[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
CODE YELLOW: IS THE DHS ACQUISITION BUREAUCRACY A FORMULA FOR DISASTER?

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

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 27, 2006

                               __________

                           Serial No. 109-180

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
29-933                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
BRIAN P. BILBRAY, California

                      David Marin, Staff Director
                Lawrence Halloran, Deputy Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 27, 2006....................................     1
Statement of:
    Ervin, Clark Kent, director, Homeland Security Initiative, 
      the Aspen Institute........................................   109
    Sullivan, Michael J., Director, Acquisition and Sourcing 
      Management, U.S. Government Accountability Office; David M. 
      Zavada, Assistant Inspector General for Audits, U.S. 
      Department of Homeland Security; and Elaine C. Duke, Chief 
      Procurement Officer, U.S. Department of Homeland Security, 
      accompanied by, John Ely, Executive Director of Procurement 
      for Customs and Border Protection, and Richard Gunderson, 
      Assistant Administrator for Acquisition, Transportation 
      Security Administration....................................    47
        Duke, Elaine C...........................................    74
        Sullivan, Michael J......................................    47
        Zavada, David M..........................................    62
Letters, statements, etc., submitted for the record by:
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............   117
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia:
        Prepared statement of....................................     4
        Staff report.............................................     7
    Duke, Elaine C., Chief Procurement Officer, U.S. Department 
      of Homeland Security, prepared statement of................    76
    Ervin, Clark Kent, director, Homeland Security Initiative, 
      the Aspen Institute, prepared statement of.................   112
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........   120
    Sullivan, Michael J., Director, Acquisition and Sourcing 
      Management, U.S. Government Accountability Office, prepared 
      statement of...............................................    50
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    40
    Zavada, David M., Assistant Inspector General for Audits, 
      U.S. Department of Homeland Security, prepared statement of    64


CODE YELLOW: IS THE DHS ACQUISITION BUREAUCRACY A FORMULA FOR DISASTER?

                              ----------                              


                        THURSDAY, JULY 27, 2006

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Tom Davis (chairman 
of the committee) presiding.
    Present: Representatives Tom Davis, Waxman, Duncan, 
Gutknecht, Higgins, Ruppersberger, Porter, Kucinich, Platts, 
Watson, Norton, Van Hollen, and Cummings.
    Staff present: Keith Ausbrook, chief counsel; Jennifer 
Safavian, chief counsel for oversight and investigations; Steve 
Castor, counsel, Rob White, communications director; Andrea 
LeBlanc, deputy director of communications; Edward Kidd, 
professional staff member; John Brosnan, procurement counsel; 
Teresa Austin, chief clerk; Michael Galindo, deputy clerk; Phil 
Barnett, minority staff director/chief counsel; Karen 
Lightfoot, minority communications director/senior policy 
advisor; Jeff Baran and Margaret Daum, minority counsel; Earley 
Green, minority chief clerk; and Jean Gosa, minority assistant 
clerk.
    Chairman Tom Davis. Good morning. The committee will come 
to order.
    No one thought that merging 22 disparate functions, 
personnel systems and cultures into the new Department of 
Homeland Security would be quick or easy. But we did expect 
that by now critical acquisition functions would be well 
integrated and well managed--an efficient engine driving the 
Department's evolving mission. Instead, through aggressive 
oversight, we have uncovered clear evidence of huge cost 
overruns, chronically lax contract management and preventable 
vulnerability to waste, abuse and mismanagement.
    In a very bipartisan effort here, the staff report provided 
to our committee today documented large-scale systematic flaws 
in the Department of Homeland Security's acquisition 
management. A fractured purchasing system is hobbling the 
Department's ability to meet core missions in border security, 
emergency management, information sharing and other key issues.
    Now, in reaching these conclusions, we reviewed over 6,000 
pages of documentation. Through a formal document request, the 
committee obtained copies of audits, reports and other 
assessments that cast doubts on contractor cost estimates, 
billings, accounting and estimating systems in contract 
performance. In five separate productions, DHS provided 196 
unique oversight documents, 149 of which were prepared by DCAA, 
the Defense Contract Audit Agency.
    Throughout this effort, we worked with the ranking member 
and his staff, and I want to commend my good friend and 
colleague, Henry Waxman, for his persistence and constructive 
approach. This is a textbook example of bipartisan oversight 
that gets results.
    This committee has been concerned about DHS acquisition 
challenges for quite some time, initiating a GAO study as early 
as December 2003. The subsequent report, released in April 
2005, confirmed many of our initial fears about acquisition 
dysfunction at DHS. GAO found procurement responsibilities 
scattered throughout the Department, with no clear lines of 
authority, decisionmaking or accountability. The lack of 
trained and skilled acquisition professionals compounded DHS 
acquisition ills.
    An alphabet soup of DHS elements: TSA, the Transportation 
Security Administration; CBP, the Customs and Border Protection 
Bureau; ICE, the Immigration and Customs Enforcement Bureau; 
FPS, the Federal Protective Service; FEMA, the Federal 
Emergency Management Association; and NDPO, the National 
Domestic Preparedness Office, and others, must be supported by 
an enormous array of goods and services provided under 
contracts valued at almost $10 billion a year. DHS buys 
everything from major information systems, cutting edge 
technologies and sophisticated technical support services to 
mundane commodities like bottled water and blue roof tarps.
    These diverse and complex procurements are supported by a 
disjointed management structure that does not integrate the 
acquisition function across the Department under a single 
official with responsibility to manage and oversee the multi-
million dollar enterprise.
    That lack of overall accountability and control has spawned 
a sad succession of disastrous acquisitions. A $104 million TSA 
contract for training airport screeners tumbled out of control, 
eventually costing over $700 million. Poorly defined 
requirements resulted in airport bomb detection machines that 
continually produce false alarms. Billion dollar technology 
contracts have yet to deliver basic telecommunications 
infrastructure to many of our Nation's airports. And as the 
Katrina Select Committee found, FEMA lacked the scalable 
contracting and logistics capacity needed in the wake of 
catastrophic loss.
    Just last week, GAO concluded a weak control environment 
exposed the Department to rampant abuse in the use of purchase 
cards. For want of final purchase card, up to 45 percent of 
purchase cards transactions during last year's hurricane relief 
efforts lacked proper authorization.
    This morning, we are going to focus on several troubled DHS 
acquisitions as cautionary tales and guideposts for reforms. 
What lessons should be gleaned from troubled TSA contracts to 
assess and hire airport passengers screeners, screen luggage at 
commercial terminals and upgrade airport computer networks? 
What would have improved Customs and Border contracts for 
radiation detection equipment, for the Integrated Surveillance 
Intelligence Systems or the America's Shield Initiative? We 
will ask what needs to be done to create a coherent 
organization within DHS that will facilitate successful 
management of the successful acquisition function.
    DHS has been tasked with critical missions subject to hard 
deadlines. Addressing our myriad vulnerabilities requires the 
Department to acquire complex, high-risk state-of-the-art 
solutions likely to have problems even under an ideal 
management structure. But with so much at stake, and so little 
room for error, the size or the difficulty of the challenge can 
be no excuse for a failure to put an effective management 
structure in place.
    [The prepared statement of Chairman Tom Davis follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.001
    
    [GRAPHIC] [TIFF OMITTED] T9933.002
    
    Chairman Tom Davis. At this time, I would ask unanimous 
consent to submit into the record a bipartisan staff report 
entitled Waste, Abuse and Mismanagement in Department of 
Homeland Security Contracts, and a summary of the DCAA audits 
prepared by staff.
    Without objection, so ordered.
    [The information referred follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.003
    
    [GRAPHIC] [TIFF OMITTED] T9933.004
    
    [GRAPHIC] [TIFF OMITTED] T9933.005
    
    [GRAPHIC] [TIFF OMITTED] T9933.006
    
    [GRAPHIC] [TIFF OMITTED] T9933.007
    
    [GRAPHIC] [TIFF OMITTED] T9933.008
    
    [GRAPHIC] [TIFF OMITTED] T9933.009
    
    [GRAPHIC] [TIFF OMITTED] T9933.010
    
    [GRAPHIC] [TIFF OMITTED] T9933.011
    
    [GRAPHIC] [TIFF OMITTED] T9933.012
    
    [GRAPHIC] [TIFF OMITTED] T9933.013
    
    [GRAPHIC] [TIFF OMITTED] T9933.014
    
    [GRAPHIC] [TIFF OMITTED] T9933.015
    
    [GRAPHIC] [TIFF OMITTED] T9933.016
    
    [GRAPHIC] [TIFF OMITTED] T9933.017
    
    [GRAPHIC] [TIFF OMITTED] T9933.018
    
    [GRAPHIC] [TIFF OMITTED] T9933.019
    
    [GRAPHIC] [TIFF OMITTED] T9933.020
    
    [GRAPHIC] [TIFF OMITTED] T9933.021
    
    [GRAPHIC] [TIFF OMITTED] T9933.022
    
    [GRAPHIC] [TIFF OMITTED] T9933.023
    
    [GRAPHIC] [TIFF OMITTED] T9933.024
    
    [GRAPHIC] [TIFF OMITTED] T9933.025
    
    [GRAPHIC] [TIFF OMITTED] T9933.026
    
    [GRAPHIC] [TIFF OMITTED] T9933.027
    
    [GRAPHIC] [TIFF OMITTED] T9933.028
    
    [GRAPHIC] [TIFF OMITTED] T9933.029
    
    [GRAPHIC] [TIFF OMITTED] T9933.030
    
    [GRAPHIC] [TIFF OMITTED] T9933.031
    
    [GRAPHIC] [TIFF OMITTED] T9933.032
    
    Chairman Tom Davis. Before I recognize our distinguished 
ranking member, let me just say, this Congress either tonight 
or tomorrow is going to go through a lengthy discussion and 
debate over legislation passed out of this committee last week 
that takes a look at all Federal programs across the board and 
should they be there, can we effectively combine them, and the 
like. The reaction of Government so many times when we have to 
lose weight or cut budgets is to cutoff fingers and toes.
    But what we see here is that the fat in Government is 
layered throughout the bureaucracy in the way we do business. I 
would gather that there are billions of dollars in losses and 
just general procurement and business management practices 
where you have, I think, far greater losses than you had just 
cutting programs, Mr. Waxman. That is the tragedy of this as we 
look at it, is that we are just not running as efficiently as 
we should.
    Again, I want to thank you and your staff for helping put 
this together. I look forward to your opening remarks. Thank 
you.
    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
thank you for holding this important hearing to examine 
homeland security contracts. I think you are absolutely right, 
this committee has operated in a bipartisan way in developing 
this report that we are putting out today and taking seriously 
the job that we have before us.
    With literally billions of dollars and the security of the 
American people at stake, congressional oversight is urgently 
needed and long overdue. Since the attacks of September 11, 
2001, the Department of Homeland Security and its predecessor 
agencies have gone on a spending spree. In 2003, the Department 
entered into 14,000 contracts worth $3.5 billion. By 2005, the 
Department's spending on contracts swelled to 63,000 contracts 
worth $10 billion.
    Our Nation has pressing security needs. If the money were 
well spent, it would be a good investment. But the problem is, 
hundreds of millions of dollars are being squandered. The 
taxpayers are being taken to the cleaners and our security is 
not being protected. Boondoggle contracts may enrich private 
contractors, but they drive us deeper into debt and leave our 
borders unprotected and our ports and airlines vulnerable to 
attack.
    Today, the chairman and I are releasing a new report 
assessing the administration's record on homeland security 
contracts. The report describes a pattern of reckless spending, 
poor planning and ineffective oversight that is wasting 
taxpayers' dollars and undermining our homeland security 
efforts. The report is entitled, ``Waste, Abuse and 
Mismanagement in Department of Homeland Security Contracts.''
    There are key findings in our report. First, we are 
spending more and more each year on Homeland Security 
contracts. In just the 3-years since the creation of the 
Department of Homeland Security, contract spending has 
increased 189 percent from $3.5 billion in 2003 to over $10 
billion in 2005. Homeland Security spending is growing 31 times 
faster than inflation. It is even growing 11 times faster than 
the rest of our ballooning Federal budget.
    Second, most of the new spending is occurring through non-
competitive contracts, many of them no-bid contracts. In the 3-
years since the creation of the Department of Homeland 
Security, the dollar value of non-competitive contracts has 
grown by an astronomical 739 percent. Last year over half of 
the Department's contract spending was awarded without full and 
open competition. Competition protects the taxpayers by driving 
prices down and quality up. But the administration squelches 
full and open competition so it can offer lucrative deals to 
hand-picked contractors.
    Third, the report finds that there is no effective system 
of contract management at the Department of Homeland Security. 
There is little contract planning and only meager contract 
oversight.
    Fourth, the costs to the taxpayers are enormous. The report 
identifies 32 Federal Homeland Security contracts worth $34.3 
billion that have experienced significant waste, fraud, abuse 
or mismanagement. In February 2002, the Transportation Security 
Administration awarded $104 million contract to hire airport 
screeners. In less than 1 year, the contract ballooned to $741 
million, yet the rate at which screeners detected weapons never 
improved and Government auditors identified hundreds of 
millions of dollars in unjustifiable charges.
    Several months later, TSA awarded a $1.2 billion contract 
to Boeing to install and maintain luggage screening equipment 
at airports. But the baggage screening equipment never worked 
right. GAO says the taxpayer will now have to spend an 
additional $3 billion to $5 billion to upgrade to more 
efficient machines. Unfortunately, I can go on and on and on.
    As described in the committee's bipartisan report, the 
Department has botched the contracts to upgrade airport 
computer networks, detect nuclear devices and create a virtual 
border. What is most inexcusable is that no one in the 
executive branch seems to care. The same mistakes happen over 
and over again. This administration treats the taxpayer as its 
own piggy-bank.
    A striking example is the Department's new Secure Border 
Initiative, which is its new high-tech plan to protect the 
border. I want to read to you the request for proposal, also 
called the RFP, that the administration released earlier this 
year. The RFP is a remarkable document, because it is devoid of 
any substance. Instead of identifying specific Government 
needs, it takes the fairy godmother approach to the immensely 
difficult task of protecting our border.
    Here is the only substantive requirement in the RFP. The 
Department wants private contractors, not Government officials, 
but private contractors, to figure out ``highly reliable, 
available, maintainable and cost-effective solutions to manage, 
control and secure the border, using the optimal mix of proven, 
current and next generation technology, infrastructure, 
personnel, response capabilities and processes.'' In case the 
contracting community missed the point, DHS Deputy Secretary 
Michael Jackson told potential bidders for the new Secure 
Border Initiative, ``We are asking you to come back and tell us 
how to do our business.''
    Well, that is not good governing, that is not planning. It 
is utterly incompetent, and it is going to cost the taxpayers 
billions. Mr. Chairman, in closing, I want to commend you for 
your leadership. You have approached this issue with 
bipartisanship and put the interests of the taxpayers first. 
This committee is doing an important public service by exposing 
the astronomical levels of wasteful spending at the Department 
of Homeland Security.
    [The prepared statement of Hon. Henry A. Waxman follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.033
    
