[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
ACQUISITION UNDER DURESS: RECONSTRUCTION CONTRACTING IN IRAQ
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 28, 2006
__________
Serial No. 109-192
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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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
Benjamin Chance, Clerk
Michael Galindo, Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
C O N T E N T S
----------
Page
Hearing held on September 28, 2006............................... 1
Statement of:
Robbins, Earnest O., II, senior vice president and manager,
international division, Parsons Infrastructure and
Technology Group; and Cliff Mumm, president, Bechtel
Infrastructure Corp........................................ 146
Mumm, Cliff.............................................. 157
Robbins, Earnest O., II,................................. 146
Schinasi, Katherine, Managing Director, Acquisition and
Sourcing Management, U.S. Government Accountability Office;
Stuart W. Bowen, Jr., special inspector general for Iraq
reconstruction; Ambassador David Satterfield, Sr., Senior
Advisor on Iraq to the Secretary of State; James A. Bever,
Deputy Assistant Administrator for Asia and the Near East,
U.S. Agency for International Development; Tina Ballard,
Deputy Assistant Secretary of the Army (policy and
procurement); and J. Joseph Tyler, Acting Deputy Director
of Military Programs, U.S. Army Corps of Engineers......... 19
Ballard, Tina............................................ 74
Bever, James A........................................... 68
Bowen, Stuart W., Jr.,................................... 39
Satterfield, Ambassador David, Sr........................ 50
Schinasi, Katherine...................................... 19
Tyler, J. Joseph......................................... 81
Letters, statements, etc., submitted for the record by:
Ballard, Tina, Deputy Assistant Secretary of the Army (policy
and procurement), prepared statement of.................... 75
Bever, James A., Deputy Assistant Administrator for Asia and
the Near East, U.S. Agency for International Development,
prepared statement of...................................... 70
Bowen, Stuart W., Jr., special inspector general for Iraq
reconstruction, prepared statement of...................... 41
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 141
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia, prepared statement of................... 4
Lantos, Hon. Tom, a Representative in Congress from the State
of California, prepared statement of....................... 13
Lynch, Hon. Stephen F., a Representative in Congress from the
State of Massachusetts, prepared statement of.............. 208
Mumm, Cliff, president, Bechtel Infrastructure Corp.,
prepared statement of...................................... 159
Porter, Hon. Jon C., a Representative in Congress from the
State of Nevada, prepared statement of..................... 207
Robbins, Earnest O., II, senior vice president and manager,
international division, Parsons Infrastructure and
Technology Group, prepared statement of.................... 149
Satterfield, Ambassador David, Sr., prepared statement of.... 52
Schinasi, Katherine, Managing Director, Acquisition and
Sourcing Management, U.S. Government Accountability Office,
prepared statement of...................................... 22
Tyler, J. Joseph, Acting Deputy Director of Military
Programs, U.S. Army Corps of Engineers, prepared statement
of......................................................... 83
Van Hollen, Hon. Chris, a Representative in Congress from the
State of Maryland, information concerning multiple layers
of security subcontracts................................... 100
Waxman, Hon. Henry A., a Representative in Congress from the
State of California:
Letter dated September 18, 2006.......................... 187
Prepared statement of.................................... 8
ACQUISITION UNDER DURESS: RECONSTRUCTION CONTRACTING IN IRAQ
----------
THURSDAY, SEPTEMBER 28, 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, Clay, Cummings, Dent,
Duncan, Foxx, Gutknecht, Kucinich, Lantos, Maloney, McHugh,
Norton, Porter, Shays, Van Hollen, Watson, and Waxman.
Staff present: David Marin, staff director; Larry Halloran,
deputy staff director; Keith Ausbrook, chief counsel; Ellen
Brown, legislative director and senior policy counsel; Mason
Alinger, deputy legislative director; Patrick Lyden,
parliamentarian; Edward Kidd, professional staff member; John
Brosnan, procurement counsel; Paul Sherry, detailee; Benjamin
Chance, clerk; Phil Barnett, minority staff director/chief
counsel; Karen Lightfoot, minority communications director/
senior policy advisor; Jeff Baran and Margaret Daum, minority
counsels; David Rapallo, minority chief investigative counsel;
Shaun Garrison, minority professional staff member; Earley
Green, minority chief clerk; and Jean Gosa, minority assistant
clerk.
Chairman Tom Davis. The committee will come to order.
Good morning, we meet today to look into the challenges
surrounding the daunting task of coordinating and executing
contracts to rebuild long-neglected critical infrastructure in
war-torn Iraq. Since 2004, the committee has been engaged in
continuous and vigorous oversight of contracting activities in
Iraq. The oversight has involved four hearings on the
challenges of contracting in a war zone, numerous briefings
from the agencies involved in the contracting efforts, as well
as a review of thousands of documents the committee obtained
from key Federal agencies.
