respond to that. I 
understand, with my 10 years of tactical experience, I have 
been in all the combat units and trained with them, what the 
Congressman was talking about, about the military being in 
charge. But these gentlemen are absolutely understating the 
problem that Halliburton bought trucks, leased trucks, and they 
didn't have repair parts. All the European-made trucks have 
metric tools. They didn't have metric tools in country.
    Subcontract administrators, if you put them under oath, 
they will tell you that. That's a fact. There are people who 
are trying to take pictures and trying to bring information 
back. The fact that the priorities were backward, taking care 
of luxuries for the people and the hotel staff, instead of 
getting armored trucks, instead of getting tools, fuel filters, 
that's a fact. It was a subcontract procurement problem.
    Chairman Tom Davis. Thank you very much. The time has 
expired.
    We have Mr. Duncan, 5 minutes.
    Mr. Duncan. Mr. Chairman, I know we have votes going on, so 
I won't take the full 5 minutes. I don't have any questions, 
but I would like to make a couple of comments.
    I think Mr. Souder made some good points. And I think it is 
ridiculously unfair to charge or imply that Vice President 
Cheney had anything to do with these problems, because all of 
these problems, if these allegations and charges are true, 
occurred while he was Vice President, long after he had left 
Halliburton. So it does appear to many people that some of this 
is being done purely for partisan political purposes.
    Having said all that, I will say this, though. We didn't 
really have many of these problems like this when the 
government was small, the Federal Government was small. But 
when Federal spending exploded in the early seventies, we 
started hearing and reading about more and more examples of 
waste, fraud and abuse. And conservative Republicans have 
traditionally been the biggest critics of waste, fraud and 
abuse, whether it occurred by the government bureaucracies 
themselves or whether it occurred in government contracts.
    Now, I can tell you this. Most of us have no connection 
whatsoever to KBR/Halliburton. If these charges are true, and 
if there are, as I heard on one national newscast, $166 million 
of overcharges, I want to put it on the record that 
conservative Republicans are almost more horrified by that 
across this country than anybody else would be. I don't want it 
to appear to anybody that conservative Republicans would defend 
any company that overcharged the government by many millions of 
dollars, or, as one witness said, had people not doing work and 
charging the government for it, or doing horrendous 
overcharges. I think it is terrible.
    So I think if some of these charges turn out to be true--
and they may not--but if they were, then these companies should 
be banned from doing further business with the Federal 
Government and people should be prosecuted criminally.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much. We have 10 minutes 
before the vote.
    Mr. Platts, do you want to say anything before I dismiss 
the panel?
    OK, then. Let me just thank the panel for being here. We 
will recess this part of the hearing. When we come back from 
votes, we will swear the second panel and move from there.
    Thank you very much.
    Ms. deYoung. Thank you very much.
    Chairman Tom Davis. The committee is in recess.
    [Recess.]
    Chairman Tom Davis. Thank you very much. We will reconvene, 
and if you would rise with me.
    Our witnesses are Alfred Neffgen, Chief Operations Officer, 
KBR Government Operations, Americas Region; Mr. William Walter, 
Director of Government Compliance, KBR Government Operations; 
Mr. Charles ``Stoney'' Cox, vice president and past restore 
Iraqi Oil Project director; and Mr. Keith Richard, regional 
project manager, Theater Transportation Mission, LOGCAP III, 
KBR Government Operations.
    It is the policy of the committee to swear all witnesses 
before you testify. Please raise your right hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much. Mr. Neffgen, we'll 
start with you and move straight down the line. We try to keep 
the testimony to 5 minutes and then we'll open it up to 
questions. Your entire testimony will be part of the record. 
Thank you, and thanks for patient and staying with us.

  STATEMENTS OF ALFRED NEFFGEN, CHIEF OPERATION OFFICER, KBR 
    GOVERNMENT OPERATIONS, AMERICAS REGION; WILLIAM WALTER, 
 DIRECTOR OF GOVERNMENT COMPLIANCE, KBR GOVERNMENT OPERATIONS; 
 CHARLES ``STONEY'' COX, VICE PRESIDENT AND PAST RESTORE IRAQI 
  OIL [RIO] PROJECT DIRECTOR, KBR GOVERNMENT OPERATIONS; AND 
KEITH RICHARD, REGIONAL PROJECT MANAGER, THEATER TRANSPORTATION 
         MISSION, LOGCAP III, KBR GOVERNMENT OPERATIONS

    Mr. Neffgen. Thank you, Mr. Chairman and members of the 
committee. My name is Al Neffgen, chief operating officer for 
Government Operations, Americas Region at KBR, the engineering 
construction subsidiary of Halliburton. In this role, I oversee 
all work performed by KBR for the U.S. Government.
    Mr. Chairman, there have been many criticisms of KBR this 
year. We are happy to be able to appear here today to tell the 
story of what KBR has done to support the military. When 
reviewing our activities, we think it is important you consider 
the environment in which we are serving.
    Within hours of the beginning of the war in March 2003, KBR 
personnel joined the Army at the Iraq border and provided 
logistic support for the Army as it invaded and later secured 
Iraq. Over the next 16 months, our people have been in harm's 
way. There are attacks on KBR personnel every day. Weekly, 
there have been anywhere from 40 to 80 incidents. We had not 
lost a single employee to hostile action in more than a decade 
of supporting U.S. troops in assignments in Haiti, Somalia, the 
Balkans, Afghanistan, and elsewhere. In Iraq, 42 employees and 
top-tier subcontractor employees, have lost their lives. 
Another 93 have been wounded. Some have been kidnapped, 
including Tommy Hamill, who later escaped. Two employees are 
still missing in action.
    When we entered Iraq 16 months ago, we began work under 
intense pressure with inadequate infrastructure, with almost no 
communications, few phones, and little electricity. Our people 
slept in makeshift facilities and in the hallways of abandoned 
buildings. In these conditions, the military assigned us jobs, 
like bringing in millions of gallons of fuel for the military, 
feeding the troops, and transporting critical military 
supplies. In this situation, KBR employees were determined to 
get the job done and do it well. We are accomplishing this 
mission.
    The challenges were expressed in an article in the New York 
Times in June 2003. It said, ``KBR essentially took an entire 
army base out of containers and made it rise in the middle of 
the Kuwaiti desert 2 days ahead of schedule. To conjure Camp 
Arifjan in a twinkling, amid one of the most hostile 
environments on the planet, was by any measure a stunning 
logistical achievement.''
    Over the last 16 months, we have set up more than 60 camps 
for soldiers, helped restore oil flow to prewar levels 3 months 
ahead of schedule, delivered 463 million gallons of gasoline to 
Iraq to alleviate the very real possibility of civil unrest, 
and another 700 million gallons for the military.
    Supporting the troops is an enormous logistics exercise. 
Every day we serve more than 475,000 meals to our troops, 
provide them more than 2.3 million gallons of water, wash 
almost 16,000 bundles of their laundry, collect nearly 10,000 
cubic meters of trash. We did this with constant changes from 
the Army, the kinds of changes that are to be expected in a war 
zone.
    The LOGCAP contract scope of work called for KBR to be 
prepared to support 25,000 troops, with an absolute maximum of 
50,000. Within months, we were charged with supporting nearly 
200,000 United States and Coalition Forces, as well as 11,000 
others, a total of 211,000 people. Under these conditions, no 
one should expect the assembling and complicated logistics 
would be the epitome of pristine precision. These unanticipated 
requirements did tax and stretch our systems, but we placed 
continuous pressure on ourselves to do better. We identified 
problems and fixed them.
    We have an elaborate system to detect improprieties, and 
when they occurred, we acted. Let me give you two examples of 
where we identified and fixed problems.
    By late 2003, we were concerned about the overload to some 
of our procurement systems. We dispatched a special Tiger Team 
of seasoned procurement professionals that improved our 
systems. And when we discovered a billing irregularity that 
suggested a subcontractor may have improperly paid a kickback 
to a former employee, we investigated it, reported it to the 
Federal authorities, and provided the government a $6.3 million 
credit, far in excess of the alleged kickback amount.
    Despite all these challenges, KBR has constantly delivered 
on its promise to feed and house the soldiers and fuel and 
supply the military. In the end, that is our proudest 
accomplishment.
    Facing all these realities, KBR undoubtedly made mistakes. 
But where we identified mistakes, we quickly moved to fix them. 
For example, earlier this year, a regular review showed some 
examples of splitting requisitions to keep them under $2,500. 
When it did happen, it was done to meet urgent Army need, not 
to avoid competition. When we found out about it, we put a stop 
to it. That is not the way we do business.
    The other area where we find fault with ourselves is in 
subcontract documentation. These issues came about for a number 
of reasons: The huge ramp-up of LOGCAP, the need to utilize 
more than 200 subcontractors, and the speed needed to 
accomplish these jobs. Again, the goal was to provide service 
to the Army as quickly as possible. But it is an area where we 
could have done better, and we are doing so today.
    In addition to our self-criticism, we are well aware of the 
external criticism, as typified by a few of our former 
employees. The company has long had procedures to encourage 
such complaints and criticisms and to address them. We 
encourage any and all employees to promptly report any 
violations of our company's code of business conduct, either by 
going to a supervisor or using our confidential ethics hotline 
and e-mail address for reporting any such concerns.
    We take any allegations seriously and fully investigate. We 
are sorry that a few of these former employees failed to use 
these procedures. In any event, we believe their criticisms are 
mistaken and misinformed. We welcome the opportunity to speak 
to the facts on these and other issues.
    Let me set out some of these: In the area of procurement, 
one former employee claims that people have been putting too 
many hours on their time sheets. Our policy strictly prohibits 
that. And if we learn of violations, they are dealt with very 
seriously.
    Another employee claims to have read files and seen that we 
contracted to buy soda for $1.50 per case. That is just a 
little over 6 cents a can. Think about that premise: 6 cents a 
can. I don't know when you could buy soda for 6 cents a can.
    We have also heard about what was called a $61 million fuel 
delivery overcharge, when in fact it is just the opposite. 
KBR's actions saved a lot of money.
    Mr. Chairman, and members of the committee, I hope you will 
come away from today's hearings with three conclusions: first, 
never before has a contractor worked in as difficult and 
dangerous a situation as we do in Iraq; second, we have 
performed and performed well for our soldiers and for our 
country; third, we have performed our work within the law and 
consistent with Federal contracting requirements. There have 
been times when we made mistakes, and our systems were 
stretched, but we have identified mistakes and we have quickly 
moved to fix them.
    Mr. Chairman, without question, the public has a right to 
expect that its tax dollars are spent wisely. All we ask is for 
a fair assessment of whether KBR has done the best they could 
under the difficult and challenging conditions of operating in 
a war zone. We firmly believe we have met that challenge.
    Thank you, Mr. Chairman, and members of the committee, and 
I look forward to your questions.
    Let me now please turn it over to Bill Walter.
    [The prepared statement of Mr. Neffgen follows:]

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    Chairman Tom Davis. Mr. Walter. Thank you.
    Mr. Walter. Mr. Chairman, and members of the committee, 
thank you for inviting me here today. My name is William 
Walter. I am the director of Government Compliance for KBR 
Government Operations. I welcome this opportunity in part 
because I am familiar with these issues from several 
perspectives.
    Early in my career, I worked as an auditor for the Defense 
Contract Audit Agency. Next, I served as a consultant to 
government contractors, and as a teacher for George Washington 
University's government contracts program. Today at KBR, I 
currently spend about a quarter of my time in Kuwait and Iraq.
    Let me make a few things clear at the outset about some 
assertions we have heard today. When I am in theater working 
with KBR procurement specialists, they are constantly trying to 
negotiate the best deals possible with vendors. I have never 
heard any guidance remotely close to ``it's cost-plus, don't 
worry about it.'' Not once.
    Before employees complete their time sheets, they are told 
they are responsible for their time sheets. We have heard that 
people have put too many hours on their time sheets. Our policy 
strictly prohibits such padding of hours, and if we find it is 
happening, we will deal with it directly.
    We have also heard about our laundry contract. Early on in 
the deployment, the Army believed that the laundry from each 
soldier and facility would be considerably more than it turned 
out to be. But we had negotiated a fixed price based on the 
Army's higher estimate of laundry requirements. When it turned 
out there was less laundry, KBR renegotiated a lower price with 
the vendor.
    Finally, we heard from Ms. deYoung that we overpaid for 
sodas for the troops. Our contract provided that our 
subcontractor should deliver a bag of sodas, ice, and cups to 
soldiers and provide a hospitality lounge at the airport. KBR, 
through its own auditors, discovered that the subcontractor was 
delivering only soda, without the ice and the cups. This was 
corrected. This investigation was undertaken by KBR before Ms. 
deYoung began to work as a logistics assistant in subcontracts.
    Mr. Chairman, the common thread here is that KBR takes 
seriously the matters of controlling costs and providing the 
fiscal accountability the taxpayers expect. Contracting in Iraq 
poses greater and different challenges than those faced by a 
defense contractor building a weapons system, a contract that 
involves a permanent manufacturing plant and blueprints, even 
though the audit process is the same for both.
    As a logistics contractor, we don't have a blueprint for a 
camp. We get the layout when a general points and says, let's 
put the dining facility here, and let's put the showers over 
here. There is always a clear sense of urgency. For example, we 
were asked to set up 26 dining facilities throughout Iraq in 
less than 3 weeks, and the requirements for dining facilities 
kept expanding so that soon it grew to more than 60. 
Requirements change on a daily basis. For example, one dining 
facility in Kuwait served 8,900 soldiers 1 day and the next day 
it served over 16,000 soldiers.
    KBR's LOGCAP and RIO contracts are cost-plus contracts, the 
type of contract the government uses to meet urgent and 
unpredictable needs. As Major General Wade McMahon testified 
before this committee in March, it is important to note that 
the LOGCAP contract provides us the flexibility and agility to 
respond to unknown requirements over the unknown time lines and 
uncertain conditions.
    Cost-plus contracts work like this: First, the Army issues 
a statement of work. This frequently involves a pressing 
assignment defined in broad terms, one that is later adjusted 
to fit changing conditions. KBR then develops a rough estimate 
of what it will cost. The Army then approves or modifies the 
estimate and issues a notice to proceed. The parties then work 
together to negotiate a final cost estimate. Once the costs are 
agreed to, this estimate serves as the basis for calculating 
KBR's base fee and our possible award fee pool.
    Our base fee is very small, typically 0 to 2 percent. Our 
incentive is to obtain the award fee, the largest of the fees 
that can be earned. If our costs exceed the definitized amount, 
our base fee remains fixed. There is no additional fee if KBR 
were to simply rack up additional costs. Our award fee may be 
reduced or denied if we do not do a good job of controlling 
costs, one of the significant award fee criterion.
    There are many reports in the media accusing KBR of running 
up costs to increase profits. This is not true. A contractor 
like KBR does not have an incentive to run up excessive costs. 
In fact, the opposite is the case. The review and the award fee 
process provides strong incentives for KBR to control costs. 
Our operations in Iraq and Kuwait are undergoing extensive and 
continuing government scrutiny and audits. This oversight is 
common for all cost-plus contractors and will ultimately assure 
that the costs charged will be fair and reasonable under the 
circumstances.
    And all of this serves the best interest of our customer, 
the U.S. troops, and, of course, the U.S. taxpayer. The wartime 
conditions in Iraq have stretched our contracting systems, and 
there are a number of complicated issues of contract 
administration that we are in the process of resolving with the 
government. Many of these issues arise, we believe, because 
review mechanisms that are well suited for conventional 
contracting during peacetime have proven less well suited 
during a wartime environment.