    [GRAPHIC] [TIFF OMITTED] T9933.034
    
    [GRAPHIC] [TIFF OMITTED] T9933.035
    
    [GRAPHIC] [TIFF OMITTED] T9933.036
    
    [GRAPHIC] [TIFF OMITTED] T9933.037
    
    [GRAPHIC] [TIFF OMITTED] T9933.038
    
    Chairman Tom Davis. Mr. Waxman, thank you very much.
    The gentleman from Tennessee, Mr. Duncan.
    Mr. Duncan. Thank you very much, Mr. Chairman, and thank 
you for calling this hearing on this very important report. You 
and the ranking member have both given outstanding statements 
and have mentioned several things that I would have mentioned.
    But I can tell you that just a few days ago, the Department 
of Homeland Security came out with a terrorist target list that 
immediately or very quickly became a joke around the entire 
Nation. It had 8,591 sites listed in Indiana, including the 
Amish Country Popcorn Factory, but only 3,212 sites in 
California.
    But what got my attention, it had in my district the 
Sweetwater, Tennessee Flea Market. And I can assure you, the 
Department of Homeland Security became the laughingstock of 
Sweetwater and east Tennessee for a couple of days. That was a 
total waste. They might as well have just put out a report 
saying that any place that more than two or three people are 
gathered was a target list.
    Now we get this report which is not really a laughing 
matter. Anybody who is not really sickened or horrified by the 
things that are in this report cannot legitimately call 
themselves a conservative Republican or a fiscal conservative 
in any way. The chairman and the ranking member have already 
mentioned the $104 million TSA contract that went to over $700 
million to train airport screeners, the contracts awarded 
without competition that increased 739 percent between 2003 and 
2005.
    The report has so many other things, the two TSA employees 
that used Government purchase cards to buy $136,000 worth of 
personal items, $297 million of questionable or improper 
charges by NCS Pearson on a contract to hire airport screeners. 
The GAO found that FEMA cannot locate 22 printers and 2 GPS 
units worth $170,000, as well as 12 boats the agency bought for 
$208,000. It just goes on and on and on.
    The Department, if the top people of the Department are not 
embarrassed by this, something is wrong. Something has to be 
done, and I think this hearing is the start of it. I can tell 
you, if these types of things were going on in a private 
company, heads would roll, people would be fired, action would 
be taken. So I eagerly await to see what is going to be done by 
the Department in response to what is a scandalous report of 
waste, fraud and mismanagement in this contracting by the 
Department of Homeland Security.
    Thank you very much, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Any other Members wish to make opening statements? Mr. 
Gutknecht.
    Mr. Gutknecht. Just briefly, Mr. Chairman. I just want to 
congratulate you and Ranking Member Waxman, because if there is 
one area where Congress has sort of let its guard down, it is 
in terms of the oversight responsibility we have. Frankly, I 
think Americans deserve better answers that they have received. 
I think this hearing is a very important step in the right 
direction.
    I yield back.
    Chairman Tom Davis. Thank you very much.
    Members will have 7 days to submit opening statements for 
the record.
    We are now going to recognize our first panel. We have Mr. 
Michael Sullivan, who is the Director, Acquisition Sourcing and 
Management, at the Government Accountability Office. Thank you 
for your work. Mr. David Zavada, who is the CPA, Assistant 
Inspector General's Office of Audits, Department of Homeland 
Security. Thank you for being here. And Elaine Duke, the Chief 
Procurement Officer at the Department of Homeland Security. She 
is accompanied by Mr. John Ely, who is the Chief Procurement 
Officer, Customs and Border Protection Service at the 
Department of Homeland Security, and Mr. Richard Gunderson, the 
Acting Assistant Administrator for the Office of Acquisition at 
the Transportation Security Administration at the Department of 
Homeland Security.
    It is our policy to swear everyone in before they testify. 
So if you would rise with me and raise your right hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much.
    Mr. Sullivan, we will start with you and then we will move 
to Mr. Zavada and then to Ms. Duke. I thank you all again for 
being with us today. Your entire statement is in the record. I 
know you have a lengthy analysis you have done. That is all in 
the record. So if we could try to keep to 5 minutes. I am going 
to apologize, because at about 10 of, I have to leave for a few 
minutes to go over to the Senate and introduce two nominees 
from my district that are up, and then I will be back for 
questions. But I will want to get my first questions in.
    Go ahead and start, Mr. Sullivan.

 STATEMENTS OF MICHAEL J. SULLIVAN, DIRECTOR, ACQUISITION AND 
  SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; 
 DAVID M. ZAVADA, ASSISTANT INSPECTOR GENERAL FOR AUDITS, U.S. 
  DEPARTMENT OF HOMELAND SECURITY; AND ELAINE C. DUKE, CHIEF 
  PROCUREMENT OFFICER, U.S. DEPARTMENT OF HOMELAND SECURITY, 
ACCOMPANIED BY, JOHN ELY, EXECUTIVE DIRECTOR OF PROCUREMENT FOR 
CUSTOMS AND BORDER PROTECTION AND RICHARD GUNDERSON, ASSISTANT 
    ADMINISTRATOR FOR ACQUISITION, TRANSPORTATION SECURITY 
                         ADMINISTRATION

                STATEMENT OF MICHAEL J. SULLIVAN

    Mr. Sullivan. Thank you, Mr. Chairman, for the opportunity 
to appear here today to update you on GAO's work on the 
Department of Homeland Security's acquisition policies and 
practices.
    As you know, we designated the establishment of the 
Department and its transportation as high-risk, and pointed out 
that not effectively addressing management challenges could 
have serious consequences for national security. My testimony 
today is based on recent GAO work concerning various aspects of 
the Department's acquisitions. I will address areas where the 
Department has had some success and where it still faces 
challenges.
    The Department has some of the most extensive acquisition 
needs within the U.S. Government. In fiscal year 2005, it 
obligated almost $17.5 billion to acquire a wide range of goods 
and services. Its acquisitions included sophisticated screening 
equipment, technologies to secure the Nation's borders, 
trailers to meet the housing needs of hurricane victims and the 
upgrading of the Coast Guard's entire offshore fleet of service 
and their assets.
    In March 2005, we found and reported on two acquisition 
areas where the Department had achieved some success. DHS's 
organizations collaborated to leverage buying power for various 
goods and services such as office supplies, boats, energy and 
weapons, and recorded about $14 million in savings across the 
Department.
    Also, the Department has had success with its small 
business program, which is felt across DHS. It recorded that 
about 35 percent of its contracting dollars went to small 
businesses, exceeding its goal of 23 percent.
    Much more must be done, however. In 2005, we also reported 
that DHS's efforts to create a unified accountable acquisition 
organization had been hampered by policies that create 
ambiguity about who is accountable for acquisition decisions. 
Further, we found that acquisition organizations across DHS 
were still operating in a disparate manner, with oversight left 
primarily up to each individual organization.
    Today, DHS continues to face challenges in these areas. For 
example, the policy directive intended to integrate the 
acquisition function still relies on a system of dual 
accountability for acquisitions between the chief procurement 
officer and the heads of each DHS component, and still does not 
apply to the U.S. Coast Guard and the Secret Service.
    Also, although the chief procurement officer has recently 
issued guidance providing a framework for acquisition oversight 
and added five staff to carry it out, implementation has been 
limited. We have work ongoing in this area now and will be 
updating the status of this policy in the near future.
    Finally, staffing shortages in the Office of Procurement 
Operations, which handled about $4 billion of the Department's 
contracting activity last year, led this office to rely on 
outside agencies for contracting support for about 90 percent 
of its obligations, often for a fee. The Office also did not 
have adequate internal controls in place to effectively oversee 
this interagency contracting.
    There has been some improvement in this area recently. The 
Office recently increased its staffing level from 42 to 120, 
and the interagency agreements have now fallen from 90 percent 
to 72 percent of the Department's obligations. However, it 
still lacks internal controls to oversee these interagency 
agreements.
    To protect its major acquisition investments, DHS has put 
in place an investment review process that adopts best 
practices to help the Department reduce risks. However, the 
process does not include two critical management reviews: the 
first, to reduce technological risk by helping to ensure that 
the right technologies and funding will be ready to develop the 
program or product prior to beginning; and second, to reduce 
design risk by hoping to make sure the product or program's 
design will perform as expected before moving into mass 
production.
    In addition, the Department's policy does not require 
critical information to be delivered at program reviews for 
these major investments. For example, before a program is 
approved to begin, DHS has no policy to require cost and 
schedule estimates for the acquisition based on knowledge from 
preliminary information or designs. Our prior reports on large 
DHS acquisition programs, such as TSA's Secure Flight program 
and the Coast Guard's Deepwater program have highlighted the 
need for improved oversight.
    In closing, I believe that DHS has taken some strides 
toward putting in place a more effective acquisition 
organization. However, they are not enough to ensure that the 
Department is effectively managing the acquisition of the 
multitude of goods and services it needs to meet its mission. 
More must be done to fully integrate the Department's 
acquisition function, pave the way for the chief procurement 
officer's responsibilities to be effectively carried out, and 
put in place internal controls needed to manage interagency 
agreements, activity and large, complex investments. DHS's top 
leaders must address these challenges or continue to exist with 
a fragmented acquisition organization that can only provide 
stop-gap, ad hoc solutions.
    Mr. Chairman, this concludes my statement.
    [The prepared statement of Mr. Sullivan follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.039
    
    [GRAPHIC] [TIFF OMITTED] T9933.040
    
    [GRAPHIC] [TIFF OMITTED] T9933.041
    
    [GRAPHIC] [TIFF OMITTED] T9933.042
    
    [GRAPHIC] [TIFF OMITTED] T9933.043
    
    [GRAPHIC] [TIFF OMITTED] T9933.044
    
    [GRAPHIC] [TIFF OMITTED] T9933.045
    
    [GRAPHIC] [TIFF OMITTED] T9933.046
    
    [GRAPHIC] [TIFF OMITTED] T9933.047
    
    [GRAPHIC] [TIFF OMITTED] T9933.048
    
    [GRAPHIC] [TIFF OMITTED] T9933.049
    
    [GRAPHIC] [TIFF OMITTED] T9933.050
    
    Chairman Tom Davis. Thank you very much.
    Mr. Zavada, thank you for being with us.

                  STATEMENT OF DAVID M. ZAVADA

    Mr. Zavada. Thank you. Good morning, Mr. Chairman, Ranking 
Member Waxman and members of the committee. Thank you for 
inviting me to testify before this committee today on DHS 
acquisitions.
    We have reported acquisition management as a major 
management challenge for the Department of Homeland Security. 
DHS must have an acquisition management infrastructure in place 
that allows it to effectively oversee the complex and large 
dollar procurement critically important to achieving the 
Department's mission. We have also completed a number of 
reports in this area. I will focus my comments today on some 
common themes that have emerged from our work.
    Acquisition management is not just the wording of a 
contract, but an entire process that begins with identifying a 
mission need and developing a strategy to fulfill that need 
through a thoughtful and balanced approach that considers cost, 
schedule and performance. The Department must develop a cadre 
of skilled program and acquisition personnel, as well as robust 
business practices and information systems to effectively meet 
DHS's schedule demands and complex program objectives.
    Expediting program schedules and contract awards 
necessarily limits time available for adequate procurement 
planning and developing of technical requirements, acceptance 
criteria and performance measures. The urgency and complexity 
of the Department's mission, coupled with the Department's 
current program of procurement management capabilities, creates 
an environment in which many programs have undertaken high-risk 
acquisitions. Common patterns that we have seen in our reviews 
are the dominant influence of meeting an accelerated schedule, 
poorly defined requirements and inadequate oversight. This can 
lead to higher costs, schedule delays and systems that do not 
meet mission objectives.
    DHS is beginning to improve its acquisition management 
capability. In a 30 day acquisition management assessment we 
completed for Secretary Chertoff in 2005, we made 
recommendations to DHS to expand procurement and ethics 
training, create and staff an organization to develop program 
management policies and procedures, and ensure sufficient 
procurement staff in the Bureau and at the Department level. 
DHS has concurred with each of these recommendations and has 
taken steps to implement them.
    The urgency and complexity of the Department's mission will 
continue to demand rapid pursuit of major investment programs. 
While DHS continues to build its acquisition management 
capabilities, the business of DHS goes on and major procurement 
continue to move forward. One of those major procurement is 
SBInet.
    Our review of SBInet is underway, but based upon our past 
work, we believe CBP faces some tremendous challenges and risks 
in pursuit of SBInet. These challenges and risks include one, 
an expedited time. The Department has set a tight deadline of 
September 2006, requiring CBP to press hard to meet the 
deadline while mitigating risks and avoiding mistakes. To 
mitigate these risks, CBP must have an institutional capacity 
to plan and implement a new program, administer this complex 
contract and establish cost, schedule and performance controls.
    Second, defining operational or contract requirements. 
High-risk acquisition strategies call for mitigators and 
controls. The use of a statement of objectives type of contract 
is made risky by broadly defined performance requirements and 
limited program management capabilities. Translating the Border 
Patrol's operational requirements effectively into contract 
requirement entails thoroughly identifying the problems with 
status quo border control, communicating that problem to 
industry, negotiating a best value solution and applying 
measures of performance and effectiveness to gauge success.
    Third, building an organizational oversight capacity. 
Building a program office entails not only recruiting and 
contracting for qualified acquisition managers and technical 
experts, but also establishing robust business processes. The 
SBInet acquisition strategy calls for scoping a series of task 
orders over a number of years, entailing vigilant contract 
administration.
    Acquisition management will continue to be a priority area 
for the OIG. We plan a proactive approach to identify the risks 
that we see and provide recommendations to help the Department 
avoid wasteful spending and obtain the right equipment and 
services to achieve DHS's mission.
    Mr. Chairman, this concludes my prepared remarks. I would 
be happy to answer any questions.
    [The prepared statement of Mr. Zavada follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.051
    
    [GRAPHIC] [TIFF OMITTED] T9933.052
    
    [GRAPHIC] [TIFF OMITTED] T9933.053
    
    [GRAPHIC] [TIFF OMITTED] T9933.054
    
    [GRAPHIC] [TIFF OMITTED] T9933.055
    
    [GRAPHIC] [TIFF OMITTED] T9933.056
    
    [GRAPHIC] [TIFF OMITTED] T9933.057
    
    [GRAPHIC] [TIFF OMITTED] T9933.058
    
    [GRAPHIC] [TIFF OMITTED] T9933.059
    
    [GRAPHIC] [TIFF OMITTED] T9933.060
    
    Chairman Tom Davis. Thank you very much.
    Ms. Duke, thank you for being with us.

