[Senate Hearing 108-561]
[From the U.S. Government Publishing Office]
S. Hrg. 108-561
USAID CONTRACTING POLICIES
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HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
FEBRUARY 25, 2004
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee BILL NELSON, Florida
NORM COLEMAN, Minnesota JOHN D. ROCKEFELLER IV, West
JOHN E. SUNUNU, New Hampshire Virginia
JON S. CORZINE, New Jersey
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
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SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
CHUCK HAGEL, Nebraska, Chairman
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
MICHAEL B. ENZI, Wyoming JOHN D. ROCKEFELLER IV, West
LAMAR ALEXANDER, Tennessee Virginia
NORM COLEMAN, Minnesota JON S. CORZINE, New Jersey
CHRISTOPHER J. DODD, Connecticut
(ii)
C O N T E N T S
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Page
Barton, Mr. Frederick D., co-director of Post Conflict
Reconstruction Programs, Center for Strategic and International
Studies, Washington, DC........................................ 32
Prepared statement........................................... 35
Responses to additional questions for the record from Senator
Lugar...................................................... 56
Beans, Mr. Timothy, Director, Office of Procurement, U.S. Agency
for International Development, Washington, DC.................. 7
Prepared statement........................................... 9
Responses to additional questions for the record from Senator
Lugar...................................................... 55
Responses to additional questions for the record from Senator
Hagel...................................................... 58
Response to an additional question for the record from
Senator Sarbanes........................................... 60
Burman, Dr. Allan V., President, Jefferson Solutions, division of
the Jefferson Consulting Group, LLC, Washington, DC............ 37
Prepared statement........................................... 40
Hagel, Hon. Chuck, U.S. Senator from Nebraska, opening statement. 1
Mosley, Hon. Everett L., Inspector General, U.S. Agency for
International Development, Washington, DC...................... 2
Prepared statement........................................... 5
Responses to additional questions for the record from Senator
Lugar...................................................... 53
Responses to additional questions for the record from Senator
Hagel...................................................... 58
Stevenson, Mr. Marcus L., director of Grants and Contracts, The
Urban Institute, Washington, DC................................ 44
Prepared statement........................................... 48
Responses to additional questions for the record from Senator
Lugar...................................................... 57
(iii)
USAID CONTRACTING POLICIES
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WEDNESDAY, FEBRUARY 25, 2004
U.S. Senate,
Subcommittee on International Economic
Policy, Export and Trade Promotion,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:38 p.m. in
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel
(chairman of the subcommittee), presiding.
Present: Senator Hagel.
opening statement of senator chuck hagel
Senator Hagel. Good afternoon. This hearing of the Senate
Foreign Relations Subcommittee on International Economic
Policy, Export and Trade Promotion will examine USAID
contracting policies, focusing in particular on USAID
contracting policies toward Afghanistan and Iraq.
American reconstruction efforts in Afghanistan and Iraq are
critical to successful political transitions in both countries.
Since 2001, USAID has been allocated approximately $1 billion
for reconstruction assistance in Afghanistan. Although the
majority of the more than $20 billion in reconstruction
assistance appropriated for Iraq is under the control of the
Department of Defense and the Coalition Provisional Authority,
USAID has so far awarded 11 reconstruction contracts in Iraq
worth $3.3 billion.
The primary reconstruction project in Afghanistan has been
the Kabul-Kandahar highway. In December 2003, the Louis Berger
Group, a leading American engineering and construction firm and
the USAID contractor for this project, completed phase I of the
reconstruction of the highway. In the spring and summer of this
year, additional layers of asphalt will be laid. The cost of
phase I of this project was $190 million; the total cost of the
completed highway is projected to be $270 million. According to
the November 2003 report issued by USAID Inspector General
Mosley's office regarding progress of the Kabul-Kandahar
highway, and according to Mr. Mosley's written testimony today,
who we will hear from later, the Louis Berger Group did not
adequately update USAID on changes in its implementation plan
and schedule during phase I of the project. I would welcome
testimony from both USAID witnesses regarding the schedule and
plan for implementation of phase II of the highway's
construction.
Because of the urgency of the situation in Iraq, in the
spring of 2003, USAID issued solicitations and awarded nine
contracts for reconstruction in Iraq, bypassing the full and
open competition process which normally governs USAID
contracting. While limited competition rules, as they are
known, may have had certain benefits given the crisis in Iraq,
the contracting process has also raised questions about
oversight and accountability of our Iraq reconstruction
programs.
USAID contracting policies in Iraq, Afghanistan, and
throughout the world should reflect the best practices and
values of American foreign policy and business. Our policies
should encourage transparency and accountability, and empower
the peoples of the recipient countries by developing and
expanding their private sectors and providing local jobs.
Some of the problems and challenges in the USAID
contracting and procurement process may be linked to management
and staffing decisions over the past decade. An August 2003 GAO
report noted that USAID has evolved from an Agency in which
U.S. direct-hire staff directly implemented development
projects to one in which U.S. direct-hire staff oversee the
activities of contractors and grantees. Between 1992 and 2002,
USAID direct-hire staff declined by 37 percent overall and 42
percent overseas, during a decade when USAID program funding
increased by more than 50 percent. USAID staff deployed abroad
to oversee these major foreign assistance and reconstruction
projects may not have the contracting and procurement expertise
required for proper oversight and accountability.
USAID's contracting policies do not exist in a vacuum. They
cannot be separated from USAID's overall policies and
procedures for foreign assistance. USAID contracting policies
also cannot be considered in isolation of overall U.S. policy
objectives in Iraq, Afghanistan, or elsewhere in the world.
I welcome and look forward to the testimony of today's
witnesses. The first panel will include the Honorable Everett
L. Mosley, USAID Inspector General and Mr. Timothy Beans,
USAID's Director of Procurement. The second panel includes Mr.
Frederick Barton, co-director of Post Conflict Reconstruction
Programs at the Center for Strategic and International Studies;
Dr. Allan Burman, president of Jefferson Solutions; and Mr.
Marcus Stevenson, director of Grants and Contracts at the Urban
Institute.
Gentlemen, we are all grateful for your testimony and your
time today and your availability and we appreciate very much
your coming forward with that testimony and look forward to an
opportunity to exchange views during a question and answer
period.
With that, Mr. Mosley, if you would begin, we would
appreciate it.
STATEMENT OF HON. EVERETT L. MOSLEY, INSPECTOR GENERAL, UNITED
STATES AGENCY FOR INTERNATIONAL DEVELOPMENT
Mr. Mosley. Mr. Chairman, other committee members, and
committee staff, thank you for the opportunity to provide my
testimony today on the USAID contracting practices. As you have
requested, my testimony will focus on USAID's overall
contracting procedures with emphasis on programs in Afghanistan
and Iraq, and I will provide my full statement for the record.
Senator Hagel. All statements will be included in the
record, so if you feel more comfortable with summarizing your
statement, that is perfectly fine.
Mr. Mosley. Mr. Chairman, my office has a continuing
program to review USAID's procurement operations. These reviews
consist of pre-award audits, incurred cost audits, and contract
close-out audits that are performed by my staff, by contracted
public accounting firms, and by the Defense Contract Audit
Agency under a reimbursable agreement with my office. In
addition, we conduct other audits and investigations as
determined necessary. For example, we have conducted a series
of audits to examine whether USAID cognizant technical officers
[CTOs] are properly trained and accountable for performing
their duties. Cognizant technical officers play a crucial role
in helping ensure that contractors deliver the goods and
services contracted for.
We have done work in Washington and several USAID missions
overseas, and while we have not yet completed the work and
reached an overall conclusion, audit work to date indicates
that many cognizant technical officers are not adequately
trained to perform their CTO duties. We are in the process of
finalizing our summary audit report which includes
recommendations to ensure that CTOs receive specific training
on a timely basis, and CTO accountability is improved by
including their responsibilities in their work objectives.
In response to a request from the Administrator, my office
has provided advice on accountability and control issues for
their Afghanistan assistance program from the beginning of the
process. For example, OIG representatives serve as observers at
meetings of the Central Asian Task Force established prior to
the opening of the USAID mission in Afghanistan to plan
Afghanistan activities. In addition, my staff visited
Afghanistan to perform preliminary risk assessments of the
USAID programs and developed an audit strategy.
The audit strategy included a concurrent financial audit
program as well as performance audits. We are conducting
current financial audits of costs incurred under USAID's
Afghanistan program. These financial audits are being conducted
by a public accounting firm in-country, and the Defense
Contract Audit Agency here in the United States. The audits in
Afghanistan are supervised closely by my staff to ensure audit
quality. The first of these quarterly financial audits was
issued on January 23, 2004, and it covered about $1.2 million
in local costs paid in Afghanistan, of which $29,000 was
questioned.
My office has also included a report on the progress of the
Kabul-Kandahar highway rehabilitation. The report described
both successes and challenges that have caused project delays.
As of November 1, 2003, contractor reports showed that 222
kilometers of the 389 kilometer road project had been paved and
USAID stated that they planned to have the entire 389
kilometers completed with an acceptable interim paved surface
by the end of December 2003. USAID subsequently reported that
that was achieved. Our next reviews will examine enhancements
to the Kabul-Kandahar highway which you have referred to as
phase II and we will expand our coverage to implementation of
other activities being undertaken in Afghanistan.
Our work on contracting in support of the Iraq program is
being conducted in three phases: (1) by examining the decision
to use less than full and open competition; (2) examining
compliance with the Federal acquisition regulations in awarding
the contracts; and (3) conducting concurrent financial audits
and performance audits in Iraq. We found that the use of less
than full and open competition in awarding contracts was
allowed by the Federal Acquisition Regulations with a written
determination that the use of full and open competition would
be inconsistent with the fulfillment of the Foreign Assistance
Program. The Office of the Administrator made this written
decision on January 16, 2003.
To date, USAID has awarded 11 reconstruction contracts
totaling $3.3 billion. My office had reviewed 10 of these
contracts with a value of $1.5 billion, the latest contract
being the majority of the dollars, which was just recently
issued. These reviews indicate that USAID has done a good job
of processing these contracts under a tight time frame to
support reconstruction programs in Iraq. We concluded that
USAID complied with Federal acquisition regulations applicable
to these contracts with the following exceptions:
We noted weaknesses in USAID's documentation in market
research efforts to identify prospective contractors. In one
case USAID staff should have consulted with the Office of
General Counsel on a potential conflict of interest issue. And
USAID did not provide one offeror with timely notification that
an award had been made, and did not provide timely debriefings
to three unsuccessful offerors.
In addition to these instances of non-compliance with
acquisition regulations, we identified some other areas where
contracting practices might be improved: fully documenting what
was discussed in pre-solicitation meetings; full documentation
of actual or potential needs to support the level of effort set
out in contracts; making appropriate decisions on the need for
facility clearances before awarding of contracts; and, assuring
that contractors meet all legal requirements before deciding to
award contracts.
My office has also conducted concurrent financial and
performance audits in Iraq. Specifically, we have initiated 33
financial audits covering costs incurred by contractors in
implementing the USAID program to rebuild Iraq. These audits
are being conducted by the Defense Contract Audit Agency. To
date, we have issued 22 audit reports covering about $35
million in USAID funds. The audits have reported $339,646 in
questioned costs, which includes about $276,000 in ineligible
costs and about $64,000 in unsupported costs.
We have also conducted one performance audit that examined
the accuracy of results data compiled and reported by USAID for
its education activities in Iraq. We are also currently
drafting that audit report.
We will be conducting additional reviews of performance in
Iraq during the fiscal year of 2004 to examine the outcome of
contracted rehabilitation work. We have also initiated
proactive investigative work in Iraq that would include
continual reviews and assessments of contracts and contract
files to determine areas of potential vulnerability. In
addition, contacts with key personnel involved in the efforts
has been initiated. We are investigating any allegations of
wrong-doings in Iraq programs.
That concludes my testimony, and I will be willing to
answer any questions that you have.
[The prepared statement of Mr. Mosley follows:]
Prepared Statement of Hon. Everett L. Mosley
Mr. Chairman, other committee members, and committee staff, thank
you for the opportunity to provide testimony on the U.S. Agency for
International Development's (USAID's) contracting practices. As you
have requested, my testimony will focus on USAID's contracting
processes, with emphasis on programs in Afghanistan and Iraq.
My office has a continuing program to review USAID's procurement
operations. These reviews consist of pre-award audits, incurred cost
audits, and contract close-out audits that are performed by my staff,
by contracted public accounting firms, and by the Defense Contract
Audit Agency through a reimbursable agreement with my office. In
addition, we have conducted a series of audits to examine whether
USAID's Cognizant Technical Officers are properly trained and
accountable for performing their duties. Cognizant Technical Officers
play a crucial role in helping ensure that contractors deliver the
goods and services contracted for.
cognizant technical officers
To date, we have completed work in three USAID bureaus in
Washington and six USAID missions overseas. While we have not yet
reached overall conclusions, audit work to date indicates that many
Cognizant Technical Officers are not adequately trained to perform
Cognizant Technical Officer duties. We are in the process of finalizing
our summary audit report to USAID which includes recommendations to
ensure that (1) CTOs receive specific training on a timely basis to
become eligible for certification, and (2) CTO accountability is
improved by including their responsibilities in their work objectives.
afghanistan
In response to a request for assistance from USAID's Administrator,
my office has provided advice on accountability and audit issues for
the Afghanistan assistance program. For example, OIG representatives
served as observers at meetings of the Central Asian Task Force
established prior to the opening of the USAID mission in Afghanistan to
plan assistance activities. Additionally, prior to the awarding of the
major contract for the rehabilitation of economic facilities and
services program in Afghanistan, USAID's Bureau for Asia and the Near
East requested the OIG's cooperation in identifying appropriate audit
coverage of the contract. Shortly after the contract was awarded, my
staff visited Kabul to perform a preliminary risk assessment of the
USAID program and develop an audit strategy.
The audit strategy includes a concurrent financial audit program as
well as performance audits. A series of concurrent financial audits are
planned of costs incurred under the USAID/Afghanistan rehabilitation of
economic facilities and services program. These concurrent financial
audits are designed to disclose accountability issues at an early
stage, before larger sums of money are put at risk. These audits are
conducted by a public accounting firms and the defense contract audit
agency. The audits in Afghanistan are supervised closely by my office
to ensure audit quality. The first of these financial audits, issued on
January 23, 2004, covered about $1.2 million in local costs paid in
Afghanistan of which about $29,000 was questioned by the auditors.
My office has also issued a report on the progress of the Kabul-
Kandahar highway rehabilitation. The report described both successes
and challenges that had caused project delays. As of November 1, 2003,
Louis Berger progress reports showed that 222 kilometers of the 389
kilometer road project had been paved and USAID officials stated that
they planned to have the entire 389 kilometers of road completed with
an acceptable interim paved surface by the end of December 2003. USAID
subsequently reported that this was achieved. Our report also noted
that Louis Berger had not updated its implementation plan required
under the contract to reflect changes made to the road reconstruction
schedule. Therefore, we recommended that USAID require Louis Berger to
maintain an updated implementation plan for its activities under the
contract.
iraq
Our work on contracting in support of the Iraq program is being
conducted in three phases: (1) examining the decision to use less than
full and open competition for nine contracts, (2) examining compliance
with the Federal Acquisition Regulations in awarding contracts, and (3)
conducting concurrent financial audits and performance audits of the
program.
USAID has used less than full and open competition in awarding nine
of eleven contracts awarded to date. Subpart 6.3 of the Federal
Acquisition Regulations and section 706.302 of the USAID acquisition
regulations allow use of less than full and open competition when the
USAID Administrator makes a written determination that use of full and
open competition would be inconsistent with the fulfillment of the
foreign assistance program. The office of the USAID Administrator made
this determination in writing on January 16, 2003. The OIG advised the
ranking member of the Senate Committee on Governmental Affairs of this
determination in a letter dated April 14, 2003.
To date, USAID has awarded eleven reconstruction contracts totaling
$3.3 billion. These contracts relate to economic governance, education,
infrastructure reconstruction, personnel support, seaport
administration, local governance, monitoring and evaluation, health,
airport administration and agriculture.
To date, my office has reviewed ten of these contracts with a value
of $1.5 billion. We have issued nine final memorandums on these reviews
and a tenth memorandum is in draft at this time. We plan to review
additional contracts as they are awarded during the remainder of FY
2004.
These reviews indicate that USAID has done a good job of processing
these awards under tight timeframes to support the reconstruction
program in Iraq. Based on the reviews completed to date, my office
concluded that USAID complied with the acquisition regulations
applicable to these contracts with the following exceptions:
For three contracts, the auditors noted weaknesses in
USAID's documentation of its market research efforts to
identify prospective contractors.
For one contract, USAID staff should have consulted with its
office of general counsel on a potential conflict of interest
issue.
For one contract, USAID did not provide one offeror with
timely notification that an award had been made and did not
provide timely debriefings to three unsuccessful offerors.
In addition to these instances of non-compliance with acquisition
regulations, my office identified some other areas where contracting
practices might be improved:
For two contracts, we concluded that USAID should fully
document what is discussed in pre-solicitation meetings with
potential offerors.
For two contracts, the level of effort initially estimated
by USAID varied significantly from actual needs.
For two contracts, USAID initially determined that
contractors would need a facilities clearance and accordingly
included this requirement in the request for proposals. After
it found that the selected contractors did not have the
requisite facilities clearances, USAID deleted the requirement.
For one contract, where a request for proposal did not
require that offerors provide evidence of their legal status,
the selected offeror's status as a corporation had lapsed.
However, the offeror became aware of this problem and corrected
it prior to signing the contract with USAID.
In addition to this work which focused on contracting processes
associated with the Iraq program, my office has also conducted
financial and performance audits in Iraq itself.
Specifically, we have initiated 33 financial audits covering costs
incurred by contractors implementing the USAID program to rebuild Iraq.
These audits are being performed by Defense Contract Audit Agency
auditors located in Baghdad and Kuwait City and in DCAA regional
offices in the U.S. the audits will examine the propriety of costs
incurred under these contracts and the contractors' internal control
systems. The OIG will review and issue final reports to USAID to ensure
that USAID collects any questioned costs due to USAID and takes action
on any identified management and financial system weaknesses. To date,
we have issued 22 audit reports covering about $35 million in USAID
funds. The auditors questioned $339,646, which included $275,772 in
ineligible costs and $63,874 in unsupported costs.
In addition, we have conducted one performance audit that examined
the accuracy of results data compiled by USAID for its education
activities in Iraq. My staff is drafting a report on the results of
that audit now. We will conduct additional performance audits in Iraq
during fiscal year 2004.
Proactive investigative work will include continual review and
assessment of contracts and contract files to determine areas of
potential vulnerability. In addition, contacts with key personnel
involved with the effort have been initiated. The OIG will investigate
any allegations of wrongdoing in the Iraq program.
Again, thank you for the opportunity to testify today. I will be
happy to respond to any questions you may have.
Senator Hagel. Inspector General Mosley, thank you very
much.
Mr. Beans.
STATEMENT OF TIMOTHY BEANS, DIRECTOR, OFFICE OF PROCUREMENT,
UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT
Mr. Beans. Thank you, Mr. Chairman and members of the
committee. I want to thank you very much for the opportunity to
provide testimony for USAID and our contracting policies in
Iraq and Afghanistan. Your specific letter to me requested my
testimony to focus on contracting procedures with emphasis on
programs in Afghanistan and Iraq. I will address the specific
challenges, the lessons learned, and the policies and
procedures that assured transparency and accountability.
Now you have my written statement. Instead of just reading
that, I would like to go to some other remarks that I have that
may get to some of the issues that have been brought in the
letter.
Certainly, in the area of lessons learned, one of the
things that is obvious to us in contracting is that the sooner
one begins to plan for acquisitions the better the end product
is going to be that you eventually get. Again, as to current
planning, it is imperative to successful contracting and
maximizes competition. It allows the staff to appropriately
document the files. And of course, it holds down audit
findings.
It is very difficult and challenging to gear up for a
large, determined initiative such as Iraq and Afghanistan given
the aggressive time lines, the huge sums of money that were
involved, and the intense scrutiny from Congress, the press,
and from other sources.
The Agency can do a better job if adequate resources are
provided along with the new financial requirements. The initial
contract with Bechtel was $680 million. We had an additional
$300 million during the course of the contract which was
abridged until we could make an award of a full and open
competition contract. That award was also won by Bechtel and
subcontracted with the Parsons Corporation, totaling $1.8
billion, and was the largest award in the 42-year history of
the Agency. In fact, the Administrator of USAID, Mr. Andrew
Natsios, said that the two contracts comprised the largest
single country foreign aid program since the Marshall Plan.
Now, I have got to tell you that I am very proud of the
Agency's efforts in supporting U.S. goals in Iraq and
Afghanistan. However, these efforts have not been accomplished
without some difficulties.