Those efforts focused primarily on contracts for logistical
support of U.S. military operations. In this hearing, we will
examine the process, the progress and the problems of
reconstruction contracting activities in Iraq.
Since the beginning, it has been our goal to move beyond
the polarized politics that swirl around any topic related to
the war in Iraq and conduct thorough, balanced oversight of
acquisition activities there. Some have not shared that goal,
choosing instead to play hit and run oversight with
inflammatory press releases and one-sided presentations from
self-appointed watchdogs and whistleblowers. I think they
oversimplified the story and pre-judged the outcome of complex
contracting processes to fit the preordained conclusion that
everything goes wrong in Iraq. And they will never let it go
without saying it is all Halliburton's fault.
I hope this hearing will be different. We will hear from
the administration, from two of the most active oversight
offices, and from participating contracting firms. I know that
means we have a larger number of witnesses and that this
hearing will take some time to complete. But real oversight,
responsible oversight is as much a matter of due diligence as
startling disclosures. It should be about sustaining good
government, not the quick ``gotcha.''
The picture painted by our witnesses today will not be
pretty, nor will their testimony necessarily tell the complete
story of an evolving, dynamic, sometimes dangerous process. But
this much is clear: poor security, an arcane, ill-suited
management structure, and a dizzying cascade of setbacks have
produced a succession of troubled acquisitions.
The construction of a children's hospital in Basrah is
almost a full year behind schedule and more than $50 million
over budget. A project for the construction of 150 primary
health care centers across Iraq has consumed over $180 million
but has resulted in the completion of only six centers At best,
the Iraqis will end up with only 20 of the health facilities
planned under this contract. Other troubled projects include a
$218 million emergency communications network that does not
allow citizens to call for emergency services and multiple
water projects that are chronically over budget and behind
schedule.
Just this morning, we learned the details of yet another
critical reconstruction project gone terribly wrong, a $75
million police academy that has been so poorly constructed that
it poses health risks to its occupants and may need to be
partially demolished.
Obviously, security is the critical factor driving cost and
confounding contract management and oversight. On a daily
basis, our military, civilians and contractors come under
hostile fire. A number of contractor employees have been killed
or wounded. It is a major understatement to say Iraq is a tough
place to conduct business. Travel can be difficult or
impossible. So it is no surprise that normal acquisition
support and oversight resources are stretched to the breaking
point.
But a challenging security environment cannot excuse
otherwise avoidable problems and preventable waste. Original
plans proved wildly optimistic. Only about 55 percent of the
planned water projects and about 70 percent of the planned
projects in the electricity sector have been completed.
According to the Special Inspector General for Iraq
Reconstruction, we keep spending more and building less because
cost estimates are still inaccurate, reconstruction priorities
and funding allocations keep shifting, and contractor
performance is not being closely monitored.
So we need to learn how contracting systems designed to
work here are being adapted to function under very different,
hostile circumstances over there. We have to ask whether
contractors have over-promised and under-performed or whether
the companies were stuck in an environment where success was
virtually impossible. But things have been built, and some of
our witnesses today will testify that, despite many challenges,
we are progressing, slowly but surely. In fact, the Special
Inspector General points out that his onsite assessments show
that about 80 percent of the projects inspected have met
contract specifications.
Many of our witnesses have spent considerable time working
in Iraq, and we value their experience and their perspective on
the important issues raised by reconstruction contracts there.
Much is at stake, in terms of U.S. tax dollars and in terms of
effectively helping the Iraq people rebuild the basic
infrastructure of their nation. We look forward to their
testimony and to a frank, constructive discussion.
I now recognize our distinguished ranking member, Mr.
Waxman, for his opening statement.
[The prepared statement of Chairman Tom Davis follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Waxman. Thank you, Mr. Chairman, for holding this
hearing. It is critical as part of our constitutional oversight
responsibilities to have the Government agencies and private
contractors involved in Iraq reconstruction work come before
our committee to explain how U.S. taxpayer dollars are being
spent.
This is the first full committee hearing on Iraq during
this Congress. I wish we didn't have to wait until the last
week of the session for it, but I am glad the chairman has
called it.
I think most Americans understand that the reconstruction
effort is failing. Today, we have a new symbol of the Bush
administration's failure: the dilapidated and disgusting
facilities at the Baghdad Police College, which the Army and
the Parsons Co. spent $75 million to build.
A report today from Stuart Bowen, the Special Inspector
General for Iraq Reconstruction, describes how the contractor's
work and the administration's oversight were so grossly
deficient that urine and fecal matter were literally raining
down on Iraqi police recruits.