                  STATEMENT OF ELAINE C. DUKE

    Ms. Duke. Good morning Chairman Davis, Ranking Member 
Waxman and members of the committee. Thank you for the 
opportunity to appear before you to discuss the Department of 
Homeland Security acquisition program.
    I am a career executive and have spent my 23 years of 
public service as an acquisition professional. On January 31, 
2006, I was selected as the Department's Chief Procurement 
Officer.
    Accompanying me today are Mr. John Ely and Mr. Rick 
Gunderson. Mr. Ely is the Executive Director of Procurement for 
Customs and Border Protection. Mr. Gunderson is the Assistant 
Administrator for Acquisition for the Transportation Security 
Administration.
    My two main priorities as the DHS Chief Procurement are to: 
No. 1, build the DHS acquisition work force; and No. 2, enhance 
acquisition planning. These priorities, detailed in my written 
testimony, are designed to mitigate the challenges the 
Department faces due to significant increases in contract 
spending, shortages of acquisition personnel and mission 
urgency driving aggressive schedules.
    Since our establishment in 2003, the Department has seen 
significant growth in its acquisition program. In less than 3 
years, the Department has grown from $6.7 billion to over $17 
billion in obligated contract dollars in fiscal year 2005, with 
66,000 contract actions with 15,000 prime contractors.
    The Chief Procurement Officer has initiated staffing 
solutions to resolve personnel shortages and build in-house 
capacity to handle contracting actions. Balancing the 
appropriate number of DHS contracting staff with the growth of 
the contracting requirements has been a challenge. My office 
has taken the lead department-wide to create a centralized 
recruiting system for contracting personnel within DHS 
components and enhance the DHS Acquisition Fellows program, 
targeting recruitment efforts to recent college graduates.
    As a new department, it has been a challenge to grow DHS, 
since our mission requires the infrastructure to be built while 
simultaneously meeting operating requirements. But despite the 
challenge, the Department has had significant accomplishments 
in securing the vital infrastructure, products and services 
that ensure the security of the American public.
    Each initiative is guided by an acquisition process that 
includes three key factors: performance, cost and schedule. 
These factors comprise the major elements of procurement 
decisionmaking and valuation. Balancing performance cost and 
schedule requirements is challenging for all agencies, and is 
especially challenging for DHS, given its mission and current 
contracting staffing levels. When necessary due to urgency of 
mission, DHS has entered contracts for goods and services in 
short periods of time to provide immediate relief to meet 
pressing humanitarian needs and protect life and property.
    Since DHS operation is in a rapid acquisition environment, 
it must prioritize its acquisition planning beyond what is 
generally expected of a non-emergency response agency to ensure 
that decisions are made properly and timely. It is critical 
that DHS continue to develop an acquisition system that 
includes professionals in all disciplines forming an 
acquisition team, including program management.
    DHS has initiated a program management counsel to build 
this necessary cadre of professionals in the Department. We 
want to make sure we have accountability at DHS, so that we are 
responsible stewards of the public funds. But we want to make 
sure that we can act quickly to save lives.
    The challenges DHS has experienced since its inception have 
tested our capabilities, but have also demonstrated our 
resolve, strengthened our determination, increased the urgency 
of our efforts and underscored a solemn responsibility that all 
of us may face.
    In closing, I would like to express my gratitude to 
Chairman Davis and Mr. Waxman for working with DHS to develop 
better business practices at the Department. I look forward to 
continuing to work with the committee on developing solutions 
to current and future issues, including the ones we are 
discussing today.
    I am glad to take any questions and thank you.
    [The prepared statement of Ms. Duke follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.061
    