    In the wartime environment, subcontracts must be placed on 
an urgent basis. Even a simple task like assembling the 
necessary documentation is extremely difficult because of the 
hostile environment and the significant initial requirements. 
To address these unique issues, we are involved in a 
cooperative process with the Army, the Defense Contract 
Management Agency, and the Defense Contract Audit Agency to 
explore ways to bring these contracting processes in line to 
the wartime realities, based on our lessons learned, without 
sacrificing accountability.
    We believe these contracting processes, oversight 
procedures, and our internal policies, taken as a whole, offer 
a system that is agile enough to serve the needs of the U.S. 
troops while also assuring the fiscal responsibility and the 
safeguards of the people's interests.
    We are proud of our record as a Federal contractor and 
proud of our record of operating with business systems that 
assure absolute integrity, efficiency, and effectiveness.
    Thank you for allowing me to talk about our procurement 
policies and practices, and I look forward to your questions.
    Chairman Tom Davis. Thank you.
    Mr. Cox.
    Mr. Cox. Mr. Chairman, and members of the committee, my 
name is Stoney Cox, and I am vice president of operations for 
the KBR's Governments Operations Unit. I returned last month, 
after 14 months in Kuwait and Iraq, where I served as the 
project director for KBR's Restore Iraqi Oil [RIO] project as 
it is called.
    Prior to Operation Iraqi Freedom, the Defense Department 
decided that getting Iraq's oil flowing again was fundamental 
to the future of the Iraqi people. The RIO project was an 
outgrowth of that prewar planning. Our involvement began when 
the Army Field Support Command issued KBR a task order for 
planning under the competitively awarded LOGCAP contract that 
we hold. We were asked to develop a contingency plan to assess 
Iraq's oil infrastructure and how it could be returned to full 
production.
    Later we were asked to implement that plan on a sole- 
source basis. And I know there has been a lot of criticism of 
the Army for giving KBR this contract without any competition, 
but I would point out that this matter was fully reviewed by 
the GAO and it was decided that it was both legal and 
appropriate, given the wartime conditions and the urgency of 
the mission.
    Under RIO, KBR helped restore oil production and oil 
exports ahead of schedule, and imported fuels for the everyday 
use of the Iraqi civilians to cook, heat their homes, and drive 
their cars. On March 21, the second day of the war, KBR's 
engineers crossed into Iraq, following in the footsteps of the 
Coalition soldiers as they initially assessed the oil 
facilities. We faced mines, unexploded ordnance, booby traps, 
and roving bands of looters who actively targeted KBR 
personnel.
    Operating under these harsh conditions, KBR helped the Army 
Corps of Engineers meet its goal of restoring Iraqi oil. The 
first oil flowed from the southern oil fields on April 23, 
2003, just 5 weeks after we began the assignment. Exports 
started again in June 2003, and have produced some $12 billion 
in revenues for the Iraqi people in 1 year's time. And on 
December 30, 3 months ahead of schedule, Iraq reached its 
prewar production levels of 2.4 million barrels per day.
    Mr. Chairman, any balanced examination of a contractor's 
work must take into account how it responds to the urgent 
demands of the military in the war zone. The perfect example of 
that for us is the emergency fuel mission. On May 3, 2003, the 
Army Corps contacted KBR in Kuwait and directed that we begin 
to procure and transport millions of liters of fuel for Iraq as 
soon as possible. The Army indicated to us that a fuel shortage 
for the Iraqi citizens threatened civil unrest and posed a 
serious danger to U.S. soldiers. As testified here before this 
committee, one soldier in fact was killed while trying to 
maintain order in a gas line in Baghdad.
    Outside the war zone, a contractor might have months to 
develop such a complicated program. When the Defense Energy 
Support Center took over this mission, it had 3 months to 
complete the contract, compete it, and put it in place. We did 
it in 3 days. We simply did not have the luxury of time. We 
simply acted in 30 hours and arranged for the logistics, and 
the first trucks of gasoline were rolling from Kuwait into 
Iraq. This eventually grew into a massive 11-month undertaking. 
We made almost 9,000 gasoline deliveries per month, delivering 
over 463 million gallons of gasoline to Iraq.
    There are several important points I wish to make about 
this program.
    First, It was a very dangerous mission. Our subcontractors 
have lost some drivers who have been killed due to hostile 
incidents, most of them from making deliveries from Kuwait.
    Second, we did everything possible to ensure that the 
Army's requirements were met at the lowest possible cost, even 
given the urgency. Within 24 hours of being contacted by the 
Army, we had contacted several firms and had received several 
bids. We chose a low bidder, a Kuwaiti company named Altanmia.
    A significant reason for the high cost of fuel in Kuwait 
was the high cost of logistics. We anticipated, when we began 
the mission, that each truck would be able to make four round 
trips per month from Kuwait to Iraq, but we were 100 percent 
reliant on the military-controlled convoy system. And because 
of the security situation and the many delays in getting the 
convoys going, tankers instead only averaged slightly less than 
two round trips per month, about half.
    Since our tanker charges, our costs, were a fixed price per 
month, this caused the price of delivered fuel to increase. 
Four round trips per month would have been a savings of $0.46 a 
gallon, or less than 20 percent of the overall cost of the fuel 
delivered to Kuwait or Iraq.
    The third point I would like to make is that at our own 
initiative, we saw alternative sources of fuel, namely from 
Turkey, which was--costs substantially less than the fuel from 
Kuwait. It was less costly because the vendors there deemed it 
less dangerous to deliver from Turkey and because there was a 
better competitive market for fuel, for that product, from 
Turkey. By May 11th, we also began delivering fuel from Turkey, 
and in the end, at the end of the mission, nearly 72 percent of 
the fuel that we delivered to Iraq came from Turkey rather than 
Kuwait.
    Our critics often allege that we overcharged by some $61 
million, and there is a new report out today that ups that to 
$167 million, but they allege that we overcharged by $61 
million because simply we didn't buy all of the fuel from 
Turkey. A simple calculation. But it simply was not possible to 
do so, and we were not directed to do so. We were, in fact, 
directed where to purchase the fuel.
    Now, why was that? Well, for one thing we needed two 
sources of fuel, two approaches, if you will. Turkish drivers 
often refused to drive through the Sunni Triangle because of 
the dangers there. And, in fact, Turkish drivers went on strike 
in November and shut down the Turkish fuel flow, and had we not 
had the Kuwait fuel flow at that time, we would have definitely 
been in trouble. We and our client would have been in trouble.
    As I said, we are certainly aware of the minority's report 
that was issued yesterday alleging that we have overcharged 
$167 million compared to DESC current price for this mission. 
We strongly disagree that there was any overcharge, and we 
believe this report is flawed in several ways. For example, 
based on the rising spot price, we believe today that DESC now 
pays a higher price for the gasoline than did KBR. Any 
difference, major difference, though, comes from the 
transportation cost.
    We believe the report is flat wrong, and to compare our 
immense startup costs as we put the system in place to do this, 
for which DESC has reaped the benefit of this system, we 
believe that is wrong. I would welcome the opportunity, as we 
get into the Q and As, to further address those issues, but I 
think I will stop now. And thank you for allowing me to be here 
today and address these issues with the committee.
    Chairman Tom Davis. Thank you very much.
    Mr. Richard.
    Mr. Richard. Thank you, Chairman Davis and members of the 
committee. My name is Keith Richard. I am the KBR government 
operations regional project manager for the theatre 
transportation mission in Iraq and Kuwait. In this role, I 
oversee all KBR LOGCAP transportation missions in Iraq and 
Kuwait.
    I am pleased to address the committee on a key role that 
KBR is playing to help support our troops in Iraq. In addition 
to the trucks that you just heard about that supplied Iraqi 
civilians with fuel, KBR also wanted a separate program in Iraq 
to support military fuel, military parts, food and mail to 
coalition forces. Thus far these KBR trucks have driven nearly 
40 miles and made more than 128,000 deliveries.
    We operate a fleet of about 2,000 trucks, employ 1,700 
drivers, 300 truck mechanics, along with logistics specialists, 
clerks and heavy equipment operators. In miles driven and fleet 
size, we are the equivalent of the fourth largest trucking 
company in the United States, and we set up that capability in 
a matter of months.
    Let me take you through a typical trip, if typical is the 
right word. Our truck typically traveled from Kuwait to the 
central distribution center at Camp Anaconda and back. A 
distance of 1,100 miles round trip in a States trip, equivalent 
of travel from Richmond to Boston, would take 2 days, or 9 
hours up and 9 hours back. But in Iraq it is almost a 5 or even 
a 6-day trip, and that's if all goes well. On the run to Camp 
Anaconda, the driver's day begins with a pretrip inspection of 
his truck in Kuwait followed by a meeting with the latest 
security briefing.
    The mood is tense, and I certainly know that in trips I 
have made, my adrenalin is pumping. Trucks are joined by 
military escorts at the Iraqi border. From there they travel to 
Camp Cedar, a support center, where they overnight. The next 
day a new set of escorts joins in to head on to Scania, a 
massive truck stop where yet another escort awaits.
    The third day is a straight run for Camp Anaconda. This is 
dangerous work for our drivers, and provides explosive devices, 
or IEDs, or a constant threat of rocket-propelled grenades, 
land mines, mortars, and small-arms fire and spikes in the 
road. On a recent trip a 25-truck convoy suffered serious 
damage to 17 windshields from rocks thrown in two particular 
hostile cities. That is not unusual.
    Sadly, 14 drivers have been killed while carrying out this 
important mission. That's 14 drivers. One driver, Al Caton, was 
also a friend of mine, as you heard in previous testimony. Al 
was a real leader and one of the nicest guys I know. Some of 
the other drivers were killed in the coordinated ambushes of 
convoys on April 8th and 9th, and two drivers are still missing 
from those tragic days. These drivers are a brave and 
courageous group of people.
    But the danger does not end when the driving does. Even 
simply being at Camp Anaconda can be dangerous. In my 6 weeks 
in Anaconda this spring, there was virtually mortar fire every 
night, which means you get up, wait, go to the bunker and pray. 
At Anaconda I was asleep in my containerized housing when a 
mortar came flying just over my sleeping area and slammed into 
a KBR mail van parked 15 feet away.
    Earlier this month at the same camp, a number of KBR 
employees had gathered for a July 4th celebration when two 
mortars hit. Twelve employees were injured, and three had to be 
evacuated to a combat support hospital. These close brushes 
with danger are not unusual for the men and women of KBR 
working in Iraq. It is simply a part of the job.
    I also want to address some of the allegations made today. 
First was that we abandoned trucks because of flat tires or 
simple repairs. The Army provides all security, tells us what 
to deliver, when to travel and what routes to take. Contrary to 
some assertions, if a truck breaks down or is disabled, the 
decision to abandon or destroy a truck is made by the Army, not 
KBR. The Army makes a judgment based on their assessment of how 
best to save lives, not just equipment or trucks. KBR is the 
only contractor in Iraq with satellite tracking of its assets 
and personnel, and full recovery capability. Even a seemingly 
simple matter like changing a tire is at least a half-hour 
project.
    So the Army must make difficult decisions. Let me repeat 
this. The Army, not KBR, makes all decisions regarding whether 
to halt the convoy, fix a truck or abandon it. We are operating 
in a war zone. The Army also provides records for driving, 
including security issues. We are told to run tight convoys and 
not allow intervening civilian vehicles, but the Army does not 
direct KBR to run civilians off the road. KBR, in fact, has 
disciplined several drivers who were found to have caused an 
accident by doing so. Several were terminated.
    It has been said that we do not maintain our vehicles. 
That's not true. Today our teams of mechanics conduct routine 
preventive maintenance of each truck every 2 weeks. Current 
readiness rate is 81 percent and has never fallen below 75 
percent.
    While theft is not rampant, it is a problem. Protection of 
supplies from theft, it is the responsibility of the Army, and 
when thefts do occur, KBR promptly reports incidents to the 
Army. Cargo is tracked by radio frequency system making 
paperwork unnecessary.
    Mr. Chairman, we are doing everything humanly possible to 
support our troops. I know you would be proud of us if you saw 
us in action.
    Thank you for the opportunity to address you, and I look 
forward to your questions.
    Mr. Schrock [presiding]. Thank you very much, Mr. Richard, 
and thank you all for being here.
    As we did with the first panel, and we agreed upon, we will 
have 30 minutes per side. I think, Mr. Waxman, we agreed that 
we will proceed first.
    We have heard from the so-called whistleblowers, and I 
would like for you KBR folks to respond to the allegations that 
were leveled here today. But, first of all, for the record, did 
KBR have a policy as it pertains to the LOGCAP contract that 
costs didn't matter because it was a cost plus contract? Any of 
you can answer that.
    Mr. Walter. Mr. Chairman.
    Mr. Schrock. Yes, sir.
    Mr. Walter. We absolutely did not have a practice that 
costs did not matter. As I mentioned in my oral testimony, as I 
work with people, we are doing our best to make sure we do 
obtain the best value for the taxpayer and for the soldier in 
this environment.
    Mr. Schrock. Any other comment? We heard from Ms. deYoung 
in the first panel, and I need to ask you first a question 
about her. Was Ms. deYoung hired as a contract or as a 
procurement specialist? Basically, what was she hired to do?
    Mr. Neffgen. She was not hired as a contract specialist. 
She was hired in the logistics area as an administrative 
assistant. We have over 300 subcontract administrators on the 
LOGCAP contract, and every one of them is trained in that 
capacity and receives a warrant that authorizes them in writing 
to execute contracts, negotiate contracts, issue modifications 
to contracts. Ms. deYoung never had that warranty.
    Mr. Schrock. Did she have signatory authority on any of the 
contracts?
    Mr. Neffgen. She did not.
    Mr. Schrock. None at all?
    Mr. Neffgen. None at all.
    Mr. Schrock. Concerning the Kempinski Hotel, can you 
elaborate on your decisionmaking process for housing your 
employees, and specifically any communication your company had 
with the Army in that effort?
    Mr. Neffgen. Yes, sir, I would be glad to do so. When there 
was a buildup the latter part of 2002, there was a scrambling 
for accommodation within the country of Kuwait. We tried to get 
our people, as many people as possible, on Marfan in Kuwait. 
The Army chose priority for placement of troops inside Arifjan. 
We had some folks that live there and live in tents and Conex 
containers. But we were forced to search for any accommodation.
    Our first priority in seeking accommodations on the outside 
in hotels like the Kempinski is security, and the hotel was 
gracious enough to accommodate our security concerns. It is a 
hotel that is off the beaten path. It is securable, and that 
was a primary concern.
    I do have some pictures that I would like to show of some 
of our living accommodations to give you an idea.
    We have 14,000 expatriate personnel on our payrolls living 
in Kuwait and Iraq; 88 percent of them either live in tents 
such as you see here, or they live in Conex containers. They 
are not the greatest living condition. It is the same as our 
troops live in in both locations. I personally requested 
Brigadier General Bob Radin, the senior logistitian at Camp 
Arifjan, the senior representative of our customer in the 
LOGCAP, contact the Army Materiel Command to allow us to move 
people out of the hotels in Kuwait onto the camp, Camp Arifjan, 
and for us to build Conex living accommodations. This occurred 
in April of this year. He said he would support that request. 
However, there is an implication. There is a dispute with the 
landowner of the property going on. Until that is worked out, 
they couldn't allocate us a designated area within the complex 
of the camp to do so. He said he would support that request at 
the appropriate point in time when they have it all cleared up 
on where it is going to go.
    We have had repeated discussions between senior members of 
our company and senior officers in the Army to allow us to move 
on to secured military camps and get out of these hotels. In 
the hotels we put people--we fill every bed that we lease in 
the hotels. We pay a daily rate for the room, and if it has one 
bed in it, we put one person; if it has two beds, we put two 
people per room; if it has five, we will put five in that room. 