Let me read some of the direct quotes from the report:
``Toilets are continually draining through the reinforced
concrete floors, from the top floor to the second floor to the
ground floor, permeating and filling light fixtures, showers
and toilet areas, with liquids, including diluted urine and
fecal matter.''
``The urine was so pervasive that it had permanently
stained the ceiling tiles.''
Auditors ``witnessed a light fixture so full of diluted
urine and feces that it would not operate.''
``The amount of material was so pervasive that it has
soaked through the reinforced concrete floors, causing
deterioration of the reinforced steel.''
This debacle is not just a waste of taxpayer funds, and it
doesn't just impact the reconstruction. It impedes the entire
effort in Iraq. Not only will the number of basic recruits
graduating through the facility be impacted, but more than
that, this is the lens through which the Iraqis will now see
America, incompetence, profiteering, arrogance, and human waste
oozing out of ceilings as a result.
A new and disturbing poll found that 60 percent of Iraqis
actually approve of attacks against U.S. forces and want us out
of their country. Can there be any more obvious indication of
failure?
By no means, however, is this the only example. The
administration has spent over $30 billion in taxpayer funds and
another $20 billion in Iraqi funds under its control, yet it
has produced little of lasting value.
In the oil sector, the administration has spent over $2
billion. As of July, however, they were producing only 2.5
million barrels per day, still below prewar levels.
In the electricity sector, the administration has spent $4
billion. Yet electricity generation in August was just 4,900
megawatts, well below the administration's goal of 6,000
megawatts.
In the health sector, Bechtel was removed from the contract
to rebuild the Basrah Children's Hospital because of massive
cost overruns and schedule delays. And the Parsons Co., the
same company in charge of the horrible Baghdad Police College,
was terminated after it finished only 6 of the 142 health
clinics it was scheduled to build.
At the same time, the American taxpayer is facing record
overcharges. Just this week, the nonpartisan Government
Accountability Office, which is also here today, issued a
report documenting that the Pentagon's own auditors have now
identified an enormous sum, $3.5 billion, in questioned and
unsupported charges under Iraq reconstruction contracts.
That amount, $3.5 billion, is what we spent on the entire
reconstruction of Afghanistan. When we break down this amount,
it averages $2.7 million in overcharges each day we have been
in Iraq. That is amazing.
While there may be many reasons for this failure, there is
no sense mincing words about the primary reason: the utter
incompetence of this administration and its stubborn refusal to
heed the warnings and advice of experts.
Last week, the Baghdad bureau chief for the Washington Post
published a book documenting overt cronyism in hiring for key
positions at the Coalition Provisional Authority, which is the
governing body of the Bush administration created to run Iraq.
The claims in this book were not made by anonymous, disgruntled
employees. They were made on the record for attribution by some
of the highest ranking officials at the CPA.
One of the most noteworthy is Frederick Smith. He was the
Deputy Director of the CPA in Washington. He revealed that the
criterion for sending people to Iraq was that they had the
right political credentials, not their substantive expertise.
He said the ideal candidate, from the administration's
perspective, was not someone who spoke Arabic or had a
development background, but someone who worked on the
Republican side of the Florida recount in 2000. According to
Mr. Smith, we ``just didn't tap the right people to do this
job. I just don't think we sent our A-team.''
But the fact remains that incompetence results in failure.
And in this case, incompetent decisionmaking at the highest
levels of the CPA undermined the reconstruction, squandered
billions of taxpayer dollars, endangered our troops, and
contributed to the massive discontent and violence occurring in
Iraq.
The recent revelations in the declassified National
Intelligence Estimate underscore this assessment. The
Intelligence Estimate says the jihadists ``are increasing in
both number and geographic dispersion,'' and that ``if this
trend continues, threats to U.S. interests at home and abroad
will become more diverse, leading to increasing attacks
worldwide.''
Those are sobering words, and they are not used by
accident. The intelligence community explicitly warns that
there is a trend, and this trend is getting worse. The
President is wrong when he says his strategy is winning the war
on terror.
We have to face reality. Staying the course is
strengthening our enemies and putting our security in jeopardy.
The administration's entire Iraq policy is a failure. For the
safety of our troops, for the sake of the taxpayer, and for our
own security, the Nation urgently needs a fundamentally new
direction.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Henry A. Waxman follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you, Mr. Waxman.
Do any Members wish to make opening statements? Mr. Lantos.
Mr. Duncan. I am sorry, and then Mr. Lantos.
Mr. Duncan. Thank you very much, Mr. Chairman. This is an
important hearing and I understand it is the seventh hearing
that this committee has held about Iraq. I have seen two recent
articles, one from a couple of days ago which says a review of
Iraq reconstruction funding revealed the 96 contracts worth
$362 million were obligated for payment to dummy vendors, as
opposed to legitimate suppliers. I think we need to know about
that.