As you alluded to in your testimony, Mr. Chairman, during
the 1990s the Agency witnessed a rather large downsizing of
personnel. My office was affected very much by this downsizing.
In 1995, the Office of Procurement consisted of approximately
170 individuals to handle about $4.5 billion worth of
obligations a year. Today, the same office consists of 123
people. During that time, the amount of money we had been asked
to obligate has more than doubled to just over $12 billion a
year.
While we have been very successful in making the original
awards, we are also doing everything we can to assure that
taxpayers of this country are receiving value for these
expenditures. This includes moving U.S. direct-hire staff to
Iraq and Afghanistan to provide contractual oversight of these
contracts. We are also hiring personal service senior
contracting talent from around the world that has worked with
us in other countries on direct construction contracts to help
administer these awards.
We have also developed a special program that will allow us
to bring in foreign service nationals from around the world
from the various missions that we have that can serve in either
of these countries at much higher rates than they would receive
if they stayed and worked in their own country.
We are presently also planning back office contract support
for Iraq from our mission in Jordan. We're going to hire two
contracting officers and FSN staff which will support the Iraq
efforts and help them with TDYs and overseeing the work there.
We're also adding two contracting officers and an additional
FSN staff in Bangkok, Thailand, to help with the Afghanistan
contracts. We are making sincere efforts to make sure that we
have adequate staff to oversee these contracts from a
contractual point of view.
It is important to me that we provide this oversight
because procurement involves the expenditure of taxpayers
dollars. This is the concern that is constantly with me. I must
assure that the public trust is maintained, which is why I am
very, very concerned about the oversight of these contracts in
these two countries.
We are doing everything possible to ensure that we have
adequate people to protect taxpayers money. We are also pleased
that the IG has made a commitment of people to make sure that
things are being done properly. And the IG presently has staff
in both Afghanistan and Iraq. We are also working with the
Defense Contract Audit Agency to perform concurrent audits on
all of our contracts so that we can identify any problems early
on.
Let me go away from my notes and let me go to something
that Everett spoke to earlier. He identified three weaknesses
within the contracting procedure, and I just want you to know
that there can be honest difference of opinion between the
contracts office and the IG on how we see certain things.
Now you might say, how can an IG and a contracts person
differ over reading the same set of regulations? And I thought
about that, and I very quickly thought about the Supreme Court
of the United States, and how we can have nine of the greatest
justices in the world, and how can we get a five-to-four
decision. They're reading the same Constitution and yet they
interpret it differently.
I have had a very good working relationship with Everett's
office and much of the work he has done has helped improve my
office. We have made changes which have made this office better
as a result of IG audits. But, some of the differences of
opinion are, for example, he said that we forgot to document
market research. I read the contract and from my point of view
as a procurement executive, we documented market research. We
said where we went to, how we did this. Did we document it as
well as we could have? No, sir, we did not. I mean, obviously,
we could have gone into detail and listed the name of the
person contacted and telephone numbers. However, we did
document it and given the incredible time constraints that we
were under, I felt that we did a very good job.
There was one instance where they said that we should have
consulted with GC on an organizational conflict of interest. In
fact, we did discuss with GC at length on the organizational
conflict of interest and would not have made the decision we
did without that input. Unfortunately, when they went to the
file they could not find written documentation from GC prior to
our decision on that thing. We went back to GC who gave us a
detailed, lengthy discussion, and we now have documentation
which says this was done prior to the decision.
Other differences of opinion concerning timely notification
of awards and timely debriefings had to do with the initial
award of the Bechtel contract. That was a situation where,
after we made the award to Bechtel, the front page of the
Washington Post, New York Times and every other major newspaper
in the country, the next day announced the award.
Now, we're supposed to within 3 days notify the losing
contractors. We had talked to them on the phone, and they knew
that they had lost. However, we did not officially send a
letter out until after the 3-day period. But we gave them
written debriefings on what took place. We gave them oral
debriefings. We flew in the technical officers from around the
world that served on the panel and provided that briefing.
So, these are areas that we could have done a better job,
and I absolutely agree. I just think that they need to be put
in context. I think with that, I will end the testimony and
respond to questions from the panel. Thank you.
[The prepared statement of Mr. Beans follows:]
Prepared Statement of Timothy Beans
Mr. Chairman and Members of the Committee, thank you for the
opportunity to provide testimony on the U.S. Agency for International
Development's (USAID) contracting policies. As you have requested, my
testimony will focus on USAID's contracting processes, with emphasis on
programs in Afghanistan and Iraq. I will address the specific
challenges, the lessons learned, and the policies and procedures that
assure transparency and accountability.
USAID's purchase of goods and services are done under the authority
of the Foreign Assistance Act. The Foreign Assistance Act mandates, as
a rule, a preference for American firms to carry out U.S. foreign aid
programs.
Under the initial Emergency War-time Supplemental in FY 2003, I am
very proud to note that my office obligated approximately $2.1 billion
of the $2.5 billion appropriated for the Iraq Relief and Reconstruction
Fund in support of U.S. efforts to rebuild Iraq after the war.
During this initial period, we awarded contracts for personnel
support, airports, seaports, reconstruction, education, health, local
governance, economic growth and agriculture. Based on the need to act
quickly following the end of active hostilities, we chose to do a
limited competition for most of the initial awards. Although the vast
majority of USAID's procurements are conducted using fully competitive
procedures, the Federal Acquisition Regulations grant the Administrator
the authority to waive normal contracting procedures by making a
written determination ``that compliance with full and open competitive
procedures would impair foreign assistance objectives, and would be
inconsistent with the fulfillment of foreign assistance programs.''
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 contract to Bechtel for infrastructure support utilizing full
and open competition. The award was made under ideal contracting
circumstances in that the highest technical scored proposal also was
the lowest cost proposal submitted.
While we are very proud of our efforts in supporting U.S. goals in
Iraq and Afghanistan, these efforts have not been accomplished without
some difficulties. The urgency of these actions made for difficult and
challenging circumstances. We have been very creative in trying to meet
the shortage of personnel that would normally be needed for this large
an undertaking. However, a review of the numerous audits performed by
our Inspector General's (IG) Office will show that we followed federal
procurement rules and regulations in the award of these contracts, with
minor exceptions. The IG audit report also pointed out things we could
have done better to strengthen our procurements, particularly in the
area of additional documentation. Many of the suggestions have already
been implemented. We have a good working relationship with the Office
of Inspector General and will continue to work closely with this office
to ensure compliance with all relevant regulations.
As Director of the Office of Procurement, one of my major goals is
to make sure we are as open and transparent as possible in our
procurement process. We have made very serious efforts to be as
transparent as possible by making available virtually everything we
legally can on our Web site. Steven l. Schooner, Associate Professor of
Law at 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
relating to its contracting activities on its Web page.'' He goes on to
say that, ``. . . I believe that USAID has set a new standard for
transparency in public procurement.''
This is exactly the kind of open and transparent agency we are
striving to be. We will continue to expand our efforts to meet the very
high standard we have set for ourselves.
Given the large increases in our budget with Iraq and Afghanistan
and beginning in FY 2004, we have gone from an annual obligation of
just over $6 billion in 2001 to approximately $12 billion in 2003.
While we have been very successful in making the critical awards, we
are also doing everything we can to assure that the taxpayers of this
country are receiving value for their expenditures. This includes
moving U.S. direct-hire staff to Iraq to oversee the contracts as well
as hiring senior contracting talent to help administer these awards. We
are also requesting support from the IG's office and audit support from
the Defense Contract Audit Agency to make sure that funds are being
spent appropriately and accounted for properly. As such, this is an
area that we will want to monitor very closely over the coming months
and years.
You will note I spoke more to the Iraq contracts than I did the
Afghanistan contracts. The reason for this is that we negotiated the
Iraq contracts here in Washington, and then sent them over to Iraq for
administration. Afghanistan is a stand-alone mission and has its own
contracting staff, so the awards in support of Afghanistan have been
run from the USAID mission in Kabul. As a result, we here in Washington
are much more familiar with the Iraq actions than we are the
Afghanistan procurements.
Mr. Chairman, I would be pleased to answer any questions you and
the Committee members may have.
Senator Hagel. Mr. Beans, thank you very much.
Mr. Beans. You're very welcome.
Senator Hagel. And, your written statement will be
included.
Mr. Beans. Thank you.
Senator Hagel. As I noted before in the record. Thanks to
both of you for taking the time to prepare your statements and
prepare yourself for the hearing. We appreciate it very much.
Mr. Mosley, let me begin with you. How do you assure follow-up
and oversight, you mentioned this in your statement, of the
recommendations made in your reports, particularly on
contracting in Iraq and Afghanistan? And I have a follow-up
question to that.
As I noted in my statement, and was noted by Mr. Beans, the
manpower of your Agency has diminished significantly as the
dollars and responsibilities have increased. So, in addition to
the first part of the question, how many IG officials do you
have now in Iraq? I know that you mentioned moving from Jordan,
from the Jordan mission a couple of people. I don't know if
those are IG people or if they're your people. Also, how many
are in Afghanistan? And then, Mr. Mosley, do you believe that
manpower is enough?
Mr. Mosley. Well, first of all, the way that we follow up,
Senator, on any recommendations that we make, we have a policy
that all recommendations have to be answered within 6 months
from the time that we make the recommendation. So we
periodically get together with management to try to determine
what action has been taken.
Then we have to report in our semi-annual report, and there
is a reconciliation with management at that time, at March 31
and at September 30, of all recommendations that we made from
the Office of Inspector General to ensure that action has been
taken.
Where there has not been adequate action, in which we have
agreed upon between management and the IG's office, we report
that in our semi-annual report to you here in Congress and then
we continue to work on those. Once there is an agreed-upon
management decision, final action on all recommendations has to
be taken within one year from that date of agreement. So there
is a process and regulation that we use to follow up on all
recommendations.
In reference to your question regarding the number of
people we have in Iraq, currently we have four people in Iraq.
They are on a temporary duty, and that duty ends March 31. We
then plan to expand and go to six people in Iraq starting April
through June. And then in July, we hope to open an office in
Iraq because of the large amount of money that is going into
Iraq. And for the period of time that these projects will take,
we hope to open an office there with about seven auditors and
one investigator beginning July 1, and those will be one-year
assignments.
In terms of whether we have enough staff to do the work
that we have been assigned, I would never want to tell you that
we have too many people for the work that we have been
assigned. Our staffing has not increased.
As you know, as a result of the Consolidated Appropriation
Act of 2004, we have now been assigned IG responsibilities for
the Millennium Challenge Corporation. That provides additional
funds so that we can expand and maybe hire more people either
through contracting or through direct-hired staff to accomplish
that work, as well as the work that we have in USAID, African
Development Foundations and the Inter-American Foundation.
In terms of Afghanistan, we do not have any people assigned
to Afghanistan. We are doing the work in terms of the
concurrent financial audits through a CPA firm that is out of
Pakistan with affiliations with one of the big four here in the
United States and we monitor their work.
In terms of the performance audit work, we are sending
people in from our Manila office. They go in about once every
other month and stay for a period of 2 or 3 weeks to accomplish
their work.
Senator Hagel. You have no people in Afghanistan?
Mr. Mosley. No people permanently assigned to Afghanistan,
but they are in and out on a rotating basis.
Senator Hagel. According to my information for Afghanistan,
USAID obligations are $976 million, USAID disbursements, $442
million. Do you think having no people on your staff in
Afghanistan is the right way to do this?
Mr. Mosley. We think it is.
Senator Hagel. With those kinds of volumes and those kinds
of numbers?
Mr. Mosley. We think it is at this point.
Senator Hagel. Yes.
Mr. Mosley. Because I don't want to lead you to believe
that there is no coverage. As I said, we have a CPA firm that
has been there on an almost constant basis doing their work in
terms of the concurrent financial's and then we go in to review
their work and we issue their reports. And then we have people
going in on a periodic basis not less than every other month
from our Manila office to do work and they are in for 2 and 3
weeks at a time.
We also send people out from Washington. My assistant
Inspector General for Audits has been to Afghanistan. He was
there in November, and one of the gentlemen here with me today,
a Deputy Assistant Inspector General for Audits, will be going
there next week. So we are giving it, what we believe, is
adequate coverage at this time.
Senator Hagel. So essentially, USAID obligations of about a
billion dollars in Afghanistan and you feel comfortable having
no one from your office there for the oversight
responsibilities that you have?
Mr. Mosley. I feel comfortable that we are giving adequate
coverage. If I had more people to assign and could open an
office I would consider that. But I think we are giving it the
coverage that we can at this point. And I don't want to lead
anybody to believe that because no one is assigned there we are
not giving adequate coverage. I think we are giving, certainly,
a lot of coverage.
Senator Hagel. So is your point, the main reason that you
do not have anyone there is that you do not have the people?
Mr. Mosley. I do not have the people or the money to assign
people there.
Senator Hagel. How would you say that billion dollars
stacks up with other missions around the world? Is that not
unusual to not have anyone from your office in a country that
has that much volume?
Mr. Mosley. That's quite possible because we don't have
offices in every location that the Agency has missions. We have
six regional offices around the world. Our offices cover a
number of countries by traveling, just like the people from
Manila are doing in Afghanistan. When we have coverage in an
office like Iraq, that's a lot of money and we will have an
office in Iraq that will be dealing only with Iraq, whereas the
other offices will be regional in nature.
Senator Hagel. Let me ask both of you, and you mentioned
this, Mr. Mosley, in your testimony, I believe at the
beginning, the cognizant technician officer issue. And for the
shorthand, I think this is the way that you refer to them,
CTOs. How many CTOs do you have on the ground in Iraq?
This would probably be for you, Mr. Beans.
Mr. Beans. Mr. Chairman, we presently have two or three
CTOs on the ground, actual U.S. direct-hire CTOs. The way that
the Agency has tried to handle this was the initial contract
that we awarded for Iraq was with a firm called IRG
Corporation. They have acted as back-door support for our
mission director and deputy mission director, doing a lot of
the day-to-day work that normal government contracting people
would do. That's from a CTO point of view.
We actually have had more contracting officers in country.
At one time we had five contracting officers in-country. We now
have four, with someone slated to go over shortly to make it
five people in country.
Because of my concern with the oversight of the Bechtel
contract, the big contract, we asked the Army Corps of
Engineers to take over administrative contracting authority for
us and oversee the contract as a quasi-extension of our staff.
They are experts in this particular area, they know
construction, and so that alleviated a lot of the concerns that
I had over oversight of Bechtel.
Your initial question was, am I happy with the oversight
that we have got? I believe that we're OK at this point in
time. But, when you're a career Foreign Service officer and you
reserving under a warrant--I don't know if you understand what
a warrant is, but contracting officers that receive a warrant
are able to bind the Federal Government and can be held
personally liable for anything that they do. They can go to
jail as a matter of fact if they violate rules and regulations.
So, when you have that kind of authority and responsibility
with this kind of money, I don't know if I can have enough
people over there to oversee this kind of contract. It is a
constant concern regardless whether it is Iraq, Afghanistan or
if it is Bangladesh or India. I am always concerned about
making sure taxpayers dollars are used correctly.
Right now, I am very comfortable with where we are.
However, we are constantly looking, and when we get these two
CTOs in Jordan that will be supporting Iraq, I will be a lot
more comfortable that we have real good contractual oversight,
and support for what we need.
Senator Hagel. What about Afghanistan?
Mr. Beans. Afghanistan. Surprisingly enough, we have been
finding a lot of people willing to go to Afghanistan. And we
have recently offered the mission director, the contracting
officer and the support staff that is out there additional
bodies to go out and help them with the contracting.
The problem in Afghanistan, of course, is the security
situation which exists is very dangerous. We're on a compound,
which is sealed off, and the actual space is limited by the
State Department as to what USAID can have. We offered
additional bodies and they actually turned them down and said,
we do not have adequate space on the compound to take them. So
we're offering support from Washington to make sure that they
have adequate support to do the contracts. But we have people
ready to go. We just do not have space to put them into the
country at this point in time.
Senator Hagel. When you say they turned them down, who is
they?
Mr. Beans. They being the USAID mission. The mission said
that they do not have adequate space. So the mission director
and the contracting officers said, you all have done everything
possible, but we can't take additional bodies even though it
would be nice to have.
Senator Hagel. Have you taken this up with the
Administrator and Secretary Powell?
Mr. Beans. I have talked to the Administrator about it, and
I am sure that the Administrator has talked about it to
Secretary Powell. It is an ongoing problem in Afghanistan
because of the limited footprint we are allowed to have within
this certain confined spaces.
Even this morning we were talking about Afghanistan and
they wanted to move in additional bodies. They are talking
about taking an individual bedroom and cutting it up into two
or three bedrooms, so that it is so small, but just to get the
bodies into the spaces we have.
So there is a sincere effort on the part of USAID to get as
many bodies in to oversee these contracts as possible. The
security situation is dominating everything at this point in
time.
Senator Hagel. Which I assume that was anticipated?
Mr. Beans. Yes.
Senator Hagel. At some point both in Iraq and Afghanistan?
Mr. Beans. I am sure that it was anticipated in both
places. I think that we realized in Afghanistan just how
serious that it was going to be. But yes, it has been
anticipated that that was going to be a problem.
Senator Hagel. OK. Thank you. You mentioned in your written
statement, which we had a chance to go through, and I looked at
it this afternoon, that I think, in your words, Afghanistan is
a stand-alone mission and has it own contracting staff?
Mr. Beans. Correct.
Senator Hagel. So the awards in support of Afghanistan have
been run from the USAID mission in Kabul-Kandahar. As a result,
we here in Washington are much more familiar with the Iraq
actions than we are the Afghanistan procurements.
I am a little puzzled by that statement, especially in
light of what you just said. Maybe you could explain to me what
you mean by that?
Mr. Beans. I certainly can. When I say that the initial
contracts for the award in Iraq, all of those actions, all of
the actions that you originally referred to as limited
competition which brought some heat from the press and from
the----
Senator Hagel. By the way, I will give you an opportunity
to respond to some specifics that I am going to talk about here
today.
Mr. Beans. I hope so. Yes, sir. All of those contracts were
done in Washington, DC. We made all of the awards in
Washington. So, we were very, very familiar with the contracts.
We dealt with the contractors. We made these selection. We made
the award. After award, we transferred all of the files out to
Iraq. They are now being administered by the staff I talked
about earlier in Iraq.
Afghanistan is different in that Afghanistan is a typical
mission that we have overseas, total autonomy and control
within the mission, a mission director and a deputy mission
director and he has the appropriate staff to run a mission.
There we have a resident contracting officer with supporting
staff.
I would not be as familiar with what they are doing on a
day-to-day basis in Afghanistan as it would with the initial
awards that we personally made in Washington, just like I
wouldn't know exactly what is going on a day-to-day basis in
India, or Thailand, or any other mission around the world.
The CTO makes the awards. We go out and do evaluations of
the missions periodically during the year to make sure that
things are being done in accordance with Federal procurement
rules and regulations. But when I say that we had more
knowledge of Iraq, it is because we actually did the work,
whereas the work that is being done in Afghanistan is by a
tenured Foreign Service officer.
Senator Hagel. Yes.
Mr. Beans. That's what I meant by that.
Senator Hagel. Thank you.
Mr. Beans. You're welcome.
Senator Hagel. Well let me get to a couple of specifics on
the contracts, and then we will move into some more general
areas. I will get Mr. Mosley involved. I understand a contract
was awarded to International Resources Group, IRG, and I think
that was referred to?
Mr. Beans. That's correct.
Senator Hagel. You said earlier, for the initial amount of
$7.1 million with an extension options to total $27.1 million,
the OIG report on this contract shows that the RFP was issued
on January 24, last year, and the response due back to USAID by
January 27, only 3 days later. And the contract awarded on
February 7. I am not expecting you to know all of those exact
dates. We were able to get our hands on these dates from your
files, and I think that they are correct.
Here is my question, was this a sole source contract done
under expedited conditions? Is this an example of what was
referred to in an earlier testimony?
Mr. Beans. Mr. Chairman, that is the only sole source
contract award that we did under the initial Iraq award. It was
the first award and it was a personal support award for the
mission. It was to stand up the mission. This is literally,
while I am going home in the evening and turning on TV and CNN
showing the troops moving up the road, we had to get ready to
go. So it was the only sole source contract that I am aware of.
All of the other contracts that we did were done under the
limited competition which you originally questioned, which I
would be more than happy to address, because the Agency did
take some heat on limited competition. And I think it is
because of a lack of understanding of what it is.
Everett testified earlier, it is a legal way that you can
make an award. And it is a special authority that is contained
under the Foreign Assistance Act which is special to USAID,
which is impairment of foreign assistance, which is not a
normal exception that would be found in Part 6 of the Federal
Acquisition Regulations.