    [GRAPHIC] [TIFF OMITTED] T9933.062
    
    [GRAPHIC] [TIFF OMITTED] T9933.063
    
    [GRAPHIC] [TIFF OMITTED] T9933.064
    
    [GRAPHIC] [TIFF OMITTED] T9933.065
    
    [GRAPHIC] [TIFF OMITTED] T9933.066
    
    [GRAPHIC] [TIFF OMITTED] T9933.067
    
    [GRAPHIC] [TIFF OMITTED] T9933.068
    
    [GRAPHIC] [TIFF OMITTED] T9933.069
    
    [GRAPHIC] [TIFF OMITTED] T9933.070
    
    Chairman Tom Davis. Thank you very much.
    Mr. Ely and Mr. Gunderson, do you want to make brief 
statements?
    Mr. Ely. I just want to say good morning, Chairman Davis, 
to you and Ranking Member Waxman and the distinguished members 
of the committee. I am John Ely, that has been said before, and 
I am the Chief Procurement Officer of Customs and Border 
Protection. I just want to let you know that I am pleased to be 
here today to answer any of your questions.
    Thank you.
    Chairman Tom Davis. Thank you.
    Mr. Gunderson. Just a couple of minutes, please.
    Chairman Tom Davis. Sure.
    Mr. Gunderson. Chairman Davis, Congressman Waxman and 
members of the committee, thank you for the opportunity to 
discuss the Transportation Security Administration's 
acquisition and contracting programs. As the Assistant 
Administrator for Acquisition, I provide direction and 
oversight of TSA's acquisition program, including the award and 
administration of contracts, grants and financial assistance. 
Since TSA was enacted, it has obligated more than $2 billion 
per year for supplies, services and financial assistance in 
support of various TSA missions.
    As you are aware, through its enacting legislation, TSA was 
faced with significant mission challenges. To meet those 
challenges, TSA awarded several large contracts to industry 
teams in an abbreviated time period with minimal staffing. 
Major contracts included the purchase, deployment and 
maintenance of security screening equipment at more than 440 
airports, the outfitting of TSA operations with the necessary 
information technology equipment and the recruitment, 
assessment and hiring of screeners.
    While these contracts resulted in the successful 
accomplishment of the missions, they came at a higher cost than 
originally estimated. The increases were due to several 
factors, but changing requirements was the primary driver. As a 
result, the final cost of these contracts should not be 
compared to the original amounts without considering the 
original work performed. These major contracts, awarded in the 
stand-up phase of TSA, have been replaced with new contracts 
that implement a more streamlined approach, greater 
opportunities for small businesses, and a greater emphasis on 
performance-based measures.
    For example, maintenance of our security screening 
equipment was originally accomplished through a single large 
integrator contract but has since been replaced with several 
contracts that have fixed price terms and eliminated 
unnecessary layers of contractor support. As a result, TSA has 
transferred cost risks to industry and lowered the maintenance 
costs per machine.
    I will continue to strengthen the acquisition program at 
TSA through the implementation of policies and procedures 
targeted to provide greater effectiveness and oversight, 
implementing new business strategies to decrease costs and 
increase performance, and building a stronger acquisition work 
force.
    Thank you for the opportunity to testify before the 
committee, and I would be pleased to address any questions you 
may have.
    Chairman Tom Davis. Thank you. Let me start the questions, 
because I am going to have to run.
    I understand there are changes in scopes in contracts and 
that is what causes them to grow on many occasions. It is not 
just always that they bid low, do a buy-in and then try to come 
back. Of course, one of the difficulties is when you bid the 
contract out originally and it comes in at $104 million and 
then grows to $700 million, it is not competitive all the way 
through. You might have gotten a different outcome had you 
known what you wanted in the first place. Is that a fair 
comment?
    Mr. Gunderson. Yes.
    Chairman Tom Davis. I had been in Government contracting 
for 15 years before I came to Congress. I was the general 
counsel for a billion dollar company that did a lot of 
Government contracts. I understand where it goes right and 
where it goes wrong.
    The other thing that really alarmed me, just looking here 
on the macro, was the number of contracts that were awarded 
that were sole source, without full and open competition. It 
seems to have exploded here. Not just in your agency, but I am 
saying, across the Department.
    Now, I wouldn't be sitting here complaining about that, 
because I understand the need to do that on occasion, you get a 
unique technology, you need it quickly, you can go out and 
respond to an unsolicited proposal or whatever. And we even set 
up something in the Department of Homeland Security called 
Other Transactions, the OT, where people who aren't used to 
selling to the Government can come in and do it. So I don't 
think it is inherently bad, but when you are getting terrible 
results like this, we have to ask the question, and assume that 
maybe that is part of the problem.
    Ms. Duke, do you want to address that?
    Ms. Duke. I would agree with you, Mr. Chairman, competitive 
contracting is the preferred way to go. We did have a dip in 
our competitive numbers, primarily due to the Katrina 
contracting in FEMA. Our numbers were at about 76 percent 
competitive at the onset of the hurricane season.
    What we are doing to counteract that is putting the 
contingency contracts in place, in FEMA specifically, and 
improving our planning so we have the contracts competitively.
    Chairman Tom Davis. But let me just add, to get back to 
Katrina, as you know, I was the author of the investigative 
report. One of the problems we found there is that we were 
giving out these large contracts, contingency contracts, and at 
the end of the day we didn't make use of locals, there were a 
lot more efficient ways we could have done this downstream. It 
really wasn't thought through. We gave it to these big 
companies and they add surcharge after surcharge as it moves on 
down. You get the local guys doing the work, but you have a 
huge markup along the line.
    I think we have learned, hopefully, we have learned our 
lessons from that.
    Ms. Duke. Yes, we have. We have national strategies for 
immediate response for regional or local. But we also have 
regional programs in place, for instance, the maintenance and 
deactivation of trailers is all being done now by local 
contractors in the Gulf region. So we do agree with you on that 
strategy.
    Chairman Tom Davis. We got a letter today from FEMA on the 
trailers. I don't know if anybody can answer this, but 
basically they are telling us something different from what the 
IG has said. FEMA puts out this fact sheet. They say, FEMA is 
unaware of a termite problem in any of the 95,000 trailers that 
are currently deployed along the Gulf Coast, with the exception 
of just one report. A random sample of 200 trailers also 
negative results for termites.
    My understanding is, and I haven't been there, that at the 
site in Arkansas where we have stored literally thousands of 
trailers that we have a number of termite-infested trailers 
there. Can anybody shed any light on that?
    Ms. Duke. I do know that in the Gulf region termites are an 
issue, and there is a quarantine in 11 of the parishes for 
Formosan termites. FEMA has procedures in place to ensure that 
as those trailers are moved in the Gulf region that we have the 
appropriate compliance with the Louisiana----
    Chairman Tom Davis. Well, here is what I want to ask, and 
if you don't have the answer today, I would like to send a 
couple of people down to go through those trailers that are 
sitting down there in Arkansas. We purchased a lot of trailers 
that it doesn't look like will ever be used. I understand 
sometimes contingency planning and storage and things go awry 
and that appears to have happened in this case.
    But my question is, are any of those trailers that we have 
stored for ``future use'' that American taxpayers have paid 
for, have we stored them in a way down there that they are 
termite-infested? If you can't answer that, I would like you to 
just give us a straight answer.
    Ms. Duke. I do not have information about the stored 
trailers in Arkansas.
    Chairman Tom Davis. Could you please check on that?
    Ms. Duke. Yes.
    Chairman Tom Davis. That again would just be--I don't want 
to dwell on it, but just go back and check that, because we 
have information that they are. We would be happy to send an 
inspector down. I know Members have been denied that right. Mr. 
Waxman and I and Mr. Duncan would be, we just want to see what 
has happened, what has gone wrong here. Maybe there are better 
places to store them. We understand what happened with Katrina, 
it is the largest reported storm in history. And the response 
just was not as efficient as it might have been had we been 
more prepared and seen it coming and everything else, so I 
don't want to dwell on that.
    I want to ask you just a couple of other questions. Do you 
have enough trained procurement personnel, or do you need more?
    Ms. Duke. We need more. We have an increase coming in the 
current 2007 budget of about 200 additional. We are working 
toward needing even more over time. As you know, Mr. Chairman, 
our spending is increasing. We increased 35 percent just 
between 2004 and 2005.
    Chairman Tom Davis. Well, you are darned if you do and 
darned if you don't. I remember when we started up, contractors 
were lined up, when is Homeland Security going to start coming 
out with all these contracts. I think the philosophy at the top 
was, we are going to wait until we know what the mission is, 
what our requirements are before we go out and spend money. I 
think on that stage we did a good job.
    The problem is, once they came out, some of the oversight 
and everything else, and particularly emergency response has 
just been a little sloppy. My concern is, a procurement officer 
in the Government is worth their weight in gold. If we can buy 
what we want and get the best value for the taxpayer, we are 
going to save tens of billions of dollars annually. We don't 
spend enough time doing that. It is not your fault, Ms. Duke, 
but Government-wide, this just has not been given the 
appropriate attention. In fact, some of it has been tied from 
Congress. We have Members who think, to save money, we are 
going to cut procurement officers. And that makes it very 
difficult to give appropriate oversight to contracts.
    But more importantly, that contracting officer is not 
always in touch with what the agency needs, and doesn't always 
use the best vehicle. I think Mr. Waxman and I would say, 
competitive vehicles are usually best, because it offers you an 
array of choices and competition tends to bring costs down for 
the taxpayers.
    I don't want the agencies to come up here and say we 
haven't given them enough resources and that we are asking you 
to do more with less. I understand you are a career employee 
that they have sent up here today to answer for some of these 
things. But these mistakes start at the top where they have 
just not kept their eye on the ball, haven't committed the 
resources here. Yet TSA in particular, we gave them particular 
flexibilities in hiring that no other agency in Government has 
to try to get to this.
    And I just think on the procurement shop, from this 
committee's perspective, we don't have jurisdiction over all of 
the funding and everything else. We need to know what you need. 
Because one huge cost overrun or $100 million ends up costing 
more than hiring 25, 100 good people that could have overseen 
this thing and done it right. Is that a fair comment?
    Ms. Duke. It is. And as we prepare our fiscal year 2008 
budgets, I am looking at each's component's budget and how they 
are budgeting for acquisition work force members, and am taking 
a consolidated Department look at that to make sure that we are 
putting into our budget the right amount of contracting basics.
    Chairman Tom Davis. How much buying do you do off the GSA 
schedules?
    Ms. Duke. I don't have an exact number, but a considerable 
amount.
    Chairman Tom Davis. Ballpark?
    Ms. Duke. If I had to guess--we could get you an exact 
number. But I would say of dollars, potentially up to 30 
percent.
    Chairman Tom Davis. When you give the schedules, do you 
usually go to two or three groups to shop around, right?
    Ms. Duke. Yes.
    Chairman Tom Davis. It is not just one. How much do you do 
off of GWACS, off of wider contracts? What percent, ballpark?
    Ms. Duke. Mostly in the IT area, like integrated wireless. 
I would say in IT dollars, a lot of those vehicles are new, so 
less, 10, 15 percent maybe.
    Chairman Tom Davis. OK. I have a lot of other questions, 
but I have to run over to the Senate, so I am going to give Mr. 
Waxman a few minutes, and I am going to turn the Chair over to 
Mr. Duncan.
    I appreciate your being here. This is a serious, serious 
problem, and it is a black eye for the administration to have 
these things. We just need continued oversight. And don't 
hesitate to ask. We don't want to just keep you out there, and 
if you are not getting the tools you need, we need to know 
about it. But the oversight that has come from the top here has 
ended up costing us billions of dollars that we could have 
better spent on a lot of other items. We will go over and fight 
on the floor over $20 million or $10 million sometimes on a 
program or an earmark or something like that, while billions 
get wasted just in the way we are doing business. That is what 
we are trying to get at today, and I appreciate your being 
here.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    One of the frustrating parts of all of this to me is how 
this administration and its approach to Federal contracts is 
that no one seems to learn from their mistakes. We have seen 
incredible waste in Iraq. We have seen the same thing in 
response to Hurricane Katrina and now we see it at the 
Department of Homeland Security.
    A good example is how this administration approaches border 
security. Under a deeply flawed contract called Integrated 
Surveillance and Intelligence System [ISIS], the Customs and 
Border Protection Office wasted enormous sums on a high-tech 
surveillance system that never worked. Now, instead of learning 
from these mistakes, the Department wants to enter into an even 
bigger contract called the Secure Border Initiative, which will 
cost taxpayers $2 billion. In my questions in this round, I 
want to focus on these two contracts.
    Under the ISIS contract, over $400 million was spent on 
thousands of cameras and sensors to monitor our borders. Most 
of this money was spent during the past 5 years. The idea was 
that this would be a high-tech, state-of-the-art surveillance 
system for protecting our borders. Mr. Zavada, the Inspector 
General examined the ISIS contract and the equipment purchased 
under it. I would like to ask about your findings. Weather 
conditions on the border can be demanding. How well did the 
cameras function when exposed to snow, ice, humidity and 
extreme temperatures?
    Mr. Zavada. We reported problems with the functioning of 
the equipment in our report.
    Mr. Waxman. They malfunctioned, in other words?
    Mr. Zavada. Yes. Some issues with the operation of the 
equipment.
    Mr. Waxman. I understand that another problem was power 
outages. Did the cameras experience this problem?
    Mr. Zavada. I am not aware of that.
    Mr. Waxman. What we found out was that even if the cameras 
systems were working, I understand that they didn't detect 
movement automatically. Instead, the Border Patrol officials 
had to be monitoring the cameras at all times, which rarely 
happened, is that right?
    Mr. Zavada. I believe that was the case.
    Mr. Waxman. When you took all these factors into account, 
what did you conclude? Was the ISIS system an effective system?
    Mr. Zavada. I think from a contract management standpoint, 
we found problems with the way that the program managers 
managed that contract. There were communication problems, that 
was a contract that GSA was the contracting officer for that. 
What we reported in our report was that there were 
communication issues between the Border Patrol program people 
and the GSA contracting officers that inhibited effective 
program management.
    Mr. Waxman. The taxpayers spent $400 million on this 
system, which didn't work. Even if the cameras had worked, they 
only covered 5 percent of the border, leaving 95 percent 
unprotected. This hardly sounds like a dependable state-of-the-
art equipment.
    Mr. Ely, do you agree that this equipment was inadequate?
    Mr. Ely. Yes, sir, but I would like to qualify that with a 
little bit of personal experience. I have been down on the 
border and I have watched the cameras and sensors. It is 
interesting to see that it does expand the capability of Border 
Patrol agents to keep an eye on particular geographical areas.
    I did study the ISIS situation. You are correct with many 
of the things that you say. But I would like to swing back to 
the contract management issue. That is a gigantic issue, not 
just in Homeland, but I believe in Government, that we think we 
are there when we sign a contract, but the delivery is the 
really important part. We have to manage these carefully.
    Border Patrol was working through GSA, GSA is not what I 
would call a ``family member'' when it comes to managing 
contracts. They work hard, they do a good job. But they are not 
in-house procurement experts.
    Mr. Waxman. Well, let me go through this issue, because 
auditors for the General Services Administration Inspector 
General concluded that the dismal oversight of this program 
placed taxpayers' dollars and national security at risk. Rather 
than learn from this mistake, DHS officials seem poised to 
repeat them. Because in March of this year, DHS asked 
contractors for proposals for a new Secure Border Initiative 
[SBI]. It will be a $2 billion Federal contract to design, 
build, test and operate a massive border security system.
    Here is the only requirement DHS established in its request 
for proposals. DHS wants ``highly reliable, available, 
maintainable and cost-effective solutions to manage, control 
and secure the border, using the optimal mix of proven, current 
and next generation technology, infrastructure, personnel, 
response capabilities and processes.'' Mr. Zavada, in your 
opinion, does that adequately define technical and cost 
requirements?
    Mr. Zavada. In terms of SBI, we have, based upon the past 