I have followed the Congress closely for more than 40
years, and I have never heard of anything such as that. I am
pleased that Mr. Bowen is here to hopefully explain that to us,
and what happened to that money.
Then last month, the Wall Street Journal had an article
that said the corruption that has plagued Iraq's
reconstruction, described by U.S. officials as a second
insurgency, is worsening, complicating American reconstruction
efforts and shattering public confidence in the Baghdad
government, according to a new report by a Bush administration
watch-dog agency. That also is for Mr. Bowen, but it said that
in his quarterly audit, the Iraqi government estimates the
corruption costs the country at least $4 billion a year, a
staggering sum for a war-ravaged country that remains heavily
dependent on foreign aid.
It sounds as though much of this corruption is by the Iraqi
people themselves. As I drove in this morning, I heard on the
all-news WTOP Station, they were having people call in about a
recent poll that said 75 percent of the Iraqi people want us to
leave Iraq. I know that people at the top of the Iraqi
government want us to stay because this is a country that just
before the war started, Newsweek magazine said had a gross
domestic product of $65 billion total for the year before the
war. So obviously they want our money. I saw in one of the
congressional publications yesterday that we have now spent
$463 billion since the start in both Iraq and Afghanistan,
mostly in Iraq.
But we need to ask questions about these dummy contractors
and about this corruption in Iraq. And also, I guess the key
question here is, how much of these problems were caused by the
contractors, but how much was caused by Iraqi corruption
itself; and also by mismanagement by the military; also by
military change orders; also how much was caused by just the
war and the fighting itself.
So I think this is a very important hearing. I think the
conservative Republicans have traditionally been the ones most
concerned about waste, fraud and abuse within our Government. I
am pleased that you would call this hearing and continue this
series.
Thank you very much.
Chairman Tom Davis. Thank you, Mr. Duncan.
Mr. Lantos.
Mr. Lantos. Thank you very much, Mr. Chairman.
You and my friend, Mr. Waxman, have raised many of the
specific issues that concern all of us. I would like to take a
different tack. But first let me commend Mr. Bowen for the
invaluable work you have done on behalf of the American people.
If it were not for your inspector general's reports, we would
not know a fraction of this very unsavory picture.
As I was doing all my reading in preparation for this
hearing, two images kept coming back in my mind, both of them I
wish I would not remember. Some 15 years ago, I chaired the
Housing Subcommittee of this committee, and we had, I believe,
27 nationally televised hearings on waste and corruption and
abuse and cronyism in the Department of Housing and Urban
Development. It is the single most unpleasant episode of my
congressional career and it revealed a series of appalling
actions by high-ranking officials of the Department of Housing
and Urban Development some 15 years ago.
Many years ago, during the Soviet period, the Russians
produced some propaganda films taking little vignettes of the
seamy side of American society, put them together, and
presented them as accurately reflecting what the United States
is. And not until the Hurricane Katrina nightmare, where we saw
the seamy side and the incompetence of our society, did we have
anything comparable to that, and we provided, through our news
clips during the hurricane, devastating propaganda against the
United States by the failure to prepare and by the failure to
manage that crisis.
This crisis is, in many ways, worse. It is worse because it
is an insult to our soldiers and Marines who are performing
their jobs magnificently, with over 2,700 having lost their
lives, a vast number permanently injured. We don't know how
many with long-term psychological repercussions. And it is an
insult to the American taxpayer. One really doesn't know
whether to call this a theater of the absurd, where billions of
American taxpayers' dollars were wasted in an obscene fashion;
or whether to call it a chamber of horrors.
Now, I am fully aware, as I am sure every single member of
this committee is, having visited Iraq, that it is a very
difficult place to function in an orderly and normal fashion.
We all understand the physical dangers, the unpredictability of
the surrounding situation at any moment. But this degree of
irresponsibility, incompetence, failure to engage in
supervision and proper management practices boggles the mind.
When our leaders at the highest levels say we want to stand up
the Iraqi police and here we have this awful report about the
police academy; when we hear about the need to improve health
care, and 6 of 150 planned health care facilities are
completed, one is speechless. It boggles the mind.
So Mr. Chairman, let me just say this hearing is long
overdue. I am very pleased we are holding it. I am very pleased
that we have, among other distinguished witnesses, the
Inspector General, because I don't want to embarrass you with
extreme praise, but you have done an outstanding job in
documenting this chamber of horrors which confronts us.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Tom Lantos follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you very much.
Mr. Gutknecht.