So, it is something that can be done by the Administrator
if there is fear that foreign assistance--I can tell you the
exact quote here--``compliance with full and open competitive
procedures would impair foreign assistance objectives, and
would be inconsistent with the fulfillment of foreign
assistance programs.'' The Administrator made that
determination early in the Iraq war that a delay in
procurement--normally, our procurement cycle for a full and
open competition, I think we list it at about 210 days.
Obviously, Mr. Chairman, you realize the beginning of the
Iraq war, I believed that every night that I went to bed that
if we didn't get these contracts in place, that certainly the
potential existed that harm could come to American servicemen
and women serving overseas.
I was told that if we didn't get these things up and
standing, and if we won, and eventually went into Baghdad, and
we had no programs up to take care of economic growth and
development, health, food security, that was going to be a
problem. If we couldn't get into the ports, if the airport
wasn't opened, then the troops would be subject to potential
harm. We're seeing what is happening right now. It could have
been worse.
We were working under those assumptions, and as a result we
did everything humanly possible to move it along. We took
advantage of exceptions to get these contract awarded. But let
me give you an example of why I think the criticism is unjust
in some cases.
The original Bechtel contract, of course, got some
attention. It was limited competition for $670 million. But
what USAID did, was we selected seven major U.S. firms to bid
on that contract. We did the exact same thing that we would
have done under full and open competition if we had gone out
for bids except we limited the competition to seven known firms
that we felt could participate.
We went out on the street. We got proposals. All seven of
them came in one form or another and bid in different
arrangements. We received four competitive proposals on that
particular contract. We negotiated and we made the award to the
highest technical, low-cost proposal, which happened to be
Bechtel. There was extensive competition, if you talk to the
non-selected contractors, they felt that they were certainly in
very big competition.
The second procurement that we let was open to full and
open competition, which is what the Congress prefers and what
USAID prefers. It was for a much larger sum of money. For that
contract we received three proposals which came in under full
and open competition and we made the award.
So limited competition is not the way we prefer to go, but
we did everything humanly possible to maximize competition
under all of these contracts that were so-called limited. We
can forego announcing it in the Federal Business Opportunities
and leaving it 15 days before you're allowed to release the
RFP. We cut out all of those steps.
However, before we made any award, we would go back, for
example, in the area of health, and we would say, have we made
an award recently under our competition, that we could go back
and say who was competing under that, and limit it to those
firms. That's how we kind of made decisions. We said, let's not
just arbitrarily pick people we liked. Have they competed
before? Have they won a competition?
Most of the contracts that we awarded with the exception of
the airport and seaport which are things that we don't normally
do, we had experience in those areas. And we picked what we
would call indefinite quantity contracts, which are competitive
contracts won by a group of people under technical and cost
considerations.
We limited the competition to someone that had recently won
an IQC because we knew that they had the technical wherewithal
to do the work, they had financial systems that were in place,
and that we could move quickly. We tried to maximize
competition. It's called limited competition, but it was
totally legal and appropriate.
Senator Hagel. I am going to ask you a little more about
Bechtel in a moment.
Mr. Beans. OK.
Senator Hagel. But let's stay on the IRG program for a
minute. As you know, and I think you said it, 210 days is the
normal processing time.
Mr. Beans. For full and open competition, that's correct.
Senator Hagel. That's right. And this was done, as I
understand, in about two weeks. And I think that you have given
a sufficient explanation as to why you were under great
pressure. American troops cannot go to Baghdad empty-handed and
one, two, three, four. Let me ask you this about the IRG
contract. Was there contact with IRG prior to the issuing of
the RFP?
Mr. Beans. Senator, I cannot answer that question. I was
not personally involved with the IRG contract, so I don't know
whether we issued a solicitation. I suspect in a sole source
procurement that if you have 2 weeks to do something and
someone has selected a firm, yes, you would contact that firm
as quickly as possible to try to get a proposal. But I will get
back to you on that when I talk to the people that actually did
the work.
Senator Hagel. Thank you. While the Inspector General is
here, I would like also to get his take on this. Inspector
General Mosley, this gives you time to confer and you probably
never thought that anyone would think that your words were this
important to stop a proceeding, but they are. So, tell us what
you know about that question that I asked Mr. Beans.
Mr. Mosley. Are we speaking relative to the IRG contract?
Senator Hagel. Yes.
Mr. Beans. Yes.
Mr. Mosley. That was a----
Senator Hagel. That was a specific question that I asked
Mr. Beans about. Was there contact before the RFP?
Mr. Mosley. Well that was a sole source contract, so it
really would not have mattered about the conversations before
or after.
Senator Hagel. Is that normal?
Mr. Mosley. That particular one?
Senator Hagel. Is that normal that you would go out that
way if it is a sole source? I know that you said that there are
many sole source contacts. So you got out and identified an
organization that you feel is uniquely capable, qualified on
the timely basis to fulfill the contract. Then that's why you
do it, which I am going to let you answer that, but which leads
me to the next question. Where do you find new people? How do
you reach out and find new people? And I am going to get into a
little more of that in a minute after I deal with Bechtel in a
minute.
How many recurring contracts does USAID give to the same
people over and over and over? And then, how do you make sure
that that doesn't happen? That you're not in pattern of just
giving it to the same old crowd whenever it comes up? But I
suspect that there must be more than one organization qualified
to do something like this. Maybe there are not.
Mr. Beans. You know, I am sure that there is another
organization that could do this kind of work. It is consulting
work. So the answer is, yes, there probably is. And how the
decision was made to go with IRG, I am going to get back to you
because I am not sure.
[The following information was subsequently supplied.]
There are indeed other entities in the United States that are
capable of providing technical assistance similar to the work
undertaken by International Resources Group (IRG). However, given the
urgency at the time and the need to provide expertise to the USAID
mission, IRG was identified by the technical office as the most
feasible choice, given positive past performance history and previously
established links with USAID under competed indefinite quantity
contracts (IQCs). As had already been mentioned, IRG was the only sole
source award in the initial round of Iraq procurements and their
services were absolutely critical to the success of establishing a
functioning USAID mission in Baghdad
Senator Hagel. Well, it's a bigger picture, you understand,
Mr. Beans.
Mr. Beans. Yes, I do understand where you're going.
Senator Hagel. Yes.
Mr. Beans. The bigger picture question, remember the IRG, I
just want to re-emphasis. The IRG was the only sole source
that's in this particular arena that we're talking about right
now. Your other question is a criticism that you hear about
around the government, not just with USAID, but also when I was
with DOD and the FAA, which is that the agencies tend to award
to the usual suspects. Certain organizations do tend to win
more contracts with certain companies.
And my experience has led me to believe that it has to do
with companies that will specialize in a particular agency.
They will get to know it very well. They will know how to speak
the language. They will know what the objectives are. They will
know how to respond to certain solicitations.
Senator Hagel. Develop personal relationships.
Mr. Beans. Develop personal relationships. Yes, I would say
that that's probably true too. However, you have to remember,
in a procurement process, when I issue a solicitation, I am
only going to make that award in strict accordance with what we
call the evaluation criteria. We set out in Section M a
contract, in specific detail, the winner will meet the
following requirements. And that's how we do it.
Now, when I say that they do well, they really understand
how to respond to Section M of the contract. Andrew Natsios has
been very concerned about this, as has Secretary of State
Powell, and has pushed USAID to expand the number of people
that we have doing work with. We are being challenged as to why
we are giving these contracts to the same people.
As I explained to Andrew Natsios, they tend to turn to
procurement, and they say, why are these people winning the
contract? I explain that we are not the selecting officials. We
are the people who make sure that the rules and regulations are
followed. However, whenever a proposal is received, and most
selections are made on the merit of the technical proposal,
even though it is a best value decision to the government,
those technical proposals are evaluated by the technical people
in the Agency. They score the proposals. They send it back. And
if I tend to get the same contractors over and over, it is
because they are finding their proposals to be better. So I
have been challenged to come up and take a serious look at the
evaluation criteria.
Andrew Natsios recently said that we're to take out any
reference to past experience with USAID as being an evaluation
criteria. He doesn't want companies that have done business
with us. He has asked why companies that are in a country for a
number of years have not won a contract. They certainly know
the country, and why aren't they winning? So as an Agency,
we're going through a change right now as to how we can expand
the number of people that are winning contracts.
It is something that we are taking very seriously. We're
doing it now with taking a look at the faith-based
organizations for the new HIV-AIDS infectious disease. We're
trying to make sure that they get a fair shot at getting their
fair share of work. So this is a very timely question, because
it is something very important to us at this point in time.
Senator Hagel. Well, I am glad to hear that. I know that
Administrator Natsios has noted that when he has been before
this committee, as well as Secretary Powell. And I don't think
it is much of an argument to say that those who are selected
for contracts comply with all the rules and laws and the
regulations. Of course they do, or we hope that they do. The IG
makes sure that they do.
If the universe still stays the same, of course, did they
comply with the contract? Yes. But it never gets any bigger,
the universe. I would hope that you are all serious about this
because we are very serious about this in the Congress. There
have been too many examples that have come back to us all on
this, and we're going to be very closely focused on this and
monitoring this. And I think that Administrator Natsios
understands this as well.
Let me go back to the Bechtel contract which you started to
develop a little bit, and let's see if I can restate this. This
contract, as you know, was awarded in April 2003, and as you
noted valued at about $680 million. Now, my information is, and
we have looked at this, that the OIG reported several problems
with how this contract was awarded. Under the Federal
guidelines on contract procurement regarding notifications, the
OIG found that the USAID did not comply with those guidelines.
Would you like to respond to the OIG report?
Mr. Beans. Mr. Chairman, I certainly would.
Senator Hagel. OK.
Mr. Beans. The OIG's report is absolutely correct. We did
not meet the required time lines within the Federal
acquisitions regulations that say that a non-selected
contractor shall be notified within 3 days if they did not win
a contract.
The regulation makes complete sense when a firm puts in a
bid, they have a complete right to know that they were not
selected. They are trying to hold a team together, and it is
not fair if they sit there without being notified. So the rule
makes complete sense.
In this particular case, this was a rather unique contract.
Bechtel got a considerable amount of attention, as you were
well aware. Once the award was made, we sent it to the Hill for
notification. It was announced, as I was on my way home in the
car, I heard it on the radio that Bechtel had won. You had just
received the notification. The word was out very quickly on the
street, and it was the headlines in the papers the next day.
Everybody in the country knew that Bechtel had won the
contract. It was on CNN and it was on the morning news.
We did not call the two non-selected contractors within 3
days and tell them that they were not selected. We should have
done that, the assumption being that we were trying to do a lot
of things. They were probably pretty well aware that they did
not win the contract. However, we did go out of our way to make
sure that they received an adequate debriefing so that they
understood the reasons that they did not win the contract, both
technical and written debriefings.
We spent a considerable amount of time to make sure that
they felt satisfied because we missed the 3-day time limit as
set forth in the regulations.
Senator Hagel. Inspector General Mosley, would you like to
respond to any of this since it was your report?
Mr. Mosley. Well, no. We understand the difficulties that
they had in terms of timing and some of the other pressures. We
simply have to audit in accordance with what the regulations
said and that was what we were reporting.
In most of these cases we're talking about documentation
and timely follow-up and making notifications, and we audited
them in accordance with the procedures. We're very sympathetic
to the situation that they had to deal with, but we have to
report the facts as they appear.
Senator Hagel. Would this fall under the area--with all of
the other extenuating circumstances that you have not brought
out here, of a violation of Federal procurement law?
Mr. Beans. I would say no, it does not.
Senator Hagel. What about the Inspector General?
Mr. Mosley. Well, they are required to make those
notifications, so it is a violation, technically.
Senator Hagel. Well, I understand that there was a
documentation issue involved as well of documenting all of
this.
Mr. Mosley. In this particular case, the notifications did
fall in the category of a violation. Now, we can talk about
technical violations, but it was a violation.
Senator Hagel. Well, Mr. Beans, I think you have explained
it and I appreciate it very much.
Mr. Beans. You're welcome.
Senator Hagel. Let me go back to a more general question
that we were talking about, and maybe drill in a little bit
more precisely. And that is, as you enlarge your universe of
interested companies to bid on USAID contracts, explain to me
what are the prospects for contractors who do not have a
previous relationship with USAID? Where are you going to, in
fact, do what the Secretary and Administrator have asked you to
do? Noble intention, but what are you doing in effect to get it
done and to reach out for new people?
Mr. Beans. Thank you, and it is a very good question,
Senator. We have decided that one of the complaints that we
were hearing from the Professional Services Council and from
other people that had not had opportunities to win contracts,
is that these things tend to be decided early on, because by
the time they hear about a procurement, we have to give them at
least 30 days to submit a proposal, and we announce it in the
Fed Biz Ops, the Federal Business Opportunity, they say,
somebody has already known about it, or found out about it, and
they get an advantage of going out early.
So we said, what we're going to do from now on, and its
published on our Web site right now, is that we put together an
advance procurement plan at the beginning of the year, and we
publish that plan so that people can see everything that is
planned from the beginning all the way through the end of the
year.
If there is interest in a particular area, they can contact
the technical officer, learn as much as they can about it, and
be prepared and on equal footing with firms that in the past
had that type of advantage.
I have done a number of speaking engagements and I have
been going around trying to talk to agencies on how to get into
USAID, particularly small business organizations and how they
can get a leg up. We have set up our contracting procedures now
to set aside contracts strictly for small businesses to
compete. Small disadvantaged businesses, women-owned
businesses, disabled veterans, we're making a sincere effort to
do that.
In fact, in the full and open competition Bechtel contract,
we set aside 10 percent of all subcontracted dollars for U.S.
small disadvantaged and women-owned firms. We also, for the
first time, came up with language where we offered a $1 million
incentive to any contractor that could come in with a proposal
that met the 10 percent set aside. In other words, they came in
and said that we're going to exceed the 10 percent. We were
going to hold that money in abeyance, and track how well they
had done, and if they did actually subcontract, we were going
to hand them $1 million to encourage them to go with U.S. small
businesses.
We're doing a number of things to try and increase the
number of companies that we get, to expand the base of people
that are working with us. And if the Senator knows of any other
suggestions, I am more than willing to listen.
Senator Hagel. Thank you. I saw this late last year and the
committee took a look at it, and our staff people just reminded
me of it, this is an April 12, 2003 conference report where Mr.
Young, Chairman of the House Appropriations Committee----
Mr. Beans. Yes.
Senator Hagel [continuing]. Chaired that conference and I
note language in here that, in fact, I will read from it.
``Request the Administrator of the U.S. Agency for
International Development to actively seek to include
significant participation by small, minority, and disadvantaged
American-owned business enterprises.''
So, not only has the Secretary and the Administrator
thought that it was a good idea to do it, there is some
official focus on this up here as well. And I want to go into
another question about this. What are opportunities for rules
governing faith-based organizations to participate? Are they
handled the same way as any other organization would be handled
if they are interested in participating in a contract award?
Mr. Beans. Senator, one of the things that I have been very
proud of about working for USAID is that we have always
maintained a separation between the political side of the house
and the civil servants and Foreign Service officials that have
made the decisions on the selection. We have always been able
to look you all in the eye, and the press in the eye, and say
that there is a firewall between the political side and the
civil service side, and we have made decisions accordingly.
For the first time the faith-based organizations came in
and they were asking if they could participate as voting
members on the selection committees. I advised Administrator
Natsios that I felt that was a dangerous precedent to be
setting, to have a political person being a selecting official.
However, we have had meetings and said it is absolutely
imperative that we find people that are technically
knowledgeable of this subject matter, but that are sympathetic
to faith-based organizations and we will give them a fair shake
during the evaluation.
That's how we have been trying to handle it, so that we can
still maintain that the decisions are made by civil servants as
opposed by political influence coming into the procurement
process which I will fight to the end.
But we want to see a fair share and increases in this area.
We're starting to see, and in fact, if you check the USAID
numbers, we are very, very, very strong in our support of
faith-based organizations. We do a good job now. We think we
can do a better job and increase to more organizations. That's
what we're trying to do right now on a daily basis.
Senator Hagel. OK.
Mr. Beans. Your other question on small, disadvantaged
businesses, just very quickly, the personnel support contract
that we talked about, the sole source contract. The initial
contract that we did, the only one we did sole source, we
required a 14 percent subcontracting plan from them. The
primary and secondary education contract was a 100 percent
women-owned contract that we awarded in Iraq. The local
governance contract had a 30 percent subcontracting plan.
Health had a 58.5 percent subcontracting plan. Economic
governance and agriculture both had 20 percent subcontracting
plans.
This is something that we take very serious, and in fact,
we actually changed the evaluation language that we put out in
solicitations that actually help small, disadvantaged
businesses get considered, companies that use them. I would be
glad to present a copy to you to show you that we are changing
the way that we do business to encourage this.
Senator Hagel. Thank you. And if you have that there, you
can submit it for the record later.
Mr. Beans. Yes.
Senator Hagel. We will include it in the record.
Mr. Beans. OK.
[The following information was subsequently supplied.]
Please find wording in USAID's Iraq II Infrastructure solicitation,
where USAID provided an added incentive for subcontracting to small
disadvantaged firms.
``incentive fee for use of small disadvantaged business concerns
In order to encourage the use of small disadvantaged businesses in
the reconstruction of Iraq, USAID will offer additional fee in those
cases where the contractor has utilized small disadvantaged businesses
provided that the contractor has achieved the percentage already
required by the contract for small business. At the completion of the
basic contract period, if the contractor has subcontracted to small
businesses the amount of work required by Section L.XX of the contract,
the contractor will be eligible for an additional incentive fee for any
subcontracting to small disadvantaged businesses beyond the contract's
requirement.
USAID will provide incentive fee in accordance with the following
formula:
----------------------------------------------------------------------------------------------------------------
Percent of Usage of Small Disadvantaged Businesses Beyond
the Required XX% I60Amount of Incentive Fee Earned
----------------------------------------------------------------------------------------------------------------
Up to 2% more .02% of the Fixed Fee
Greater than 2% and up to 4% .04%
Greater than 4% and up to 6% .06%
Greater than 6% and up to 8% .08%
Greater than 8% and up to 10% .10%
Greater than 10% .12%
----------------------------------------------------------------------------------------------------------------
(Example 1. The contract required that at least 10% of the total
estimated cost be awarded to small businesses and the contractor
subcontracted 15% to small businesses. Out of this 15%, 7% went to
small disadvantaged business concerns. In this case, the contractor
would be eligible for an additional .06% as incentive fee. Example 2.
In the event that the contractor only subcontracted 9% to small
businesses of which 3% were small disadvantaged businesses, the
contractor would not receive any incentive fee since the target
percentage of 10% was not achieved).
In the event that the fixed fee owed to the contractor during the
contract period is less than the amount stated in Section B for that
contract period, the calculation of incentive fee earned will be based
upon the fixed fee amount that the contractor will actually be paid for
that period. For example, since this is a CPFF (LOE) contract, in the
event that the contractor only expends half of the LOE, the contractor
is only eligible for half of the fixed fee in accordance with Section B
of the contract. In this case, the incentive fee earned will be
calculated on the amount of reduced fixed fee owed to the contractor
for that period.
Pursuant to FAR 15.404-4(c)(4)(i)(C), the fixed fee for the basic
contract period and the incentive fee earned for that period may not
exceed the statutory limit of 10% of total estimated cost (excluding
fee) set forth in Section B for the basic contract period. In the
example posed in the paragraph above, the fixed fee for that period and
the incentive fee earned for that period may not exceed 10% of the
prorated total estimated cost for that period.
The same procedure will be used for each of the option periods and
the same restrictions will apply. The calculation of incentive fee
earned in each contract period will not be affected by the achievement
or lack of achievement of extra incentive fee earned in the previous
contract period(s).
Incentive fee will be given for subcontracting to the following
socioeconomic groups as certified and defined in FAR 52.219-1: Small
Disadvantaged Business, Women-owned Small Business, and Veteran-Owned
Small Business.
What happens in the case where the contract is awarded to a small
disadvantaged business? My suggestion would be that their status would
qualify them as meeting the contract requirement of 10% but they would
only receive incentive fee if they subcontract to other SDBs. If so,
then the clause would go into effect for what they subcontract.''
Senator Hagel. Thank you. On the point of subcontracting,
how do you assure the quality of a subcontractor? When you let
a big contract, Bechtel or whoever it is, how do you assure the
quality of the subcontract? And then are there any rules of
governing subcontractors in that you can only have so many per
contract, or dollar figure, or other rules, or does it matter
on subcontractors?
Mr. Beans. Generally.
Senator Hagel. Since my understanding is that having looked
at some of these, and I have actually seen some in Afghanistan
and Iraq and other areas where you have missions, the
subcontractors in many cases are the ones who actually do the
work and actually carry out the day-to-day functions of the
grant award.