So we have people doubled, tripled, quadrupled and quintupled 
up at the various hotel accommodations.
    Our average cost per man per room per hotel a day in Kuwait 
is running $45 a night. Now, that compares to the government's 
per diem rate for allowable expense of government personnel 
living in a hotel room in Kuwait of $258. So it is only 20 
percent of the allowable cost.
    Mr. Schrock. The living conditions sound remarkably like 
what I experienced when I was on a ship in the Navy.
    Mr. Neffgen. I can imagine.
    Mr. Schrock. Yes. Concerning Ms. deYoung's allegations 
regarding a subcontractor, did that company overcharge for 
sodas under the contract that was questioned by Ms. deYoung?
    Mr. Walter.
    Mr. Walter. Sir, the perception of waste in this matter is 
incorrect. The facts show that KBR actually did our best in 
this case to try to protect the government from waste.
    The allegation that we contracted for soda at $1.50 per 
case is wrong. I heard Ms. deYoung's testimony. She said it was 
$45 per case. Nowhere in the documentation that I have reviewed 
for the subcontract have I come up with that number. What I 
have come up with in the contract is a $45 KD, or Kuwaiti 
dinar, price per package. And the package is two cans of soda, 
ice and a cup and a plastic bag, and the cost of delivering it, 
and the cost of cleaning up afterwards when the soldiers get on 
their plane to fly wherever they have to go.
    As Ms. deYoung began working a procurement. She was 
assigned to assist, provide administrative support for one of 
our subcontract administrators. That subcontract administrator 
was already working on this particular issue and had already 
identified the problem in February, and KBR had made the 
decision that we were going to withhold payment of over 
$100,000 to the vendor until we could remedy the situation.
    Mr. Schrock. With respect to the sodas, again, what exactly 
did KBR contract for with respect to the sodas? We heard 
earlier that it was a bag of two sodas, ice and I think 
nonbreakable cups. Was La Nouvelle also responsible for setting 
up and breaking down the area where these bags would be handed 
out as well as clearing out the trash?
    Mr. Walter. That is my understanding, yes, sir.
    Mr. Schrock. Concerning laundry, that's a lot of laundry 
they do over there. Please walk this committee through what was 
being charged, what is being charged today, and why it is 
different than your local laundry down the street.
    Mr. Walter. Thank you, Mr. Chairman. I would be happy to 
try to clear up this misconception.
    During the testimony this morning, it was identified that 
$28 a bag for a 15-pound bag would be more reasonable than 
paying $100 per bag. What happened in this case was KBR, as I 
mentioned during my testimony, got a statement of work. In the 
statement of work it said, provide laundry services for 6,200 
soldiers.
    We took the statement of work and we provided that to our 
various vendors, and our subcontractor looked at that 
requirement, and it also had an open requirement, because 
included in the laundry charge is the laundry for the medical 
facility as well as the sleeping bags for the soldiers to get 
them laundered as well. What we did was we provided that to our 
subcontractor, and they put together a quote of $1.2 million 
per month to do all of that laundry.
    If you calculate the number of soldiers, that comes out to 
$24 a bag for the soldiers' laundry, but that also includes the 
cost of laundering all of the medical laundry out of the 
hospital as well as the sleeping bags.
    Once again, during the progress of this particular task 
order, KBR identified that the volume of troops were not coming 
through the airport facility, which is where this contract was 
located. As a result of that, KBR negotiated with the 
subcontractor to get a per-soldier-per-bag price for laundry 
that was, I believe, $24 per bag, and that is what the price is 
today.
    Mr. Schrock. How big are the bags?
    Mr. Walter. I'm sorry, sir?
    Mr. Schrock. Like a seaman's bag? How big a bag?
    Mr. Walter. It is a 15-pound bag, I believe, of laundry.
    Mr. Schrock. Is La Nouvelle still subcontracting?
    Mr. Walter. La Nouvelle is subcontracting in a very minor 
way with us. They are no longer doing laundry services.
    Mr. Schrock. Typically with that subcontractor and other 
subcontractors, do you believe you have sufficient 
administration in place to oversee these contracts?
    Mr. Walter. I believe we do.
    Mr. Schrock. Ms. deYoung has commented that she thought 
subcontracts were being closed out in order to avoid government 
contracts. Could you discuss KBR's policy on closing out 
subcontracts? In your experience, were closed subcontracts 
immune from government audits?
    Mr. Walter. I would like to clear that point up very 
readily. As my job with KBR, I am the director of government 
compliance. I work on a daily basis with the defense contract 
agency auditors in Houston and in theater, and in no way, shape 
or form do they allow us to get by by trying to close out a 
file so they do not have to audit.
    I receive over 1,200 requests per month for supporting 
documentation as the auditors are going through their 
transactions, and one of the key elements they are looking for 
right now is the documentation to support a lot of the payments 
that we made in the 2000, 2001 and 2002 timeframe. And what 
they are doing is they are looking at these files, many of 
which are closed, to make sure that we have the adequate 
supporting documentation in place.
    Mr. Schrock. Was Ms. deYoung a member of the so-called 
Tiger Team?
    Mr. Walter. No, sir, she was not.
    Mr. Schrock. Could you explain in a little more detail the 
purpose in the mission of the Tiger Team?
    Mr. Walter. I would be happy to.
    Mr. Schrock. I don't know, and I would like to know.
    Mr. Walter. Toward the end of 2003, we found that there 
were a number of our vendors that were not getting paid. And in 
reviewing that, what we found was that our company's internal 
controls were working. If a subcontractor invoice does not have 
the adequate supporting documentation, it will not be able to 
be paid by our accounting and finance group. So what we were 
doing is we worked with our accounting and finance people and 
found that this was an issue.
    During a wartime situation, when we have immense buildup, a 
lot of our procurement people start out on the task order. They 
have a cell phone, a stubby pencil and a piece of paper, and 
they start making the requisitions, and they start getting the 
goods in place. The documentation for some of these things, the 
complete documentation package, sometimes will take a while to 
get in place.
    What happened here, as Ms. deYoung was involved, she was 
helping the subcontract administrator pull together 
documentation for subcontracts that were issued back in 2002 
and earlier in 2003 as the campaign was building significantly.
    Today what we have done is--one of Ms. deYoung's statements 
is KBR is not like a company that has all of these things tied 
together in a nice electronics package. One of the things that 
was not available during the startup of this mission was 
communications. So, that is why our people were working with 
very heavily manually intensive systems. We did not have 
communications. And even today as I try to get ahold of people 
throughout the theater to get my questions answered for the 
government auditors, we have a very difficult time getting hold 
of them. E-mail is intermittent at best in many locations, so 
trying to get a very sophisticated communications system in 
place that links all of these things electronically was not 
possible at the time. So what happened was our procurement 
people would put together spreadsheets for the different camps, 
and that is how they were tracking their information.
    Toward the end of 2003 we started to have improved 
communications. During 2003, we implemented a procurement 
tracking system called Procurement Plus. We now have all of our 
camps up and running on that with current procurements, and we 
are trying to get caught up with the few remaining older 
subcontracts that are out in place.
    Mr. Schrock. Let me go to the testimonies of Mr. Warren and 
Mr. Wilson. This will be kind of a rapid-fire series of 
questions. In terms of convoys and trucks in both the RIO and 
LOGCAP, who was responsible for those convoys?
    Mr. Richard. From the LOGCAP perspective, the military.
    Mr. Schrock. Who supplied security for the convoys?
    Mr. Walter. The military.
    Mr. Schrock. Did the convoys always carry spare tires?
    Mr. Richard. Yes, they did.
    Mr. Schrock. Did KBR ever destroy a tractor-trailer because 
of the need of a spare tire?
    Mr. Richard. No, sir.
    Mr. Schrock. Who made the decision to destroy trucks?
    Mr. Richard. The military.
    Mr. Schrock. Did KBR conduct regularly scheduled 
maintenance on the fleet? I think we heard.
    Mr. Richard. Yes, we did.
    Mr. Schrock. Did KBR advocate the stealing of goods off of 
these convoys?
    Mr. Richard. No, we did not.
    Mr. Schrock. When it comes to the drivers, what was KBR's 
policy concerning the drivers; are they responsible for keeping 
looters at bay? Who is?
    Mr. Richard. It is the military and the Army's 
responsibility.
    Mr. Schrock. Strictly?
    Mr. Richard. Strictly.
    Mr. Schrock. What is KBR's policy for drivers running 
people off the road in order to maintain convoy integrity?
    Mr. Richard. We hold all of our personnel to the highest 
standards. If they are involved in any type of theft at all, 
those issues are investigated, and actions are taken.
    Mr. Schrock. Nobody ever told them they could run people 
off the road?
    Mr. Richard. No, sir.
    Mr. Schrock. With respect to Mr. Warren, was he himself 
ever accused of stealing from the convoys, and could you 
elaborate on that?
    Mr. Richard. That has not been proven, no, sir.
    Mr. Schrock. Why were Mr. Wilson and Mr. Warren terminated?
    Mr. Richard. For violating code of business conduct and 
running Iraqi civilians off the road.
    Mr. Schrock. Tom, do you want to come back?
    Chairman Tom Davis [presiding]. We still have 15 minutes on 
our side, and in 5 minutes I am going to recess for a few 
minutes as we vote on a subpoena, and then we will come back.
    Any questions here, Mr. Platts?
    Mr. Platts. Thank you, Mr. Chairman.
    Mr. Cox, you talked about the field contracts in Kuwait 
versus Turkey, and the process of that decision of having the 
two sources, and what went into the time-sensitive nature, 
especially the beginning of getting the fuel in place?
    Mr. Cox. Well, the situation on the ground in Baghdad in 
late April rolling into the early May was characterized--can be 
characterized by long lines at gas stations, fuel stations 
there due to the lack of the gasoline. The Iraqi refinery and 
gasoline production was simply not back up to speed, and so 
there was no gasoline being produced in country at that time.
    So the situation was very, very urgent that we start 
providing and importing gasoline, particularly that product, 
immediately, and that is how it was put to us. We need this 
immediately. Can you start hauling tomorrow?
    We took a few days to get it going, and we are under the 
whip the whole time to start making it happen. We took that 
mission. We contacted vendors in Kuwait, which is where our 
offices were at the time, and began the process of soliciting 
that gasoline and the transportation to take it forward.
    Kuwait is a very small country, essentially a large city, 
and there were very few trucks there and assets to haul the 
gasoline. The Kuwaiti Government agreed to sell the fuel to us, 
or to the U.S. Government, and so we ended up with very quickly 
in a couple of days getting three vendors who quoted.
    We took the lowest vendor. We took the lowest vendor. We 
did an examination. We had worked with this guy before on some 
other things--not transportation and not fuel--and determined 
that he had the wherewithal to buildup and start this mission 
coming out of Kuwait pretty rapidly.
    We also were required--we required--when I say we, the 
Army--sent a letter to the Kuwait petroleum company validating 
that this guy was an official. We were buying this for the U.S. 
Government basically. The Kuwaiti Government wanted that, so it 
wasn't KBR and Altanmia doing this. So very rapidly we put that 
in place and started moving the fuel.
    Almost immediately, the discussions in the staff meetings 
with our client were, you know, this may not be the only avenue 
of approach. We are coming into Baghdad from the south, and 
there are some download points south of Baghdad that we need to 
service. But there are also some north of Baghdad, and it 
seemed with the unrest in Baghdad that it was not wise to try 
to haul through Baghdad to the north.
    At the same time, we, KBR, had a small office in Turkey had 
been put in place to support the flow of troops through Turkey. 
That didn't occur, and they were getting ready to fold their 
tents and go home. And we got in contact with them and asked if 
they could procure and ship fuel to Turkey. As you heard in my 
oral, by May 11th they were doing so, and so they put contracts 
in place there, and so they were coming at it from two 
directions.
    Mr. Platts. Was it a similar process in--as far as 
soliciting different competitors?
    Mr. Cox. Absolutely. It was competitively done there also. 
A little bit different market conditions there. In Kuwait, of 
course, you have one source to purchase the fuel from. Turkey 
is larger, more sources, more competition, more trucks, quite 
frankly, than in Kuwait.
    Chairman Tom Davis. I thank the gentleman. We will suspend 
for now.
    We still have 11 minutes left on our side. What I would 
like to do is yield back the balance of my time, but maybe 
reserve a couple minutes for clarification at the end if we 
need to say something. But they will get their 30 minutes to 
say something.
    I am going to suspend now, recess, and go back to the 
business meeting for the vote on Mr. Waxman's amendment. The 
hearing will be in recess.
    The committee will now consider the postponed motion 
offered by the ranking minority member. The motion has already 
been entered. The gentleman's motion would authorize the 
chairman to issue a subpoena for documents relating to 
communications between the DOD and the Vice President's Office 
regarding Halliburton contracts. The question occurs on the 
motion. All those in favor, signify by saying aye. Aye.
    Opposed, no. All opposed say no. No one said no. Come on, 
no. No.
    Chairman Tom Davis. The ruling. The chairman knows how to 
ask for roll call. A little off script there.
    Mr. Waxman. Mr. Chairman.
    Chairman Tom Davis. Yes. You have a roll call.
    Mr. Waxman. Mr. Chairman, if I might ask a unanimous 
consent on this. Some Members thought we would complete the 
hearing before they come in. Some were told that they should be 
here at 2. I would like to request that we keep the roll, that 
Members can come and let your staff know how they wish to vote, 
and then we will tally the vote.
    Chairman Tom Davis. With unanimous consent, during the 
hearing I may suspend for a moment during Q&A as a Member comes 
in to let them record their vote as they come in and let them 
go, I think keeping it open for the next hour or so. Is that 
amenable?
    Mr. Waxman. At least until the hearing is over.
    Chairman Tom Davis. Which should take about hour. Thank you 
very much.
    The clerk will call the roll.
    The Clerk. Mr. Davis.
    Chairman Davis of Virginia. No.
    The Clerk. Mr. Davis votes no.
    Mr. Shays.
    [No response.]
    The Clerk. Mr. Burton.
    [No response.]
    The Clerk. Ms. Ros-Lehtinen.
    [No response.]
    The Clerk. Mr. McHugh.
    Mr. McHugh. No.
    The Clerk. Mr. McHugh votes no.
    Mr. Mica.
    [No response.]
    The Clerk. Mr. Souder.
    Mr. Souder. No.
    The Clerk. Mr. Souder votes no.
    Mr. LaTourette.
    Mr. LaTourette. No.
    The Clerk. Mr. LaTourette votes no.
    Mr. Ose.
    [No response.]
    The Clerk. Mr. Lewis.
    Mr. Lewis. No.
    The Clerk. Mr. Lewis votes no.
    Mrs. Davis.
    [No response.]
    The Clerk. Mr. Platts.
    Mr. Platts. No.
    The Clerk. Mr. Platts votes no.
    Mr. Cannon.
    [No response.]
    The Clerk. Mr. Putnam.
    [No response.]
    The Clerk. Mr. Schrock.
    [No response.]
    The Clerk. Mr. Duncan.
    [No response.]
    The Clerk. Mr. Deal.
    [No response.]
    The Clerk. Mrs. Miller.
    Mrs. Miller. No.
    The Clerk. Mrs. Miller votes no.
    Mr. Murphy.
    [No response.]
    The Clerk. Mr. Turner.
    Mr. Turner. No.
    The Clerk. Mr. Turner votes no.
    Mr. Carter.
    [No response.]
    The Clerk. Mrs. Blackburn.
    [No response.]
    The Clerk. Mr. Tiberi.