work that we have done, we have identified three risk areas 
related to that contract. The first one is the accelerated 
schedule. Certainly the accelerated schedule to meet the 
September deadline, combined with the program management 
capabilities, as they stand, is a potential risk area.
    Mr. Waxman. Do you think it is a problem that it is such a 
vague description of what is needed to create this program?
    Mr. Zavada. That was the second risk area that we pointed 
out. The contract objectives in the past, in our past reports 
we pointed out that broad contract objectives can be 
problematic and have created issues in other contracts.
    Mr. Waxman. Mr. Sullivan, do you agree, this $2 billion 
contract rests on deeply flawed contracting philosophy. In 
January, Secretary Michael Jackson told potential bidders for 
SBI, we are asking you to come back and tell us how to do our 
business. That is incredible. There is no plan. There is no 
attempt to do the hard thinking about what needs to be done to 
secure our borders. Instead, DHS is outsourcing the job of 
Government to private contractors.
    What is your view on that?
    Mr. Sullivan. It is interesting, because one of the reasons 
I am here testifying today for GAO is the work that I have done 
in the area of the Department of Defense and some of the major 
acquisitions that it has to make for weapons systems. In doing 
the work, I did the work looking at DHS' major investments and 
some of the strategic sourcing and things that I talked about.
    There are so many similarities, it seems to me, including 
the cost schedule and performance outcomes that I hear, in the 
Department of Defense I would say that there are very similar 
problems. The requirement setting process at both the strategic 
level and at a tactical level for a specific weapons system is 
flawed, very similar to what Mr. Zavada explained for the DHS.
    Mr. Waxman. It seems that the Department is asking private 
contractors to tell the Department what it needs, rather than 
the Department defining its own needs. It doesn't make sense to 
me, and I would be curious whether it makes sense to you, do 
you really think it is a good idea to launch a multi-billion 
dollar procurement program without adequately defining 
technical or cost requirements?
    Here is the problem as I see it. The Department, in fact 
the whole administration thinks private contractors are like 
fairy godmothers. You tell them we want a certain thing done, 
we want to protect our borders, we want to keep these illegal 
aliens from getting in here or terrorists getting into the 
country. It is a hard problem. It is a hard problem to rebuild 
Iraq. It is a hard problem to restore the Gulf Coast, making 
our country secure, it is hard.
    But the administration assumes that private contractors 
will be able to wave a magic wand and solve the problem.
    Mr. Sullivan. Yes, sir. I think when you are setting 
requirements for systems and programs as complicated as what we 
are talking about here, you are going to have perhaps a limited 
industrial base. So in order to do that, you have to set 
requirements, you have to study requirements, you have to study 
the needs, the mission needs of the DHS, and understand very 
thoroughly, I think, what you need, rather than asking them to 
supply that information for you.
    And then in addition to that, because I think you are 
asking for, in many cases, systems that aren't necessarily 
going to have other markets or are going to be technologically 
challenging and risky, you need to have way more internal 
controls in place than it appears DHS has when you put an RFP 
out for a contractor. You need to do, for example, you need to 
ask them for cost data. If they are going to come back with a 
proposal to meet your requirements, they should provide the 
cost. You are in a sole source environment because perhaps the 
technology is proprietary or very limited and very risky. Sole 
source means that the Government needs to understand how much 
it is costing that contractor to bid those kinds of proposals, 
so that a fair and equitable price can be determined.
    Mr. Waxman. Well, the net result of all this is the 
contractors get rich, the problem doesn't get solved and 
taxpayers get stuck with the bill. That is what our concern is, 
and I think it is shared by everyone on this panel.
    Thank you, Mr. Chairman.
    Mr. Duncan [presiding]. Thank you, Mr. Waxman.
    Let me ask you this. Both the chairman and the ranking 
member mentioned this $104 million airport screener contract 
that ran to $740 million that NCS Pearson did. The report says 
in addition that NCS Pearson had $297 million worth of very 
questionable costs.
    Then we have the L3 Company that came up with the $400 
million surveillance system that apparently doesn't work. Is 
the Department still doing business with those companies? Has 
any action been taken toward either one of those companies or 
other companies that have huge cost overruns or questionable 
costs?
    Ms. Duke. The screener hiring contract, the $104 million, 
that ended in December 2002. So it was just used during the 
initial roll-out, from April to December 2002.
    Mr. Duncan. But that wasn't my question. Is the Department 
still doing other business with NCS Pearson, or was any kind of 
action taken against them?
    Ms. Duke. I don't know of any major contracts with--I know 
we don't have any major contracts. We might have a small one. I 
could check on that. But we do not have any major hiring 
contracts with NCS Pearson at this time.
    Mr. Duncan. What about the L3 Communications Company that 
provided this $400 million surveillance system that is not 
working?
    Mr. Gunderson. Are you referring to the explosive detection 
systems? Yes, we still have contracts with L3 for the delivery 
of systems.
    Mr. Duncan. So you are not taking any action against 
companies that have these huge cost overruns or provide 
equipment that doesn't work?
    Mr. Gunderson. With respect to the effectiveness of the 
machines, there was no cost overruns on the production of the 
machines. The increased costs associated with that program was 
with the deployment of the machines, outfitting the airports to 
install the machines.
    With respect to the effectiveness of the machines, the 
chief technology officer is best to address those issues. What 
we have done in other areas from a contracting perspective is 
incentivized the contractor to improve the reliability of the 
machines, as far as how often it breaks down.
    Mr. Duncan. So you mean when they provide equipment that 
doesn't work, you give them extra money, incentive money to 
come in and make sure the equipment works?
    Mr. Gunderson. I would term it as disincentives. If the 
machines do not achieve a certain amount of reliability, then 
they would lose money from their profit.
    Mr. Duncan. Let me ask you this. We have a later witness 
that says that all contracts should be competed, even when the 
dollar amount is under the legal threshold. What do you think 
about that? Mr. Sullivan. Ms. Duke.
    Mr. Sullivan. I think that contracts should be competed. I 
think there are situations where it might not be possible to 
always have competition in cases where you have proprietary 
technologies or risky technologies or where you might have to 
go to a cost plus arrangement to push technology or something 
like that. But other than that, I think competition is always 
the most healthy way to purchase things.
    Mr. Duncan. Ms. Duke, when you referred a few minutes ago 
to the 76 percent competition, were you talking about 76 
percent of all contracts over the limit, or 76 percent of all 
contracts total?
    Ms. Duke. Of all our DHS contracts.
    Mr. Duncan. That was counting even those under the legal 
threshold, is that what you are saying?
    Ms. Duke. We are required to compete. The competition in 
contracting as a statute kicks in over $100,000. But even under 
$100,000, we are required by regulation to compete those or 
justify not competing them.
    So there are different guidelines, one is statute, one is 
regulatory. But our requirement is to compete all contracts as 
a standard business practice.
    Mr. Duncan. And this later witness says under no 
circumstances should the Department allow contracts to become 
de facto, illegal, cost plus percentage of cost contracts. What 
do you think about that?
    Ms. Duke. I agree with that, that cost plus percentage of 
cost contracts are illegal and should not be done.
    Mr. Duncan. All right. He says it was done in this Boeing 
$1.2 billion contract to install and maintain explosive 
detection systems.
    Ms. Duke. I believe the IG report said that there was an 
appearance of that. Because of the urgency of awarding that 
contract, the award fee provisions were not negotiated until 
after award. And some provisional award payments were made. 
That was corrected during the performance of the contract. So 
there was an appearance, but it was not a cost type percentage 
of cost contract.
    Mr. Duncan. And finally, he is recommending that when the 
bulk of the work is being done by subcontractors, that as much 
as possible the middleman should be cut out. I can tell you 
that I got a call from a trailer manufacturing company, not in 
my district, but from Tennessee back when all the Katrina stuff 
was going on. This was a company making a lot of these trailers 
that we have heard so much about. This company owner said that 
they were having to provide DHS these trailers through a 
middleman who was doing nothing to the trailers but adding 
$4,000 to the cost of each one.
    He said he would like to find somebody, he said he was 
perfectly willing to sell these trailers directly to DHS and 
save that $4,000 per trailer. But they wouldn't let that be 
done. What I am wondering about, it would have been so simple 
for one person at DHS to handle something like that. Has that 
gotten any better?
    Ms. Duke. I think whether you should layer or not is really 
a value proposition. It is similar to if you are having 
remodeling in your home and you are deciding whether you want 
to have a general contractor [GC], or you want to contract 
directly with a plumber and electrician. But I do think it is a 
decision that should be consciously made on each program and 
that we shouldn't add layering unless there is that value of 
management or integration.
    Mr. Duncan. Let me mention one other thing. The day before 
yesterday we had the third in a series of hearings pointing out 
tremendous waste by the Department of Defense selling items, 
even items that cost $120,000 or $200,000 for just almost 
nothing to people in the private sector. Some of these things 
were brand new. One of the smaller items was they sold $23,000 
and some odd dollars worth of brand new boots that had never 
been worn for $69 to this one company. Not $69 per pair of 
boots, but $69 for the whole $23,000 and some hundred dollars.
    I hope that you will make sure that we don't start selling 
these thousands of trailers that are sitting unused for just 
pennies on the dollar.
    Ms. Duke. The current plan is to use the manufactured homes 
that have not been used yet for future disasters. There is no 
current plans to resell them.
    Mr. Duncan. Let me ask one final question. The major 
problems that plague DHS acquisition, these are not new. Since 
the Department started, these problems have been the subject of 
hearings in both the House and Senate, reports by the Inspector 
General, by the GAO, by the press. Yet despite the fact that 
everyone hears about and reads about and knows about these 
things and everybody says they are terrible and scandalous, 
they never get fixed. Do you have an opinion, Mr. Sullivan, on 
why we are not seeing more progress? It is just not possible 
for a gigantic bureaucracy to handle an acquisition program in 
a cost efficient, effective way?
    Mr. Sullivan. In fairness, I think we should remember, it 
is still a young organization and its mission, it is probably 
still working very hard to bring these 22 or 23 different 
cultures together and be able to put in unified policies into 
that.
    But that said, I think it is possible, obviously, to do 
better. I think the things that the organization has to focus 
on are some of the things we discussed here. They need to 
understand the mission needs, they need to be able to 
articulate requirements for the goods and the services and the 
big acquisitions that they have to make. They need people in 
place who understand that. And then they need internal controls 
to ensure that the industrial base that is supplying these is 
supplying them to them at reasonable cost and with reasonable 
performance.
    Mr. Duncan. All right. I think Mr. Ruppersberger is next.
    Mr. Ruppersberger. A couple of things. We do have a serious 
problem in Homeland Security. A lot of it is because of what 
you just said, it is a young organization, we don't have our 
systems down completely, and I think because of the fact that 
we are talking about Homeland Security, there is a lot of 
rushing to get equipment that hasn't been properly tested, and 
that we really need to maybe move forward with pilot programs, 
or even a contract if we could get it in there, a penalty if a 
contractor is saying this equipment works and it turns out that 
it doesn't.
    Would you think that we could have that? I guess I would 
ask you, Mr. Ely, about the possibility of a penalty clause in 
a contract for our contractors that are supplying radiation 
equipment or other equipment that just isn't working.
    Mr. Ely. Yes, sir, I think you have hit it right on the 
button, what you are telling us, and I agree with you 100 
percent, it is post-award management. Penalties are doable 
under Government contracts. And we are moving in this direction 
very similarly to what you are discussing, by building post-
award management capability that will allow us to be even 
closer to the results of these contracts, and penalize 
contractors when they should be penalized and incentivize them 
when they should be incentivized.
    Mr. Ruppersberger. We need to have you get back to us on 
that from our oversight point of view. There are cases, and I 
just want to name a few here, your airport screeners contract, 
baggage screening equipment contract, airport computer network 
contract, radiation detector contracts, the cruise ship area 
where we probably could have sent a family to a top-rated hotel 
in Las Vegas than where we were now.
    Now, I understand we were working under difficult 
situations and Homeland Security is new. But sooner or later, 
we are going to have to step up, because there is just not, we 
can't continue to lose billions, not millions, of dollars. I am 
asking you all to come back to us, and with the help of GAO, to 
let us know what the proper systems are. Your internal 
controls, things of that nature.
    Let me, since we only have a short time, just to review one 
area. I don't know if I can get to another. I represent the 
Port of Baltimore and am the co-chair of the Port Security 
Caucus, the congressional caucus. I want to talk to you about 
the radiation detector contracts. Again, we have an issue there 
that the contract that was given out, I think $286 billion to a 
major contractor, really turned out to be wasting a lot of 
money. The machines turned out to be so sensitive to radiation 
that they can't distinguish between weapons-grade nuclear 
material and items that naturally emit radiation, like cat 
litter, porcelain toilets, bananas, things like that.
    Mr. Ely, would you agree that this major contract that has 
provided the radiation detector contracts cannot quickly 
determine the type of radioactive material they detect?
    Mr. Ely. Sir, the best I can do to answer that question is 
to clarify that with the RPMs, we are actually----
    Mr. Ruppersberger. With the what?
    Mr. Ely. Radiation portal monitors. We are actually engaged 
in a contract through an interagency agreement with DOE. Energy 
provides other services, along with bringing in the portal 
monitors, radiation monitors. It is an ongoing test and 
evaluation environment.
    So unlike a direct contract between Customs and Border 
Protection and a commercial firm, we are working with another 
Government agency. The rules are a bit different in working 
that way. But from what I have gleaned, this is a continuous 
development and learning process in the application of these 
devices. We can enforce these, but only working through 
Department of Energy.
    Mr. Ruppersberger. Do you agree that there is technology 
that is out there that can provide the detection we need for 
nuclear components?
    Mr. Ely. Sir, I am not qualified, I am a procurement guy. 
But what I have learned in talking to the CBP program people is 
that it is constantly evolving. The Department, and DNDO in 
particular is looking at a higher level machine right now. It 
looks like we are moving toward working more with this new type 
of technology.
    Ms. Duke. The Advanced Spectroscopic Portals [ASP], we just 
awarded three contracts through Domestic Nuclear Detection 
Office. That is a new technology, and has a much lower false 
alarm rate and better detection. And ASP is the new generation 
of the machines you are talking about now.
    Mr. Ruppersberger. I had occasion, right after the Dubai 
Port issue, to go to Dubai and to meet with their port security 
people and to also observe equipment that they have, which is 
probably some of the best equipment in the world. When we 
decide to move forward and to try new equipment, do we look at 
other equipment throughout the world? Do we test it? Or are we 
again jumping into an area where we are going to spend millions 
and millions of dollars and we find out that it doesn't work?
    Because the first set of equipment that is there, we wasted 
all that money. The contractor got paid and we don't have the 
money to use for something else. So you need a system to make 
sure that you are getting what is out there, the top 
technology, and to do your research throughout the world. Do we 
do that? Is the system in place to do that now?
    Ms. Duke. I agree with you, we need to do that. I think 
that was the reason for setting up the Domestic Nuclear 
Detection Office, to make sure we have that centralized, 
cohesive strategy that is not just a DHS office, it is a 
Federal-wide office, housed within the Department of Homeland 
Security. So I do believe that is an initiative to support what 
you are saying.
    Mr. Ruppersberger. Do you work with the Department of 
Energy in that regard?
    Ms. Duke. No, that is not through the Department of Energy.
    Mr. Sullivan. I would just say, on this generally speaking, 
in terms of technologies like this where we are going to spend 