Mr. Beans. Yes.
Senator Hagel. So they are pretty important.
Mr. Beans. They're very important. I think Iraq and
Afghanistan kind of skew how you should really look at this,
and a lot of that has to do with the particular situation which
we find ourselves in Iraq and Afghanistan. They are very
difficult places to work and require high security.
The Bechtel contract, for example, has an objective to get
economic growth and development going for the citizens of Iraq.
We're trying to get in, get a government up and standing, and
get our troops out as quickly as possible. With that in mind,
one of the things that Ambassador Bremer is trying to do is to
increase participation of Iraqi firms. We have hired 55,000
Iraqis which we have working under the Bechtel contract alone
in Iraq.
Generally, concerning your question about how do we ensure
subcontractors, the contracting officers before making an award
will take a look at a subcontractor to make sure that they have
adequate financial resources and accounting systems, and can
report back under government reporting requirements for
financial reporting or whatever the case may be.
Senator Hagel. A USAID official?
Mr. Beans. Yes, they will look at it.
Senator Hagel. Look at the subcontractor?
Mr. Beans. Yes. But we do not approve subcontractors. We
have privy of contract with the prime. So we hold the prime
contractor responsible for delivering the work. Whatever it is
that the subcontractor----
Senator Hagel. But you review the subcontractor?
Mr. Beans. We review the subcontractor and we consent to
the subcontract. We don't approve it. Because approving it
would mean, for example, that we take responsibility while
we're holding the prime responsible for the performance.
Now, you asked about the number of subcontracts. Generally,
a contractor will decide, based upon profit margins and ability
to perform, what the right mix is of contractors with their own
personnel so that they can still be responsible. They're going
to be held accountable for the performance, both by myself, by
the auditors that come in, and the IG that sees them during the
performance. So they will usually make the call versus the
government.
So it would depend on the nature of what you're buying, the
particular procurement, and the environment in which they are
working would determine the right mix of subcontractors.
Senator Hagel. You just noted something that is obviously
important, and that is the dynamic of assuring as best we can
that we are in fact helping develop the economy of these
countries. That means putting Iraqis to work, Afghanis to work,
and at the same time, pursuing the policy of the current
administration, whether it is the Bush administration or the
Clinton administration. In your oversight of the contracts, of
the prime subcontractor, I assume there are standards for that
as well?
Mr. Beans. Yes.
Senator Hagel. You just mentioned employment.
Mr. Beans. Yes, there are.
Senator Hagel. And I assume that the IG looks at that as
well, when the IG goes in and looks at mission and fulfillment
of the compliance standards and so on. Is that correct? That it
is built into the review process, both from the contracting
side and the IG side?
Mr. Mosley. Yes, Mr. Chairman. In fact, that part of the
work is just starting in both Afghanistan and in Iraq. We went
in initially, and our emphasis was on the Kabul-Kandahar road,
and in Iraq because of the security, we were limited in the
amount of visits that we could take in performing our
performance audits.
We are now using the Agency's contracted security firm and
we are out doing visits. And as a part of those visits, we look
at what the subcontractors are doing. We look at the actual
performance that they are making on those jobs as part of our
tests and our visits. So we do those kinds of reviews.
Senator Hagel. Thank you. Is there anything that you would
like to add, Mr. Beans?
Mr. Beans. No, sir.
Senator Hagel. OK. Inspector General Mosley, you note in
your testimony, and we have covered some of this from Mr.
Beans' side, but this is I think a quote from your testimony,
``that many cognizant technical officers,'' CTOs, ``are not
adequately trained to perform their duties.'' And in your
Standards for Success Accomplishments Report, Fiscal Year 2003,
you note that USAID did not hold most CTOs accountable for
performing their responsibilities and that USAID does not
adequately evaluate their performance.
Do these limitations then regarding CTOs represent, in your
opinion, a major hurdle for USAID's objective of no skill gap
deficiencies in mission critical positions?
Mr. Mosley. Well, Mr. Chairman, as I stated, it is a
crucial role that the CTOs perform. And when they don't have
the adequate training it does provide a problem in making sure
that all of the contractors are performing in the way that they
should.
In terms of their performance, this is a collateral duty
with most of them, so they have work objectives and CTO duties
are not necessarily included in those work objectives. If it is
not in the work objectives, some of them may not pay as much
attention to it as they should. So we're working with Agency
management now to try to get it included in the employee work
objectives and to make sure that their evaluations are covering
those areas.
In addition to that, we have talked with the Office of
Procurement and they are working to get the training to each of
these individuals. And there are plans in place to get this
training provided to those contracted technical officials.
Senator Hagel. Mr. Beans, do you want to respond to that? I
know that you had mentioned this earlier in your comments.
Mr. Beans. I could not agree with Everett's assessment more
strongly. I think the Agency would be improved tremendously if
they're better--the technical officers are able to do their
job. I don't believe that there is adequate understanding on
the technical side of the house that they are in fact
procurement officials earlier on in the process than they
believed they are. So I think Everett is completely correct in
this area.
Now, when I came on, I identified it to Administrator
Natsios as one of the weakest areas that the Agency had was the
lack of training of technical officers that were overseeing
these contracts. To his credit, he has instituted a program
where we now have a 2-week mandatory training program to
receive certification. And I have, in fact, assigned--600
people are certified CTOs in the Agency.
Now, they can take the training and they can pass the
course. But I believe Everett is correct that until we get it
into their work objectives, they will not take it as seriously
as I would like to see it taken. So this is something that I
hope bears fruit for the Agency in the future.
Senator Hagel. Well, Mr. Beans, I would say that it must go
beyond just hoping. It is a pretty critical part of this.
Mr. Beans. Yes. It is, it is.
Senator Hagel. So, we're going to have to do more than
hope. And the Congress will hold USAID accountable for that,
and especially since it was brought out very clearly in the
IG's report. As you note, you were dealing with it and you're
going to have to deal with it, which gets me into a couple of
other areas.
In subcontracting, do you have any numbers on
subcontractors that have been dismissed over the last 6 years,
12 years, 10 years, 2 years, for non-performance or for
whatever reason?
Mr. Beans. I do not, Mr. Chairman.
Senator Hagel. Would you provide that for the record?
Mr. Beans. I certainly will.
Senator Hagel. OK, let's go back for the last 12, 14 years.
Let's go back to 1990.
Mr. Beans. How many subcontractors?
Senator Hagel. Subcontractors.
Mr. Beans. That have been dismissed?
Senator Hagel. Dismissed for whatever reason. Are they ever
fired? I guess you can start with that question. Do you ever
fire a subcontractor? I mean, I have been in business and I
have started companies and I have had to fire subcontractors
for a lot of reasons and I can't imagine that you haven't had
to fire some.
Mr. Beans. Yes. I have been in business also, and I have
fired subcontractors.
Senator Hagel. Yes.
Mr. Beans. But it has normally been my responsibility and
yours is that as a owner of a company or running a business, to
fire the people that were not performing for us. I have got to
go back and check whether the government has actually fired
subcontractors. We have probably fired the prime if the
subcontractor had a----
Senator Hagel. Yes. But I just wanted you to provide for
the record how that worked.
Mr. Beans. OK. I will.
[At the time of publication a response had not been
received.]
Senator Hagel. Thank you. Mr. Mosley, going back to some of
your documents that we were looking at before the hearing, in
the Inspector General Standards for Success Accomplishment
Report, that document notes that USAID has not yet achieved--
these are your words, the report's words--not yet achieved a
performance measurement process that verifies and validates the
reliability of data in the annual reports of individual
operating units. Would you care to explain what you mean by
that?
Mr. Mosley. I can't remember all of the specifics with
that, Mr. Chairman, but I think we're talking about the problem
of timeliness. Most of the performance reports--because of the
systems that the Agency has--are reporting on data that is old.
And in any fiscal year when you're making a report, you're
making a report on the prior fiscal year, so the information is
not necessarily up-to-date, and adequate so that corrective
action can be taken. And I can provide additional information
for the record.
Senator Hagel. If you could do that, I would appreciate it.
Mr. Mosley. Yes.
[At the time of publication a response had not been
received.]
Senator Hagel. Mr. Beans, would you care to respond to
that?
Mr. Beans. No, comment at this point and time, Mr.
Chairman.
Senator Hagel. OK.
Mr. Beans, would you describe the interagency process among
USAID, DOD, CPA, for example, on Iraqi contracting and
procurement? Is there an interagency relationship? Is there any
kind of cross-fertilization CPA thinks that they need this? How
does that work? Or does it work? Or does it matter?
Mr. Beans. Well, there is an interagency agreement and, for
example, tomorrow I will attend a meeting with the CPA, State
Department and all other agencies that are in what is called
the CPA. We have been told by the Coalition for Provisional
Authority that we are working for the Coalition for Provisional
Authority, which is working for Ambassador Bremer, to achieve
the goals and objectives we have set for Iraq.
We are in support of the CPA, and in fact, there is work
going on now to standardize clauses and standardize language as
much as we can, because we are working under two different sets
of authorities, so that we reflect and all look like we are all
working for one government. That's a good thing to do.
There are some differences of opinion, particularly among
State Department and USAID and DOD. However, there have not
been anything that we have not been able to overcome at this
point and time. It is unique in anything that I have seen since
I have been in the Federal Government, agencies reporting to
the CPA. The CPA has, of course, announced that it is going out
of business in July of this year, but yet we have heard that
there may be extensions. Yet they are working on branding for
the CPA and other things.
So we're still trying to figure it out. I think time is
moving along and we are wondering if it will still be in
existence once the embassy is stood up in that time frame, so
there are questions in my mind. I think there are a lot of
questions in other agencies' minds as to where we are going
with this thing. But there is cooperation going on. We are
trying to work together to make our instruments look as close
as possible and cooperate where it makes sense.
Senator Hagel. Is there any kind of formal relationship or
informal relationship where representatives, say from CPA, DOD,
State, USAID meet once a week, or once a month?
Mr. Beans. Yes, there is a formal relationship and actually
they call it the back-door CPA, because the Coalition
Provisional Authority, of course, is run by Ambassador Bremer
in Baghdad. This is a back office. It's headed by the
Department of the Army. It is the lead organization that is in
charge of it. So, yes, there is cooperation and an ongoing
weekly meeting that we have, certainly with the procurement
people, as to how we're going to do the contracting.
CPA is now trying to put out a large number of these
construction contracts. They've said that they will award soon,
I think, 14 separate contracts for different areas of
construction. They're working on that and the other agencies
are working on the pieces that the CPA have said that is their
cognizance, so there is some cooperation in work.
Senator Hagel. Alright. Inspector General, would you have
any comment on any of that?
Mr. Mosley. Well, Mr. Chairman, as you know, there is a CPA
Inspector General as well and we have had a number of meetings
with him since he was appointed at the end of January. We have
been able to coordinate with him as we do with GAO, so that he
does not have to duplicate our work. Because we have been
heavily involved in it and have performed a lot of heavy work
of the USAID contracts, he is simply going to use our work in
reporting for the overall government.
Senator Hagel. All right.
Mr. Mosley. We're helping him put those reports together.
We're doing whatever he needs. We have also explained to him
our commitment for opening an office there, simply because that
IG office is supposed to go away six months after the CPA is
disbanded, and USAID will still have contracts there and have
work there, and we still plan to put an office there, and we
have coordinated with him and there is no difficulty with that.
Senator Hagel. Thank you. If you could both respond to this
question, how exactly did USAID determine or estimate the value
of the prime contracts awarded in Iraq? For example, the
contract awarded to Creative Associates International, I
understand for $157.1 million. What analysis, field work
measure, were these cost estimates based upon? And then could
you give me some sense of that, some examples or details?
And then I want to take that a little further with you, Mr.
Mosley, and then get into something you had said, and you know
where I am going with this. In your review of Iraq contracts,
you note that for two contracts, the level of effort initially
estimated by USAID varied significantly from the actual needs,
so the two are connected. And Mr. Beans, we will start with
you.
Mr. Beans. I found the contracting in Iraq and Afghanistan
to be different than anything that I have ever dealt with in
procurement. And generally what I expect is if I were to write
a statement of objectives or scope of work, I would put it out,
and industry would tell me how much it would cost them to do
that particular piece of work.
Iraq and Afghanistan was different. We had a situation
there where not one agency was putting out a scope of work, but
a number of agencies were involved in the decisionmaking
process as to what was to be done. If you remember, we had an
original person that was in there. I am embarrassed I have
forgotten his name, General----
Mr. Mosley. Jay Garner.
Mr. Beans. Yes. Jay Garner.
Senator Hagel. Garner.
Mr. Beans. Jay Garner came in with a certain set of
objectives and he wanted certain things done. We were working
along those assumptions when all of a sudden Ambassador Bremer
came in, and said, cease and desist, I would like to take a
look before I do things. So that normal ways of doing business
where you put out a scope of work and ask for a certain
proposal, that is what usually determines whether something is
fair. There's competition among the private sector for a piece
of work as to how much they can do it for, and that usually is
the driving thing as to the fairness of costs.
In this particular case, we were getting plugged figure
numbers in some cases. They would say you have $170 million--
I'm using this as an example, please--to do a certain action,
whatever that may be. So we would tell the contractor that we
were going out with very broad scopes of work, because the
actual work was being determined by task orders with the
approval of the CPA and Ambassador Bremer in-country. So, we
knew we wanted them to work let's say on economic growth and
development. They wanted them to do micro- and macroeconomics,
and do a whole bunch of things. But we did not know from
Washington what they were going to do until Bremer decided, and
he could change his mind on a daily basis. If a bomb blew up
somewhere and hit a power station, that was his highest
priority and he would move resources in that direction.
So what we did is we basically set up a guesstimate amount
of money of what we thought would be needed. And we knew that
we may have to subtract money, if they didn't achieve that. Or,
what we found in most cases was that they were able to spend
the money and they needed more money than we originally had.
So it didn't work the way I am used to. Some of the
Inspector General's findings were absolutely true. We would
normally have a government estimate broken down in detail as to
how much we thought something would cost and we would compare
that with industries' when they came in. When you are told that
you have $600 million to do a job and you based something on
that very broad scope of work and the next day you're told you
have $900 million, it doesn't work the way you would normally
expect.
I understand the IG writing what they did. I think that
they are absolutely correct. However, in this situation and I
am not sure that there wasn't anything wrong with this, nobody
knew exactly what was needed in Iraq when the bombs were still
going off. We didn't know what would be destroyed, what would
need to be fixed, or what infrastructure that would be
destroyed. So, it was really a guesstimate at first.
I think now we're getting much more realistic estimates on
the second round, and that is why we're going full and open
competition as to what really is needed. But at first, I
understand the people not knowing and not being able to tie it
down as much as we would like.
Senator Hagel. Thank you.
Mr. Mosley.
Mr. Mosley. Mr. Chairman, I don't know how much I can say
about this, though. As I was growing up as a kid in
Mississippi, my Mom always told me, when you come in and fess
up that you did it wrong, and you're going to do it better next
time, she wasn't going to punish me.
Senator Hagel. And you always did exactly what your Mother
told you.
Mr. Mosley. And I did what she told me.
So, I don't know what I need to say about this other than
what we were looking for with the documentation. When we come
in and the documentation justifies a certain amount and the
contract is issued at such an exorbitant amount above that, we
are looking for how do you get to that amount, and we were not
able to find that, so that was what we were reporting.
Senator Hagel. So what is the follow-up? What are we doing
now actually to fix this? You mentioned a couple of things on
contracting process and so on, but from the Inspector General
point of view, what's the follow-up?
Mr. Mosley. Well, from my perspective, we made a
recommendation that they go back and take a look at the
contract, and look at what the actual need is versus what was
out there as a level of work that was going to be performed,
and they are in a process of doing that review now. We have
actually sent a couple of follow-ups and we're trying to get
together right now with Mr. Beans to see what is going to
happen. They have made a commitment that this will be done
before any extensions of that contract are given. And I think
those are to be done within 1 year after the contract was
issued and that is April or May, as I recall.
Senator Hagel. OK. Thank you.
Mr. Beans. Mr. Chairman?
Senator Hagel. Yes.
Mr. Beans. Just one more comment.
Senator Hagel. Sure.
Mr. Beans. When we were talking about these sums of money,
and they were large sums of money, multimillion dollar
contracts, these were basically ceilings that were set up for
the CPA. Like I said, I don't know that anybody could have
predicted out of the blocks how much it would cost to do
education, or primary and secondary education in Iraq, before
we went in and saw what was going on. So we set up mechanisms
with ceilings not to be exceeded, where based on the CPA's
needs they would make the determination. They were almost
vehicles that they could use on an as-needed basis. Now, as it
turned out, all of those vehicles are being used, and all of
the areas that we selected, are areas that needed to be
addressed.
So I am not sure anybody would have done differently under
the circumstances that this took place, and I have never had to
go in and try to do procurement in a war zone quite like this.
I did work in the West Bank and Gaza during the Intifada, where
it was very difficult to do work. I thought that was the most
difficult thing that I had ever seen. Iraq and Afghanistan just
upped it a little more.
Senator Hagel. Yes.
Mr. Beans. I never seen anything quite like this.
Mr. Mosley. Mr. Chairman, one of the other things that we
will be doing, I might add, as we do our performance work, we
will actually take a look at what money was spent as a part of
these contracts, and assure that it was spent on resources and
other things that needed to be done in that contract and no
excess funds were expended.
Senator Hagel. Thank you.
Gentlemen, I greatly appreciate once again your coming up
here and the time that you have taken with the panel. You have
been very helpful.
We will leave the record open for a couple of days. I may
have colleagues who have questions. If you could address those
and get those back to us in writing, and I may have some follow
up questions as well. Mr. Mosley, Mr. Beans, is there anything
else that you would like to get on the record before you
escape?
Mr. Beans. No, I like the latter recommendation. I would
just like to thank you very much for the opportunity to come up
and talk to you. I really appreciated it.
Senator Hagel. Well, we appreciated all of the good work
you and your Agency does. Give your colleagues our thanks as
well. Mr. Mosley, always good to see a Meridian, Mississippi
man. And to the audience, Mr. Mosley and my wife are from the
same hometown, so she sends her regards.
Mr. Mosley. Thank you, Mr. Chairman.
Senator Hagel. Thank you.
Mr. Beans. I wondered why you got such an easy ride here.
Mr. Mosley. No. Actually his wife and I are----
Senator Hagel. Do you want to stay for another hour, Mr.
Beans?
If we could get the second panel up and again, thank you
gentlemen.
Gentlemen, welcome, again. As you recall, I noted the three
of you and your positions, and I once again thank you for
taking your time in presenting testimony today in an area that
is complicated and uncertain and, as we all know, dangerous, so
thank you.
Mr. Barton, you were probably just a baby when your father
used to bring you up and put you on the chairman's knee, I
would imagine, so we're glad that you're back. And to the other
two panelists, thank you for your expertise and for your
willingness to come up and share some of your thoughts.
In the order of the agenda, I will ask each of you to
present a statement. If you care to summarize that statement
that's fine. As I noted before, each of your statements in
their completion will be included for the record. So let me
begin with, well let me start with you, Mr. Barton.
STATEMENT OF FREDERICK D. BARTON, CO-DIRECTOR OF POST-CONFLICT
RECONSTRUCTION PROGRAMS, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES
Mr. Barton. Thank you, Senator Hagel. It is a pleasure and
thank you to your staff and to Senator Sarbanes and staff for
this invitation today.
This is a subject that really matters to me because when I
was working at USAID, I recognized how important these
procedures were to doing our job; to the kind of creativity
that we wanted to bring to the programs, to the relationships
that we had with our partners; to our performance in the field;
and to the image of the Agency in the United States Government
and to its taxpayers. I have recognized the importance of this
issue and value that you and your staff have taken it on as
being worthy of your attention. It certainly is.
My remarks focus on three broad recommendations that you
have touched on.
In the past 10 years I have had a chance to work in over 20
of these post-conflict or conflict-prone zones. I find them to
be a place which is a fair test, but a place where you have to
be pretty entrepreneurial if you're going to be at all
successful. And clearly our overall efforts in most of these
places have not been successful to this time, which is one
reason that many of us are so pleased that the full committee
is taking on the broader structural issues in hearings next
week.
The three broad recommendations are: first, that we expand
the range of choices in partners. The second, that we open up
the process. And third, that we make the system easy to use.
First, we need more partners because the jobs in
Afghanistan and Iraq are just too big. They are by virtually
every measure, 10 times larger than anything we have done in
any of the other post-conflict places in the last decade, so it
is clearly going to require an all hands on deck approach.
There is no way that we're going to achieve the kinds of
ambitions that have been put forth, whether you take the more
modest ambitions of some members of the administration, or the
more euphoric of others, without having extra help.
It is important to applaud the efforts of Tim Beans and to
encourage them to move to the next level.