Mr. Gutknecht. Just real briefly, Mr. Chairman. I won't
give a political speech at all, but I just want to make it
clear that part of the reason that we have as many inspectors
general on this task is because we insisted, some of the
conservative Republicans insisted that if we are going to be
spending this much money, we want to make sure.
Mr. Lantos. Mr. Chairman, a point of personal privilege.
Did my colleague refer to me as he referred to a political
speech?
Mr. Gutknecht. No. I said I am not going to give a
political speech.
Mr. Lantos. Was that a reference to my earlier comments?
Chairman Tom Davis. No, he made no reference to that.
Mr. Lantos. I appreciate that.
Mr. Gutknecht. But the point really is, this is not a
partisan issue. I think people on all sides of the political
aisle want to make sure that when we are spending taxpayer
dollars, that they are not wasted. And so, I share some of the
outrage of all of my colleagues on all sides of the aisle.
The point I wanted to make is that the reason we have as
many inspectors general poring over these, and the reason we
have had seven hearings on these kinds of issues is because on
both sides of the aisle, we think this is outrageous, and we
want to get to the bottom of this. But most importantly, we
want to put in place the accountability standards so this kind
of thing stops. That is the key to this whole discussion today.
I yield back the balance of my time.
Chairman Tom Davis. Thank you very much.
Let me just note, we have held several subcommittee
hearings on contracts in Iraq, and we have been waiting to get
these reports together and working together on this. But this
is important and I appreciate the Member's interest in this.
Mr. Van Hollen.
Mr. Van Hollen. Thank you, Mr. Chairman. Thank you for
holding these hearings. I am looking forward to the testimony
of the witnesses.
This is a question of competence or lack of competence, and
the lack of accountability. You can look at the situation in
Iraq today and clearly see that it is a mess. Despite the fact
that the administration continues to tell us, just trust us, we
know what you are doing. We need to go back and listen to what
they told us before, and we remember when the President stood
on the aircraft carrier, the USS Lincoln, back in May 2003,
more than 3 years ago, under the banner, ``Mission
Accomplished.''
And we know more than a year ago that Vice President Cheney
went on national television and said, ``The insurgency is in
its last throes.''
Those are statements made by the two top political leaders
in our country. And yet we now know from a report that was
released by the Pentagon just earlier this month that the
situation in Iraq is dire, and that it is getting worse. That
was a Pentagon report required by the U.S. Congress.
We now have an NIE just released that says that it is the
consensus of all 16 U.S. intelligence agencies that Iraq
continues to be a magnet for jihadists and the terrorist
movement, has inspired terrorists around the world and has been
a breeding ground for extremists.
So we need to have hearings on accountability and figure
out how we got into this mess. In my own view, there were two
wrong decisions. One was the initial decision based on what
turned out to be false information. But the second part, and
this is part of the exploration of the hearing today, is the
post-invasion period, and the lack of planning for the post-
invasion period.
The fact of the matter is, especially over at the Defense
Department, which was given the main responsibility in the
immediate aftermath of the war for reconstruction, you had an
attitude started by the Secretary of Defense that this was
going to be quick and easy, and we were going to be out of
there. We don't have to plan. Back on September 9th, a story in
the Washington Post headline, ``Rumsfeld Forbade Planning for
Post-War Iraq, General says.'' Brigadier General Mark Shea told
the paper in an interview that Rumsfeld had said, ``He would
fire the next person who talked about the need for a post-war
plan. The Secretary of Defense continued to push on us that
everything we write in our plan has to be with the idea that we
are going to be in, we are going to take out the regime, and we
are going to be out of there, that we won't stay.''
That is the mentality that infected the Defense Department
planning when it came to these decisions. And so when it turned
out we had to be there longer, we had to go into
reconstruction, look what happened? Look what happened? Mr.
Waxman has talked about the political cronyism that seeped into
the decisionmaking.
We remember more than a year ago with Hurricane Katrina,
people in the southern States got hit twice. They got hit first
by the hurricane, and then they got hit by the incompetence of
a FEMA that was headed by someone whose main credentials was
that he had been the head of the Arabian Horse Breeders
Association. They got hit twice, hurricane and incompetence.
And now we learn that on the major national security
priority of our country, that same kind of mentality applied. I
am just going to quote the headline from the article that Mr.
Waxman referred to, ``Ties to GOP Trumped Know-How Among Staff
Sent to Build Iraq.'' You would think that what mattered most
was expertise with respect to Iraq; expertise with respect to
reconstruction; maybe people who knew the language; people who
knew what they were doing. But according to this article, in
order to pass muster with O'Beirne, who was a political
appointee at the Defense Department who screened prospective
political appointees for Defense Department posts, applicants
didn't need to be experts in the Middle East or in post-
conflict reconstruction. What seemed most important was loyalty
to the Bush administration.