millions, hundreds of millions and maybe even billions of 
dollars, one of the things that we found when we did our work 
in 2005, and we still find deficient in their policies for big 
acquisitions, is the need to have thorough reviews and testing 
of technologies before you start a program like this. I think 
that is one thing.
    When you look at the investment review board policy that 
DHS has right now, they could strengthen, that is a control 
they could use right now to strengthen their major investment, 
their major acquisitions, is to focus on technology readiness 
before they let those contracts.
    Mr. Ruppersberger. And also the possibility of a pilot 
program.
    Mr. Sullivan. Yes, absolutely.
    Mr. Ruppersberger. It seems to me that GAO should be in the 
picture before instead of after. We might be a lot better off.
    Mr. Sullivan. We try.
    Mr. Ruppersberger. Well, it didn't work here.
    Is my time up? I can't see the clock. I yield back my time.
    Mr. Duncan. Well, thank you very much, Mr. Ruppersberger. 
For 18 years, I have heard, every time a Government agency 
messes up, either they are under-funded or their technology is 
out of date, although the Federal Government has much newer 
computers and technology than in the private sector.
    Mr. Gutknecht. Thank you, Mr. Chairman.
    Let me just first of all offer a couple of observations. In 
response to something that Mr. Waxman said earlier, I think he 
made the reference that the contractors' response to most of 
our problems is to throw more money at it. Well, the truth of 
the matter is, we are responsible for that as well. I think 
that many times is the response here in Congress.
    I was a healthy skeptic of the whole idea of combining 
these 22 agencies into one super-agency. I remember, and I am 
not that old, I can still remember what the argument was, that 
there would be efficiencies and this would be less expensive in 
the long run. Well, that was then and this is now, I guess.
    The other point I would like to make in response to 
something that you said, Chairman Duncan, and that is, as we do 
dispose of some of this equipment, whether it be trailers or 
boots, and I am a licensed and bonded auctioneer, so I have a 
vested interest in this in some respects, but I understand what 
the Federal Government just resists every step of the way is 
hiring auctioneers to get rid of some of this surplus 
equipment.
    I am going to make that comment. I have said it a hundred 
times, and I will keep making the point. Because it is one way 
that you can at least ensure there is some competition, instead 
of selling all these boots for $69. You would have gotten fair 
value, I think, if they had been willing to pay an auctioneer 
10 percent of the proceeds, they would have made a lot of money 
for the taxpayers.
    Anyway, my real issue, and I am going to come to you, Mr. 
Zavada, and I want to say a special thank you to one of our 
colleagues who can't be here today, and that is Congressman 
Platts from Pennsylvania. He has really been a leader in trying 
to bring about more accountability, not only in this 
Department, but in Government in general. I want to call your 
attention, I am sure you are aware of Public Law 108-330, Mr. 
Zavada.
    I will just give you a little background. My daughter and 
her husband are both CPAs. One works in the private sector, one 
works on the public side. One of them loves Sarbanes-Oxley and 
the other one hates it. But essentially that act, if I 
understand and remember correctly, was about bringing some of 
those kinds of standards to bear on the Department of Homeland 
Security.
    One of the things that is in that law is the requirement 
that they create--I want to make sure I use the right term 
here--but they have internal controls. We have had a process, 
we understand there are a lot of problems, but I wonder if you 
could talk about the quarterly reports and the progress that 
you see being made under Public Law 108-330.
    Mr. Zavada. I assume you are talking about in the area of 
financial management?
    Mr. Gutknecht. Exactly.
    Mr. Zavada. Right now, the Department needs to focus on 
corrective action plans. We have been working with them and 
providing some guidance through some audits that we have been 
doing to direct them toward the corrective action plan process. 
What they have done to date is put together, or are working on 
putting together a Department-wide corrective action plan and 
corrective action plans in particular focus areas.
    There are some signs of progress. To a large extent, the 
CFO suffers from the same issues that we are talking about 
today in relation to the chief procurement officer, staffing 
and capabilities. But there are some signs of progress in some 
of the bureaus.
    Mr. Gutknecht. Well, in October, don't they have to come 
forward with a full financial report?
    Mr. Zavada. Yes, in November, yes.
    Mr. Gutknecht. Any idea of what that report is going to 
look like?
    Mr. Zavada. I am hopeful that there will be some marginal 
signs of improvement. But to a large extent, correcting many of 
the material internal control weaknesses that the Department 
has is going to take a long-term effort.
    Mr. Gutknecht. I am always skeptical when I hear about this 
long-term thing. Mr. Sullivan said, well, the Department is 
still relatively young. I always remind people, we won World 
War II in 3\1/2\ years. This country can do big things. But we 
have to raise our expectations.
    I think one of the weaknesses we have had here in Congress 
is we have been too willing to accept low expectations in some 
of these departments, in managing their funds and being 
accountable for the taxpayers' dollars that we give them.
    So I really am glad we are having this hearing. I hope we 
have a lot more hearings. And again, I want to congratulate my 
colleague, Congressman Platts, for what he has been doing on 
his subcommittee to try and hold more of these departments more 
accountable.
    I yield back the balance of my time.
    Mr. Duncan. Thank you very much, Mr. Gutknecht.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    I am looking at the title of this report. If I walked into 
this hearing just cold, from nowhere in particular, and I 
looked at the title of it, Waste, Abuse and Mismanagement in--
fill in the blanks. The blanks could be filled in, it could be 
Waste, Abuse and Mismanagement in the Department of Defense, 
Waste, Abuse and Mismanagement in the Administration of 
Contracts in Iraq, Waste, Abuse and Mismanagement in Army 
Surplus Material. I have heard this so many times before, and 
someone comes here and tries to pass it off, well, we are just 
a new agency, apparently you are not new at all, because you 
are doing what everyone else does.
    I am offended when I hear this stuff. People in our 
district work real hard to pay their own bills, and they pay 
their taxes and what they get is this kind of thing. I am 
looking at the appendix, Mr. Chairman, and I am looking at some 
of the biggest companies in America. They don't know how to run 
a contract? Or is it that they feel it is Government money, 
taxpayers' money, they just take the taxpayers for a ride? 
Accenture and Partners, $10 billion contract, here is what the 
investigation says, lack of defined requirements, wasteful 
spending, mismanagement. Bechtel, $100 million contract, 
mismanagement, wasteful spending. Boeing Service, $1.2 billion 
contract, wasteful spending, mismanagement. Carnival Cruise 
Lines, $82 million contract, $62 million contract, $91 million 
contract, wasteful spending, wasteful spending, wasteful 
spending.
    I mean, what is going on here? This is like Government as a 
scam. It really is. And we shouldn't stand for it.
    Another thing we ought to look at, Mr. Chairman, and you 
know, I say this having voted against the creation of this 
monstrosity known as the Department of Homeland Security, I 
said it would take them 20 years to figure out what the left 
and right hand are doing. And that goes beyond the corruption.
    This raises issues. I am a former mayor. And I understand 
what happens when you start passing contracts around and you 
don't have oversight. You have people who are just making 
themselves rich at the taxpayers' expense.
    We ought to go a little bit deeper on this committee. We 
ought to find out who the executives are in these corporations, 
we ought to find out who their attorneys are and who their 
accountants are. We ought to find out if they are giving 
contributions to any political parties or if they are giving 
contributions to any individuals. We ought to be looking at the 
stock options of these executives. We ought to be looking at 
their pension benefits. We ought to be looking at who their 
lobbyists are. There is a whole system here. We are just 
scratching the surface.
    I would like to ask the representative of the Inspector 
General here, Mr. Zavada, I would like to ask you a couple of 
questions in this regard. When you review these contracts, do 
you interview the companies that are involved as far as their 
conduct with the Government's money?
    Mr. Zavada. I think it would depend on the circumstances 
involved in the particular contract.
    Mr. Kucinich. Well, let's start with Accenture. Did you 
interview anybody at Accenture?
    Mr. Zavada. I don't know the answer to that, but I would be 
happy to get back to you on that.
    Mr. Kucinich. How is it possible that you can talk about 
the administration of a contract and not talk to the people who 
have the contract?
    Mr. Zavada. I think many of the issues that we pointed out 
deal with the oversight, with the program management and the 
procurement management and the risks in those areas. So the 
focus of our reports have primarily been on the staffing in 
both of those areas.
    Mr. Kucinich. Well, you have reported here that these 
contracts, the administration of contracts is woefully 
understaffed, right?
    Mr. Zavada. Yes.
    Mr. Kucinich. If then it is woefully understaffed, then 
that means they can't really see how the contractor is 
performing, right?
    Mr. Zavada. That has been a problem. The combination of 
broadly defined contracts with the oversight issues, the lack 
of staffing, we mix acceleration, an accelerated time line in 
there, and that is a high risk formula.
    Mr. Kucinich. So Mr. Chairman, this is kind of like a 
multi-billion dollar honor park. When you have an honor park, 
some people come in, they pay what they are supposed to do, 
because they are good citizens. But nobody really watches, 
because it is an honor park.
    We have reduced Federal contracting kind of like honor 
parks. If you have people that are of good intention and 
goodwill, they do the right thing. But if they are not of good 
intention and good will, they rip the taxpayers off for 
billions of dollars.
    Why aren't you interviewing the people who are actually 
executing these contracts as contractors? Do you intend to do 
that?
    Mr. Zavada. I think the focus of our work and the problems 
we have seen to date in many respects has been in the way that 
the objectives are defined in these contracts. That would 
involve both the way the Department and the contractor define--
the Department defines what it wants and then measures the 
contractor's performance in getting what they intended.
    Mr. Kucinich. I thank you for pointing that out, but Mr. 
Chairman, we have only half of the equation here. Think about 
it. We are acting as though, well, these contractors, they just 
don't know what to do, they don't know how to run a business, 
and it is only if the Government tells them what to do. We are 
not keeping an eye on the contractors, is what it amounts to, 
because we don't have enough personnel.
    I think that we need to haul in front of this congressional 
committee some of these contractors, such as the Halliburtons 
of the world, the Bechtels, the Accentures, the Boeings, if 
necessary, the Carnival Cruise Lines. All of these people are 
ripping off the taxpayers. And put them, have them raise their 
right hand, put them under oath, ask them how come this 
contract has gotten out of hand, how did you execute the 
contract, how did you manage it.
    The Government didn't do its job. You pointed that out. But 
this takes two to tango here. You have contractors who know, 
well, the Government is not watching me, ha, ha, ha. So I think 
that we have a moral obligation here to the taxpayers of this 
country who not only expect better, but they demand better. And 
on their behalf, I am speaking. I am saying that this is 
criminal.
    And Mr. Chairman, I just would suggest to you respectfully 
that our committee, this isn't a partisan matter. This is 
something we can agree on. The taxpayers are getting ripped 
off. We don't have to buy that for a second. And I don't want 
anyone coming to this committee and saying, well, we are kind 
of new at the job. Right. Handling multi-billions of dollars, 
oh, well, we are just kind of new at the job. No, no, no, that 
doesn't work here.
    Mr. Duncan. Thank you very much, Mr. Kucinich. Almost every 
major Federal contract is a sweetheart deal of some sort or 
another. In fact, that is why all these big companies hire 
these high level Federal employees when they leave their 
offices, it is why all the defense contractors hire all the 
retired admirals and generals, and then they come back and get 
the offices that they headed up, or the departments they headed 
up, to give them contracts.
    Mr. Kucinich. Amen.
    Mr. Duncan. That is what it is all about. And it is not 
right, but unfortunately, it is the way it is.
    Ambassador Watson.
    Ms. Watson. Mr. Chairman, I really want to thank you for 
holding this hearing. The Congress, since I have been here, 
hasn't done much oversight. We are the protectors of the tax 
dollars, supposedly. And we have given five tax breaks. So that 
pile of money is being decreased. So we have to really zero in.
    I am bewildered as to why we are still giving out no-bid 
contracts. I must apologize, Mr. Chairman, for not being here 
earlier, so I probably missed a lot of the testimony from these 
witnesses. So please forgive me if I am being redundant, and 
just let me know that you have already responded.
    But I would like to go to Mr. Zavada, about the no-bid 
contracts and what your overall response is to the no-bid. Do 
they place our taxpayers at risk? Why do we do so much of that 
no-bid? I can go all the way back to the Iraqi war, when 
Halliburton was on the ground before we as policymakers knew 
it. I understand that after Katrina they were on the ground 
down in New Orleans before we knew it. They have a big, big 
chunk of the money that is allotted, in many cases, without 
accountability. We have had some hearings. And we know that 
they have not, in every case, provided the kinds of services 
that they were contracted for in a timely manner.
    So if you could talk about the no-bid contracts and the 
risks that we are under, but why we do so much of it.
    Mr. Zavada. I can address the issue of risk with those 
contracts. Certainly, they are not the preferred way of doing 
business. They are higher risk contracts, and they require 
mitigating controls, other steps that you have to take to make 
sure that the Government is getting the best value for their 
money.
    So from our standpoint as an auditor, we would certainly 
see those types of contracts as more high-risk type contracts.
    Ms. Watson. I have not read the GAO report, but I have read 
former reports. They will give you an example. Halliburton was 
supposed to deliver ice and cold drinks out on the front, and 
they charged $65 to the Government for a case of Coca-Cola. So 
somebody, and there is a $9 billion amount of missing dollars, 
and they just kind of pass it off. So I don't know, in your no-
bid process, why we continue to choose the same companies. I 
heard because they have the experience. But I do know 
personally that there are companies lined up to do the job, and 
they don't get a chance at them because of the no-bid process.
    So is there a mechanism for very quickly going to 
competitive bidding, so that we can get the best bang for our 
buck?
    Mr. Zavada. I think that is a good question, it is probably 
one best addressed by the Department's Chief Procurement 
Officer.
    Ms. Watson. Is there someone here? I do know that each one 
of you comes from a specific department. Can anyone address 
that? If not, I will wait.
    Ms. Duke. Yes, I can address in general. I am the Chief 
Procurement Officer for the Department of Homeland Security. We 
do prefer competitive. Our numbers for doing competitive 
solicitations are actually a little bit better than the Federal 
Government average. But we need to get better as a Federal 
Government.
    We can do limited competitions under urgent circumstances. 
So you don't have to jump from everyone competing to just one. 
So that is a preference.
    The other thing we are trying to do is put contracts 
competitively in place before, in the case of disaster type, 
before they hit. So I do agree with you.
    Ms. Watson. That is really the kind of answer I wanted to 
hear. Because I would think now, after September 11th, and 
after the creation of this humongous department, which I 
thought was going to be too sluggish in moving, so you have to 
go to the people you know can do the job, but I would think you 
would start lining up those providers who can then immediately, 
if given a contract, move in.
    Hurricane Katrina was a disaster in more ways than one. If 
that is an example of how we respond to a natural or man-made 
disaster, we are going to perish. That was an absolute 
disaster. It is really scary to think that we are no better 
prepared.
    I represent the west coast. There is an airport adjacent to 
my district. We have bridges, we have freeways and so on. I 
don't see us having the resources to move in and protect them. 
Homeland security is not really about the land, it is about the 
people on the land. We need to be sure that those services are 
there when there is an emergency.
    Thank you so much, Mr. Chairman.
    Chairman Tom Davis [presiding]. Thank you very much.
    Ms. Norton.
    Ms. Norton. Mr. Chairman, first I want to thank you and the 
ranking member for this report, which exposes this 
extraordinary boondoggle, that means that this war has been a 
boondoggle for everybody except the troops who are stuck in 
Iraq. I wanted to stop by amidst other duties this morning, and 
hope that during the course of the testimony and the questions 
you have uncovered why, how this long after the war over half 
the contracts have been no-bid contracts, whether there is 
something structural. I can't believe that wasn't somehow 