    [No response.]
    The Clerk. Ms. Harris.
    [No response.]
    The Clerk. Mr. Waxman.
    Mr. Waxman. Aye.
    The Clerk. Mr. Waxman votes aye.
    Mr. Lantos.
    [No response.]
    The Clerk. Mr. Owens.
    [No response.]
    The Clerk. Mr. Towns.
    [No response.]
    The Clerk. Mr. Kanjorski.
    Mr. Kanjorski. Aye.
    The Clerk. Mr. Kanjorski votes aye.
    Mr. Sanders.
    [No response.]
    The Clerk. Mrs. Maloney.
    [No response.]
    The Clerk. Mr. Cummings.
    [No response.]
    The Clerk. Mr. Kucinich.
    [No response.]
    The Clerk. Mr. Davis.
    [No response.]
    The Clerk. Mr. Tierney.
    Mr. Tierney. Yes.
    The Clerk. Mr. Tierney votes aye.
    Mr. Clay.
    [No response.]
    The Clerk. Ms. Watson.
    Ms. Watson. Aye.
    The Clerk. Ms. Watson votes aye.
    Mr. Lynch.
    [No response.]
    The Clerk. Mr. Van Hollen.
    [No response.]
    The Clerk. Ms. Sanchez.
    [No response.]
    The Clerk. Mr. Ruppersberger.
    Mr. Ruppersberger. Yes.
    The Clerk. Mr. Ruppersberger votes aye.
    Ms. Norton.
    [No response.]
    The Clerk. Mr. Cooper.
    [No response.]
    The Clerk. Ms. McCollum.
    Ms. McCollum. Aye.
    The Clerk. Ms. McCollum votes aye.
    Chairman Tom Davis. No other voters at this point. I would 
ask the clerk to stay close, and we will resume our hearing.
    Gentlemen, you can come on back, and we will resume the 
hearing.
    Members who are recorded will stay recorded. We don't 
anticipate followup votes.
    Do you have other questions or not?
    I am going to recognize Mr. Souder for--if we can get Mr. 
Souder back in the room. Here is Mr. Souder.
    Mr. Souder, you are recognized.
    Mr. Souder. Thank you, Mr. Chairman.
    I wanted to reinforce, I thought, the question on the oil. 
I had the same reaction listening to the testimony, that I hope 
the corrections get in the record as much as the inflated 
charges get in the record. In fact, had we had just one source, 
it could have been a disaster, and that is the whole challenge 
that you face in these types of contracts between cost and 
urgency, because an error would be so catastrophic to delivery 
of services that sometimes cost is not the primary variable, 
and I hope that the American people can understand this.
    Second, I had a particular question. We heard about these 
truck convoys and empty trucks, and my understanding from your 
testimony and from what we understood previous is that the 
military makes those decisions. But do you know why there would 
have been convoys and empty trucks?
    Mr. Richard. Yes. When the military plans a mission, they 
plan a mission to pick up supplies, say, from point B. But in 
the case of the Iraq-Kuwait theater, they plan a mission from 
Kuwait to Camp Anaconda to pick up supplies. So, therefore, 
they move empty flatbeds to Kuwait to Camp Anaconda to pick up 
supplies. But everyone has to remember, we are operating in a 
war zone.
    Chairman Tom Davis. Would you suspend for just a minute? 
Ms. Norton, you are not recorded. Would you like to vote aye?
    Ms. Norton. I would like to vote aye.
    Chairman Tom Davis. Thank you, sir. Go ahead.
    Mr. Tiberi.
    Mr. Tiberi. No.
    Chairman Tom Davis. Mr. Tiberi is no. Thank you.
    This is very informal, but we are trying to--I don't think 
we have done this before, but it is the most efficient way in 
an inefficient process.
    Go ahead.
    Mr. Richard. I was on a roll there. But on a 3 or 4-day 
trip, things change. We are operating in a war zone.
    Chairman Tom Davis. Mr. Clay, the gentleman, you are not 
recorded. You would like to be recorded----
    Mr. Clay. Aye.
    Chairman Tom Davis. Thank you. We will try to let people 
finish their sentence.
    Mr. Richard. Thank you. I was on a real roll there.
    Chairman Davis. One more time, Mrs. Maloney.
    Mrs. Maloney. Aye.
    Chairman Tom Davis. Ms. Sanchez.
    Ms. Sanchez. Aye.
    Chairman Tom Davis. We will get you back on that roll. You 
are doing well?
    Mr. Richard. We are operating in a war zone, so on a 3 to 
4-day transit to Camp Anaconda, things change. The military may 
need the supplies that we were scheduled to pick up. If they 
need the supplies, therefore we have to return that empty 
equipment back to Kuwait.
    Mr. Souder. Thank you, Mr. Chairman.
    I just have one other comment. I thought in Mr. Neffgen's 
testimony KBR provided to Somalia and Haiti and the Balkans as 
well and done services in other areas, because sometimes 
reading news media accounts and listening to news media, the 
only way you get an impression of an account is if Vice 
President Cheney called up the company. If I recall, he wasn't 
Vice President during those 8 years where you received many 
contracts. Is that correct, that you had many government 
contracts under both Presidents, and it doesn't always take a 
call for your company to get a contract?
    Mr. Neffgen. That's correct, sir. We have dozens and dozens 
of government contracts. We have been a government contractor 
for 60 years starting in World War II and Korean War, Vietnam 
War, and up to the current day. We have won contracts with both 
Democratic and Republican administrations. I have never been 
aware of an elected official that awards a government contract. 
It is always government contracting officers that do so.
    Mr. Souder. Thank you.
    Chairman Tom Davis. If you read the Means of Ascent and you 
read the Lyndon Johnson trilogy, Brown & Root were the largest 
funders of President Johnson back when it was a Texas firm. 
They have been around for years.
    We have a number of Members who have not been recorded. I 
will start on my right. Mr. Towns.
    Mr. Towns. Aye.
    Chairman Tom Davis. Mr. Towns votes aye.
    Mr. Cooper.
    Mr. Cooper. Aye.
    Chairman Tom Davis. Mrs. Davis.
    Mr. Lantos.
    Mr. Deal.
    Mr. Deal. No.
    Chairman Tom Davis. Mr. Mica.
    Is there anyone else? Oh, yes, the gentleman from Maryland.
    Mr. Cummings votes aye.
    Thank you. At this point, I would like to reserve a minute 
or so.
    I am ready to go to Mr. Waxman in your half hour.
    Mr. Walter. Mr. Davis, if I could interject one thing?
    Chairman Tom Davis. Please.
    Mr. Walter. During my testimony on the laundry, I mentioned 
45 KD. What I meant to say was 0.45 KD, which is about $1.50.
    Chairman Tom Davis. Before we start our yield and Mr. 
Waxman's time--keep our time running--we talked about a laundry 
contract, which is a firm fixed price, and after it looked like 
the government had made a number of assumptions that were not 
true, you were gouging him in terms of the results. You came 
back on your own and renegotiated, is that right? You were not 
forced to renegotiate that point. You were locked into a 
contract?
    Mr. Walter. Sir, we did it because it made sense to provide 
the best values to the taxpayer.
    Chairman Tom Davis. Contractually the government was really 
up for more money had you enforced it.
    Mr. Walter. Had we not changed it, but, yes, we would have 
changed it.
    Chairman Tom Davis. One of the most prominent charges of 
KBR in the May 13th DCAA report rates the Iraqi-Halliburton 
contract. DCAA indicates you are not billing on the proper 
standards, but instead billing the government for a number of 
meals far in excess of that amount. Could you give us the 
company's position on that?
    Before you answer, I want to record Mr. Cannon. You get to 
vote. OK. Mr. Cannon votes no.
    Go ahead. Thank you. Go ahead. Go ahead.
    Mr. Walter. Once again, I appreciate the opportunity to 
clarify this. We have read quite a bit in the media. What has 
happened in this case, as we provide the dining facilities 
services to the government, we get a statement of work that 
identifies how many troops need to be served, and that's what 
we prepare for.
    Chairman Tom Davis. Thank you very much.
    We have a couple of other Members. Ms. Ros-Lehtinen.
    Ms. Ros-Lehtinen. No.
    Chairman Tom Davis. Ms. Harris.
    Ms. Harris. No.
    Chairman Tom Davis. Thank you.
    Mr. Waxman, you are recognized for half an hour.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Neffgen, Mr. Walter, Mr. Cox and Mr. Richard, I want to 
thank all of you for being here today. I think it is important 
for us to have a chance to hear your perspective and to have an 
opportunity to ask questions. Given the size of your contracts, 
the two biggest contracts in Iraq, there's really no way we can 
do our oversight without hearing directly from you.
    When the public hears about Halliburton and Iraq, there are 
two major questions on people's minds. The first question is 
was there special treatment when the administration gave 
Halliburton a sole-source, no-bid contract worth up to $7 
billion for oil infrastructure work in Iraq? And the second is 
has Halliburton been engaged in profiteering; has the company 
taken advantage of the war to overcharge the U.S. taxpayers?
    These are the two issues I want to focus on in my 
questioning of you. I want to start with the special treatment 
issue. For over a year we heard that there was no special 
treatment because a decision to choose Halliburton was made by 
career procurement officials. On August 28, 2003, for example, 
your spokeswoman, Wendy Hall, said Halliburton's work in Iraq 
was awarded ``not by politicians, but by government civil 
servants under strict guidelines.'' I have a chart over here 
with her actual quote.
    We learned recently at our last hearing this wasn't true. 
We discovered that the decision to choose Halliburton and the 
decision not to allow other companies even to submit a bid was 
made by a political appointee. The decision was made by Michael 
Mobbs, who works for Douglas Feith, the Under Secretary of 
Defense for Policy. And we learned that there was a deputies 
committee, which is made up of a senior White House and 
departmental officials, that signed off on that decision.
    Does your company still maintain that career civil servants 
made the decision to choose Halliburton for this work?
    Mr. Cox. Congressman, I will be happy to field that. We 
have no knowledge whatsoever of how the decision was made, 
other than what has been published, which is the sole source 
justification document, which we have seen. We do not know who 
made the decision specifically. We received our marching orders 
from the procuring, contracting officer. I am not aware of any 
political appointee deciding who got the contract.
    Mr. Waxman. You don't know?
    Mr. Cox. We do not have insight to that.
    Mr. Waxman. You don't know the facts?
    Mr. Cox. No, sir. We do not.
    Mr. Waxman. Is that true of all you?
    Mr. Neffgen. That's true.
    Mr. Cox. Yes, sir.
    Mr. Waxman. You need to speak.
    Mr. Richard. Yes.
    Chairman Tom Davis. May be true of all four of your, but 
your spokesperson made a statement that was quite uneqivocal.
    Mr. Waxman, would you suspend for one moment?
    Pardon me. Would you like to vote?
    Mr. Sanders. Yes, I would.
    Chairman Tom Davis. How do you vote?
    Mr. Sanders. Mr. Waxman, what do you suggest?
    I vote yes.
    Chairman Tom Davis. The gentleman is recorded. Thank you.
    Go ahead.
    Mr. Waxman. We have a statement from your spokesperson and 
the four of you, are unable to give any further information 
about that. Mr. Mobbs said he gave Halliburton the task order 
to plan for the takeover of Iraq's oil fields. And he knew at 
the time that Halliburton would therefore get the sole-source 
contract to put out the oil fires and restore the oil fields. 
So he was obviously in a position to know. You are not. Your 
representative spokesperson said something to the contrary.
    One of the justifications we have heard for awarding these 
contracts to Halliburton without any competition is that 
Halliburton was the best-qualified company to do the work. So 
let me ask about Halliburton's experience and qualifications.
    Chairman Tom Davis. Will the gentleman suspend?
    Mrs. Davis, would you like to be recorded?
    Mrs. Jo Ann Davis of Virginia. No.
    Chairman Tom Davis. Thank you.
    Mr. Waxman. Mr. Chairman, may I suggest that the Members 
record their votes without interruption? They could be on the 
record.
    Chairman Tom Davis. I would like to have the Members record 
their votes without interruption. But what I would like them to 
do is get the assent that both you and I hear or see them, a 
Member from each party as opposed to just registering with the 
clerk or making signals or something, without objection.
    Mr. Waxman. That's fine.
    The major rationale that Halliburton gave for why 
Halliburton was the best qualified is that you had put out oil 
well fires after the first Gulf war.
    On March 24, 2003, you issued a press release announcing 
the award of the Iraqi oil contract. That press release said 
the following: ``In 1991, Halliburton crews brought 320 wells 
in Kuwait under control. More than 190,000 work hours were 
incurred. Halliburton's crew extinguished 90 percent of the 
blowouts within 1 year.''
    This press release stated that Halliburton crews put out 
more than half of the 650 oil well fires in Kuwait. Obviously 
such experience would be extremely relevant. But my staff has 
investigated these claims, and they don't appear to be true. 
The company that had the contract to put out the oil well fires 
after the first Gulf war was not Halliburton, it was Bechtel. 
And by all accounts Bechtel's performance was excellent. Yet 
Bechtel was not even allowed to bid on the contract to put out 
the oil well fires this time.
    And I have an article here about Terry Farley, who was the 
individual who led the effort to put out oil well fires after 
the first Gulf war, and according to Mr. Farley, Halliburton 
``put out no fires. Zero.'' Now, how do you gentlemen respond? 
Who was the prime contractor in charge of putting out the oil 
well fires after the first Gulf war, Halliburton or Bechtel?
    Mr. Neffgen. I don't have the specific information on 1991 
on who put out the oil fire. What I can tell you is the LOGCAP 
contract was competitively awarded to us in 2001. There was 
several other offers that submitted proposals in that 
solicitation, and when we were awarded the contract, nobody 
protested.
    The original task order that we were issued under the 
LOGCAP contract for the planning, the advance planning for the 
potential oil fires if an invasion occurred was issued under 
the LOGCAP contract, and then it was the Army's decision to 
transfer that from the Army Materiel Command, who is our client 
for LOGCAP, to the U.S. Army Corps of Engineers.
    Mr. Waxman. I understand all of that. We will get to some 
of the questions about that, but do any of you have any 
information about who actually put out the fires after the 
first Gulf war?
    I think it is fair to say that none of you have further 
information to give us.
    Well, my understanding is that after the first Gulf war, 
Bechtel deployed 1,000 engineering and construction 
professionals. The company oversaw a work force of 16,000 
nationals from 35 countries. Bechtel brought in 200,000 tons of 
equipment, the largest airlift since World War II, and 
reportedly capped over 650 oil well fires.
    In contrast, I have here an April 7, 2003, article in which 
your spokesman Ms. Hall said only 60 Halliburton employees were 
on the scene. That's quite a difference.
    Here is the problem as I see it. Bechtel had the most 
relevant experience because it did most of the work after the 
first Gulf war. Yet this time Bechtel was not even allowed to 
submit a bid. Instead, the contracts were awarded to 
Halliburton without any competition. That's not the way our 
system is supposed to work.
    The other rationale for giving Halliburton this contract 
was that the Pentagon could do it quickly as a task order under 
the existing LOGCAP contract that you are referring to, Mr. 
Neffgen. But this explanation is also suspect. It does not 
appear that Halliburton was uniquely positioned to work with 
DOD. Bechtel does a lot of work for the military. In fact, 
Bechtel historically has done at least as much military work as 
Halliburton, if not more. There should have been no question 
about Bechtel's ability to work for the military or to have the 
necessary clearances.
    In fact, I understand that Bechtel also had an existing 
preawarded indefinite contract with the Pentagon. This contract 
is the cooperative threat reduction integrating contract. Under 
this contract there's not one preapproved company, but five. 