This can be done by pre-competing and pre-qualifying a
large pool of organizations, both private and non-profits, with
a special emphasis on difficult subject areas such as public
safety and justice teams, demobilization and reintegration of
combatants, and mass communications. These are issues that come
up every time and we don't have any preparation.
We found when I was at USAID that we were able to set up a
mechanism which was derived from indefinite quantity contracts.
We developed something called the SWIFT mechanism that allowed
us to pre-compete contracts, so when the moment of truth came
we could be in the field in 4 to 5 weeks. That needs to be done
on a much broader basis throughout the organization. Otherwise,
we're going to continue to get stuck with some of the
weaknesses that you have seen.
And I also believe that a hybrid experiment needs to be
taking place where we don't just pre-compete contracts, but we
do the same for grants so that we gain the benefits of the PVO,
the non-profit community. When you go to a place like
Afghanistan, the NGOs are all over, yet they have been pretty
well shut-out of the non-humanitarian activity. Why would you
want to shut anybody out in this kind of case? It's just too
big and too tough.
I would also suggest that we should beware of large
contracts. They are not necessarily quicker in the field, they
do lead to greater cost overruns, and they do reduce
competition. It's clear when you have a contract that is larger
than a company's entire annual revenues that they are going to
take second and third thoughts about whether they should go
after that piece of work. That creates a self-selecting process
which is going to reduce the number of players. And again, I
think we want to break these things up into bite-sized pieces.
But our contracting procedures are so complicated in many
cases that when you have a program officer considering 10
contracts or one, they will always say, I think that I'll go in
once.
You asked the question about large projects. When we were
in Iraq last summer, we happened to visit the Basra water
project, and I noticed in one of the budget proposals, in the
supplemental, that it had been priced at $250 million.
Now, when I was visiting there, you could have said $3
million or you could have said $500 million. I am not an
expert, but it was really hard to figure out how anybody was
going to settle on a number. And you could see the kind of
drive-by assessment, that was likely to take place. So, that
kind of thing happens.
But the other problem with big contracts is they often
times don't fit the context. These places are fragile, there is
going to be sabotage, there are a lot of problems. One big
target makes you more vulnerable. Does not reach as many
people, and has less potential.
What you are trying to do in these places is to get an
overladen plane headed in the right direction and then hope
that it hits just the right bump at the right point in the
runway so that it eventually takes off. Building a pyramid one-
third of the way down the runway will cause an accident. That
is what is happening in these cases.
The second large recommendation is open up the process. The
people that I have talked to inside the agencies felt that the
secrecy, closed meetings, and security procedures were
excessive. Many of those appeared to have been inflicted upon
the Agency from without, but nonetheless it did cut into its
credibility. Secrecy isn't consistent with the values of
USAID's programs and cause embarrassment.
Gaining the public's confidence, as Everett and Tim were
describing before, would benefit from expanding the use of
concurrent audits, spot checks and peer reviews of ongoing
work. We used these in Bosnia and Haiti, everywhere there was a
fast developing and expensive program with political
sensitivity. Concurrent audits helped managers to know what was
wrong right away rather than having to slap their hands 2 years
after the program, which has little value.
More could be done but we should be careful about expanding
the IG and management, because already these are large and
growing parts of the Agency. In Washington by far the largest
part of the Agency is the management bureau. In the long run we
want an USAID that is defined by its programming not its
procedures.
Finally, the third general area is to make the system
easier to use. There are a number of suggestions that have
already been made, and I won't repeat those. We do need to
decentralize the work and place the contract officers in each
bureau and office.
We have heard, and I think Mark will talk about this as
well, that there are significant vacancies in the procurement
office. That has pretty much been the case, at least for the
past 10 years. There were huge vacancies, around 35 percent,
but they were all in the part of the office that was actually
doing the contract review work.
Having contract officers in the offices they are working in
increases the esprit de corps. There is always a question of
whether you need an arm's-length relationship. I think that the
professionalism provides that and there are a lot of other
checks as well. But I believe that being inside these offices
and how the people are delegated is critical to their buying
into the procedure.
You want to empower. I believe we should empower more
people with decisionmaking authority. Mission directors used to
be able to have the warrants and sign off on purchases up to, I
think it was a million dollars at that time. One mission
director made the mistake of getting into a conflict of
interest situation, and from that experience, the system was
changed. I believe that if you're getting paid $125,000 in the
U.S. Government, you should be able to handle the
responsibility of spending up to a million dollars, and we can
find you if you don't. There are lots of ways of inflicting
punishment in that case.
Decentralizing authority frees up decisionmaking. If it is
east to make smaller contracting decisions the outlook creative
programming improves.
We also need to expand the stand-by talent pool. It is
possible to identify people beforehand, to have security
clearances in place and to negotiate contracts.
Part of that is to simplify the existing contracts. A a
personal services contract was a 40-page document. I used to
say to our contracting official, how long do you think that
Michael Jordan's contract is with the Bulls, and how much more
complicated could this be? Training has been raised and I think
we can do a lot more with that.
I believe in making these changes because I believe that if
we streamline and enact innovative changes in the procurement
process, that the relevance and the impact of USAID's work
would increase and give the Agency a chance to be a true global
leader.
Thank you very much.
[The prepared statement of Mr. Barton follows:]
Prepared Statement of Frederick D. Barton
Senator Hagel and Senator Sarbanes, thank you for the invitation to
address this important issue. The acquisition and assistance policies
of USAID have a direct impact on trust in government, the effectiveness
of the Agency's work, decisions of its employees and its private and
non-profit partners, and on its future ability to provide global
leadership.
Over the past few decades there have been dozens of internal reform
studies, most of which were disregarded. It is my understanding that
Andrew Natsios, Tim Beans and their team are making real progress.
Certainly USAID's speed and responsiveness in the Iraq and Afghanistan
crises are commendable. Other significant steps include the use of the
Internet and greater transparency, training of people throughout the
Agency, and most importantly an open and responsive way of dealing with
others.
My intent is to point out three policy suggestions with specific
steps that should be considered, and where possible, cite examples from
Iraq and Afghanistan. Post conflict reconstruction work requires a
clear sense of direction, sensitivity to scale and context, catalytic
and tangible progress, speed and agility, and the full engagement of
local people. It is a good, tough testing ground for innovative
approaches and practices.
The three policy recommendations for USAID are:
(1) Expand the range of choices and partners. The challenges are
already too great to be handled by a few. As we approach ever-larger
transitions, it is imperative that we find ways to improve the
preparation for this sensitive work, the number of organizations to
partner with, and the speed to the market. This could be done in the
following ways:
Pre-compete and pre-qualify a large pool of organizations
(private and non-profit) with a special emphasis on difficult
subject areas such as: public safety and justice teams,
demobilization and reintegration of combatants, and mass
communications. The SWIFT mechanism in OTI is a good example
and allowed for 4-5 week conceptualization to implementation in
Iraq.
Develop a hybrid experiment, somewhere between a contract, a
cooperative agreement and a grant. This new instrument should
define a job, challenge the market to respond and allow a range
of private and PVO competitors. The debate between control and
collaboration needs to be redefined. Some of the natural
advantages that NGOs offered in Afghanistan, including existing
knowledge, field staffs, and the ability to leverage other
funds, were lost because of the absence of this kind of choice.
Consider the direct use of foreign firms in order to broaden
the pool of talent and skills. Foreign subcontractors did most
of the work on the Kabul to Kandahar road project in
Afghanistan. In both Iraq and Afghanistan, it has been
difficult to staff operations or keep people, witness the 58%
fulfillment rate at CPA headquarters in Baghdad.
Beware the use of large contracts. While they seem to offer
the convenience of one-stop-shopping, single, large contracts
are not necessarily quicker in the field, lead to greater cost
overruns, and reduce competition. Some of the Iraq RFPs were
larger than the annual gross revenues of many would-be bidders.
That produced a consolidation for bidding that eliminated any
competition. If the contracting was less arduous, the work
could have more easily been broken into geographic zones or
other more digestible pieces, and enlarged the market place. In
Afghanistan there are only a handful of contractors.
(2) Open up the process. USAID and the work it is trying to do is
ill served by secrecy, closed meetings, and excessive security. As the
U.S. prepared for the war in Iraq and tens of thousands of soldiers
were visibly sent to the region, most post combat planning was kept
secret--as if it might tip off war plans. Administration policy delayed
preparations, such as contracts and grants, and information was not
shared. The results harmed the eventual programs and projects and built
distrust. Several steps would help in the future:
Resist the temptation to classify. Bringing assistance to a
nation should always be seen as an act of public friendship. If
the program does not pass that test, it is in the wrong place.
I have not heard of any USAID initiative in Iraq or Afghanistan
that benefited from this approach.
Expand the use of concurrent audits, spot checks and peer
reviews of ongoing work. These audits, that take place during
the operation of a program, are helpful to program managers and
USAID partners by reporting on performance, management
problems, and the appropriateness of a contract. As such, they
allow midcourse corrections. Their use on mega projects, such
as the Afghan road building, has been positive.
Encourage the development of an entrepreneurial class of
people at USAID and reward wise risk taking. The skill sets
that are needed in Afghanistan and Iraq are creativity,
flexibility, and proximity to the people. As the U.S. military
has shown with their civil affairs and ``hearts and minds''
work, it is necessary to be able to make small things happen on
a regular basis. Congress should encourage the use of waivers
and special authorities within USAID, streamline reporting, and
avoid excessive criticism to advance this difficult cultural
change. Mission Directors in emergency places should be able to
invoke the same rules as the Office of Foreign Disaster
Assistance for those parts of the USAID program that could have
a direct benefit on the situation. For its part, USAID should
be less defensive about its shortcomings.
Put together a simple study of harmful earmarks and
restrictions. There is a chronic complaint within USAID about
this issue. A five-page memo detailing 10-25 earmarks, with a
paragraph explaining their effect on operations should be
prepared for this Subcommittee.
Make clear the difficulty of working in the new security
environment. In Iraq, we visited with dedicated USAID employees
and partners who were operating in dangerous settings. Many who
work in Afghanistan feel that conditions have grown more
dangerous, with work in the South slowing down into a shrinking
area. While others have the responsibility for public safety,
it is the central challenge of both places and has a huge
impact on costs, meeting deadlines, and the ability to recruit
the necessary talent.
(3) Make the system easier to use. Tim Beans and his team are
making real progress, yet there are more opportunities to address this
chronic problem. USAID is not the Department of Defense and would
benefit from an assistance and acquisition approach that has its own
identity. Program people need to be freed up to do the work, as opposed
to managing paperwork or making decisions based on the difficulty of
contractual implementation. The following improvements would help:
Decentralize most work and place contract officers in each
bureau and office. Where these people have been co-located,
they are part of a team and enjoy greater job satisfaction.
This is how Missions and some offices with a need to be
responsive work--it should be replicated.
Encourage the Beans initiative to develop a cadre of Foreign
Service contracting officers. Connecting contracting officials
to the Agency's work, where they can enjoy the same rewards and
incentives of their USAID colleagues, is an excellent way to
address high turnover rates.
Empower more people with decision-making authority and
responsibility by increasing the use of purchasing warrants to
Office and Mission directors. There was a time when the
authority to approve up to $1 million existed--that should be
returned and increased, once a brief training module is
completed. Recent delegations of Personal Services Contractor
(PSC) authorities, small grants and purchase orders are an
important step in the right direction.
Expand the standby pool of talent. Offices that have
developed ``bullpens'' of people who are ready to go in an
emergency are among the most responsive in the Agency. That
needs to be expanded by building rosters of capable people who
have received security clearances and have pre-negotiated
contracts and encouraging partners to do the same.
Simplify existing contracts. While much of the language is
boilerplate, there is still a tendency to make things more
complex than necessary. PSCs should receive lump sum payments
for their non-work expenses saving all parties time and
complications. In light of the great value that they bring to
the organization, health insurance coverage should be arranged.
Increase the number of well-trained program managers. For
most of the first two years in Afghanistan, a single, talented
officer oversaw the entire USAID portfolio. The organization is
lacking a sufficient core of people who know programming.
It is my feeling that USAID needs to be seen as a trusted
organization that is making wise programming choices. The procurement
process has a great influence on the fulfillment of its mission.
If USAID streamlines and enacts innovative changes to its
procurement process, the relevance and impact of its work will
increase, and will further highlight its position as a global leader.
Your larger Committee is addressing other larger issues of
structural weaknesses in the way the U.S. government prepares for post
conflict reconstruction next week. CSIS' president, John Hamre, will be
one of your witnesses and will bring forward some of the major
recommendations we have been working on for the past few years. We hope
that you will make real progress on the toughest issues: who is in
charge of the overall reconstruction effort, if there is any standby
funding, and how we shall achieve public safety in the aftermath of
war.
Thank you.
Senator Hagel. Mr. Barton, thank you as always.
Dr. Burman.
STATEMENT OF DR. ALLAN V. BURMAN, PRESIDENT, JEFFERSON
SOLUTIONS, DIVISION OF THE JEFFERSON CONSULTING GROUP, LLC
Dr. Burman. Thank you very much, Mr. Chairman. I am pleased
to be here this afternoon as well. I am president of Jefferson
Solutions, which is the government division of the Jefferson
Consulting Group, and we provide acquisition and change
management consulting services to a lot of Federal agencies,
mainly trying to get agencies to focus on business outcomes and
performance. I do have a formal statement that I would like to
submit for the record and just summarize my remarks.
In addition to providing those kinds of consulting
services, we have done reviews of Agency contracting
operations. We have done this at HUD, we have done this at
Education, VA, Energy, and in 2002 we did the same kind of
study for USAID. At that time, Mark Ward was the Procurement
Executive, Tim Beans was his Deputy, and we talked to this
gentleman over here as well as part of the interview process in
that effort. I am a former Procurement Administrator for the
Federal Government. I have spent many years at OMB. I was
Acting under President Reagan, and I was confirmed by this body
under President Bush, and then held on by President Clinton. So
I spent a lot of time dealing with government-wide acquisition
issues and policies.
Now the committee has asked me to look at USAID's
procurement process; address lessons learned from Afghanistan
and Iraq; discuss some of the oversight practices regarding
subcontracting; and then provide some recommendations as Rick
has done on what improvements might be in order.
I think basically though, to preface those remarks, there
are a few elements that are absolutely essential in any kind of
procurement or acquisition environment. Operations ought to be
transparent, and the bidding process understandable and
regularized. The selection process should be fair and free from
bias, or conflicts of interest. Competition should be the norm
and a firm should be able to find out if they didn't win, why,
and be able to redress grievances where they have them.
There are thousands of pages of Federal acquisition
regulations, but when you come right down to it, that is really
the essence of what you're looking for to have these systems
work properly. So I say you could apply that test to Iraq, or
you could apply it to Commerce, or SBA or anybody else.
There are some other important elements for an effective
procurement process as well. Have the agencies really figured
out and defined what it is that they want and have a plan to
see that they have gotten it? And do they have enough
experienced and knowledgeable staff to do that work? And, today
I think that is even more critical when you look at how the
Federal Government does its business. I mean, so many agencies
are relying upon contractors to get its mission done, and I
think that applies to USAID as well.
So, questions that would be asked: Is the staff trained in
that oversight role? Do they even see it as their
responsibility? And I think that there is some questions in
that regard. I think people still have the mentality about how
we did these things, and now it is a different role, we are
overseeing them, and that is a different set of skill sets. And
probably most important is a program and procurement staff
working closely together to see that contractors are focused on
it and achieve performance goals.
As I mentioned to you, we did a review in 2002 on the
headquarters procurement and assistance operations. Craig
Durkin, who used to head procurement at HUD, was part of that
process with us. Steve Kelman, who succeeded me as the
Procurement Administrator for the Federal Government was also
part of that team.
We looked at a lot of documents, interviewed quite a few
people, talked about interactions, talked with professional
services counsel folks, and came up with a number of
recommendations to streamline and improve the process. But I
think the key finding that we had was that there really needs
to be a full partnership between the procurement folks and the
program staff throughout this acquisition process.
Frequently when things go wrong you look at the procurement
side, but in many cases it is the program people who are
deciding what the Agency is going to get, what it needs. They
write the statements of work, and they monitor the contractor's
performance. And so, it's absolutely critical that they
understand themselves to be part of this acquisition team, and
acquisition process. And we talked about CTOs. These are the
cognizant technical officers that you were talking about with
Mr. Mosley and Mr. Beans.
Frequently, people tend to criticize the front end of the
process, the awarding business, have we done it right? All too
infrequently, they pay attention to the back end of the
process, are we really getting what we're supposed to be
getting? And have we figured out a way up front to know that
we're going to be getting that? So I would say that questions
for both Afghanistan and Iraq are, who is monitoring contractor
performance? Are they trained to perform this role, and what
performance measures are in place to see that this work is
being done effectively?
You raised some of those questions earlier today and I
think those are very good questions to be asking folks. And Tim
talked a bit about how many people they have as cognizant
technical officers in Iraq. There are not very many people to
be doing that kind of role. And I think that as the funding
goes up these issues can only get worse, so I say it is a
critical issue for the committee to pay attention to.
There is another kind of oversight issue that I think also
makes some sense to pay attention to, and that is what system
is in place to keep track of what is being bought and brought
into the country, and is there an accountability, property
accountability system there and do we have logisticians and
people to see what is being done.
Regarding lessons learned, you have talked a little bit
about that, and I won't spend a lot of time talking about the
award process. There are rules in both the Federal Acquisition
Regulations and in USAID's own rules that allow them to do
limited competition. Obviously, it would be better to go full
and open if you can do it. I think the circumstances required
them to move more quickly.
Obviously, if you do have one of these, what Tim referred
to as IQCs or indefinite quantity contracts in place where you
have already gone through a competition, and you have people
there and you have selected them already, it makes a lot of
sense to say, OK, we just compete it among that group to be
able to get somebody on board quickly.
In fact, I was working with the Energy Department last year
because we were trying to deal with a question of getting
fossil fuel plants built in the former Soviet Union so that
some plutonium reactors, three plutonium reactors could be
closed down. And we used a defense threat reduction agency
vehicle for Energy in order to get that capability and get it
done, quick, and Energy decided to do that.
You also use a best-value process because different firms
bring different things to the table, and so you can't say,
well, let's go tell everybody to do the same thing and go low
price. USAID uses civil servants to do those evaluations and I
think that is done reasonably well as well.
And I think that as you go into the process, as people have
a better sense of what the requirements are going to be over
time, that you're probably going to be getting more competition
and a better ability to use that competition.
The other problem that I see here is, who is writing the
statements of work and do they know how to write them? And do
they get them to contracting officers who can use them or do
they get sent back? And so is there some effective help there
to see that the process is working well so that you can put
performance matrices in place and be able to monitor how things
are going? Recognizing that there are lots of security and
other issues here that you have to deal with, even in spite of
that, I think acquisition planning, risk mitigation strategies,
all of these things still make sense for someone to do.
Another area that you asked us to talk about was
subcontractor management. I know that USAID has really relied
on the prime to do most of that work, particularly with the big
Bechtel contract. Clearly there are clauses that flow down to
subcontractors and they have to follow them, like can USAID can
go in and inspect subcontractor work, review their costs, that
kind of thing.
But as Tim mentioned, you try to maintain privity of
contract with the prime so that you don't get in the system of
telling the prime how to have the subcontractor do something
and then later on be held responsible for their failure to
perform as supposed to holding the prime responsible. That is
the kind of issue that you run into in that process.
That doesn't mean that you couldn't put very good
incentives or targets in those contract awards that say how
much subcontracting that you want to be done, and including a
lot of incentives on how to go about that process. So I would
say that's really the technique on subcontracting as opposed to
trying to micro-manage the prime or the subcontractor in doing
the job.
So in summary then, Mr. Chairman, you had asked for a set
of recommendations. I would say, ensure that the procurement
and program offices work closely together in developing
statements of work and carrying out the monitoring of
procurements. Use these IQCs, these indefinite quantity
contracts, as appropriate, but try to make competition the case
every time. Be as open as possible on the procedures to be
followed on bidding. Make sure that well-trained cognizant
technical officers are available. Establish a good property
accounting system. Use performance-based methods as well as
incentives to focus the contractor on both business outcomes
and subcontractor management. And develop an effective
reporting and documentation system.
That's kind of a long laundry list, but I think that all of
those things would help to make this whole process work more
effectively in the future. And again, I was very impressed with
the USAID staff when we did our review. I thought that they
were very dedicated folks, and in all trying to make this
operation be as successful as possible.
That concludes my prepared remarks. I would be pleased to
take any questions.