attempted to be answered.
    I must say, Mr. Chairman, that this report comes late in 
the war. But I want everybody to remember that during World War 
II, World War II, a war that had unanimous, shall I say, or 
virtually unanimous support of the American people, Harry 
Truman held hearings on contracting irregularities, during that 
war, when his party controlled the Senate, when his party 
controlled the White House. He held those hearings. Oversight 
of contracts, in the midst of a war that was supported by the 
American people. That is the way, it seems to me, is the 
pattern that this Congress has finally to assume.
    By the way, Harry Truman, instead of being punished for 
that, later became Vice President of the United States. That I 
think----
    Chairman Tom Davis. I think he went higher than that. 
[Laughter.]
    Ms. Norton. Ultimately he went even higher than that. So it 
does show you that exposing such problems, Mr. Chairman, may 
not get you into trouble, it may help you.
    Mr. Chairman, I must tell you, you and I have shared the 
concern that in the national capital region that you and I both 
share as Members of Congress, we have shared the outrage that 
there has been a 40 percent cut in funds to this region, and 
would you believe, to New York City, so that when you read of 
homeland security contracts and the overruns that have come out 
in the report and the no-bid contracts that have continued, and 
you live where Al Qaeda has most targeted, your outrage is very 
special.
    I have only one question, and I asked whether this question 
has been answered, and I am told it hasn't been answered. It is 
really about perhaps one reason that at least the airport 
screeners contract cost so much more than it should have. That 
is something of interest to me also in my role on the Aviation 
Subcommittee. I am also with the chairman on the Homeland 
Security Committee as well. So it is very painful to see this 
waste in contracts.
    I understand this may be a question for Mr. Gunderson, I am 
not certain. But I would like to know why, and the testing that 
was done was not done at the assessment centers, at Pearson's 
assessment centers, but apparently at hotels, some of them 
luxury hotels. Individuals at expensive hotels in cities like 
New York, where these were tested, cost the taxpayers, who are 
responsible for a good deal of the cost to the taxpayers, I 
understand that in New York City, TSA spent $14,000 for each 
person hired. That sounds pretty high.
    But I am truly interested in this testing, and whether or 
not TSA decided, or why this testing was done in hotels instead 
of an assessment center, why it was done in hotels where you 
had to rent the space, to test this equipment.
    Mr. Gunderson. Yes, I will address that. It fundamentally 
starts with the requirements. When the contract was awarded, 
the estimated value was just over $100 million. It was premised 
on the use of the Pearson recruiting model for assessing them 
and the other various aspects before you hire a screener, which 
was a decentralized process, meaning that the screeners would 
have to show up at wherever Pearson had established a center, 
they would be sent off to get whatever medical testing was 
required, and the other aspects.
    There was a decision made shortly after the contract award 
that determined that the best way to do the recruiting was to 
use a different model, which focused on getting closer to the 
airports, within a couple of hours, I believe was the baseline. 
That is what resulted in the changed model to end up using 
hotels.
    Ms. Norton. Did you ask if there was Government space that 
could be used in New York City and other places to do this 
testing of individuals to be screeners?
    Mr. Gunderson. I am not aware.
    Ms. Norton. Well, you can see my concern. I can see why 
people turn to hotels generally. But when you consider what the 
price, the cost of the most expensive place, the most expensive 
space in a place like New York City are hospitals, if you want 
to stay in a hospital or a hotel room or space to be rented in 
a hotel room. Thank you very much, Mr. Chairman.
    Chairman Tom Davis. Thank you all very much.
    Mr. Van Hollen, do you want to ask some questions?
    Mr. Van Hollen. Thank you, Mr. Chairman.
    I apologize for missing the testimony. I was next door at 
another hearing, in another committee. But I did want to thank 
the chairman and the ranking member and the staff for their 
report on this very important issue and trying to make sure 
that we don't have the kind of rampant abuse of taxpayer 
dollars.
    I just wanted to focus on one issue that was raised in this 
report, and if I could, Mr. Zavada, I will ask you a question 
regarding the TSA contract with Unisys. I understand it was a 
$1 billion contract to upgrade computer networks at various 
airports.
    If you could just give us a sense of your assessment of how 
quickly money is being spent on this particular contract. There 
is apparently an issue on the payout schedule.
    Mr. Zavada. Yes. I don't remember the exact numbers. But 
when we conducted our review, we found that much of the money 
that was on the contract was spent far in advance of the 
schedule. I think a lot of that was attributed to this issue of 
changing requirements. This was at a point when TSA had a very 
limited procurement operation. The combination of the changing 
requirements with the lack of oversight resulted in the high 
costs.
    Mr. Van Hollen. Well, let me ask you about that question of 
changing requirements, or whether there was sort of an 
understanding up front that there were going to be changes and 
a failure to anticipate the costs associated with those 
changes. Because as I understand it, and I want to know if this 
is true, TSA officials estimated the contract costs would reach 
$3 billion to $5 billion, but decided to set an artificial 
contract ceiling at $1 billion, despite expectation that it 
would be much higher.
    Mr. Zavada. What we said in our report was that at the 
billion dollar amount, we could not identify specific 
requirements that were attributed to that number.
    Mr. Van Hollen. Well, let me just make sure I understand 
that. Did you find that there was a belief or understanding 
that in fact the costs would be higher than $1 billion, or did 
you not find that?
    Mr. Zavada. My recollection from the report is that the 
ceiling on the contract was constrained, I think, by the 
budget.
    Mr. Van Hollen. Well, let me ask you this. As I understand 
it, there was a former chief information officer at TSA who 
said that he was instructed by senior administration officials 
to cite the $1 billion cost figure to Congress and that they 
``pulled a number out of the air'' that would ``be more 
palatable.'' Was that part of your finding?
    Mr. Zavada. Well, again, what I will say is that we could 
not identify specific requirements attributable to that billion 
dollar amount. So it was suspect in our mind.
    Mr. Van Hollen. Well, there is a reference that it would be 
more palatable. So that raises a question, more palatable 
compared to what. And the implication is more palatable 
compared to the higher number that everybody agreed would be 
more reasonable. You didn't find as part of your determination 
that there was a belief that it would be higher?
    Mr. Zavada. I believe we said in our report that some TSA 
officials did tell us that it might be between $3 billion and 
$5 billion in total. I believe that is in our report.
    Mr. Van Hollen. And despite that assessment that they had 
at the time, Congress was told that it would be $1 billion, is 
that right?
    Mr. Zavada. I don't know what was communicated to Congress.
    Mr. Van Hollen. You don't know what the figure provided to 
Congress for the cost? Because my understanding is that 
Congress was told that it would be $1 billion. Does anyone have 
any knowledge of that at the table here?
    Ms. Duke. I don't know if it was communicated to Congress, 
but that was the ceiling on the contract. So that was the 
maximum amount we could award under the Unisys contract.
    Mr. Van Hollen. I am just interested in a response. Here we 
have a situation where internally, according to testimony of 
people who were there, there was an understanding that the cost 
of this contract would be between up to $3 billion to $5 
billion. And yet a ceiling on the contract was set at $1 
billion. It just seems to be a case of obvious effort to 
mislead people with respect to what the true costs were. I am 
just interested in a response. I don't know who was involved.
    Mr. Gunderson. I wasn't there in the summer of 2002. I 
joined TSA in December 2002. But my understanding from a 
requirements standpoint, when TSA was trying to assess what is 
that what I called the realm of IT requirements, they were 
having a difficult job trying to get their hands around that.
    Ultimately, there was a decision made that OK, we know that 
we are going to have this billion dollar need, and that is what 
we are going to move forward with. Whether there might have 
been something else beyond that, there may have been. But the 
decision was to award a contract that was able to be kind of 
geared toward the billion dollar ceiling.
    Mr. Van Hollen. Let me ask you this. Is the job going to 
get done for $1 billion?
    Mr. Gunderson. In some of the other contracts we have had, 
as TSA's mission evolved, the requirements changed. So what may 
have set out to be done at $1 billion, other things came in and 
took different priorities.
    Mr. Van Hollen. Were you personally involved in this whole 
decision?
    Mr. Gunderson. No.
    Mr. Van Hollen. Because what you are saying really 
contradicts what I understand the record found. You are saying 
that it was $1 billion, you set it and then there were changes 
that you discovered later on that caused this cost overrun. The 
testimony in the findings as I understand it, from the IG, are 
very different. It is that there was an understanding up front 
that this was going to cost more than $1 billion, and yet a 
contract ceiling was put on for $1 billion, knowing full well 
that wasn't going to be the case.
    Do you have information to suggest that is not what 
happened? Do you agree with the assessment that there were 
people inside the Department of Homeland Security who knew full 
well that the costs were going to be more than $1 billion at 
the time they set a contract cap of $1 billion?
    Mr. Gunderson. What was written in the IG report is what I 
know with respect to a number larger than $1 billion. I don't 
know of anything in my discussions at TSA that support the 
larger number.
    Mr. Van Hollen. All right. Well, thank you. Thank you, Mr. 
Chairman.
    Chairman Tom Davis. Thank you very much. Just a couple 
wrap-ups and I will let you go.
    Ms. Duke, let me just ask you, who has contractual 
authority within the Department of Homeland Security? As the 
Chief Procurement Officer, do you have any warrants yourself, 
or do you just kind of oversee policy?
    Ms. Duke. I do not have a warrant. I oversee policy and I 
also directly supervise one of the eight contracting shops.
    Chairman Tom Davis. Does the CIO have any contracting 
authority?
    Ms. Duke. No.
    Chairman Tom Davis. He has no warrants, either?
    Ms. Duke. Correct.
    Chairman Tom Davis. Now, if someone has a product that they 
think they should sell, is it appropriate for them to talk to 
the CIO, or to you, to say, what are the needs of the 
Department?
    Ms. Duke. Yes, either.
    Chairman Tom Davis. And you don't consider that selling to 
the Government, that is more of an information type of meeting?
    Ms. Duke. Yes.
    Chairman Tom Davis. If they actually want to sell it, they 
would have to talk to a procurement officer, isn't that 
correct?
    Ms. Duke. Yes.
    Chairman Tom Davis. OK. There is a lot of misunderstanding 
about what you do. But you are kind of the policy shop at this 
point. A real problem comes down a couple tiers where you get 
to the people who are contracting who, you tell us you don't 
have enough people, they need appropriate training. Do you have 
enough tools? Do you need more tools for contracting, like more 
share on savings contracts, more fixed price vehicles? Give us 
any thought on the vehicles that you have available for 
contracting.
    Ms. Duke. Share in savings or that type of methodology is 
something we are looking at where, because of some new mission 
requirements we don't have the up-front capital to deploy 
technology. So we are looking internally at how we could 
possibly do a share in savings type.
    Chairman Tom Davis. That limits your downside, doesn't it?
    Ms. Duke. It does. But it is the standard argument of 
whether it is more expensive to do a lease-utility type of 
arrangement. But we are looking at that in the preparation of 
the fiscal year 2008 budget submission.
    Chairman Tom Davis. Mr. Zavada, two of the contracts 
highlighted in our staff report were managed by TSA. Congress 
has exempted TSA from the competitive acquisition laws. Do you 
think that TSA's exemption helped or hurt its ability to award 
and manage the contracts for airport screeners and information 
technology infrastructure?
    Mr. Zavada. From my perspective, it seemed that the 
problems were so fundamental in terms of shifting requirements 
and lack of oversight that they might not have been related to 
the differing authority.
    Chairman Tom Davis. OK. What does that mean? [Laughter.]
    Mr. Zavada. I guess what I am saying is that in those two 
contracts, the pattern was similar. They had changing 
requirements, they had a lack of oversight. They were both at a 
time when TSA had just begun their operations and they were 
doing things on a very accelerated time table.
    Chairman Tom Davis. Thank you.
    Mr. Ely, let me just ask you, how is U.S. VISIT coming? 
That is the largest procurement, I think, from this Department, 
one that had some controversy in the House. How is that coming 
together? How is the oversight of that? How are contractors 
performing? How is the schedule? Can you give me a brief 
overview? Or if you can't, I will ask Ms. Duke.
    Mr. Ely. Yes, this is more her area, sir.
    Chairman Tom Davis. That is a higher level, what you are 
kicking it up to.
    Ms. Duke. There was a recent report on U.S. VISIT in terms 
of contract management. It was rated as the contracts that DHS 
is administering itself are going actually well. Only about 
half of those are done by DHS and there are some done by other 
agencies.
    The main criticism has been whether it is an effective 
program. We are dealing with U.S. VISIT in terms of new 
credentialing programming office and trying to deal with it 
that way. But there have been questions about the effectiveness 
of the program.
    Chairman Tom Davis. The reason I ask is, you mentioned the 
GAO released a report stating that the Department's management 
and oversight of U.S. VISIT related contracts are not yet at 
the level they need to adequately ensure success. We have a lot 
of the top contractors in the country working on this who have 
a lot of innovative--you have to rein them in and direct them. 
So often when these things go south it is the fact that we are 
not on top of them. I can't emphasize enough how important it 
is that this contract work and that we bring this in. Can you 
assure us we are doing everything we can to oversee this, at 
least from your Department?
    Ms. Duke. Yes.
    Chairman Tom Davis. I think that is all I have. Anyone 
else? Mr. Van Hollen.
    Mr. Van Hollen. Mr. Chairman, just a couple of things. 
First of all, I want to say to Ms. Duke, welcome. I know you 
are relatively new to the Department and I wish you all the 
best.
    Chairman Tom Davis. She is a career employee, too, so they 
sent her up here today.
    Mr. Van Hollen. Yes, I know, and I wish you all the best as 
you try and clean up a lot of the mess that we have been 
talking about today. I hope all of us can work together to make 
sure that we address the serious problems that have come to 
light.
    Just for the record, Mr. Chairman, with respect to the 
Unisys airport contract I was talking about, I would like to 
just point out that in the Office of Inspector General's report 
that was issued in February, they said, ``Several TSA officials 
said they never expected to complete all of the contract 
objectives within the original contract ceiling and originally 
estimated the contract could cost between $3 billion to $5 
billion, but set the contract ceiling at $1 billion.'' And in a 
Washington Post article dated October 23, 2005, Patrick 
Schambach, who is the former chief information officer at TSA 
who managed the project, said that it was just a guess and that 
Government officials who spoke at a background briefing said 
that they knew at the time that the project would cost closer 
to $3 billion, but used the $1 billion figure because it would 
be more palatable to Congress. Schambach said senior 
Transportation Department officials told him to cite the $1 
billion figure.
    It is just outrageous, actually, that people would be 
trying to game Congress and trying to game the American people 
by providing a number to the Congress that they know at the 
time they submit it is wrong. We have unfortunately seen this 
in other legislation and we don't need to talk about the 
prescription drug bill and the changing estimates, one known at 
the administration at the time to be much higher in terms of 
cost to the American people than the number that was provided 
to Congress.
    But this kind of thing has to end, and I hope, Ms. Duke, on 
your watch it will certainly end with respect to procurement 
issues at the Department of Homeland Security.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Would you like to add anything?
    Ms. Duke. I am committed to working honestly and openly 
with this committee and Congress. I thank you for that 
opportunity.
    Chairman Tom Davis. Thank you very much. We will dismiss 
this panel and take a 2-minute break and get our next panel. 
Thank you.
    [Recess.]
    Chairman Tom Davis. The meeting will come to order.
    We have our second witness up today, no stranger to this 
committee, Clark Kent Ervin. He is the director of the Homeland 
Security Initiative at the Aspen Institute. We very much 
appreciate your being here today. Of course, you have had prior 
work at Homeland Security to this.
    It is our policy that we swear you in. If you would rise 
and raise your right hand.
    [Witness sworn.]
    Chairman Tom Davis. Thank you very much.
    We expect a vote momentarily, but why don't you go ahead, 
get your statement in and try to get through as quickly as we 
can. Thank you for your patience in being here today.