Bechtel is one. Halliburton is also preapproved under this 
contract. So if DOD had decided to use this contract as the 
vehicle for the task order, DOD could have gotten bids from 
both Halliburton and Bechtel. But DOD didn't use this vehicle. 
DOD used the LOGCAP contract, which excluded everyone but 
Halliburton. Is that correct, Mr. Neffgen?
    Mr. Neffgen. Yes, for the planning task order.
    Mr. Waxman. I recognize it might have been a stretch to use 
the cooperative threat reduction contract, but it would have 
been no more of a stretch than using the LOGCAP contract. As we 
learned at last month's hearing, both GAO and the procurement 
attorneys responsible for LOGCAP determined that the 
Halliburton task order was outside of the scope of LOGCAP. 
There is a strong presumption again awarding contracts without 
competition.
    That's the point I really want to emphasize. There's a 
strong presumption against it for the very simple reason is 
that competition protects the taxpayers. But in this case there 
was no competition, and there don't appear to be compelling 
reasons for failing to let other qualified companies like 
Bechtel compete. That's what we call the definition of special 
treatment.
    Now, in fact, the award of this contract, is only one 
example of how the Bush administration sheltered Halliburton 
from competition. You were also sheltered during the 
implementation of the contract. Ten task orders were issued 
under the oil contract worth a total of $2.25 million, yet my 
understanding is that Halliburton did not have to compete for 
any of these task orders. There were five task orders given to 
import fuel from Kuwait and other countries into Iraq. These 
task orders were worth over $1 billion. Did Halliburton have to 
compete for any of these task orders, and did DOD ever put this 
out for bid and allow other companies the chance to show that 
they could bring in the gasoline for a lot less than 
Halliburton?
    Chairman Tom Davis. Will the gentleman yield for just a 
moment?
    Mr. Waxman. Well, I would like to see if we can get an 
answer to the question.
    Mr. Neffgen. It was an Army decision to award us the sole-
source contract, and we were pleased to see it and be in a 
position to respond quickly and appropriately. I believe the 
GAO has done an analysis on the--both the issuing of the task 
order for the planning under the LOGCAP, and it had some 
questions on that, but that was resolved by the DOD's General 
Counsel's Office that deemed it was appropriate use of LOGCAP 
to give us that planning task order.
    And also the GAO has reviewed the decision to give us the 
sole-source award for the RIO and ruled that appropriate.
    Mr. Waxman. These other task orders.
    Mr. Neffgen. Once you have a contract, then the client 
issues task orders for work that they think is important to be 
executed under it. And typically task orders within a contract 
are never competed.
    Mr. Waxman. Thank you.
    Chairman Tom Davis. My only question was, I think, in a 
sense, they are the wrong people to ask. We had the military 
and everyone here last week. We can always review that. But 
they are the wrong people to ask on this because they weren't 
in the decision mode in terms of how these vehicles and which 
one to choose.
    Mr. Waxman. It shouldn't be a surprise. We have questions 
about how the contract was awarded to Halliburton. This has 
been in the news for some period of time. We have raised it 
over and over again. Finally, we have representatives from 
Halliburton here. I would have hoped that we would have had 
people who could answer these questions.
    But this highlights what is fundamentally wrong with the 
administration's contracting approach. There was no competition 
at the front end when the political appointees gave Halliburton 
the work. There was no competition at the back end when 
billions of dollars' worth of task orders were issued.
    I now want to examine the other major question: Have there 
been overcharges? Let me first ask about the hotels in Kuwait 
where Halliburton employees have been staying for more than a 
year. According to Marie deYoung, who testified earlier today, 
the U.S. taxpayers paid Halliburton $10,000 a day to house 
Halliburton employees at a five-star hotel in Kuwait, but in 
the op ed in the Wall Street Journal, David Lesar, the CEO of 
Halliburton, denied this. I want to put up his quotation. He 
said, ``Our Halliburton employees live in the same conditions 
as the troops.''
    I would also like to show you some pictures that we have of 
the hotels where Halliburton employees have been staying. These 
are pictures of the five-star Hilton Hotel in Kuwait and the 
five-star Kempinski Hotel, also in Kuwait. I see one of them, 
and I will assume that is also one of them.
    Do our troops stay at five-star hotels with maid service 
and complementary fruit baskets like this?
    Mr. Neffgen. There are other government agencies staying in 
these hotels.
    Mr. Waxman. But the quote was ``our Halliburton employees 
live in the same conditions as the troops.'' Do you know of any 
of the troops that got to stay at these kinds of hotels?
    Mr. Walter. We would like to make sure that it is 
understood that 87 percent of our 14,000 employees that are 
there are staying in conditions with the troops, on the sites 
with the troops. We tried to get onto these bases. We continue 
to this day to try to get onto these locations. There is not 
space to do so.
    So as we have to do that, we have to try to find locations 
where we can stay in a secure location, and a hotel is the host 
that will have the most availability of rooms in a location 
that is securable. So that is why these locations have been 
selected. But we are trying our best to get out of them.
    Mr. Waxman. You answered a question earlier. You were asked 
to put in the camps in April of this year; is that correct?
    Mr. Neffgen. Yes.
    Mr. Waxman. That doesn't contradict about what Ms. deYoung 
had to say, because she was talking about a time preceding 
April of this year.
    Mr. Neffgen. Last fall, a year ago, we also had discussions 
about building a 1,000-man camp of Conex containers at Camp 
Arifjan. We were not able to go through with that deal. The 
best we can get is a 5-year lease for property, and our task 
orders go 3 months to 6 months in duration. We cannot obligate 
government money beyond that period of time.
    Mr. Waxman. Her testimony is that they wanted to put them 
in the tents.
    Mr. Neffgen. Same thing. We have to get space designated 
available for use to put tents up. We were not given that 
space.
    Mr. Waxman. I think it is important to recognize that Marie 
deYoung's allegations have been confirmed by independent 
auditors a few weeks after she made these allegations and they 
first surfaced. The inspector general for the CPA confirmed 
that Halliburton was billing the taxpayers to house people at 
the five-star Hilton Hotel in Kuwait. According to the IG, the 
taxpayers could have saved $3.6 million on an annual basis if 
these individuals had been moved to other quarters.
    Mr. Walter. I would like to address that audit report, sir. 
That audit report was not accusing Halliburton of overspending 
and waste. What that report was doing was focusing on the CPA 
itself. The CPA would present people to Halliburton. We were 
tasked by CPA to maintain a forward deployment center so that 
their--diplomats and others coming into theater could be 
processed, given their flak jackets and all of their equipment 
that they need and their training so they could be sent up to 
Iraq to their particular location.
    The points made in the inspector general's report were that 
if the CPA were more diligent in how they would assign people 
and who should get what type of facility, then the taxpayer 
would be able to save money. That was not a criticism of 
Halliburton, sir.
    Mr. Waxman. The CPA said it included contractor employees 
that were being put up there.
    Mr. Walter. Sir, since the FDC is located at the Hilton, we 
do have to put our employees there. We follow the direction of 
the CPA where our employees are. There are two types of 
facilities there. There are rooms that--one or two people to a 
room. Then there are what are called villas, larger facilities 
that can--I believe they have four to five bedrooms, and 
downstairs is used for office space. We will go wherever the 
CPA asks us to put our people.
    Mr. Waxman. I appreciate your comments. I just put it in 
contrast to what your own representative said about employees 
living in the same conditions as the troops.
    Mr. Walter. Like I said, sir, 80 percent of our employees 
are living in the same conditions as the troops. And as we can 
get more people onto the sites, we will.
    Mr. Waxman. Who were the elites that got to stay in the 
hotel?
    Mr. Walter. I don't agree that the term would be elites per 
se.
    Mr. Waxman. Who got to stay in the hotel?
    Mr. Walter. The people who are currently at Camp Arifjan 
are the people who are working on Camp Arifjan. The people who 
are not able to stay at Arifjan or the support functions and 
other types of roles, they can either do the job on Arifjan or 
off Arifjan.
    Mr. Waxman. Let me turn to fuel importation. You 
consistently said you delivered gasoline at the best value, the 
best price and the best terms. Yesterday Representative Dingel 
and I released a report comparing Halliburton's gasoline prices 
from Kuwait with those of the Pentagon's own fuel delivery 
unit, the Defense Energy Support Center.
    Your average price of gas from Kuwait was $2.68 per gallon. 
On April 1st the Pentagon took this center away from you and 
gave it to the Energy Support Center. That job pays just $1.57 
a gallon to import gasoline from Kuwait. As that chart over 
there illustrates, the military is now doing the identical job 
for $1 per gallon less. How can you say that your price was 
reasonable?
    Mr. Cox. I would like to address that, if I may, sir. 
First, it is interesting to note in the report that we released 
to say this is an apples-to-apples comparison. I submit to you 
that it is not. Quite frankly, our costs are all in, after the 
job has been done, and, you know, the three components of our 
price are what they are.
    The DESC costs that are presented in the report, I think, 
need to bear some scrutiny, and--but in a general sense, we are 
comparing what KBR did at one point in time, almost a year ago, 
a little over a year ago now, to what DESC was able to 
accomplish 9, 10 months later, given a 90-day ramp-up period. 
DESC came to theater in December, worked side by side with us 
from December until April 1st when they took over the mission.
    Turning to the three components of the price, our 
understanding, and we understand--and I do not have insight as 
to their contracts or whatever, but I understand that they were 
paying for fuel a price, a certain amount of money. It is a 
fixed price with economic adjustment, meaning that they pay the 
spot price plus I think it is $0.16 per gallon is what they are 
paying. Today I am told that----
    Mr. Waxman. But they were buying it from the same company 
you were buying from.
    Mr. Cox. They were buying from DESC.
    Mr. Waxman. Did they get a better deal than you?
    Mr. Cox. No, sir, I don't think they did, and I will tell 
you why. We had a fixed price with a subcontractor. No matter 
what the spot market did, we had the price locked in. In 
December and January we know that the spot price--we know he 
was losing money providing fuel to us because of the fixed 
price he gave us. DESC's fixed price of $0.16 over the spot 
market. If you look at that today, that's--around July 16th, 
that was $1.04. The spot market plus 16 is $1.20. We only paid 
$1.14 per gallon. So right now my understanding is DESC is 
paying more per gallon as we did.
    Mr. Waxman. As I understand it, yours was 32 cents over the 
spot price, and the DESC was 16 cents over the spot price. So 
the spot price can change, but if you have that----
    Mr. Cox. But in my case it doesn't matter what the spot 
price does. I had a fixed price of $1.14 a gallon. Today I 
would be paying $1.14 a gallon. They're paying $1.20.
    So I think, sir, we need to look inside some of those 
numbers.
    Mr. Waxman. Well, we need to haul them in here and find out 
why they are charging us less. We need a hearing on this.
    But Halliburton's prices stayed extraordinarily high for 
month after month, and there was no major price drop until the 
DESC came in and took over. And then there was a price drop. 
They are using the same supplier, they are picking up the 
gasoline in Kuwait from the same supplier, they are 
transporting it to Iraq. It's the same service, yet they are 
able to do it at a lower price.
    We consulted with independent experts, and they have a very 
different view than Halliburton. Phil Verleger, a California 
oil economist, said it's as if they put the gasoline on the 
Queen Mary and took it around the globe before they delivered 
it.
    Jeffrey Jones, the former Director of the DESC, said, I 
can't construct a price that high. One oil expert from the 
region said simply, ``it's highway robbery.'' Based on what we 
know now, that may not be a bad description.
    You dispute that?
    Mr. Cox. Sir, I do dispute the overcharge allegations. If I 
may, I would also disagree with the statement we didn't achieve 
any cost savings over the course of our contract to deliver 
fuel. We reduced the cost of trucking by approximately 20 
percent through renegotiation.
    We were not able to renegotiate the fuel prices, but I 
think if you look--the biggest difference that has been 
identified is the cost of the transportation. The cost in the 
report, as issued for DESC, states that it's based on three 
round trips per month per truck. We only achieved about two 
round trips per truck, and I am told that is all DESC is 
achieving also. So maybe there is a premise or assumption of 
three round trips that needs to be reevaluated before we start 
comparing those.
    I would also make the point on transportation that DESC is 
benefiting from the system that we put in place. Altanmia's 
startup costs were already paid for in our contract. They had a 
fleet already on the scene for DESC to utilize, and we built 
staging facilities under our contract that DESC is using.
    So, in essence, it's not surprising to me that Altanmia is 
giving them a lower price than we got. I think you find that in 
many of our contracts, where when we first go on scene, the 
cost comes down from that because we build the facilities 
initially. Those are capitalized in 6 months or so.
    Mr. Waxman. You might say it was a startup cost, but 
Halliburton's costs remained high for month after month. And 
the only time the price was dropped is when DESC took over.
    Mr. Cox. Sir, that's not factually correct. There was a 
change in the price of the transportation. The cost of the 
trucks went down in about the October timeframe.
    Mr. Waxman. Let me ask you about another aspect of your 
prices: fees and overhead. For the gasoline from Kuwait, these 
totaled over $31 million, and I have a chart over there that 
shows this is 40 times greater than DESC's overhead costs. Why 
should the U.S. Government pay Halliburton $31 million when the 
Pentagon can do this work itself and get a better price?
    Mr. Cox. Well, first of all, the 24 cents per gallon, let 
me explain what is in that; 13 cents of that is an award fee 
that I have not earned yet, have not been awarded yet, haven't 
gotten yet. The remaining 11 cents is pretty reasonable per 
gallon. That covers our overhead management cost from top to 
bottom. Staff back here in Arlington, the staff in Houston that 
support us all comes from that cost.
    And when I look at the DESC costs, sir, it seems very low 
to me, and I would want to ensure that they have included the 
cost of the DESC office back here in Washington that supports 
those DESC troops in the field, if you will. Having been 
involved in a couple of outsourcing decisions for the 
government, I know it is very difficult for the government to 
capture all its cost and do an apples-to-apples comparison. And 
I personally feel like we don't have that here yet.
    Mr. Waxman. Well, the whole rationale for using private 
contractors is supposed to be to save the taxpayers money, but 
in Halliburton's case, the exact opposite seems to be 
happening. The taxpayers are paying millions more for something 
apparently this government can do a lot cheaper, and that 
doesn't make sense to me.
    I want to go into a different subject. The GAO also 
released a report yesterday on Halliburton's other major 
contract for work in Iraq: LOGCAP. As in the gasoline report, 
GAO found that when the military removed Halliburton from the 
equation, it saved money. Here is the example GAO gave.
    Prior to the war, a Kuwaiti company called Tamimi was 
feeding our troops in Kuwait. Last year, DOD terminated that 
contract and gave the contract to Halliburton, but because 
Tamimi had been doing a good job, Halliburton was instructed to 
subcontract the feeding contract to Tamimi. So here, as in the 
case of the oil contracts, you were simply a middleman. All 
that has happened was that Halliburton went out to Tamimi, they 
continued to feed the troops, but Halliburton got to take its 
own cut of the expenses.
    Finally, somebody in DOD decided to examine the situation, 
and earlier this year DOD eliminated Halliburton as the 
middleman. And here is what happened. Overnight the cost to the 
taxpayers were reduced by 43 percent at 6 dining facilities in 
Kuwait without a loss of service or quality. And according to 
GAO, the total savings to the taxpayers from getting rid of 
Halliburton was $31 million.
    Halliburton had a chance to review GAO's report, but you 
didn't object to GAO's findings, did you?
    Mr. Walter. No, sir, and I'd appreciate the opportunity to 
discuss that point.