[The prepared statement of Dr. Burman follows:]
Prepared Statement of Dr. Allan V. Burman
Mr. Chairman and Members of the Committee, my name is Allan Burman
and I am President of Jefferson Solutions, the government division of
Jefferson Consulting Group, LLC. Solutions provides acquisition and
change management consulting services to many Federal departments and
agencies, including the Departments of Defense, Commerce, Energy, and
Education as well as the Small Business Administration, the General
Services Administration and the Internal Revenue Service. Much of our
support includes assisting agencies in defining the outcomes they are
seeking from private sector contracts and in developing performance
measures and quality assurance plans for them to monitor and assess
contractor performance.
We have also conducted management reviews of agency contracting
operations, including those at HUD, Education, the Department of
Veterans' Affairs, the Energy Efficiency and Renewable Energy Office of
the Department of Energy and in 2002 the headquarters acquisition and
financial assistance operations of the United States Agency for
International Development (USAID).
Prior to joining the Jefferson Group in 1994, I served as
Administrator for Federal Procurement Policy in the Office of
Management and Budget. I was Acting Administrator under President
Reagan, confirmed by the Senate under President Bush and held on in
that post under President Clinton. As Administrator I initiated
numerous procurement reforms, including policies that favored the use
of performance-based contracting for acquiring services and assessing a
firm's past performance in determining its acceptability for future
awards. The Committee has asked me to do the following:
Reflect on the USAID contracting and procurement process,
Address lessons learned from Afghanistan and Iraq,
Discuss what oversight and accountability practices are in
place regarding subcontracting, and,
Provide specific recommendations for improving USAID
procurement and contracting practices.
Let me preface my review of these areas with the comment that there
are some elements that are fundamental to any sound acquisition system.
Operations should be sufficiently transparent, and the
bidding process understandable and regularized,
The selection process should be fair and free from bias and
conflicts of interest,
Competition should be the norm, and
Firms should be able to find out if they didn't win, why,
and have some means for redressing grievances.
These are not very complicated requirements, but they are the sort
of things I recommended when we worked with the Organization for
Economic Cooperation and Development to help the emerging democracies
of central and eastern Europe move from ``state orders'' to a market
system. And they are the essence of the multi-thousand page Federal
Acquisition Regulations of our own government. In many ways these are
the tests that should be applied to any contracting operation, whether
by USAID in Iraq or the Small Business Administration in Washington,
DC.
Coupled with these factors is the need for agencies to effectively
define the results they seek from contractor support and to develop a
contract management plan to see those results are achieved. And who is
involved in carrying out that process is equally important to the
success of any contracting effort. It is in this area that many
agencies face challenges.
Effective oversight is even more critical today, when we see how
much of agencies' mission accomplishment is dependent on contractor
support. This need is particularly true of those agencies created in
the last 30 years or so, including Energy, Education, EPA and NASA.
Well over half of their funding and for Energy around 90 percent goes
to contractor support. If the agency has not done a good job of
defining its needs and desired results, then how can it expect to
accomplish its mission? Where once there was an expectation that agency
program and technical staff would perform the work, today their
responsibility is in overseeing what is done. The question here is, are
they skilled and trained in carrying out that management and oversight
role? Do they even see that as their role? Are the program, technical
and acquisition staff working in partnership to ensure contractors are
focused on and achieve performance goals? These questions can be asked
of USAID as well.
the usaid contracting and procurement process
In 2002 Solutions conducted a review of USAID headquarters
procurement functions, including the award and administration of grants
and cooperative agreements. Key participants with me in the review
included Craig Durkin, a Vice President with Solutions who recently
directed the contracting and procurement operations of HUD and Steve
Kelman, a Professor at Harvard's Kennedy School who succeeded me as
Procurement Administrator. As part of this process we reviewed an array
of files and documents, interviewed some 50 individuals and developed a
number of conclusions about USAID operations as well as suggestions for
improvement. While this effort preceded the war, I believe that many of
our findings remain relevant today.
We found a staff of very dedicated, hardworking people and
leadership that was looking to improve how they did business. We made a
number of suggestions to help streamline and improve their acquisition
process. These involved developing customer service standards,
delegating some workload out of the procurement offices, and getting
better technology to help them get their work accomplished. However,
the key findings of our review reflected the general comment I noted
above. That is, effective contracting requires a full partnership
between procurement and originating office or program staff.
We tend to focus on the procurement office when we see contracts
being poorly designed or run, but in fact originating program offices,
those that are responsible for the efforts being funded, have a very
key role to play in this process. As such, they should clearly be
perceived and see themselves as part of the acquisition workforce of
the agency. However, only the Department of Defense tends to have this
more expansive view of their acquisition workforce. Defense recognizes
that engineers who define requirements or logisticians who support the
effort or project managers who oversee contractor performance are all
critical to the success of any acquisition and as such need to be well
trained in these responsibilities. The General Accounting Office in
October 2003 drafted an evaluation framework for improving the
procurement function. They list partnering between program and
procurement offices and providing adequate acquisition training to
program and field office staff as critical success factors.
For USAID the originating offices have the responsibility to
determine what is to be acquired or supported, are responsible for
writing sound, results-oriented statements of work and monitor the
contractor or recipient's performance. In our review, we suggested that
originating officer acquisition roles be redefined to focus on
performance and results and that the jobs of program personnel working
on contract management be reoriented to reflect this new management
emphasis. We also recommended that the procurement function be elevated
and its Director placed on a par with other key USAID managers.
All too frequently critics focus on the award process and ignore
the contract management aspects of the effort. It is appropriate to
assess for both Afghanistan and Iraq who is monitoring contractor
performance, whether they are trained to perform this role and what set
of performance parameters have been established to see that work is
being properly and effectively carried out.
While USAID has a limited number of contracting officers on site
for their Iraq projects, their contractor oversight capability is
severely limited. And as AID funds expand with contracts such as the
$680 million awarded to Bechtel National, Inc. in April 2003, this
concern can only increase. USAID's Chief Procurement Counsel cites this
Bechtel award as ``the largest single direct contract awarded by USAID
in its 42-year history,'' pointing out that it ``is thought to be the
largest single nonmilitary foreign aid contract to be awarded since the
Marshall Plan that rebuilt Europe after World War II.'' So a good
question for the Committee is, who's minding the store?
There is another element to this monitoring process as well. Given
the huge increase in funds to acquire goods and services, what type of
system is in place to keep track of what is being purchased and being
brought into the country? Is there an effective property accountability
system in place to monitor these buys and logisticians there to track
them?
lessons learned
Some have raised questions about USAID's use of limited competition
in acquiring contracted support, suggesting that full and open
competition as defined in 1984's Competition in Contracting Act should
be used in every case. However, both the Federal Acquisition Regulation
and USAID's own regulations allow limited competition or even no
competition in certain cases. Frankly, many agencies use the General
Services Administration schedules program or let tasks against
contracts that have already been competed and awarded as ways to meet
agency needs much more quickly than through a full and open competition
process.
USAID refers to these multiple award contracts as IQC's or
Indefinite Quantity Contracts. For example, in April 2003 it used an
IQC in awarding a task order for the monitoring and evaluation of
USAID/Iraq's technical assistance portfolio. All contractors are
originally given a full and open chance to bid on these IQC awards.
However, tasks are ultimately competed only among those who essentially
become pre-qualified through the award of the IQC contract. Firms on
these lists have already demonstrated an ability to meet the general
requirement the agency has established. Given the exigencies and
uncertainties early on regarding Iraq it is not unreasonable to take
advantage of these provisions. That is not to say where rules are in
place on how these types of procurements are to be conducted, it is
acceptable to ignore them.
Contracting today practically demands a ``best value'' evaluation
scheme, since agencies are looking for solutions to their problems and
different firms bring different approaches for meeting their needs.
Under virtually all circumstances, then, agencies will need to make
judgments on which firm offers the best answer to the agencies problem.
In many cases, teams of civil servants perform this evaluation role.
This is the practice followed by USAID. Having that kind of selection
process goes a long way to making sure that the process is fair and
impartial.
Last year, I served as a member of a small Team of Independent
Professionals to assist the Department of Energy in developing an
acquisition strategy for acquiring contractor support. This requirement
was to build fossil fuel plants in the Russian Federation. The Team
learned that the Defense Threat Reduction Agency had recently undergone
a full and open competition and as a result awarded contracts to five
prime contractors each with multiple subcontractors. Part of the basis
for winning an award was that each had experience in contracting
overseas. The Team recommended that Energy employ the Economy Act to
use this existing Defense Department multiple award vehicle and compete
the requirement among the five awardees as opposed to initiating a new
full and open competition. The selection process was quick and
effective, and getting these fossil fuel plants built will allow the
Russians to shut down three Chernobyl style plutonium reactors in
Siberia that much sooner.
Clearly as both the Department of Defense and USAID have gotten a
better understanding of requirements and agency roles and missions, the
options to broaden competition increase. It is easy in hindsight to say
that all of these responsibilities should have been carefully laid out
in advance but that is not a very practical suggestion.
Another question for the Committee is who is preparing the
statements of work for these services. I can envisage many problems
where work statements are poorly laid out and contracting staff will
reject them. Is there someone helping to make this part of the process
more effective? And is anyone developing performance metrics to be
placed in these awards and ways to measure whether the contractor is
accomplishing them? A major reason for moving toward performance-based
contracts is to shift risk from the government to the contractor and
also to get both parties to focus on business outcomes, while offering
the contractor an opportunity to innovate in accomplishing the mission.
Of course, security concerns and other uncertainties in Afghanistan and
Iraq make it much more difficult for companies to sign up to fixed
price performance-based awards. But that does not mean that acquisition
strategies, risk mitigation plans and business outcomes should not
still be important elements in defining what the government is looking
to acquire.
subcontractor management
In the case of the large Bechtel contract for all types of
infrastructure projects cited above, USAID has made it clear that it is
relying on the prime contractor for all aspects of subcontractor
management. However there are clauses that flow down to the
subcontractor that for example would allow USAID to inspect
subcontractor work or to review their incurred costs. Other clauses
that apply to the prime also frequently flow down, such as
Organizational Conflict of Interest provisions or requirements to use
U.S. Flag Carriers.
Generally, however, the government seeks to maintain privity of
contract with the prime contractor, since the prime bears ultimate
responsibility for all the work performed on the contract. The more
that the government interferes in that relationship between the prime
and the subcontractor, the more it opens itself to charges that it and
not the prime contractor should be held accountable for a
subcontractor's failure to perform.
On the other hand, USAID can in its contract specify subcontracting
targets as, for example, the proportion of work to be conducted by
small or disadvantaged businesses. Moreover, it can place clear
incentives and disincentives in the contract to align the contractor's
efforts with the agency's goals. While agencies may require percentages
of work to be done by small businesses, my experience is that they
frequently fail to monitor the prime's performance in this regard.
Rather than micromanaging the prime contractor, an alternative approach
would be for USAID to develop performance-based requirements along
these lines to see that its subcontracting goals are accomplished.
recommendations for improving usaid contracting
In summary, I would propose the following as specific
recommendations for improving USAID contracting operations:
Ensure the procurement and originating offices work in close
partnership in developing statements of work and in carrying
out and monitoring procurements,
Continue to use IQC's as appropriate for awarding Iraq
contracts while using every effort to see that competition
exists on every procurement,
Be as open as possible on the procedures to be followed on
bidding for USAID work and develop regularized procedures for
all types of contracting actions,
Ensure that an adequate number of Cognizant Technical
Officers are available to oversee contractor performance and
see that they are sufficiently trained to carry out these
important contract oversight activities,
Establish a property accounting system that focuses on all
the goods being purchased and brought into the country,
Use performance-based methods as well as incentives to focus
the contractor on both business outcomes as well as on
subcontractor management, and
Develop an effective reporting and documentation system for
monitoring contract performance.
As needs become clearer and the process for prioritizing those
needs more established, then it is also critical to lay out a long
range acquisition plan so that all parties can be thinking through in
advance the best way to meet these needs and how to allocate the
limited resources available for these purposes. Finally, seeing that
USAID has adequate resources and trained staff to put in place these
recommendations is essential to creating the effective acquisition
process that the Committee and the Administration is seeking.
Mr. Chairman, this concludes my prepared remarks. I would be
pleased to answer any questions you or other members of the Committee
might have.
Senator Hagel. Mr. Stevenson.
STATEMENT OF MARCUS L. STEVENSON, DIRECTOR OF GRANTS AND
CONTRACTS, THE URBAN INSTITUTE
Mr. Stevenson. Thank you, Senator Hagel, and thank you for
the invitation to discuss these important issues. I likewise
have a written statement for the record that I would like to be
entered and I will try to just paraphrase from it rather than
take a lot of time.
To some extent, listening to some of this, I have been gone
from the Agency since July of 2001, and I was with USAID for 21
years. And I frankly feel like I know the procurement system as
well as anyone, because I started as a GS-9 contract
specialist, and at the end of my career, I was the Senior
Procurement Executive. So I worked in Washington, DC for about
6 years in the 1980s and then I went into the Foreign Service,
and I was in Asia and Latin America until I competed for the
job as the Director of the Office of Procurement in 1994. And
for 2 years I held that position, and then I was appointed to
Senior Procurement Executive from 1994, 1996 through 2001.
And unfortunately, I have been following this and I
obviously get a lot of calls from both colleagues inside the
Agency and contractors with whom I worked with for many years
in asking me my opinion on this stuff. And when I sit here and
hear some of the recommendations and some of the problems, it
reminds me a little bit of the movie, Groundhog Day, because I
can tell you that USAID probably has one of the most studied
procurement systems in the Federal Government, going back over
20 years ago.
And, unfortunately, the findings are redundant. It is
always about the same four things. One is, not enough
contracting people, a lack of procurement planning, a lack of
training for cognizant technical officers, and a very slow-to-
react budgeting system, and by that I mean, once they get their
appropriation, getting the money to the operating units, and
that inhibits implementation also.
So, it is very disconcerting. And then what happens is that
when you find yourself in a situation, and when I was a
procurement executive, we had Bosnia, we had Hurricane Mitch,
we had Kosovo. But none of those were of the magnitude of what
we're dealing with now, or what you're dealing with right now.
And I think and I honestly believe in my mind that when the
situation occurred in Iraq after the war, that had the senior
management came to me and told me what they wanted to do, I
honestly believe I would have told them that we don't have the
resources to do that.
The Agency does not do construction contracting. They
haven't done that kind of work in years on a magnitude--but
never done it on a magnitude. We used to have fairly large
construction projects overseas, but we used what we called
host-country contracts, which is a methodology where the units
of the host country do the contracting and we oversee it.
That's very prevalent in Egypt and has been for many years. But
to expect the Office of Procurement to take on construction or
capital development projects of this magnitude, they simply
don't have people who were hired with these skill sets. Our
Agency is primarily a provider of technical assistance and
that's what the basis on what the people were hired and the
skill sets that they had to provide. As I say in my written
testimony, of course, they will do anything that they can, and
the best job that they can to move forward. But, I would be
very curious and I would ask you if you checked when the
Coalition for Provisional Authority gears up to do their
construction contracts, it would be interesting to see the
manpower and types of people they use to award and administer
those contracts versus the resources that USAID has. And I can
tell you that it will dwarf what USAID has.
I mean, listening to Tim talk, and I know that he has a lot
of concerns, and Tim is an excellent director and a good
leader, but, if I was a procurement executive today, and I knew
that in Afghanistan with a program of approximately $1 million
I had one contracting officer there, it would make me very
nervous. And especially given the situation, as I understand
it, from the security aspect, monitoring on these contracts is
very difficult, because they can't get out to the places that
they need to get out to do the type of monitoring, which is
really key to what Allan said, because Allan, frankly, is a
guru on performance-based contracting. He was a real leader on
this when he was an OFPP.
And that is why it is even more important you have
statements of work and they are defined by outputs that you
judge success as opposed to inputs, because very, very many
people in the Government and especially in USAID, like to
manage inputs as opposed to outputs and the whole concept of
performance-based contracts is to define the output that you're
expecting. Compete those outputs, and you will have a variety
of people who want to do things differently. The key is you
evaluate those and then you evaluate them on what they deliver
as opposed to what the inputs are. So really, I think that
USAID finds itself in a situation where they are being and
trying to do things that they are not equipped to do, as far as
just the skill sets.
As far the staffing, the last time I checked, OP was down
to about 120 people. It hit its peak in the 1990s when I was
the Procurement Executive, and, we had what was called the OMB
SWAT Team Report. And in the late 1980s, again things like this
were happening at USAID to the point that the then-
administration, the Bush administration, convened a SWAT team
and it included people from OMB, and it included people from
AIG, and included people from USAID itself, and it was a
combined team. And they did a report that basically listed what
they think needed to be done to improve USAID, and a large part
of that had to do with the procurement process.
And again, it was you don't have enough contracting
officers, your CTOs are not well-trained, you don't do
procurement planning, and basically, your budget system is
broken. It doesn't get money to the operating units and so it
has been rather redundant.
To give you an idea of a workload, when I was there in the
late 1990s, we were doing comparisons with other agencies to
see how much work does an USAID contracting officer have versus
one at the Department of Energy or something like that, and
there were bases for getting that information, the Federal
Procurement Database shows how much actions. And we discovered
that the USAID contract specialists had a workload of two to
four times his or her colleague in other agencies. And you
know, it has to be a lot worse now with Iraq and Afghanistan
and things like the HIV Initiative.
So, basically, what happened was is that we took the OMB
SWA Team Report when I came in, and it became like a piece to
work from as to how do we improve it. We had very strong senior
management backing. I was able to immediately, within a year
when I came out, I was given permission to hire 45 new contract
specialists. We ramped up and we did recruiting on college
campuses and so forth, and other things and we were able to
bring those people on in about a year. So we went from 130
people to 175 approximately. And we were able to stay there for
about a year or two and the situation was very good then. The
contracting officers felt like they had adequate staff to do
the job. The senior management, and what I mean by that is the
senior administrator and his senior managers, were backing us
on getting training started, and the importance is that
everybody played a role in the procurement process.
As Allan said, a lot of people think that it is just the
contracts officer, but everybody plays a role in that. You
know, USAID is a contracting Agency and they don't implement
anything themselves. They depend upon contractors and grantees
to do it. So, I would think that most people, at least in the
Office of Procurement would agree, it was a good time and
probably the best time to head. But what is happening now is
that you have a sliding scale and essentially they are back
down to, you know, a relatively very slow----
Senator Hagel. Well, speaking of a sliding scale, I don't
know what this means. Bertie are you tired? Do you want to go
home or what?
I promise that you will be out by 6 p.m., Bertie if you
will give us a little more light, if you can. If we don't pay
our bills, you know, we're dead around here. Go ahead. I am
sorry about that.
[There was a slight power interruption.]
Mr. Stevenson. And on a couple of other things, I very much
agree with something that Rick mentioned. When I saw the
amounts of these contracts, they're monstrous. And sometimes
they were awarding contract value to equal the annual revenues
of a company. I mean, I find that a little bit, and I don't
want to use the word insane, but smaller is better, especially
if USAID was going to do it. And the magnitude of these, and I
don't see how in the world there can be, I know that everybody
is trying their hardest, but the oversight has to be extremely
difficult. And the money being spent.
And what is also unusual about these, and I understand to a
certain extent, because of the situation, that these large
construction contracts which are known as cost plus fixed fee.
That's pretty unusual in construction contracting. It is
usually some type of fixed price. Again, focusing on outputs, a
cost plus fixed fee means that they basically get all of their
costs reimbursed and so they have zero to very little cost risk
and they get a profit on all of that.
And when you consider the value of these contracts when
these people are getting danger pay of like 50 percent, for
insurance, the war risk insurance costs sometimes up to 100
percent of salaries. And then the firms get all of their
overheads and fees on this, there is basically no cost risk to
them.
Again, I understand that they are--probably didn't want to
undertake any cost risks as they didn't know the situation, but
that begs the problem again about what did we know versus what
we didn't know as far as how we were going to do things. There
is a process in the Federal Government I am sure that Allan is
familiar with and there are a couple of Executive orders. One
was issued in 1982 by President Reagan and there was a
subsequent one issued in 1994 by President Clinton, and that
the Agency Procurement Executive, there was criteria
established by OMB as to what an agency has to have in an
acceptable procurement system, and each agency is required to
develop a subset of that and manage by that.
And every year, and I checked before I came up here, the
Executive order is still applicable, the Procurement Executive
is to do an assessment of the system, and he is to advise the
Administrator or the head of the agency, how the system stacks
up against the criteria. And it hits a lot of things that we
are talking about here, you know, staffing, training and so
forth.
The year that I retired, in 2000, and I did one of these
each year, as a Procurement Executive, and I was sending up
some warning signals that things were, what were in my mind,
deteriorating. And in the year of 2000, my report for the first
time in the history of USAID, going back in USAID, I told the
Administrator that I was unable to attest to the system and I
wrote a very detailed memo as to why, and a lot of the things,
the problems that they are having right now, existed then.