  STATEMENT OF CLARK KENT ERVIN, DIRECTOR, HOMELAND SECURITY 
                INITIATIVE, THE ASPEN INSTITUTE

    Mr. Ervin. It is my pleasure, Mr. Chairman, and thank you 
very much, and ranking member all the members of the committee, 
very much for having me. Thank you for holding this hearing on 
a very important topic, needless to say.
    Though the Department is only 3 years old, it has already 
firmly established a reputation, needless to say, as one of the 
more dysfunctional agencies in Government. This is especially 
true in the area of procurement. This is not just a matter of 
wasting precious taxpayer dollars, as bad as that is, 
especially at a time of tight budgetary circumstances, it also 
constitutes a gap in our security that terrorists can exploit 
to kill Americans and harm our economy. Because every dollar 
wasted on a flawed contract or flawed contracting process is a 
dollar that could have been spent to make our Nation more 
secure.
    If that is the bad news, the good news is that lessons can 
be learned from the last 3 years. These lessons translate into 
several common sensical principles, as follows.
    First, the lesson to take away from FEMA's disastrous 
performance during Katrina and from TSA's $19 million contract 
to set up an elaborate operations center is that all contracts 
should be competed, even when the dollar amount is under the 
legal threshold, to ensure that the best possible value is 
obtained for the American people. In the past, emergencies have 
been used to justify no-bid contracts. But emergencies, 
especially at a Department of Homeland Security, should be 
anticipated and planned for in advance by putting in place 
competitively bid contingency contracts, so that the Department 
is not forced to do in extremis what it would not willingly do 
under normal circumstances.
    Second, one lesson to take away from the Boeing Company's 
$1.2 billion contract to install and maintain explosive 
detection systems at airports is that under no circumstances 
should the Department allow contracts to become de facto 
illegal cost plus percentage of cost contracts. Such contracts 
are illegal for a good reason: because the higher the 
contract's cost, the greater the contractor's profit. There is 
no incentive for contractors to economize, and every incentive 
for them to overcharge.
    Third, another lesson to take away from that particular 
contract is that when the bulk of the work under a contract is 
to be done not by the prime contractor but by subcontractors, 
the Department should save money by cutting out the middleman 
and contracting directly with the subcontractors.
    Fourth, the lesson to take away from the $1 billion Unisys 
contract, which we have talked about, and also the $2 billion 
Secure Border Initiative contract, is that under no 
circumstances should a contractor be allowed to define contract 
requirements. If we leave it up to contractors to determine 
what Government agencies need, chances are high that 
contractors will decide that the agencies need more expensive 
things than they actually do.
    Fifth, under no circumstances should contractors in the 
business of providing the very goods and services at issue 
oversee the work of fellow contractors.
    Sixth, one of the lessons to take away from the contract to 
provide limousine services to DHS personnel that has been 
linked to the Duke Cunningham congressional bribery case is 
that background checks should be required not only on those of 
the contractor's employees who are to provide services under 
the contract, but also on the contractor's officers, directors 
and major shareholders.
    Seventh and finally, penalties should be built in contracts 
for failure to perform, tardiness, bonuses, performance awards 
and other incentives should be paid only when earned.
    In addition to the foregoing, the number of procurement 
officers in the Department should be significantly higher than 
it presently is. It is not just a question of throwing more 
bodies at the problem. The people hired should have years of 
Government contracting experience. Otherwise, there will simply 
be more DHS procurement officials for more experienced private 
sector procurement experts to take advantage of.
    Further, part of the problem with procurement is that the 
Department's Chief Procurement Officer does not have the 
authority that her title implies. The CPO, as we just heard, 
lacks presently and should be given the power to hire, fire, 
and otherwise direct the work of the component procurement 
heads. Otherwise, components will continue to make discrete 
purchases that are not in the overall interest of the 
Department.
    I will submit the rest of my statement for the record, Mr. 
Chairman, and will be happy to take your questions. Again, 
thank you very much.
    [The prepared statement of Mr. Ervin follows:]

    [GRAPHIC] [TIFF OMITTED] T9933.071
    
    [GRAPHIC] [TIFF OMITTED] T9933.072
    
    Chairman Tom Davis. I will just say, I think your testimony 
speaks for itself. I think you have given us some very good 
suggestions.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. I also agree with the 
chairman. I think you have given us very specific, important 
suggestions for improving the way contracts are handled.
    You have been the Inspector General for DHS. You have 
examined several of the most problematic Homeland Security 
contracts. I want your frank insights as to what went wrong and 
how we can fix it, so that future contracts increase our 
security and protect the taxpayer.
    I asked the previous panel about contracts for border 
security. They had this contract called ISIS. Over $400 million 
was spent on thousands of cameras and sensors to monitor our 
borders, and then these cameras malfunctioned. If the weather 
was bad, it didn't work at all. And it only covered 5 percent 
of the border.
    So they realized that is not going to protect our border. 
Now DHS, after botching this one, is trying to develop another 
contract. But they didn't seem to learn their lessons. Instead, 
they have this vague proposal, request for proposals, with 
words like, we want something that is highly reliable, 
available, maintainable, cost effective, to manage, control and 
secure the border using the optimal mix of proven, current and 
next generation technology, infrastructure, personnel response 
capabilities and processes.
    Now, that sounds good, but it is so vague. Does this 
adequately define technical or cost requirements? Aren't they 
just making the same mistake over and over again?
    Mr. Ervin. You are absolutely right, Mr. Waxman. Einstein 
defined insanity as doing the same thing over and over again 
and expecting a different result. In fact, it is not just ISIS. 
Before ISIS, or rather, before the Secure Border Initiative, 
right after ISIS, there was the American Shield Initiative that 
was intended to do the very same thing, a combination of more 
border patrol agents and greater use of technology.
    So essentially, we have the same thing with the Secure 
Border Initiative, but arguably it is worse in this instance, 
because as you say, of the vagaries of the contract mechanism 
let here. Under no circumstances, as I say, it seems to me, 
should any department, especially the Department of Homeland 
Security, leave it up to contractors to define exactly what it 
is the Department should obtain, because needless to say, it is 
pretty clear that the contractors are going to decide that the 
Department needs more expensive technology than it actually 
does. It is highly questionable whether in the end the 
technology will actually work.
    Mr. Waxman. Well, it is really amazing to me. The 
Republicans are saying, we have to do something to protect our 
borders, we have all these people coming to the borders, it is 
an open border, in effect, even terrorists can get through. But 
certainly millions of illegals are getting through.
    So they are going around the country holding hearings on 
this problem. Some of them have suggested already they passed 
the bill before they had the hearings. We ought to build this 
huge fence. Now, can you imagine what it would be like if they 
follow these kinds of procedures? They are going to say to 
contractors, give us a contract, we will spend whatever 
billions it takes to build a fence? Do you think that is a 
clear enough idea of how to protect the borders?
    Mr. Ervin. Absolutely not. It is the job of Government to 
decide how to execute policy. If the policy judgment has been 
made that we need to secure our border, and certainly, we do 
need to secure our border, and I support that policy judgment, 
needless to say, then it is up to the Government to determine 
exactly how that should be done, and then to define contract 
requirements for contractors to follow, not the other way 
around.
    Mr. Waxman. Well, I want to commend you for your work as 
Inspector General, your testimony to us today. I hope this 
hearing will serve as a wakeup call for the administration. 
This utter incompetence has to stop. Americans deserve better 
than more of the same, and we need to head in a new direction.
    I yield back. Thank you.
    Chairman Tom Davis. Thank you.
    Mr. Cummings.
    Mr. Cummings. Just very briefly. I too agree that you have 
done a great job here.
    But I am just wondering, is this basically incompetence? Is 
it a lack of--it seems like it is deja vu all over again. I am 
just trying to figure out, is it that we are hiring the wrong 
people? Is it structural? In other words, the structure of the 
process. Is it a systemic process?
    I just want to get down to the nitty-gritty of it, the 
bottom line.
    Mr. Ervin. I think that is a key question, Mr. Cummings. I 
guess I would start by saying that all of these problems that 
we are talking about here today were anticipated at the very 
beginning. I wrote a memo, or attempted to write a memo, to the 
then-Secretary, Secretary Ridge and to the Deputy Secretary, 
Gordon England, on March 18, 2003, which was less than a month 
after the Department was officially established. In that memo, 
I said, two areas that DHS needs to get control of early to 
minimize waste and abuse are the procurement and grant 
management functions, getting the right leadership and systems 
in place for both functions should be made a high priority. 
Early attention to strong systems and controls for acquisition 
and related businesses processes will be critical to ensuring 
success and maintaining integrity and accountability.
    I subsequently found out that this memo actually did not 
make it to the Secretary and the Deputy Secretary because it 
was held up in the clearance process, even though Inspector 
General memos are not to be held up, uniquely, unlike any other 
communication from any other official in the Department, by, of 
all people, the Under Secretary for Management. Her rationale, 
I subsequently learned, for having done that, was that she knew 
that the controls I was recommending were not in place and she 
didn't want the Secretary to know that.
    So the seeds of all this were laid at the beginning. To 
answer your question directly, I think it is a combination of 
things. First of all, incompetence, as you say. Two, I think 
under-funding. And I say that as a conservative Republican who 
typically does not call for greater Government spending. But 
you can't do anything on the cheap, and you certainly can't do 
homeland security on the cheap. And a key part of homeland 
security is procurement. There were too few, at the beginning, 
there were too few and there remain too few procurement 
professionals. As I say, it is not just a question of numbers, 
but we need people who are also experienced and expert in this 
area.
    Finally, I would say it is a question of accountability. 
There are no consequences when on a repeated basis these kinds 
of things happen. One of the questions in the earlier round was 
whether there had been any penalties meted out against the 
companies that failed to perform in these instances. We heard 
in prior testimony that at least one of these companies 
continues to perform contracts for the Department.
    And by the way, finally, I would say, people in the 
Department of Homeland Security who oversaw these functions 
subsequently go on to the private sector to some of the very 
companies that have taken advantage of the Department.
    So unless and until we get to these root problems, this 
kind of thing will happen again and again.
    Mr. Cummings. Mr. Chairman, I will submit some written 
questions.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]

[GRAPHIC] [TIFF OMITTED] T9933.073

[GRAPHIC] [TIFF OMITTED] T9933.074

    Chairman Tom Davis. Thank you very much.
    Mr. Van Hollen.
    Mr. Van Hollen. In light of the time, I will be very brief 
as well. I want to thank you for your testimony. I think it is 
particularly valuable, because as others have said, you have 
some very specific recommendations in here that I would hope on 
a bipartisan basis we could implement as soon as possible.
    Your last remark suggested that if maybe the memo had 
gotten to the top, maybe someone would have done something 
about it. I do believe leadership starts at the top. I do know 
elsewhere you have said that in fact you were able to at least 
have a conversation with Secretary Ridge about this, and sort 
of the response you got at the time was, why are you always 
being so critical. Well, if your early warning had been heard 
then, we might be in a better position today.
    Can you just briefly, that was the response you got from 
the very top leadership, what are you so worried about, why are 
you always carping about this. Can you just respond to that?
    Mr. Ervin. That unfortunately is an attitude that I found 
time and again at the Department of Homeland Security. Rather 
than seeing these kinds of recommendations as being helpful and 
as the kind of thing that if put in place could reflect well on 
the Department, on the administration, instead, as you suggest, 
all too often it was taken the wrong way.
    But the good news, as I say, is that it is not too late. We 
can prevent these kinds of abuses from going forward in the 
future if the recommendations that I am advancing today are put 
in place.
    Chairman Tom Davis. I was going to ask you how you got the 
name Clark Kent Ervin before we started, but you have certainly 
shown yourself bullet proof to some of the occurrences during 
your career. [Laughter.]
    Thank you. You have given us a lot of food for thought on 
this. This is not a political issue, it is our job as 
oversight. We appreciate you coming forward, and others, trying 
to identify problems. We are trying to solve them for the 
American people and solve them money. This has been very, very 
helpful to us. Thank you for your patience and thank you for 
your great testimony.
    Thank you.
    At this point, I think we have, Mr. Waxman thanks me for 
asking you about the Clark Kent question. [Laughter.]
    At this point, I think this has exhausted us, and I am 
going to adjourn the hearing. Thank you very much.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Todd Russell Platts and 
additional information submitted for the hearing record 
follows:]

[GRAPHIC] [TIFF OMITTED] T9933.075

[GRAPHIC] [TIFF OMITTED] T9933.076

[GRAPHIC] [TIFF OMITTED] T9933.077

[GRAPHIC] [TIFF OMITTED] T9933.078

[GRAPHIC] [TIFF OMITTED] T9933.079

[GRAPHIC] [TIFF OMITTED] T9933.080

[GRAPHIC] [TIFF OMITTED] T9933.081

[GRAPHIC] [TIFF OMITTED] T9933.082

[GRAPHIC] [TIFF OMITTED] T9933.083

[GRAPHIC] [TIFF OMITTED] T9933.084

[GRAPHIC] [TIFF OMITTED] T9933.085

[GRAPHIC] [TIFF OMITTED] T9933.086

[GRAPHIC] [TIFF OMITTED] T9933.087

[GRAPHIC] [TIFF OMITTED] T9933.088

[GRAPHIC] [TIFF OMITTED] T9933.089

[GRAPHIC] [TIFF OMITTED] T9933.090

[GRAPHIC] [TIFF OMITTED] T9933.091

[GRAPHIC] [TIFF OMITTED] T9933.092

[GRAPHIC] [TIFF OMITTED] T9933.093

[GRAPHIC] [TIFF OMITTED] T9933.094

[GRAPHIC] [TIFF OMITTED] T9933.095

[GRAPHIC] [TIFF OMITTED] T9933.096

[GRAPHIC] [TIFF OMITTED] T9933.097

[GRAPHIC] [TIFF OMITTED] T9933.098

[GRAPHIC] [TIFF OMITTED] T9933.099

[GRAPHIC] [TIFF OMITTED] T9933.100

[GRAPHIC] [TIFF OMITTED] T9933.101

[GRAPHIC] [TIFF OMITTED] T9933.102

[GRAPHIC] [TIFF OMITTED] T9933.103

[GRAPHIC] [TIFF OMITTED] T9933.104

[GRAPHIC] [TIFF OMITTED] T9933.105

[GRAPHIC] [TIFF OMITTED] T9933.106

[GRAPHIC] [TIFF OMITTED] T9933.107

[GRAPHIC] [TIFF OMITTED] T9933.108

[GRAPHIC] [TIFF OMITTED] T9933.109

[GRAPHIC] [TIFF OMITTED] T9933.110

[GRAPHIC] [TIFF OMITTED] T9933.111

[GRAPHIC] [TIFF OMITTED] T9933.112

[GRAPHIC] [TIFF OMITTED] T9933.113

[GRAPHIC] [TIFF OMITTED] T9933.114

[GRAPHIC] [TIFF OMITTED] T9933.115

[GRAPHIC] [TIFF OMITTED] T9933.116

[GRAPHIC] [TIFF OMITTED] T9933.117

[GRAPHIC] [TIFF OMITTED] T9933.118

[GRAPHIC] [TIFF OMITTED] T9933.119

[GRAPHIC] [TIFF OMITTED] T9933.120

[GRAPHIC] [TIFF OMITTED] T9933.121

[GRAPHIC] [TIFF OMITTED] T9933.122

                                 