    What we have here is, once again, an apples-to-oranges 
comparison. Tamimi was not at these facilities at the time. It 
was a new task order at a new location, and the government 
asked us, in fact directed us, to use Tamimi to do the dining 
facility services.
    As we did that, we required Tamimi to get all of its up-
front costs, to hire all the personnel, to get the kitchens and 
generators and everything they needed to put into place to run 
that dining facility. At the end of the year, we would then 
renegotiate a lower price with Tamimi, because they would have 
their mobilization costs and all the rest of these costs taken 
care of.
    Now, what happened is as this contract was winding down, 
the government did go back to Tamimi, and the government 
directed us not to continue negotiating with any of our other 
vendors. We had already opened up a competition for the Kuwait 
dining facilities. And our Iraq dining facilities, after the 
initial 6-month term for those, we were able to negotiate 
significant savings after the contractors had their initial 
let's get everything in place, let's get the dining facilities 
up, let's serve the troops in the wartime environment. We have 
RPG rounds. We have pictures of all sorts of things that are 
happening that are causing a lot of mayhem and confusion in 
this area.
    But once it's in place, once the people know what's 
happening, they have a little bit better idea of what the scope 
is going to be, we are identifying those significant cost 
savings, and we are passing them directly back to the taxpayer.
    Mr. Waxman. And one of the cost savings was to eliminate 
you as a middleman and go to them directly.
    Mr. Walter. Well, sir, in the cases of the dining 
facilities that we've been able to cut out, we've been able to 
cut out prices that exceed 45 percent. So I think we would be 
able to identify even more savings to the government, possibly.
    Mr. Waxman. I appreciate that.
    I want to clarify a matter. In the previous panel I said 
that I was concerned the majority was working with Halliburton 
in preparing for this hearing, and that the majority was 
receiving information that was not being shared with the 
minority. In response, Chairman Davis said that all the 
information the majority had received was in the written 
testimony.
    In fact, that doesn't appear to be true. In Representative 
Blackburn's questioning, she asked about conversations between 
Ms. deYoung and her managers at Halliburton. We asked Ms. 
deYoung about this after she testified, and she said these were 
conversations with Tom Quigley.
    This was not in any of your written testimony, and it 
wasn't shared with the Democrats. So my question is: Did any of 
you or anyone at Halliburton share information with the 
Republicans that wasn't shared with the Democrats?
    Mr. Neffgren. Congressman, we've been working with your 
staff as well as the majority staff for months and sharing 
information, telling the story, telling the facts, and 
everything else. I have no direct knowledge of any 
communication between Tom Quigley, who is actually in Kuwait--
--
    Mr. Waxman. No, no, my question is not about that. You 
talked to our staff, and you talked to their staff. But my 
question is: Did you share some information with their staff 
that you didn't share with us?
    Mr. Neffgren. Did not.
    Mr. Waxman. You did not. So she did some terrific research 
in finding out about things that weren't within your written 
statements.
    Mr. Neffgren. Did not share anything with her; correct.
    Mr. Waxman. Did anybody from Halliburton?
    Mr. Walter. I did not, sir.
    Mr. Cox. No, sir, I did not.
    Mr. Richard. No, sir, I did not.
    Mr. Waxman. So none of you individually did. Do you know 
whether anybody in your company has?
    Mr. Neffgren. I'm unaware of anybody else in my company 
doing that.
    Chairman Tom Davis. The gentleman's time has expired, but 
let me try to explain it.
    To my knowledge, and I have staff who I just rechecked 
with, and I know that our staff put together a briefing 
memorandum for our Members that we didn't put together for 
yours based on documents available to both parties, just as you 
do the same for yours. But I'm not aware of any ex parte 
communication.
    We tried to work this with you, and there were a lot of 
documents that we got back and forth that we drew certain 
conclusions that I don't think were shared with you. But the 
documents were available to you as well. We just put them up as 
talking points for other side, as I'm sure you do for yours.
    I think that clarifies it.
    Mr. Waxman. I appreciate that clarification.
    Chairman Tom Davis. I have yielded back. I would just make 
one comment.
    Mr. Waxman. We never got those documents.
    Chairman Tom Davis. I think you did get the documents.
    Mr. Waxman. My staff is telling me that, for the record, we 
never got documents that would have been the basis for that 
question. We will review it again. It could be just a 
misunderstanding.
    Chairman Tom Davis. We will go over it with staff.
    We have had two hearings with DOD witnesses to explore the 
rationale for awarding the planning task order and RIO 
contracts to Halliburton. We marched everyone up here, and the 
government, I think, made their case at the time. And after a 
certain amount of time, where they felt they were able to, they 
went out in a competitive way.
    In wartime you don't always have that luxury. So I think we 
have already explored those issues with appropriate witnesses.
    It is interesting that we mentioned Bechtel should have 
been permitted to compete. Bechtel didn't complain. They didn't 
protest. In fact, Bechtel also has multibillion-dollar 
contracts with Iraq through USAID.
    Also, the incident that the ranking member mentioned 
concerning Altanmia and GAO was not in the final report. It was 
in a draft report. And as so often happens in these issues, GAO 
might have changed their mind when the facts are learned. Often 
with these reports you go back and forth with people you are 
investigating, and that is the difficulty when you move forward 
with tentative reports. But it was an issue that was raised, 
and I think an appropriate question he raised to you.
    I don't have any other questions at this point for the 
gentlemen here, except that we will continue to exercise 
vigorous oversight of every contractor. That's our job up here. 
But from my perspective, we appreciate the job you are doing, 
your company is doing, and the people in the field. You have 
lost a number of employees over there, had others injured, and 
people there in harm's way as well. From our perspective, we 
appreciate the job that they are doing.
    Mr. Neffgren. Thank you.
    Chairman Tom Davis. Mr. Waxman, any other questions?
    I guess we have the 5-minute rule, so we can go down the 
road and let your Members have a shot.
    Mr. Ruppersberger.
    Mr. Ruppersberger. Thank you, Chairman Davis.
    First thing I want to say is that your role is to help 
manage Halliburton. I think each one of you are doing the best 
that you can. We know it's difficult. But you have a sole-
source contract because you are considered one of the best, and 
we can expect no less from you.
    Our job is to investigate issues and allegations that are 
relevant to the subject matter, that being were there 
overcharges; was there a possibility of bad management. So we 
need to follow the facts. I know you are in a defensive mode 
because certain allegations are made, and that is why we are 
here, and then we have to determine that.
    So in that regard, first, Mr. Neffgren, for several months 
we have been trying to get information about Halliburton 
employees you identified as taking up to $6.3 million in 
kickbacks from a Kuwaiti subcontractor. Representative Lynch in 
particular has asked questions about this on two previous 
committee hearings. We have not yet received any information 
about this.
    I know in your invitation letter to come here today to 
testify that the chairman directed you to address this issue. 
Will you please let us know who the employees were involved in 
the $6.3 million kickback?
    Mr. Neffgren. I am sorry, sir. There is an ongoing 
investigation with the Department of Justice and the DOD IG. I 
am not permitted to provide that information.
    Mr. Ruppersberger. I know there is an ongoing criminal 
investigation, and we have an investigation going on, too. 
These are issues where we are asking for the two employees so 
that we can determine from our investigative point of view. 
Have you been ordered not to disclose any of that information 
by the Justice Department?
    Mr. Neffgren. I have been advised by counsel not to mention 
the people.
    Mr. Walter. I will answer that, sir, though. We have 
provided all the files, all of the procurement files, to the 
Department of Justice so that they can complete their review. 
We are working, our legal department is working very closely 
with the Department of Justice on that.
    Mr. Ruppersberger. So you're saying that we don't have the 
information we have asked for, but you have given that to the 
Justice Department. Not arguing with you, just asking as a 
fact.
    Mr. Walter. I believe that is true.
    Mr. Neffgren. Yes, that's correct.
    Mr. Ruppersberger. Let me ask you this: Have you made any 
comments to the media, or anybody from Halliburton, involving 
these two employees?
    Mr. Neffgren. Personally, no.
    Mr. Ruppersberger. You are not aware of anybody at 
Halliburton having comments with the media about this incident 
and these two employees for the subcontractor?
    Mr. Walter. When this was initially mentioned, there was a 
press release, and there is a notification in our financial 
statements that identify that there is an issue. But I believe 
that is as far as it goes.
    Mr. Ruppersberger. Were these two employees managers?
    Mr. Neffgren. No, they weren't.
    Mr. Ruppersberger. They were not managers? Do you know what 
their positions were?
    Mr. Neffgren. Administrative people.
    Mr. Ruppersberger. They must have been in some kind of 
management capability or they wouldn't be involved with $6.3 
million.
    Mr. Neffgren. Let me clarify. Senior subcontract 
administrators.
    Mr. Ruppersberger. How many of those did you have in Iraq 
at that time?
    Mr. Neffgren. We have about 300, 350 right now.
    Mr. Ruppersberger. What is the name of the subcontractor 
that paid the bribes?
    Mr. Walter. Sir, there is no statement that they have paid 
bribes. That is under investigation. It is an allegation of a 
kickback.
    Mr. Ruppersberger. Then I take that back.
    What is the name of the country where there was alleged 
bribes to have been paid?
    Mr. Neffgren. Kuwait.
    Mr. Ruppersberger. In Kuwait. But what's the name of the 
company, the subcontractor?
    Mr. Neffgren. I've been advised by counsel that I can't 
disclose that.
    Mr. Ruppersberger. Have you had other contracts with this 
Kuwaiti company over and beyond what this incident was dealing 
with, with respect to the two contractors, the $6.3 million 
kickbacks?
    Mr. Neffgren. We have provided information to the Justice 
Department on this specific incident, and then all of the 
documentation pertaining to the subcontractor and to the 
employees that potentially received the kickback.
    Mr. Ruppersberger. You did pay back money to DOD; did you 
not?
    Mr. Neffgren. Yes, sir.
    Mr. Ruppersberger. Now, as a result of that, at this 
committee's hearing on March 11, Dov Zakheim, the Pentagon's 
comptroller, reported that KBR has paid the government $6.3 
million for the estimated impact of the kickbacks. He then 
said, the DCAA, Defense Contract Auditing Agency, has requested 
supporting data from KBR to validate that sum.
    At our June 15th hearing, Halliburton had still not 
provided the information DCAA requested. And, according to the 
testimony of William Reed, the Director of DCAA Halliburton, 
Halliburton failed to provide data necessary for DCAA to verify 
the accuracy of that amount.
    I would like to know whether or not you or anybody else at 
Halliburton is under any legal requirement to withhold this 
information from us.
    Mr. Neffgren. I'd be glad to answer that question. When we 
provided the $6.3 million refund to the government, that was 
the full value for the task order that was subcontracted. It 
was a 100 percent reimbursement for the prior billings under 
that task order. So, in effect, the government has not paid for 
the services received by them. Therefore, at the time of the 
request in March, there was nothing for DCAA to audit because 
the government had not paid for anything.
    We have had subsequent communications with DCAA.
    Mr. Ruppersberger. OK. My 5 minutes are up.
    Mr. Walter. But we have provided information to DCAA and we 
continue to provide it in accordance with what our legal 
counsel advises.
    Chairman Tom Davis. Let the Chair just say that under the 
voluntary disclosure policies, when we encourage companies to 
come forward if they think there has been an act of fraud 
committed, if congressional committees then go in there and 
start reaching out, nobody is going to disclose anything. There 
has to be confidentiality to encourage companies when they find 
something wrong to come forward with it. That is why we have 
not pursued this after discussions with Justice. We are 
satisfied that these are being investigated by investigators 
who have teeth to make the appropriate enforcement mechanisms. 
At least that is my position as chairman of the committee.
    Ms. Watson. We do have one more panel, so I would just 
caution Members, but I don't want to deprive anybody of taking 
their time. Ms. Watson.
    Ms. Watson. Thank you, Mr. Chairman, for your 
consideration, and I want to thank the witnesses for being 
here.
    I want to turn to trucks, because earlier, in the first 
panel, we heard testimony, and I would like to reiterate some 
of that testimony.
    It says that KBR brought its new trucks, usually Mercedes 
or Volvos, with virtually no mileage on the odometers. And they 
said that in a convoy, one of the trucks got a flat. ``since we 
didn't have any spares, we had to leave the truck on the side 
of the road.''
    Who's responsible to perform the maintenance on the trucks; 
is it the military, or is it Halliburton? And why would 
Halliburton remove the spare tires?
    Mr. Richard. Ma'am, thank you for allowing me to clarify 
that issue. It is KBR's responsibility to provide maintenance 
for all of our assets, and all of our convoys have spare tires. 
I do want to clarify that issue. All of our convoys have spare 
tires available.
    When a convoy is out on MSR, it is the military's 
responsibility to provide protection for that convoy. But no 
truck has been abandoned, no truck has been lost due to a spare 
tire.
    Ms. Watson. Let me ask you this: Are you saying that the 
gentleman who testified in front of the committee before your 
panel was not telling the truth?
    Mr. Richard. Ma'am, what I'm saying is that gentleman did 
not testify that a truck was lost or abandoned.
    Ms. Watson. Let me phrase my question clearly. The 
testimony was that there were no spare tires available. The 
spare tires were taken. ``And since we didn't have any spares, 
we had to leave the truck on the side of the road.''
    I didn't say, and he did not say, the truck was destroyed. 
Why were there no spare tires if these were new vehicles, 
Mercedes and Volvos?
    Mr. Richard. I want to clarify two points, ma'am. All 
convoys had spare tires. His truck may not have had a spare 
tire, and I will clarify that point, but all convoys have spare 
tires. A convoy consists of 25 trucks.
    The issue of spare tires. We are in and amongst several 
hundred other trucks while we are in a staging area in Iraq. We 
only represent 20 to 30 percent of the total convoy movement in 
Iraq. There are several other contractors direct-hired by the 
military to support the effort. Many of those drivers are 
foreign nationals. Many of those drivers are from other 
countries. They don't have the same type of equipment KBR has. 
They are not as well equipped as our trucks. So, therefore, at 
times, they do take equipment from our trucks.
    And I would like to reiterate for my testimony that it is 
the Army's responsibility to provide security for our 
equipment. But sometimes those tires are taken from our trucks. 
But we do replace those tires, and all convoys have spare 
tires.
    Ms. Watson. Is this not a true statement? This is a 
gentleman who has been driving for 13 years, and he stated in 
front of the committee that ``KBR removed the spare tires from 
the trucks on my convoys. I don't know why they did this, but 
on one convoy, one of the trucks got a flat tire. Since we did 
not have a spare, we had to leave the truck on the side of the 
road.'' Is that not a true statement?
    Mr. Richard. That truck may not have had a spare, but the 
convoy, other trucks in the convoy, could have a spare tire. 
All convoys have spare tires, ma'am.
    Ms. Watson. It said ``but one convoy,'' they didn't have a 
spare tire. Well, then, if they did, then why would they leave 
the truck on the side of the road?
    Mr. Richard. That's a military decision, ma'am, based on 
the level of hostility.
    Ms. Watson. Oh, OK. It was the military that made that 
decision?
    Mr. Richard. It's the military's decision to abandon a 
truck, yes, ma'am.
    Ms. Watson. Also, Mr. Wilson and Mr. Warren that used to 
work for Halliburton testified on the first panel that they 
lost an $85,000 truck because they didn't have a spare tire. 
Then we heard later that they were told to destroy the trucks 
so that the enemy could not get them, strip them, and use them.
    Mr. Richard. The Army makes a decision to destroy a truck 
based on the level of hostility and the insurgents that are in 
that particular area. Again, the Army has command and control 
of the convoy. It is their responsibility to provide protection 
for our employees and for the trucks.
    We have lost 14 civilians, ma'am, and it is their 
responsibility to provide that protection.