So yes, I think that both sides of the aisle should be
outraged with the incompetence, but both sides of the aisle
also need to begin to hold people accountable for the decisions
that have been made. Mr. Waxman quoted the No. 2 guy in charge
of reconstruction saying that as a result of this political
cronyism, we didn't get the best people for the job. And now we
are here, many years later, wondering how things have gone so
wrong in Iraq.
I think the story sort of tells itself. It is an
unfortunate story. We need to do our best to begin to restore
confidence of the American people in what we are doing in Iraq,
but we have a lot of walking back to do in order to do that.
Thank you, Mr. Chairman.
Chairman Tom Davis. Do any other Members wish to give an
opening statement?
Mr. McHugh. Mr. Chairman.
Chairman Tom Davis. Mr. McHugh.
Mr. McHugh. I am not going to make a statement, Mr.
Chairman, but I just would like to hear the witnesses. It might
be interesting. We are all interested in oversight. They may be
helpful in that regard.
Just a sentence that follows the issue about being in Iraq.
It says in the NIE, ``Should jihadists leaving Iraq perceive
themselves and be perceived to have failed, we judge fewer
fighters will be inspired to carry on the fight.'' In other
words, if we win, they lose.
I think if we are going to quote a 34-page paper, we ought
to pull out more than just one sentence. This is too important
an issue to distill it down like a Readers Digest.
I yield back.
Chairman Tom Davis. Thank you.
Mr. Kucinich.
Mr. Kucinich. I would agree with my colleague that an in-
depth approach is called for in a review of what has happened,
where we are at, and where we are going. I think it is
important to look at the type of thinking that took us into
Iraq. There is a book out by Corn and Isakoff called Hubris,
and page 200 has a quote that I think is instructive for
purposes of this hearing. It says, ``Post-war Iraq planning
paralleled what happened with pre-war Iraq intelligence. The
work of Government experts and analysts was discarded by senior
Bush administration policymakers when it conflicted with or
undermined their own hardened views about what to expect in
Iraq.''
So if we have a condition where there is a fundamental flaw
in the world view of an administration, it harkens back to that
biblical quote, ``That which was crooked cannot be made
straight.'' Everything about what happened in Iraq, from the
lies that led us into it about WMDs, trying to connect Iraq
with September 11th, trying to connect Iraq with al Qaeda's
role in September 11th, trying to say Iraq was an imminent
threat. There is symmetry here with the collapse of
reconstruction, because it is the same type of thinking.
Today, we are here to discuss how the administration wasted
billions of American and Iraqi taxpayer dollars. The goal is to
find out where the money went and maybe ensure that the
corruption does not continue. But we also need to ask the
question: What are the effects of this failed reconstruction on
Iraqi families? And then we need to ask: What are the combined
effects of the first Gulf war, the economic sanctions
throughout the 1990's, the 2003 shock-and-awe campaign, and its
``collateral damage.''
Abu Ghraib, and finally the failed reconstruction efforts,
we know the administration has spent over $30 billion in
taxpayer money to rebuild Iraq. The administration also spent
an additional $20 billion in Iraqi funds under its control. Yet
the administration has provided little relief for the suffering
families in Iraq. We know Iraqis don't have adequate health
care, schools, clean drinking water or roads. We know Iraqi
children are suffering from diseases that do not threaten
children in the developed world. We know that few Iraqis can
claim they are better off now than they were when Saddam
Hussein was in power.
We know that the U.S. sanctions against Iraq were perhaps
the toughest, most comprehensive sanctions in history, the
sanctions crippled the Iraqi economy during the time they were
imposed, forcing much of Iraq's infrastructure into disrepair.
UNICEF has put the number of child deaths related to Iraqi
sanctions at 500,000. The reasons include lack of medical
supplies, malnutrition and especially disease owing to the lack
of clean water. Among other things, chlorine needed for
disinfecting water supplies was banned as having a dual use in
potential weapons manufacture.
For 1 minute, image yourself as an Iraqi mother or father.
As any parent, your primary duty is to safeguard your family.
But to do so, you have to overcome the effects of the first
Gulf war, the economic sanctions through the 1990's, the 2003
shock-and-awe campaign, and its, ``collateral damage,'' Abu
Ghraib, and now the failed reconstruction efforts.
Is it any wonder that the Iraqi people want the United
States to leave? Is it any wonder that the Iraqi people are
hostile to a U.S. soldier? Is it any wonder that the National
Intelligence Estimate found that our invasion and continued
presence in Iraq is creating a larger terrorist threat?