So, in many ways it comes down to a brave decision, if you
will, by senior management, because it really comes down to
money. USAID has an operating budget, an OE budget. I don't
know what it is exactly now, but it is between $500 and $600
million, I would imagine. And you have to make choices. And in
those days, then the Administrator made a choice that he was
willing to put that kind of money towards additional people and
resources and training, at the expense of something else,
because you have to.
But, given what is going on and given the fact of the--
looks like this is going to go on for sometime, we are always
going to have the surges. Like we said, Hurricane Mitch,
Bosnia, Kosovo, it is always going to be there. It has been,
you know, going back for years, earthquakes and so forth. But
at that modest to actually vulnerable staffing level, they
barely can take care of the work that they have day-to-day, and
they have no surge capacity.
And so I would read the last part of my thing. I am looking
at the future and I think that a decision should be made to
staff up the Agency's procurement function across the Agency,
but most immediately within the Office of Procurement, at a
level that allows sufficiency and accuracy. By staff up, I mean
recruit and employ bonafide and qualified GS and FS contract
specialists for the long term, and not utilize a patchwork of
personnel service contractors and temporary use of overseas
Foreign Service nationals on a continual ad hoc basis.
The procurement system and the function is vital to USAID,
perhaps more so than many in the Agency realize. If you say to
the chiefs that they are reasonably staffed and trained in
procurement functions, and sustains it, they will be in a
better position to deal with the surges like The Hague, like
they currently face, and they will have professionals who are
better trained for the type of contracts that they are being
asked to put in place. Also, support functions like policy,
evaluation and audit will be in a position to better support
the operation staff.
Thank you.
[The prepared statement of Mr. Stevenson follows:]
Prepared Statement of Marcus L. Stevenson
Good afternoon and thank you for inviting me to discuss issues
related to USAID contracting policies and operations. As a former
Senior Procurement Executive for USAID I believe, I have some relevant
knowledge of the Agency's inter-workings and I hope I can contribute
input that will help generate improvements.
First and foremost I would like to state that I fully support the
procurement professional staff both in Washington, DC and in the
overseas missions. I worked with them for 21 years up until July of
2001. These people are unsung heroes in USAID accomplishments. They are
often overworked and under-staffed, yet they do their best to deliver.
It was my experience that their ethics are beyond reproach. I believe
when it concerns USAID that any rumors about contracts being
``steered'' are just that, with no substance. In my entire career with
USAID spanning both Republican and Democratic administrations I was
never once directed nor was it suggested that I sign a contract I was
not comfortable with in terms of that the award would otherwise have
been improper.
The preceding being stated, I do have concerns about the present
state of affairs and about USAID's ability to effectively award,
administer and monitor contracts of the magnitude associated with Iraq
and Afghanistan, in addition to the ``normal'' annual workload. What
concerns me is again, the lack of adequate staff as well as the lack of
expertise in construction type contracting. Capital development/
construction type contracts have not been the forte of USAID
contracting professionals for a number of years and the staff hired
from the 1990's to present, to the best of my knowledge, do not have
those skill sets. When one combines a staff shortage with that of
lacking skills, it points towards vulnerability. Again, the procurement
professionals will do their best to deliver but when one is overworked
and lacking the necessary skills, it sets the groundwork for potential
mistakes. Had I been the Procurement Executive at the time the Office
of Procurement was tasked with negotiating and entering these
contracts, I seriously believe I may very well have advised the Agency
senior management that perhaps DOD would have been a better alternative
given their staffing and infrastructure in this area. I remain in
contact with many USAID staff members as well as with the contractor
community and the aforementioned comments are reflective of some of the
feedback I have received.
The USAID procurement system has been studied and reviewed numerous
times for the last 20 years and the findings are redundant. The agency
is understaffed in terms of contracting officers and specialists, there
is a serious lack of procurement planning, training for cognizant
technical officers is not sufficient and budget allocation and
distribution is extremely slow in channeling funds to operating units.
In the 1990s we did a comparison of the average workload of a USAID
contract specialist versus their peers at agencies like DOE, Department
of Agriculture, HHS and others and we discovered that the USAID
specialist had 2 to 4 times the workload of those at the other
agencies. I would expect the situation is worse now than it was then.
In the late 1980's, there as a comprehensive review of USAID led by
OMB and the resultant report was known as the ``OMB Swat Team Report''.
During the 1990's that report was used as a guide in addressing a
number of enhancements and reforms. This included a decision to hire
approximately 45 additional contract specialists that brought the
Office of Procurement to its highest strength ever, of approximately
175 personnel. Additionally, during this same period, actions,
statements and attitudes of the Agency senior management made it clear
agency-wide that: (1) the procurement life cycle encompasses all
offices of the agency; (2) that successful procurement requires highly
qualified and well trained Contracting Officers (COs), Cognizant
Technical Officers (CTOs), and Heads of Contract Activities (HCAs); and
(3) that successful procurement systems and practices are critical to
achieving the results of the Agency. This powerful combination of
relatively simple fixes caused morale in the Office of Procurement to
reach a peak. Supervisors had sufficient staff to get the job done and
support functions such as evaluations of operating units overseas and
the audit function were operating efficiently and had the support of
Agency senior management and buy-in from the technical offices on the
importance of understanding their role in the procurement function.
Unfortunately, in my opinion, the situation since then has
seriously eroded. The current permanent staffing level in the Office of
Procurement is only approximately 120 personnel yet with the addition
of contracting for Iraq and Afghanistan along with special programs
like the AIDS Initiative, the workload has increased dramatically.
Again, these type situations create the potential for vulnerabilities,
not to mention stress and overworked procurement professionals. I do
not believe it to be sustainable.
In looking at the future I think a decision should be made to
``staff up'' the Agency's procurement function across the Agency--but
most immediately within the Office of Procurement--at a level that
allows efficiency and accuracy. By ``staff up'' I mean recruit and
employ bonafide and qualified GS and FS contract specialists for the
long term and not utilize a patchwork of personal service contractors
and temporary use of overseas foreign service nationals on a continual
ad-hoc basis. The procurement function is vital to USAID, perhaps more
so than many within the Agency realize. If USAID achieves a reasonably
staffed and trained procurement function and sustains it, they will be
in a better position to deal with ``surges'' like those they currently
face and they will have professionals who are better trained for the
type contracts they are being asked to put in place. Also, support
functions like policy, evaluation and audit would be in a position to
better support the operations staff.
Senator Hagel. Mr. Stevenson, thank you. Gentlemen, all
three of your statements are really excellent and I appreciate
you each summarizing the statements. And I will see that your
statements get wide distribution, especially within USAID. And
we may even give them a quiz on it.
But I am particularly struck by the three statements for a
number of reasons, but mainly because you focused in on the
areas that need the most significant attention for the long
term and they are responsible recommendations that are very
important. And, you each recognize what a big job USAID has to
do and you have noted that, and some of you have been part of
it, as Mr. Stevenson for 20 years. So you all understand what
we're dealing with here, so your statements are very helpful.
Very helpful to this committee, and I would think very helpful
to USAID, because they know that the spirit in which they were
given was the right spirit.
Since I have promised Bertie to be out of here by 6:00, we
have 15 minutes and what I would like to do is maybe get some
questions in here. And in what we cannot finish, if it would be
acceptable, I would like to submit to the three of you, and in
your spare time, maybe you could give a little attention to
them, because we do value what you think, and your expertise
and experiences are very important at an important time.
Dr. Burman, let me begin with you. Would you care to
describe in greater detail the recommendations that are in your
statement as well as you touched upon some of these in your
summary, recommendations as to how we can strengthen the
partnership between procurement and originating office staff?
Now, I got into a little bit of that, as you know, in the
question and answer, and I am not only internally within USAID,
but the multi-office department areas of responsibilities,
specifically I mentioned DOD, and CPA, Department of State. But
if you could round out a little bit, Dr. Burman, what you were
talking about here?
Dr. Burman. I think, frequently, you see in the civilian
agencies, so it is not unique to USAID, a kind of over-the-
transom mentality. It is the technical folks, program folks
deciding what they want and then throwing something over to the
procurement shop and saying, hey can you get this for us? When
really what ought to be happening is they ought to be working
together right up front in the process.
Now, Rick mentioned co-location as a possibility where you
have procurement people in offices with the program staff and
developing relationships. And frankly that's what happens
frequently out in field for U.S. civilian agencies, or overseas
for USAID, where people are sitting next to one another,
they're talking to one another all the time, and they are
working with one another all the time. So that is a kind of
informal process to make that work better.
Some of the more formal measures are the ones that the
Inspector General mentioned, saying that if you are a contract
technical officer, people are going to be concerned about
whether you know what your role really is, and they are going
to evaluate you on that as something other than just a
collateral duty or a minor role. I mean, we see that, from our
perspective, as a very major function for the Agency because
they aren't doing the work. They are looking at somebody else
who is doing it and they have to make an assessment if they are
doing it right, are they getting the right thing.
So it is absolutely, in our view, critical to the Agency
that folks who are doing that job ought to be perceived by the
Agency as performing a very strategic function. And they ought
to have performance measurement skills to do that. But I think
those would be some of the suggestions to make that work more
effectively and bring folks together in a shared mission
environment.
Senator Hagel. Thank you. Mr. Stevenson, you got into your
summary, and it is noted in your written testimony here, the
procurement contracting process, lack of adequate staff, all
three of you have actually touched upon this to some extent,
lack of expertise in the construction-type contracting. You
note, and again I think that all three of you have made similar
statements to vulnerability that resides in that lack of
expertise, especially for the long term, as you, again all
three have mentioned.
What in your opinion has been the negative repercussions so
far of this deficiency in our contracting policies,
specifically in Iraq and in Afghanistan?
Mr. Stevenson. Well, I can't speak first-hand since I
wasn't a part of the process, but the fact is that if you have
someone who is reviewing statements of work and negotiating
costs for large construction projects, and they don't have a
background in that area, that's a speciality area in
contracting, and just like technical assistance. And I would be
concerned of how much we're paying for something versus how
much we should be paying for something.
And especially when you're talking about a cost plus fixed
fee, you know, the contractor is under zero to little costs.
They certainly have physical risks in these places. But when
you talk about cost risks, they really don't have any.
Basically, they are allowed to work until they use up all the
money, and if the job is not done, essentially they either have
to stop work or they get more money, putting it very flatly.
And when you asked your question earlier as to how many
subs have been fired, or even how many primes will be fired,
that's going to be a very difficult number for Tim to come up
with. But I can tell you that there are not many cases in USAID
of what we call a termination for default. Essentially what
that means is it is a provision under regulations.
And it's a little biting, but there used to be an old
saying in USAID years ago, that a project officer never met a
project that he didn't like, or that a few million dollars
couldn't make better.
So USAID does not have a good history of cutting things off
when they are not working. And that's just, again, the nature,
you know. But from the standpoint again of the construction
contracting, my concern would be that people were looking at
costs.
I can give you almost a quote that one of the very large
companies officials told me. They called me up and said, their
scope of work was meaningless, and the budget had no cost
reality. Now this is a good firm and they are probably doing
good things and doing their best, but having a statement of
work that is meaningless kind of means that we are just feeling
our way along. But as a taxpayer we are feeling our way along
spending tens of millions of dollars, and are we spending tens
of millions to do something that we have got to turn here and
go back and do something else if that didn't work.
I am not criticizing the people that are trying to do it,
but it just shows that I have my personal opinion about Iraq,
and that is maybe we went too big, too quick. And I think Rick
has a good point about these large monstrous contracts. How do
you manage those as opposed to smaller-scale operations that
you can judge results much better, and you can manage much
tighter, and that you can much better oversight on?
Senator Hagel. Thank you. Mr. Barton, how many CTOs, IGs do
you believe, a general ballpark, that should be in Iraq, in
Afghanistan. I mean, I know that you listened to the Inspector
General and what Tim said, particularly the Inspector General
saying, in Afghanistan, for example, I don't need anybody there
as I work out of the other missions.
What are your thoughts about those individual officers, in
those two particular countries, Iraq and Afghanistan?
Mr. Barton. I am not sure that I can really answer your
question very skillfully because I don't really have a clear
sense. I found that the Inspector General's visits to our
programs were adequate, that we did not have to have somebody
in-country to get the benefit of their concurrent audits. They
could come in and they could spend 4 week, 6 weeks, 8 weeks
looking at our program and it was perfectly satisfactory. They
weren't going to get that much smarter being there everyday.
There is a very real problem in Afghanistan because of the
number of slots, in terms of security provided, and beds at the
residence, and what not. So all of those issues really get in
the way. But what I heard as I prepared for this meeting today
and in talking to people is that we probably have about half
the skilled people that we need in terms of the programming
people who really understand this stuff, and are available. And
then we have about half as many people out there as we should
have. So we're probably at the 25 percent level. That's,
obviously a gross generalization but----
Senator Hagel. You're talking specifically about the CTOs?
Mr. Barton. Yes, CTOs.
Senator Hagel. Yes.
Mr. Barton. And I think the Inspector General comes through
and kind of looks for things, is generally either called in by
the programming people, or called in by somebody who has a
complaint. So, I am not sure that the presence there; though
you do pick something up by kicking around.
Senator Hagel. As all three of you have been around a long
time in this business, but, Mr. Barton, explain if you will,
maybe your experiences in interagency coordination. It rolls
back a little bit to the previous question that I asked. And I
asked the USAID people especially, how do you deal with these
kinds of interagency issues? Any recommendations specifically
in that area?
Mr. Barton. Well.
Senator Hagel. If you could hang on for just a moment.
[Pause.]
Senator Hagel. All right.
Mr. Barton. The one that I would make on the interagency is
that we got off to a bad start. The whole process of preparing
for the post-conflict period was kept so secret and people who
went to meetings were told that they couldn't even go back to
their agency and tell people what was going on. So the only way
the people in the Agency knew what was going on is if they had
a leak from one of their own people telling them what had
happened at the meeting in preparation.
And the argument was always put forward was, well, we don't
want to make it too clear that we are going to war, and this
was at a time every day in the newspapers tens of thousand of
soldiers were being sent to, essentially, the region. So, it
was just a complete disconnect between the reality of what was
happening and some kind of national security mode that people
got into.
And I think that when you start that way, then you are
constantly, constantly playing catch up. You're always behind.
And yesterday's good decision is not necessarily today's good
decision. And so, we have seen that pretty much for the whole
year. And I think it held up on this area as well.
These folks need to be prepared. There are things that can
be done and the Agency hasn't typically done it. The Agency has
generally been in the 6 month to 14 month time-frame for
turning around a contract. For Iraq, they moved things much
more quickly and I think they deserve credit for that. They
could create the capacity to do it, but that hasn't been the
traditional mode.
The Agency really has to think where we're going to be
doing these kinds of things, we have been for the last decade,
these are not aberrant experiences. This is the way that life
is going to be, and really readjust to it.
Senator Hagel. Yes.
Mr. Barton. DOD doesn't look a lot better here.
Senator Hagel. Yes, I understand. Gentlemen, thank you. I
wish we had another 2 hours and we may well ask you to come
back, because we intend to do a follow up hearing, and we would
like to get you back and engage.
Again, I thank you for your statements. I will ask if it is
OK, with the three of you, if I could submit some additional
questions to all of you. I had some other areas that I wanted
to get into, but because the time is late, we will adjourn.
We're always grateful for your service, gentlemen. Thank
you very much.
[Whereupon, at 5:58 p.m. the subcommittee adjourned, to
reconvene subject to the call of the Chair.]
----------
ADDITIONAL QUESTIONS SUBMITTED FOR THE RECORD
Responses of Hon. Everett L. Mosley, Inspector General, USAID, to
Additional Questions for the Record Submitted by Senator Richard G.
Lugar
U.S. Agency for International Development,
Office of Inspector General,
Washington, DC, March 22, 2004.
Hon. Richard G. Lugar,
United States Senate,
SH-306 Hart Senate Office Building,
Washington, DC.
Re: February 25, 2004, Senate Foreign Relations Committee, Subcommittee
on International Economic Policy, Export, and Trade Promotion Hearing
on USAID Contracting Practices
Dear Senator Lugar:
Attached are answers to your questions for the record following the
February 25, 2004 hearing on USAID Contracting Practices held by the
Senate Foreign Relations Committee, Subcommittee on International
Economic Policy, Export and Trade Promotion. Please note that we are
answering only those questions that apply to the OIG. USAID management
will provide a separate response to the other questions.
Please do not hesitate to contact me if you would like any
additional information.
Sincerely,
Everett L. Mosley,
Inspector General.
Question 4. As Halliburton, an experienced international
contractor, continues to find problems with respect to its Iraq
contracts, how can we be sure that these are not going on with Bechtel
or Louis Berger? What detection or prevention mechanisms are there to
assure us of this? If they are internal to the company, are they
visible to the CTO or to the IG?
Answer. The problems experienced with Halliburton were disclosed by
the Defense Contract Audit Agency (DCAA) during audits that it was
conducting at the request of the Department of Defense. Since the
beginning of the Iraq program and long before the problems with
Halliburton were discovered, USAID/OIG has used DCAA to audit the
incurred costs charged by the 10 prime contractors implementing the
USAID/Iraq program.
Because of the size of the Bechtel contracts, we also engaged DCAA
to perform three additional audits to examine Bechtel's accounting
system that is being used in Iraq, the subcontracting processes
employed by Bechtel in Iraq, and the billing system used by Bechtel in
Iraq. Since the first series of audits of Bechtel by DCAA, Bechtel has
received an additional contract worth $1.8 billion. Once arrangements
have been completed with DCAA, USAID/OIG plans another series of audits
of the new Bechtel contract.
Shortly after USAID awarded the major contract to Louis Berger for
rehabilitating the Kabul-Kandahar highway in Afghanistan (under the
Rehabilitation of Economic Facilities and Services Program), the OIG
sent its Regional Inspector General located in Manila to Kabul to
perform a preliminary risk assessment of the USAID program and develop
an audit strategy.
Following this initial work, the OIG developed a strategy involving
a concurrent financial audit program and performance audit activities.
A series of concurrent financial audits performed by contracted
accounting firms are underway. The first of the financial audits on
Louis Berger, issued January 23, 2004, covered about $1.2 million in
costs of which about $29,000 was questioned.
As regards performance audit activities, the OIG issued an
information report on the progress of the Kabul-Kandahar highway
(Review of the Road Project Financed by USAID/Afghanistan's
Rehabilitation of Economic Facilities and Services (REFS) Program, RIG/
Manila Memorandum 04-002, dated November 13, 2003). While mentioning
both project management successes and problems that had caused and
might continue to delay the project, the report noted that, as of
November 1, 2003, contractor reports showed that 222 of the 389
kilometers of the Kabul-Kandahar highway had been paved and that USAID
expected that the entire 389 kilometers would be paved with one layer
of asphalt by December 31, 2003. USAID subsequently reported that this
was accomplished. The report also noted that Louis Berger had not
updated its implementation plan to reflect planned actions to December
2003 or beyond. The report recommended that USAID/Afghanistan require
Louis Berger to maintain a detailed, updated implementation plan for
its activities under the REFS contract.
The OIG started a second review of the REFS program in January 2004
to determine if the road reconstruction activities are on schedule to
meet planned outputs.
Question 5. How do you audit grants?
Answer. The OIG is responsible for overseeing the financial audits
of grantees in accordance with the Single Audit Act and Office of
Management and Budget (OMB) Circular A-133.
The OIG provides oversight of these audit activities, ensuring that
audits are conducted in accordance with appropriate quality standards,
thereby enhancing accountability over USAID contractors and grantees.
In addition, in accordance with provisions in USAID grant agreements,
the OIG reviews audit reports of foreign organizations that receive
USAID funds. The OIG further enhances accountability over grantees by
providing training in U.S. government cost principles and periodically
conducting quality control reviews of audits performed by non-Federal
auditors.
U.S.-Based Grantees
U.S.-based nonprofit organizations (grantees) receive significant
USAID funds to implement development programs overseas. As required by
OMB Circular A-133, ``Audits of States, Local Governments, and Non-
Profit Organizations,'' non-Federal auditors perform annual financial
audits of USAID grantees that spend over $500,000 of Federal funds
annually. These auditors are required to identify (1) reportable
conditions involving major programs, (2) material noncompliance with
laws and regulations, (3) known fraud and abuse affecting a Federal
award, (4) known questioned costs above $10,000, (5) misrepresentations
of the status of prior audit findings, and (6) the reasons why the
auditor's report on compliance for major programs is other than
unqualified.
The OIG provides oversight for the non-Federal auditors performing
these audits and reviews non-Federal audits to determine whether
auditors prepared audit reports in accordance with Circular A-133
reporting requirements and generally accepted government-auditing
standards issued by the Comptroller of the United States. The OIG also
conducts quality control reviews to determine whether the underlying
audits complied with Circular A-133 audit requirements. In some
instances, the OIG contracts with the Defense Contract Audit Agency
(DCAA) to perform specialized financial audits of U.S-based grantees.