    Ms. Watson. I didn't ask about protection. I'm asking about 
the maintenance.
    Mr. Richard. Yes, ma'am.
    Chairman Tom Davis. The gentlewoman's time has expired.
    I am going to go to Mr. Ose and recognize him for 5 
minutes.
    Mr. Ose. Mr. Chairman, I won't take 5 minutes. As I 
understand it, during the delay in my getting here, you had a 
vote that was transpiring, and that is left open?
    Chairman Tom Davis. Correct. Still open.
    Mr. Ose. How am I recorded?
    Chairman Tom Davis. You are not recorded.
    Mr. Ose. And this is the vote on the subpoenas for 
documents that may represent communication between the Office 
of the Vice President and the Department of Defense?
    Chairman Tom Davis. Correct.
    Mr. Ose. And I am recorded in what way?
    Chairman Tom Davis. You are not recorded.
    Mr. Ose. I am opposed to that. I would vote no on issuing 
such a subpoena.
    Chairman Tom Davis. OK. The committee is noticed.
    Would the gentleman like to make any other comments.
    Mr. Ose. No, I just want to talk to committee counsel here.
    Chairman Tom Davis. OK, thank you.
    The gentleman from Massachusetts.
    Mr. Tierney. I thank the chairman and I thank the witnesses 
for their testimony here today. I know we have been talking 
mostly about particular accusations of charging or 
overcharging, things of that nature, but I want to broaden it 
out just a little bit to talk about some of the planning 
aspects on this.
    I want to ask you a little about the planning that was done 
with respect to Iraq's oil infrastructure on the one hand and 
the planning done to provide basic support for the troops on 
the other.
    My understanding is that your company was involved with the 
planning efforts for both of those through the LOGCAP contract; 
is that correct?
    Mr. Walter. Yes, sir, that's correct.
    Mr. Cox. Yes, sir.
    Mr. Tierney. Now, Michael Mobbs, who is an adviser of Under 
Secretary of Defense Doug Feith, told our committee staff that 
contingency planning for the reconstruction and operation of 
Iraq's oil infrastructure began months before the war. It was a 
deputies committee setup of all the deputies of the relative 
departments and agencies.
    Mr. Mobb said that he was charged by them to work on a plan 
during the summer of 2002, and then Halliburton was issued a 
task order in November 2002 to do the planning; is that 
correct?
    Mr. Cox. I believe that's correct, sir.
    Mr. Tierney. Now, from the information we have from 
previous hearings, we were told that a career lawyer from the 
Army Materiel Command wrote a memorandum saying that the LOGCAP 
contract couldn't be read to encompass contingency planning for 
the operation of Iraq's oil infrastructure, and that then one 
of the Army's Deputy General Counsel for Procurement agreed 
with that memo, and then eventually, apparently, it was 
overturned when one of the Department of Defense's general 
counsel made an overriding decision. But GAO has since then 
indicated that it also thinks that it was beyond the scope of 
that contract to have LOGCAP's contract read to encompass the 
contingency planning for the oil.
    Did anybody in your company raise that issue during that 
time, that you know of? Anybody in your company indicate that 
this may not be the appropriate vehicle by which to take this 
contingency planning contract?
    Mr. Neffgren. No. We feel it was appropriate under the 
LOGCAP contract. The LOGCAP contract has a component that is a 
planning component. We have full-time planners that do 
scenarios for all different countries in the world and all 
different type of potential events, and that is their full-time 
job. So it would only be appropriate for them to be involved in 
this type of a scenario-planning exercise.
    Mr. Tierney. So you think the GAO is incorrect in their 
determination?
    Mr. Neffgren. No. You asked my opinion.
    Mr. Tierney. I'm not trying to debate with you, I want to 
know if that is your opinion.
    Mr. Neffgren. I do. I think it was a legitimate task order 
to a planning mechanism within the LOGCAP program.
    Mr. Tierney. The final version of the plan was completed in 
February 2003?
    Mr. Cox. That's correct.
    Mr. Tierney. Is that about the same time that Halliburton 
also started making the deals with subcontractors to implement 
the plan and to start their prepositioning of the equipment? 
Would it be about that time?
    Mr. Cox. About that time, during the planning phase and 
when we were notified to start getting ready, we put together a 
proposal, if you will, to do that. At that time we put together 
our team to execute the contract.
    Mr. Tierney. My point on this only indirectly affects you, 
so you're going to get a little relief here for a second. The 
point I'm trying to make is if I compare this to the planning 
for the troops, under LOGCAP you were supposed to provide for 
the essential support services to our troops, the meals, the 
water, the housing, and the other essentials of life for the 
servicemembers; is that correct?
    Mr. Neffgren. Yes.
    Mr. Tierney. OK. Now, when GAO issued yesterday's report on 
LOGCAP, one of their key findings was that the planning for the 
use of LOGCAP's contract to support the troops in Iraq did not 
begin until after the fall of Baghdad. You looked at that 
report and didn't make any objections or corrections, so we are 
assuming that is an agreeable statement with you? That is when 
the planning started, after Baghdad fell?
    Mr. Walter. For the work in Iraq, yes, sir.
    Mr. Tierney. So it is a little astonishing to me, and I 
think to others, the planning for what is going to happen to 
our troops, their meals, their water, their housing, the 
essentials of life, their protection, all of that doesn't even 
begin to happen until May 2003, after Baghdad falls, but in the 
meantime the administration had your company planning for 
Iraq's oil infrastructure months before it had a plan how to 
support our troops.
    The GAO report also indicated that the Army failed to 
follow its own guidelines. The Army's guidance recommends a 
comprehensive statement of work be developed in the early 
phases of the contingency planning. Can I take it that you were 
never charged by the Department of Defense to start the 
planning with respect to the support of the troops; and that it 
wasn't a case of your delaying it on your own?
    Mr. Walter. In Iraq, yes. We were already involved in the 
planning in many other areas, in Kuwait, in Afghanistan, in 
Djibouti and other locations. So we have been working with the 
Army in many other locations.
    Mr. Tierney. So despite the contact that you had with them, 
they never asked you to start the contingency planning for the 
troop situation in Iraq until May 2003?
    Mr. Walter. To the best of my knowledge, yes.
    Mr. Tierney. I think it is just disturbing, when we look at 
these priorities, that we have troops living in tents, eating 
MREs through August 2003, because there hadn't been adequate 
prewar planning for dining facilities and housing. We have 
heard reports over and over again that our troops didn't have 
enough body armor or armored vehicles.
    I have one family in my district that lost a son, who wrote 
home that he was scared every time his troops went out because 
they didn't have armor for their vehicles. And it was a matter 
of a week or two that the family learned that he had, in fact, 
been killed because an RPG went through his unarmored vehicle.
    It seems to me that these shortfalls all could have been 
prevented with some proper planning, and that this whole timing 
consequence is just a misplaced priority of this 
administration. They put oil planning ahead of planning for our 
troops' safety and for their support. They placed no spending 
limits on the LOGCAP work done by your company in Iraq. Yet we 
find over here they are shortchanging veterans' health care. 
They issue monopoly contracts to private companies in Iraq, but 
they don't adequately fund education in this country.
    This isn't a statement of your performance or anything like 
that, it's just a general observation. We have gone over the 
overcharging hearings, and we've gone back and forth, and I 
don't have much else to add on that, but I do have just an 
abhorrence here for the fact these priorities were so out of 
line and so out of whack that in the summer of 2002 we had an 
administration focusing on planning for oil, but not until May 
2003, and after Baghdad fell, would they even begin to ask your 
company to start planning for how to take care of our troops 
and how to protect them and how to service them.
    So I thank you for your testimony, but those are questions 
I think we will have to address back to the administration on a 
broader scale.
    Mr. Mica [presiding]. Mr. Lynch, if you have questions.
    Mr. Lynch. Thank you, Mr. Chairman.
    Gentlemen, again, thank you for coming here to help the 
committee with its work.
    I just want to say that, first of all, we had a discussion 
recently with Bill Reed over at the Defense Contracting Audit 
Agency, and also I think we had General Kern at the same time, 
and I asked them this question about the whole bribery issue 
with these two Halliburton employees.
    Can you tell me whether you provided information to this 
committee and to others regarding the bribery under this 
Voluntary Disclosure Act?
    Mr. Walter. Sir, under the Voluntary Disclosure Act and the 
regulations, it says that you make a voluntary disclosure to 
the inspector general or to the Department of Justice. We went 
to both of those groups with this information. To the best of 
my knowledge, they are performing an investigation.
    I have talked to our counsel. They said that we have been 
providing information to them.
    Mr. Lynch. Well, apparently, there is some inconsistency 
here, and I want to get to the bottom of this. On Tuesday we 
learned that was, in fact, not true, that the Pentagon IG said 
the information was not provided to the Pentagon under this 
program, and that even if it was provided under this program, 
matters of bribery would not be protected; that the information 
would still have to come forward to this committee.
    I just want to give you another example. We had a woman, 
Mary Robinson, who was also in the midst of a criminal 
investigation, who came before this committee even though there 
was an active ongoing criminal investigation, came forward and 
provided information that was helpful to this committee. 
Actually, it was helpful to the administration, and she came 
forward and testified.
    So what I'm trying to get to the bottom of is why are we 
not being told at least the names of these employees, the names 
of the contractors? What level--if you can't tell us the 
individuals involved, what level of Halliburton's 
administration and company hierarchy, what level were these two 
individuals at; and were they, in fact, overseeing other 
government contracts in other countries as well?
    Mr. Neffgren. They were not officers of the company. They 
were employees of KBR. They were low-level supervisory people, 
senior subcontracts administrators were their titles. They are 
no longer with the company. And all the contracts that they 
have touched while they were employees of the company have been 
provided to the Department of Justice for their review and 
investigation. There is an ongoing Justice Department 
investigation.
    Mr. Lynch. OK. Let me just ask you to pause there. We were 
once told that one of these Halliburton employees involved in 
the payoff scheme was the procurement materials and property 
manager of Halliburton/KBR in Kuwait, and that he was in charge 
of a very large number of contracts and purchase orders.
    Are you telling me now that testimony before, which was 
also provided under oath, was false? Are you telling me that?
    Mr. Neffgren. I have been advised that the employee's title 
was a senior subcontracts administrator, not the manager of 
PMP.
    Mr. Lynch. OK. Mr. Chairman, I yield back.
    Mr. Mica. Thank you.
    Other Members?
    Ms. McCollum.
    Ms. McCollum. Thank you, Mr. Chairman.
    If you have a truck and you don't maintain it by replacing 
the filters on it routinely, and then the truck breaks down in 
a convoy and it has to be either abandoned or destroyed, who is 
responsible for the loss of that truck in dollars, the American 
taxpayer, or does your company assume the responsibility for 
not keeping up the maintenance?
    Mr. Richard. Ma'am, we're not aware of any trucks that have 
been lost due to lack of maintenance.
    Ms. McCollum. So the truck drivers that were speaking to us 
before were lying?
    Mr. Richard. You'll have to repeat that, I didn't hear you.
    Ms. McCollum. The truck drivers with years of experience, 
the one gentleman who even described how he on his own cleaned 
out the filter on his truck, he was lying to us then under 
oath?
    Mr. Richard. No, ma'am, I do not disagree that truck 
drivers periodically have to perform maintenance on their 
trucks as well. We operate in a very substandard environment.
    Ms. McCollum. I understand that, Mr. Richard, but he said 
that the trucks weren't being placed on a regular log of 
maintenance, just like we do with our cars. I realize you are 
in a war zone, but I also realize that some of the filters, 
carrying with and having at both ends--so you have maintenance 
logs on every single truck?
    Mr. Richard. Yes, we do. We currently perform routine 
maintenance every 2 weeks on our trucks.
    Ms. McCollum. That's fine.
    Mr. Walter. But, ma'am, just to clarify one point. He did 
not state the vehicle was abandoned by the side of the road. It 
broke down outside of a facility, and he pulled it into the 
Scania facility, I believe.
    Ms. McCollum. I wasn't talking about that particular truck. 
Thank you, though.
    I'm trying to understand how these contracts work a little 
better. So you have a master contract, and then you do a 
subcontract. The cost plus cost, is that the subcontractor? Do 
they also have the ability to do the cost plus cost?
    Mr. Walter. No, ma'am, they do not. What we do is a 
majority of our subcontracts are awarded on a fixed price or a 
fixed unit price basis.
    Ms. McCollum. So the Kuwaiti oil company, Altanmia, you 
have all the documentation for what they charged through you?
    Mr. Cox. Yes, ma'am.
    Ms. McCollum. For their prices?
    Mr. Cox. Yes, ma'am, we do.
    Ms. McCollum. Is that available to the committee?
    Mr. Cox. It has been provided in the last month, I believe, 
ma'am, since I returned. We provided every contract document 
for the Kuwaiti fuel mission and the Turkey and Jordan. The 
total fuel mission has been provided to the Department of 
Defense, I believe, at the request of this committee. But I do 
not know if they have provided it to you or not.
    Ms. McCollum. Well, I will ask Mr. Waxman to yield in a 
minute.
    I have one other question. Payroll. You have two ways in 
which you pay, like I am sure you are salaried employees, but 
you have two ways in which you are paying some of your 
employees in Iraq and Kuwait. One is 8-hour, and one is 12-
hour; is that correct?
    Mr. Walter. No, ma'am, that is not correct. Our employees 
are paid for the hours they work. If there is a case where an 
employee cannot do something, for example, they are in a convoy 
that does not have the security and cannot leave, or they are 
at a location where they cannot get to their activity, there is 
a standby pay, which is a maximum of 8 hours a day. That means 
they are ready to go, but because of the conditions they are 
not allowed to go.
    Ms. McCollum. I don't disagree with that.
    Mr. Walter. But everything else is based on the hours 
worked. So if an employee works 10 hours in a day, they record 
10 hours on their time sheet, and get paid for 10 hours. If 
they work 12 hours a day, they will record 12 hours and be paid 
for 12 hours.
    Ms. McCollum. And when you advertise for a job, do you 
advertise based on the 8 hours? We hear things on the news that 
so-and-so is being paid so much to drive a truck. That is based 
on 8 hours? Is that based on 8 hours standby? Is standby a 
lower rate than when you are actually in the convoy driving?
    Mr. Walter. The compensation can be very flexible, 
depending on what is happening. All of that is described to the 
employees when they are given their compensation packages. 
There is no promise of a 12-hour day. The only guarantee is if 
you are going to be over there and not able to work, you will 
get a minimum of 8 hours per day on standby.
    Ms. McCollum. And they sign their time cards. Does a 
supervisor have to sign each time card, validating them?
    Mr. Walter. Yes, they do.
    Ms. McCollum. And all that information is available, and 
everything is documented where everybody is?
    Mr. Walter. Yes, ma'am.
    Ms. McCollum. Do you follow that on your subcontractors? 
How often do you audit those time clock records?
    Mr. Walter. If a subcontractor has timekeeping 
requirements, for example, we do subcontract some labor, their 
time cards are included with their invoices.
    Ms. McCollum. I would like to yield to Mr. Waxman.
    Mr. Waxman, have you been given all the information on this 
Kuwaiti contract? I understand we had some difficulty getting 
some information. We were told that Kuwait couldn't provide it.
    Mr. Waxman. Well, I am not sure I can answer that at this 
time, but let me, for the record, clarify it.
    And then, also, I want to ask these gentlemen some further 
questions, but I prefer to do it in writing and have them 
respond in writing, for the record, if they will all agree to 
that.
    I see them indicating in the affirmative.
    Mr. Mica. Without objection, the ranking member will submit 
additional questions to the panelists, and you can respond in 
writing, and it will be made a part of the record.