We ought to refund back to the Iraqis the $9 billion in
missing Iraqi money and we ought to pull out of Iraq as soon as
possible as the Iraqis have made clear they desire.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you, Mr. Kucinich.
I think we are ready for our first panel now. Thank you for
your patience. Members will have 7 days to submit opening
statements for the record.
On our first panel, Katherine Schinasi, who is the Managing
Director of the Acquisition and Sourcing Management, Government
Accountability Office. Thank you for being here.
Stuart W. Bowen, the special inspector general for Iraqi
construction. Thank you for being here.
Ambassador David Satterfield, the Senior Advisor to the
Secretary for Iraq, U.S. Department of State. Thank you, Mr.
Ambassador.
James Bever, Deputy Assistant Administrator for Iraq,
Bureau for Asia and the Near East, U.S. Agency for
International Development. Thank you for being here.
Tina Ballard, no stranger to this committee, Deputy
Assistant Secretary for Policy and Procurement, the U.S. Army.
Thank you for being here.
And Joseph Tyler, the Acting Deputy Director of Military
Programs, U.S. Army Corps of Engineers. Thank you.
As you know, it is our policy, we swear witnesses in before
you testify, so if you would rise with me and raise your right
hands.
[Witnesses sworn.]
Chairman Tom Davis. Thank you. Let the record show all
replied in the affirmative. Your entire statements are in the
record. I read them last night. Our questions will be based on
that. If you would like to supplement that or capsulize it, we
would like you to stay within 5 minutes so we can move on. You
have a red light in front of you. When the red light is on
after 5 minutes, your time is up. It will turn orange after 4
minutes. It will green when you start.
Ms. Schinasi, we will start with you. Thank you again for
being with us.
STATEMENTS OF KATHERINE SCHINASI, MANAGING DIRECTOR,
ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE; STUART W. BOWEN, JR., SPECIAL INSPECTOR
GENERAL FOR IRAQ RECONSTRUCTION; AMBASSADOR DAVID SATTERFIELD,
SR., SENIOR ADVISOR ON IRAQ TO THE SECRETARY OF STATE; JAMES A.
BEVER, DEPUTY ASSISTANT ADMINISTRATOR FOR ASIA AND THE NEAR
EAST, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT; TINA BALLARD,
DEPUTY ASSISTANT SECRETARY OF THE ARMY (POLICY AND
PROCUREMENT); AND J. JOSEPH TYLER, ACTING DEPUTY DIRECTOR OF
MILITARY PROGRAMS, U.S. ARMY CORPS OF ENGINEERS
STATEMENT OF KATHERINE SCHINASI
Ms. Schinasi. Chairman Davis, Mr. Waxman, members of the
committee, I appreciate the opportunity to be here before you
today to talk about GAO's work on reconstruction contracting in
Iraq.
I think I would just like to briefly touch on progress in
three sectors that we have been tracking, and then turn
specifically to the contracting challenges the United States is
facing as it continues its reconstruction efforts.
As we and others have reported, the United States has not
achieved outcomes from reconstruction efforts in Iraq as
anticipated. As of August 2006, oil production was below pre-
war levels and restoration of electricity and new or restored
water treatment capacity remained below stated goals. One-third
of DOD's planned construction work still needs to be completed,
and the hope is now that will be done before the end of 2008.
Because the United States is relying so heavily on
contractors to carry out reconstruction efforts, the strengths
and weaknesses in how the Government has implemented its
contracting process has a great bearing on the outcome of the
U.S. efforts. The contracting problems we and others have
reported on over the last several years are emblematic of
contracting problems we have identified in numerous other
situations, but have more dramatic consequences for failure as
the nature of the task for the United States is so large and so
costly.
We have made numerous recommendations to correct
contracting problems we have identified, which the agencies
have generally agreed with, but we continue to find that the
practice is not always in line with the policy and guidance.
When we reviewed the causes for individual project decisions
and outcomes, the problems we find tend to be interconnected,
but they almost always start with requirements.
At the sector, program and project level, the failure to
define realistic requirements, that is those that can be
accomplished with available resources, makes it more difficult
to take every subsequent step to get to a successful outcome.
Without understanding the resources of time, money and capacity
that are needed to achieve a stated requirement, reasonable
estimates cannot be established. Without reasonable estimates
at the start, program managers cannot stay on track.
The resulting instability has negative consequences on two
levels. First, it affects individual projects as funding needs
fluctuate, schedules slip and requirements are either added or
dropped. Second, instability in individual projects has
repercussions at the program and sector level, as money
allocated for one use gets pulled away for other uses.
Without matching reform as to time, money and capacity
resources before beginning projects, the cascading effect of
the contract level is the inability to definitize contract
terms and conditions. The resulting situation puts the
Government at risk of having to accept costs that it might not
otherwise bear. For example, recently reported that DOD
contracting officers were less likely to remove costs
questioned by the Department of Defense's Contract Audit Agency
when the contractor had already incurred those costs.