Foreign-Based Grantees
OMB Circular A-133 does not apply to foreign-based grantees.
However, given the high-risk environment in which USAID operates
overseas, USAID has extended similar audit requirements to its foreign-
based grantees through standard provisions included in grants,
cooperative agreements, and contracts and through the Guidelines for
Financial Audits Contracted by Foreign Recipients issued by the OIG.
Audits are required for all foreign nonprofit organizations that
spend $300,000 or more in USAID funding during their fiscal year. USAID
may also require financial audits of nonprofit organizations that fall
below the $300,000 threshold; The OIG performs desk reviews on all
audit reports for compliance with the Guidelines for Financial Audits
Contracted by Foreign Recipients. The OIG also conducts quality control
reviews for a sample of completed audits to determine whether the non-
Federal audit firm complied with auditing standards.
In addition to financial audit coverage of grants, the OIG
routinely conducts performance audits of selected programs implemented
by grantees to determine if the programs are accomplishing their
intended objectives.
______
Responses of Timothy Beans, Director, Office of Procurement, USAID, to
Additional Questions for the Record Submitted by Senator Richard G.
Lugar
Question 1. Is the contract mechanism under which you operate
flexible enough to respond to emergent needs in an environment such as
Iraq and Afghanistan.
Answer. USAID contractually operates under the Federal Acquisition
Regulations (FAR) and Agency for International Development Acquisition
Regulations (AIDAR). The federal procurement regulations are based on
the principle of full and open competition and receiving the best value
for taxpayer dollars. It is a policy which is principled, logical, and
works in most situations.
The war in Iraq and Afghanistan presented unique challenges to our
acquisition approach. The planning usually associated with a government
acquisition did not exist for most of these actions. Once the war
started, contracts were needed almost immediately in order to begin
restoring order to the various countries and to rebuild the damaged
infrastructure. With the troops advancing on Baghdad so rapidly, we
were told that, if contracts were not in place shortly after they take
the country, American lives would be in danger. Procurements that
generally take six or more months to complete were being requested in
less than half that time. We did not have the luxury of being able to
do a full and open competition and were forced to do a ``limited
competition.'' The USAID Administrator had the authority to approve
this approach and appropriately used it to protect American lives.
``Limited competition'' is run like a full and open competition except
you do not have time to announce the procurement publicly.
Question 2. In Iraq, the CPA has set up a Program Management Office
structure, which serves as a pass through for USAID contracts. What
purpose does this serve practically speaking and in terms of
efficiencies and overall effect on programs? Will this change when
sovereignty is transferred and a more conventional USAID mission is
established?
Answer. I believe the establishment of the Program Management
Office (PMO) by the Coalition Provisional Authority (CPA) is an attempt
to make sure that there are efficiencies in the way each Agency is
undertaking the rebuilding effort. It remains to be seen if this
organizational structure will be able to fully achieve its goal, but
certainly the idea of having one body coordinate agency efforts so as
to avoid duplication is a good concept.
I would envision that the CPA will eventually disappear as we move
toward Iraqi independence and we establish an Embassy in Iraq. At that
point, the State Department will probably assume the lead, and USAID
will establish a separate mission. Once that is accomplished, USAID
would be free to pursue its established strategic objectives for the
country based on approved funding from Congress and with concurrence
from the Ambassador.
Question 3. In Iraq, the PMO has yet to sign a single contract,
which makes USAID's 12 contracts, and primarily Bechtel, Ambassador
Bremer's prime tool. As we wait to fill the rest of the contracts, do
we not have more priority projects waiting in the wings? Why not fill
the $1.8 billion contract with task orders?
Answer. USAID was the first Agency in the Federal Government to get
a majority of contracts awarded to support the Iraq war effort under
the initial supplemental. We also were the first Agency to award a $1.8
billion reconstruction contract so Ambassador Bremer would be able to
continue the important work of fixing the Iraqi infrastructure. DOD has
been working hard to award a number of construction contracts covering
specific sectors. I understand that they are making progress. However,
the Bechtel contract is available to Ambassador Bremer, and he can
write task orders against this vehicle so as not to slow down the
reconstruction effort.
Question 4. As Halliburton, an experienced international
contractor, continues to find problems with respect to its Iraq
contracts, how can we be sure that these are not going on with Bechtel
and Louis Berger? What detection or prevention mechanisms are there to
assure us of this? If they are internal to the company, are they
visible to the CTO or to the IG?
Answer. Bechtel and Louis Berger have, fortunately to date, not had
the severity of problems we have seen with Halliburton. However, one of
the most difficult tasks to undertake is doing construction in an area
of continuing hostilities. Even though both contractors have had no
major problems so far, it is an area we need to monitor closely to make
sure our desired results are being achieved.
Under normal contracting procedures, construction similar to that
being performed by both Bechtel and Louis Berger would be overseen by a
USAID Contracting Technical Officer (CTO) on a daily basis. We are
attempting to get to the construction sites, but the continuing
violence has made it impossible to be on site each day. That is why it
is important that lines of communication be maintained and that we talk
with the contractors daily about their progress.
Question 5. How do USAID's contracting procedures differ from
grants? How do you oversee grants and do you audit them? How do you
measure their effectiveness?
Answer. Basically, we follow similar procedures in awarding
contracts and grants. We seek organizations interested in providing
services in an area we need, we evaluate proposals against announced
evaluation criteria, and we award accordingly. However, the purpose of
the two instruments is very different. The government will use a
contract when it wants something specifically. The government can
``control'' the contractor in that it can change requirements based on
its needs and wants. A grant, on the other hand, is basically the
government's support to an objective it considers worthy of funding. In
a grant, we are choosing to support the grantee's program. A grant is
often referred to as a gift to the organization. That being said, we do
often specify what results we are seeking, and a grantee working in
that area will submit a grant request to meet some specific need that
we have articulated. The real difference between the two documents is
the amount of control we need or want to have under the contractual
arrangement.
Both a contract and a grant generally require an audit be performed
upon completion of the work. A contractor is audited annually under
generally accepted accounting procedures as set for in the FAR.
Grantees are required to do an A-133 audit if they receive over
$500,000 in any one year.
The Inspector General (IG) is responsible for the quality of the
audit and will review grantees for compliance.
______
Responses of Frederick D. Barton, Senior Adviser, Center for Strategic
and International Studies, to Additional Questions for the Record
Submitted by Senator Richard G. Lugar
Question 1. What changes would you recommend to make better use of
U.S. foreign assistance dollars implemented by USAID and OTI? Are the
changes regulatory or legislative? If, as you stated in the hearing,
these are not new recommendations, why have they not been enacted?
Answer. Brief: Both regulatory and legislative changes are needed.
Many of the problems are driven by USAID habits, but there are
legislative impediments also. Congress can help with both by
recognizing the huge inherent risks and by encouraging USAID to be more
agile. Change has been resisted by bureaucratic fiefdoms, an internal
defensive mindset, and scapegoating of USAID.
In politically charged places, foreign assistance must be seen as
``venture capital'': catalytic and high risk. To be effective, the aid
must be delivered with speed, flexibility and a high level of reliance
on the judgment of field program people. Opportunities must be seized
as they present themselves, which often requires day to day
adjustments. Encouraging changes in local practices is more important
than the actual projects in many cases (the new school may not be as
important as the community group that comes together to plan the
project, volunteers labor, and handles the decision making and funds in
a transparent way).
Few of these practices are common in USAID, though OTI and OFDA are
frequent exceptions.
Plodding budget and contracting processes combined with a culture
that is worried about making mistakes and prefers to avoid politics,
produces a timidity in programming.
Much of this is bolstered by internal USAID practices, habits, and
regulations. The vast majority of USAID has preferred to pursue
business as usual vs. taking on the venture capital role that is
required in the conflict prone world. Some of this is reinforced by
Congressional earmarks, mandates, and a seeming under appreciation of
the risks involved in the work.
Changes could include: removing legislative obstacles that impede
operations (ask USAID to provide a list of the top ten); creating
larger pools of funds that have notwithstanding authorities;
encouraging the use of these special authorities (program managers do
not do this much now); two year funding with carryovers (no end of the
year rushes and greater liquidity); more frequent informal and open
exchanges with the Hill, including field program managers; new methods
of measurement that are tied to political change; and the ability to
supplement staff with international hires, strategic partnerships with
the UN and others, and short term employment.
Much does not need legislation but clarifying legislative intent
might spur progress and break through some of the resistance which is
strong within USAID and most bureaucracies.
Congress could give USAID a clear signal that it wants the
organization to be a center of innovation and risk, that it can be a
leader in addressing conflict issues, and that it is looking for
dramatic changes (and experiments) in the next five year period. I
believe that conflict related work should be a significant part of
USAID's portfolio (perhaps 50% with 1,000 people dedicated to this
work), and that the practices of the conflict related work will have a
salutary effect on the rest of USAID.
Question 2. To what extent are the lessons learned from Iraq and
Afghanistan unique to these environments.
Answer. Brief: We are moving from a series of micro state collapses
towards larger cases, such as Pakistan. Our U.S. and global
institutions are barely capable of dealing with an East Timor. Iraq and
Afghanistan have shown the systemic weaknesses, in defense, diplomacy,
intelligence, justice and foreign assistance. These are not unique to
the present circumstances.
Iraq and Afghanistan are larger in every sense, from territory,
population, level of U.S. commitment and amounts of funding, and that
enormity highlights many of the weaknesses mentioned above. USAID has
broken through some of its traditional practices in order to be quicker
and more agile, but at the end of the day it is handicapped by its lack
of a deep-seated commitment to this kind of work and inhospitable ways.
What is most unique about Iraq and Afghanistan is the expectation
that civilian work can be conducted when security is still so
unsettled. USAID should be faster and more responsive and a ``post-
bullet'' program. It is now being asked to take physical risks that go
beyond the venture capital model.
______
Responses of Marcus L. Stevenson, The Urban Institute, to Additional
Questions for the Record Submitted by Senator Richard G. Lugar
Question 1. What changes would you recommend to make better use of
U.S. foreign assistance dollars implemented by USAID and OTI? Are the
changes regulatory or legislative? If, as you stated in the hearing,
these are not new recommendations, why have they not been enacted?
Answer. The chronic and redundant problems of 1) understaffing
staffing of contracting professionals; 2) lack of training for
cognizant technical officers (CTOs); 3) a budget allocation and
distribution that does not provide timely funding to operating units
and; 4) lack of procurement planning have been addressed individually
at different points in time over the years, but except for a sustained
5 year period between 1994 and 1999 when procurement reform was
supported and sustained by agency senior management, the aforementioned
problems have continued to exist. In my opinion this results from the
fact that many within the agency cannot come to grips with the fact
that the agency is a procurer and grants maker as opposed to an
implementer. By this I mean that the USG employees of USAID do not
directly implement projects/programs. They oversee the use contractors
and grantees. However, the agency is still structured in terms of
staffing composition, more or less, like it was in the 1970s when it
directly implemented projects/programs. The agency should accordingly
reinvent itself and structure itself more as a business management
entity. If this was accomplished it could probably operate with less
staff, if they are the right kind and provide better oversight of its
project/programs. I do not believe any regulatory or legislative
changes are necessary as the authority to make necessary changes
already exist.
Question 2. To what extent are the lessons learned from Iraq and
Afghanistan unique to these environments?
Answer. The only uniqueness is the size of the various procurements
and in the case of Bechtel, the type of contract. I believe the major
problem was the lack of transparency and lack of competition in many
cases. Frankly, I and a number of other procurement professionals
believe the agency could have been much more transparent and inclusive
and as a result, the procurements could have been more effective from a
technical aspect and more cost effective as well. In my opinion the
contracts were too much too soon. There should have initially been
smaller short term contracts to ascertain the ``on the ground''
situation and then more comprehensive and longer term contracts could
have been developed, competed and awarded. What we are seeing and
hearing about with the DOD contracts must certainly also be the case
with the USAID contracts, to some extent. In USAID's case I do not
believe there could have been accurate cost realism when the contracts
were awarded and I subsequently believe that the award amounts and
expenditures were excessive. Also, day to day monitoring is likely no
where near what it should be due to the combination of lack of staff
and dangerous conditions in the field. Add to this the fact that the
prime contractors have awarded large numbers of subcontracts to third
country firms and one has a recipe for potential abuse in terms of
inflated payments for work/services possibly not received or of
inferior quality.
______
Responses of Hon. Everett Mosley and Timothy Beans, USAID, to
Additional Questions for the Record Submitted by Senator Chuck Hagel
Question 1. Since 1990, how many primary contractors and sub-
contractors have been terminated or fired from USAID contracts for non-
performance? To clarify, we request that this number exclude any
``changing of chief party'' actions.
Answer. While it is difficult to get an exact number (we have
identified seven contractors going back to 1997 so far), the Agency has
terminated contractors for default. This is when the contractor,
through its lack of technical progress in accordance with the term of
the contract, or a situation where it has been found to be in violation
of the law, is terminated for its own default. This would not be the
case with a subcontractor since we hold the prime contractor totally
responsible for performance. If a subcontractor was not performing
well, the prime contractor would be held accountable. Prime contractors
may let a subcontractor go for poor performance, but USAID would not be
responsible for that decision. If the prime were to retain a
subcontractor that was not performing, we would hold the prime
responsible, and it could lead to the prime being terminated.
Question 2. Mr. Beans, in his testimony, described the process of
estimating the value of contracts for the first phase Iraq
reconstruction contracts. Describe in greater detail the specific
methodology that was used to arrive at the contract value amounts for
the reconstruction contracts.
Answer. USAID's phase I Iraq reconstruction contracts were prepared
as part of a broader U.S. Government contingency planning effort. This
process was undertaken before a decision had been made by the U.S.
Government on the initiation of combat operations. As part of the U.S.
interagency planning process, USAID determined what specific
accomplishments and deliverables were to be achieved with possible
reconstruction assistance. As with all preparation for solicitations,
USAID utilized standard techniques to prepare the government estimates
for each contract. USAID utilized lessons learned from other conflict
environments, particularly Afghanistan, the Balkans, Colombia, El
Salvador, and Angola, to assess the parameters for implementation and
to determine likely levels of effort. For example, with respect to
preparing the contract for strengthening local government institutions
and processes, USAID anticipated that significant technical assistance
would need to be provided to various local administrations and interim
representative bodies within each of Iraq's 18 governorates; this fed
into an estimate of the appropriate number of international and local
personnel with specific technical skills that may be required for the
contract. With respect to the economic governance program, USAID
reviewed the implementation requirements for currency conversion within
Afghanistan and the investments that were required in transforming the
economic policies and processes within the former Soviet Union to help
shape the government estimate for that contract. USAID recognized that
the environment in any post-conflict situation can be highly fluid and,
therefore, sought to maximize flexibility as well within its
reconstruction contracts to respond to unanticipated requirements.
Question 3. Mr. Mosley testified that the OIG review of the first
phase Bechtel contract in Iraq indicated that for this contract . . .
``USAID did not provide one offeror with timely notification that an
award had been made and did not provide timely debriefings to three
unsuccessful offerors . . .'' which resulted in USAID being in ``non
compliance with acquisition regulations.'' Mr. Beans testified that the
Procurement Office did not see this as a violation of Federal
Procurement Rules, but that it was a difference of interpretation with
the OIG. How does USAID respond to what the OIG determines as a
violation of Federal Procurement Rules as merely a difference of
opinion?
Answer. After additional review of Section 15.503, Notifications to
unsuccessful offerors, I do believe that we were technically in non-
compliance with the acquisition regulations. We should have officially
notified the non-selected offeror within three days that they were not
selected. The intent of the regulation is to allow companies to know
who was selected for award, the number of offerors solicited, the
number of proposals received, the name of the company receiving the
award, and the contract price.
The reason I felt this was a rather insignificant finding was that
virtually all of this information required to be provided was front
page news throughout the country the day after the award. In fact, it
was on most major news broadcasts, including CNN. The information is
required to be provided so the government can be as open and
transparent as possible and let companies that have spent money bidding
on government contracts know in a timely manner that they are no longer
in consideration for award. In this case, the only other contractor in
the competitive range could not have known about the award, the dollar
value of the procurement, and who else had submitted proposals. This
information was being discussed in the paper and the press. We should
have notified the non-selected contractor in writing within three days
as required by the Federal Acquisition Regulations. Therefore, the
finding is correct.
I would like to point out that we did provide both a written and
oral debriefing to the non-selected contractor to make sure they were
satisfied that we followed proper procedures and that the award was
made in strict accordance to the evaluation criteria listed in the
initial request for proposal. As I believe I stated in my testimony,
the Agency has not received a single protest of any procurement awarded
by USAID in support of our efforts in Iraq.
Question 4. Please provide specific plans, policies, and procedures
for USAID to reach out to . . . ``small, minority, and disadvantaged
American companies'' . . . as raised by the House of Representatives in
the April 2003 Congressional Conference Report for the first Iraq
supplemental, ``Marketing Emergency Wartime Supplemental Appropriations
for the Fiscal Year 2003, and for Other Purposes'' (Report 108-76).
Answer. I have personally appeared as an advocate for small and
small disadvantaged businesses at numerous gatherings throughout the
Washington area. I have also spoken to a large group of woman-owned
businesses on how best to secure contract work in Iraq. Along with our
Office of Small and Disadvantaged Businesses, we sponsored a day-long
meeting for small businesses at the Washington Grand Hyatt Hotel. We
will be participating in a special conference for small business
sponsored by the Bechtel Corporation in late March as well as a one day
conference in Philadelphia on April 22, 2004 sponsored by the Small
Business Administration.
During the awarding of contracts under the first supplemental, we
required small and small disadvantaged contracting plans in six of the
first nine contracts we awarded as set forth below:
Personnel Support, 14%
Primary and Secondary Education, 30% (note: a 100% woman-
owned business)
Local Governance, 30%
Health, 58.5%
Economic Governance, 21%
Agriculture, 20%
We did not require subcontracting plans in the initial Bechtel
contract for infrastructure because the push from the leadership in
Iraq was to get Iraqi firms back to work for security considerations
and to stimulate economic growth. The airport and seaport contracts
were smaller and were dealing with specific, urgent tasks, and we did
not feel there were appropriate opportunities to include plans in these
contracts. However, we are very proud of our efforts in encouraging
small business opportunities throughout our work in Iraq.
______
Response of Timothy Beans, Director, Office of Procurement, USAID, to
an Additional Question for the Record Submitted by Senator Paul
Sarbanes
Question 1. I understand that NGOs have been almost completely shut
out of USAID's Afghanistan reconstruction effort. What was the reason
for this decision? Who made the decision? Don't NGOs offer valuable
services and experiences that can benefit USAID's mission in
Afghanistan?
Answer. Because of their extensive network and experience in
Afghanistan, nongovernmental organizations (NGOs), both international
and Afghan, have played and will continue to play a critical role in
USAID's programs in Afghanistan.
NGOs are, or will, receive nearly $200 million in USAID assistance,
including approximately $114 million in current grants or contracts and
an additional $84.7 million in planned grants.
Because of the limited staffing in Afghanistan and the need for
rapid, mass impact, the USAID mission has had to move away from grant
mechanisms, the preferred contracting option of NGOs, to contracts.
Contracts enable USAID to manage more actively the reconstruction
programs, both in specifying results to be achieved and demanding
reporting on impact, and to ensure a significantly larger scale of
impact than small-scale NGO grants allow.
NGOs active in Afghanistan were invited to bid on these contracts
and were encouraged to form consortia with other groups that are
willing to manage a contract.
To ensure that USAID's programs can continue to benefit from the
NGOs' experience in Afghanistan, virtually all the contracts include
NGO sub-grant programs. Below is a summary of NGO involvement in the
major contracts:
Health: The prime contractor is an NGO, Management Sciences
for Health (MSH). Under this program, sub-grants totaling over
$37 million have been awarded to 24 NGOs (7 U.S., 10 Afghan, 7
international), and an additional $37 million is planned.
Education: Eight NGOs (1 U.S., 5 Afghan, 2 international)
are part of a USAID-funded consortium led by Creative
Associates, an 8(a), woman-owned firm.
Agriculture: Twenty-four NGOs are receiving sub-grants (7
U.S., 10 Afghan, 7 international) from a U.S. contractor.
Economic Governance: Three U.S. NGOs have received funding.
Infrastructure: NGOs are being used to do both site
assessments as well as construction monitoring for schools and
clinics.
Democracy and Governance: Four U.S. NGOs--the Asia
Foundation, International Republican Institute, National
Democratic Institute, and International Foundation for
Electoral Systems--are the primary implementing partners of
these programs, including the just concluded constitutional
Loya Jirga and the upcoming elections.