    Has there been an agreement on keeping the record open?
    On a time agreeable to the majority and minority, without 
objection, so ordered.
    I want to thank you gentlemen for participating today and 
for your assistance with the committee. We will excuse you at 
this time, and we will now move to our third panel and final 
witness. And that witness is a single individual on this panel, 
Dr. Steven Kelman. Dr. Kelman is a Weatherhead professor of 
public management at Harvard Kennedy School of Government and 
former Director Of the Office of Federal Procurement Policy 
under the Clinton administration.
    Dr. Kelman, if you will stand and raise your right hand.
    [Witness sworn.]
    Mr. Mica. Let the record reflect that the witness answered 
in the affirmative.
    Dr. Kelman, you are recognized. The custom is we give you 
about 5 minutes. You are the only witness on this panel. I 
guess we could be a little lax.
    Mr. Kelman. I was actually told since I'm a panel, I get a 
little more. We'll see what happens. I know it's late.
    Mr. Mica. Any lengthy statement or material you would like 
to be made part of the record, you can do so through a request 
of the Chair.
    With that, Dr. Kelman, you are recognized.

  STATEMENT OF STEVEN KELMAN, WEATHERHEAD PROFESSOR OF PUBLIC 
   MANAGEMENT, HARVARD UNIVERSITY, JOHN F. KENNEDY SCHOOL OF 
                           GOVERNMENT

    Mr. Kelman. Congressman Waxman and Congressman Mica, and 
particularly my fellow Massachusettsan, Congressman Lynch, it 
is a pleasure to have an opportunity to speak before the 
committee today on some of the broader issues for the health of 
our procurement system that the oversight of Iraqi contracting 
raises. I am not an expert on Iraqi contracting. I am going to 
limit myself to some of the broader issues.
    And what I would like to do is start with some quick 
vignettes, and you might say, what does this have to do with 
these hearings? So please be a little patient, and I will 
explain what they have to do with the hearing in a minute.
    The first vignette. I was teaching an executive education 
program recently at the Kennedy School for some senior 
government managers and military officials, and we were 
discussing another subject, performance measurement in 
government. And a woman from the Defense Logistics Agency, in 
the context of that discussion, got up to talk about the 
efforts that DLA has been making over the last decade to 
improve its customer service, to be more customer-oriented and 
so forth, and how they had used performance measures for that.
    She was standing or sitting at one end of the class. After 
she talked, a gentleman raised his hand at the other end of the 
class, who it turns out is the wing commander at Minot Air 
Force Base in North Dakota, and he said to her, in front of the 
class, thank you very much. I have noticed as a customer, as a 
wing commander, I have noticed that the procurement system is 
serving us better. We are getting things more quickly, you are 
more responsive, the procurement system is doing a better job.
    At lunch I talked with him in more detail, and I have more 
of that in my written testimony, but I asked him more about 
that, and he just said there has been a real change in 
attitude, and then he added on, in addition to that, on the 
planes that he flies, they are able to upgrade them 
technologically, you know, technological refreshment on planes, 
much faster than they used to be able to.
    So that is vignette one.
    Vignette two. I had breakfast recently with a long-time 
career information technology manager at the Bureau of Labor 
Statistics, who is now in the private sector, and when he asked 
me to breakfast, he had experienced the procurement changes 
over the last 10 years at the end of his government career, and 
he said, how are they going, Steve? And I said, well, they are 
under some challenge now, whatever. He said, gee, that's too 
bad. And then he told me, again, a number of stories, but I 
will only share one with you.
    He talked about a situation where he was the program 
manager for an IT contract in the late 1980's; that is to say, 
the time of the old procurement system. The vendor was 
performing terribly. He went to his assistant administrator to 
say, the vendors aren't performing, we have to get rid of them. 
And the assistant administrator said, look, if we get rid of 
this vendor, it will take 2 years to get on contract again, and 
then 6 months for bid protest. Just live with it. And he had 
to.
    Vignette three. Two of my students at the Kennedy School 
just did a study, did a lot of things, but let me share the 
thing I want to share with you. They looked at a sample of 
information technology services contracts at GSA and asked the 
government customer how satisfied they were with the 
contractor's performance and the contract, how good a job the 
contractor had done; 1 to 10 scale; 10 was the best, 1 was the 
worst. The average satisfaction, and this is now, 9.4 on a 
scale of 1 to 10. Very satisfied.
    I did a similar survey in the late 1980's, same question, 
same kinds of contracts, again among government customers, how 
satisfied they were then, the old procurement system; 6.9 on a 
1 to 10 scale. So it's moved from 6.9 to 9.4.
    So what's the relationship between these vignettes and 
oversight of Iraqi contracts, you might ask? The relationship 
is that each of these vignettes illustrates how we are doing a 
better job than before in focusing the government's procurement 
system on its primary goal, which is to deliver the best value 
to taxpayers. What we have been trying to do over the last 
decade is to switch the focus of the procurement system from 
simply avoiding doing bad things to trying to do good things.
    What do I mean by that? Let me illustrate as an example as 
a Member of Congress. We have all sorts of rules, as we should, 
ethical rules for standards of conduct among Members, and we 
expect people to comply with them. But imagine a Member of 
Congress who spends 20 years in Congress, and they have never 
violated the rules, but that's all. No legislation, no 
oversight, they haven't done anything else. And they say, I 
never violated a rule of Congress. They have done nothing 
wrong, but they haven't accomplished anything. They haven't 
done anything right.
    And that's the distinction I'm trying to draw with what 
we're trying to do with the procurement system. We have ethical 
standards for contractors, saying they shouldn't be cheating 
the government, government officials should be observing the 
rules in awarding contracts, and so forth. But a contractor 
could have a spotless record of never having cheated the 
government and still done a terrible job in all their contracts 
in terms of their substantive performance. A government 
official can always follow all the rules and still have done a 
terrible job of asking for the right things in the first place 
or putting the right performance measures in the contracts, or 
whatever.
    And, traditionally, the government procurement system was 
almost completely focused on trying to prevent people from 
doing the wrong thing, rather than, in addition to that, 
saying, you have to do the right thing as well. What we have 
tried to do, mostly in a bipartisan way over the last decade, 
is to refocus the system toward saying, your job is not done 
when you follow the rules. You need to be oriented toward the 
mission of the organization and use your head to come up with 
innovative solutions.
    I present this history, and will finish up shortly, because 
experienced government contracting people remember the old 
days. And given this history, it is very easy for our 
procurement work force to get the message from the headlines 
that we want them to go back to those old days of just being 
the procurement police. I know no member of this committee has 
this intention, and I know many members of this committee are 
advocates of the Federal work force. Chairman Davis and 
Congressman Waxman are cochairs of the Congressional Public 
Service Caucus, for which I really admire both of you for what 
you do on that. But I think it is important to understand, and 
I want to emphasize, that I think it is unintentional, nobody 
means to be doing this, but I will tell you from talking with 
career folks in government that a lot of these headlines about 
Iraqi contracting and a whole bunch of things going on are 
really demoralizing and even terrorizing the government work 
force.
    Now, you don't intend it, but they are getting the message, 
the unintended message, that there is no downside to asking for 
another review; to say no to the customer, to the military 
customer, whatever; to slow down the process; to just be the 
police. That is the message they are getting. I know you are 
not trying to send it. So what I am begging the committee to do 
is to work to counteract that message that I know you do not 
intend to send.
    I urge you to do two things. One is I would urge, and we 
really need to repeat over and over again to our contracting 
work force and to contractors, that you believe that their 
responsibility is provide best value for the taxpayer; not just 
to avoid doing things wrong, but to do the right things. Their 
job isn't done when they follow the rules.
    Second, I would urge the committee to hold a hearing where 
you bring in career government employees to talk about--not an 
Iraq contract; a hearing just in the general, Committee on 
Government Reform, on innovative business solutions that they 
have been working on to try to improve the value that 
contracting gives the government. And by doing that, you will 
send a message that you care about that kind of behavior and 
performance as well.
    So that is my message, and I appreciate your time.
    [The prepared statement of Mr. Kelman follows:]

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    Mr. Mica. Well, thank you, and I am going to yield 
immediately to the ranking member for questions. Thank you.
    Mr. Waxman. Thank you, Mr. Kelman, for your testimony, and 
we value what you have to say on these issues because we know 
you are an expert in this area, and I appreciate the key 
message you are bringing to us.
    But I want to ask you about a certain situation. In Iraq 
there seems to be a pattern of awarding monopoly contracts, 
splitting up the geographical areas for electricity contracts 
in one area or oil contracts in another area of Iraq, and the 
contractor gets a monopoly, and then they do not compete for 
that. They will go out and hire--or they may even compete, but 
there is no opportunity for competition in it. For the over 
2,000 discrete projects.
    As a procurement expert, don't you think it would be better 
to have competition on the discrete projects so that we can get 
the benefit of competition, rather than a monopoly, with which 
it is hard to get the market forces to work?
    Mr. Kelman. That is a very, very good question. In fact, 
while I was in the government, we passed the Federal 
Procurement Streamlining Act of 1994, which did just what you 
said. It recognized task order contracting and set up a 
preference for multiple awards so there could be ongoing 
competition.
    So as a general matter, I am in favor of using that 
whenever it is feasible, and actually had some conversations 
with your staff and others about it because I thought you were 
raising a very good issue.
    And I want to emphasize I do not know very much about Iraq, 
but I asked a fairly senior person at the Defense Department, a 
career civil servant, hey, what about this suggestion? Why 
aren't you guys doing this more? Because I think, as a general 
matter, it is a very, very good idea. What the person told is, 
you've got to be careful, and I think you should continue to 
look at this issue, because I think as a general policy matter, 
I agree with you 100 percent, but what this person told me she 
was worried about was if you award a multiple contract here in 
Washington to IBM and Computer Sciences Corp. and KPMG, or 
whatever, they have all these employees who are working on a 
lot of projects at one time. So you bid them on an individual 
task order, and if they don't win that task order, they are 
working on something else, and so you switch to this other. 
It's just a lot of work to sort of share around.
    This career DOD person--and again I'm putting it in the 
mix. I agree with the direction you are going, but this career 
person said to me, our concern would be that it's not like 
these, if you did a multiple award in Iraq, that they have a 
lot of other things to do. If they do not win an individual 
task order, they will just sort of sit around and do nothing, 
and might that not increase the price? That was her worry.
    But I would be curious for your reaction to that.
    Mr. Waxman. Well, all the major companies are in Iraq. 
Bechtel's there, Halliburton's there, Parsons is there, and 
there is no reason why they shouldn't be able to compete with 
each other on a task order and then get the job based on the 
competition.
    Mr. Kelman. What I would say----
    Mr. Waxman. And their whole strategy with this 
administration is to carve out these monopolies, and then let 
them make the decision on the subcontractors.
    Mr. Kelman. What I would say is I would hope, if possible 
on a bipartisan basis, but have you been asking DOD about this?
    Mr. Waxman. From the very beginning. See, the original 
contract was to Halliburton to run the oil fires 
infrastructure. They said they were going to put out oil first, 
but then they were given the monopoly to run the oil sector, 
and we asked, well, why were they given a no-bid contract? 
Other companies might have competed. And they came through with 
a series of reasons.
    Mr. Kelman. What I would say is continue to push this 
issue. I believe, as a matter of procurement policy, and it is 
reflected, as I say, in the procurement reform legislation in 
the 1990's, the idea of a multiple awards and task order 
contracting is a good idea.
    A person whom I trust at DOD has argued to me, and she is a 
career person, there are reasons not to do it here, but I would 
continue to push. Unless you are satisfied with the answer, 
keep pushing them, because I think as a general matter it is a 
very good idea.
    Mr. Waxman. Thank you. I appreciate your testimony, and I 
see we have a vote on.
    Mr. Mica. Additional questions?
    Ms. McCollum.
    Ms. McCollum. No.
    Mr. Mica. Well, we do have a vote.
    Now, you come before the committee as a pretty experienced 
witness and on the subject in particular of acquisition. You 
have probably reviewed some of what took place with the 
awarding of the contract that is under question with 
Halliburton and this LOGCAP. It is my understanding that this 
was let initially some time ago under the previous 
administration.
    Given what you know about the previous contract and then 
the situation we found ourselves in, do you think generally the 
way they proceeded in allowing this to be an extension of an 
existing contractor, sort of an add-on, was the appropriate 
way?
    And then I think the ranking member raised the question of 
breaking these up into smaller parts. Just one quick general 
question.
    Mr. Kelman. Yes. I think I am going to--all I really know 
about this is what I have read in the newspapers. There is a 
lot of stuff back and forth, so I don't really feel like I am 
an expert on how these contracts were awarded and so forth. I 
do know just--I feel pretty confident before I read the 
newspapers. Actually the original LOGCAP contract was awarded 
the first time in the first Bush administration, was repeated 
in the Clinton administration and then repeated.
    Mr. Mica. A long-time contract. But when you get into a 
situation where you need services ASAP and have an existing 
contract----
    Mr. Kelman. The----
    Mr. Mica. Not just in general.
    Mr. Kelman. The whole reason for a contract in this 
situation--and it was an innovation and a good innovation in 
the first place--in order to be able to gear up quickly for 
things in battlefield situations, you can't gear up quickly 
unless you have a contract in place before you do it.
    Now, the debates about what was in scope, what was out of 
scope, that really goes beyond what I know enough about having 
an opinion. But the general idea that we should be setting up 
these vehicles in advance, I think, is a very good one. Indeed, 
there are other examples of them done by very progressive--our 
most innovative career people.
    You know, Defense Logistics Agency in Philadelphia, the way 
they changed during the 1990's the way they buy medical 
supplies and uniforms, where they moved to what is called a 
prime vendor distributor. And what they did was some smart guy 
who got the message, your job is not over when you have obeyed 
the rules, you have to think creatively, he came up with the 
idea when they awarded those contracts for medical supplies--
they have sort of a normal distribution, you know, during 
peacetime. The contract that's prenegotiated says, in the event 
of war, you have to be ready to send us X percent more. That's 
part of your contract. And so that is in place before a 
military action starts.
    That is very intelligent contracting. That's the kind of 
thing we want our work force, our career work force, to be 
thinking more about and using their heads. That is the whole 
idea behind the procurement changes of the last decade.
    Mr. Mica. Thank you. I may have additional questions, too, 
to submit.
    We are running a little bit out of time. I do appreciate 
your being patient with the committee.
    Mr. Kelman. You have been very patient.
    Mr. Mica. Well, you have been very patient to wait to be 
our final witness.
    Mr. Waxman. Mr. Chairman, would you permit me to ask the 
gentleman to extend my best wishes to his father-in-law?
    Mr. Kelman. I will be seeing him very shortly. Thank you so 
much.
    Mr. Mica. Thank you.
    Without objection, wishes will go to your father-in-law.
    We have one item of unfinished business. We have had a 
rolling vote here. The clerk will report the tally on the open 
vote on the ranking minority member's motion to authorize a 
subpoena.
    The Clerk. Mr. Chairman, I have 19 ayes and 23 noes.
    Mr. Mica. There being 19 ayes and 23 noes, the motion is 
not agreed to.
    Mr. Waxman. Mr. Chairman, might I point out that this was a 
straight party-line vote?
    Mr. Mica. Well, I thank the gentleman for recognizing that 
there is still a Republican majority on the committee and in 
the Congress.
    There being no further business to come before the 
committee, the committee stands adjourned.
    [Whereupon, at 3:33 p.m., the committee was adjourned.]
    [The prepared statement of Hon. Dan Burton and additional 
information submitted for the hearing record follow:]

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