Conversely, in the sample of DCAA audit reports we reviewed
in which the negotiations took place before the work was
started, the portion of questionable costs removed from the
contractor's proposals was substantial.
Without agreed-upon requirements, terms and conditions,
closer management and more oversight are needed, but more
oversight requires more resources. There are numerous reported
examples of not having enough skilled people on the ground. For
example the design-build contracting approach, which was put in
place for a large segment of the reconstruction work, by its
very nature recognized the lack of sufficient Government
resources as the United States turned to a contractor to manage
contractors' performance.
In our June 2004 report, we also found that the lack of
contract administration personnel contributed to shortfalls in
contract performance. We have found that without sufficient
people supporting project definition and execution, program
officials have turned inappropriately to the use of interagency
contracting vehicles, which is one of GAO's high-risk areas. We
have reported both on the individual use of interagency
contracts and on the breakdowns that occur throughout the
process as a whole. One of the most significant of those is the
role played by contractors in the process, which is usually
reserved for Government personnel.
Finally, underlying market discipline offered by
competition has not always been present, especially in the
early stages of the reconstruction efforts. Competition can be
used most effectively when advance planning occurs, which
brings me back around to the need to establish realistic
requirements at the beginning.
As I noted at the outset, these conditions are not new or
unique in Iraqi reconstruction efforts. But understanding not
just where we are today, but why is important to make
corrections and prevent repeating mistakes. As our work has
demonstrated, it is often not just one of these elements that
leads to failed outcome, but a combination of several or
sometimes all of them. Just as multiple factors are responsible
for failure, multiple actors also share this responsibility.
So moving ahead to successful acquisition outcomes must
also be a shared effort and responsibility between
policymakers, program managers, contracting officers and the
contractors themselves.
Mr. Chairman, that concludes my summary. I would be happy
to take your questions.
[The prepared statement of Ms. Schinasi follows:]
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Chairman Tom Davis. Thank you very much.
Mr. Bowen, thank you for being with us.
STATEMENT OF STUART W. BOWEN, JR.
Mr. Bowen. Thank you, Mr. Chairman, and thank you, Ranking
Member Waxman and members of the committee for having me here
to testify today about SIGIR's oversight of Iraq
reconstruction. And thank you, Mr. Chairman, for your support
of my office since its inception 2\1/2\ years ago.
Mr. Chairman, you said accurately in your opening statement
that not everything is wrong in Iraq, and that is true. A fair
reading of our full reports demonstrably underscores that fact.
Indeed, 70 percent of the projects we visited and 80 percent of
the money allocated to them indicate that those projects, from
a construction perspective have met what the contract
anticipated.
Mr. Gutknecht pointed out that oversight is not a partisan
issue. That is absolutely correct and is the approach that I
take to this issue and I think is the right approach. It is the
message that I give my auditors, inspectors and investigators.
I just returned Monday from a 50 day trip to Iraq, where I met
with senior U.S. leaders in the reconstruction programs, senior
Iraqis involved in it, in the anti-corruption fight, and also
visited sites outside the Green Zone.
I learned a lot. I learned from General Corelli, the
commander of the multinational Corps Iraq, the troops on the
ground, the guy who is looking out for our soldiers there, that
the solution in Iraq is not primarily military. It is an
economic and political one. And what that means is that it
underscores the paramount importance of succeeding in the
reconstruction program moving forward, and that means, as the
chairman pointed out, we need to learn our lessons. That is
something that SIGIR has pushed forward in real time in the
course of carrying out our mission.
In January, we did a lessons-learned report on human
capital management, effectuated some positive changes in how
personnel are managed in Iraq. We released a report in August
on contracting and procurement in Iraq, and it has prompted
responsiveness. Paul Brinkley in the Business Transformation
Agency under Deputy Secretary England's direction are making a
real-time difference in trying to improve how contracting is
done over there, and more to the point, changing the system so
that it operates better moving forward.
Ambassador Khalizad has strongly supported our mission, as
did Ambassador Satterfield when he was DCM and now is senior
advisor to Secretary Rice, and Ambassador Speckhard. As a
result, our audits, when they finally see the light of day in
writing, mostly have their findings resolved, because they have
been recognized by management, the issues raised by them, that
is, and the problem is addressed, at least solutions put in
place.
So it is true. A week ago I visited a site that is outer-
city, the Baghdad Police College. It was an extremely
disappointing visit. It is essential that we succeed on the
security front. The Baghdad Police College is the place where
police will be trained. Phil Galioto, the dean there, pulled me
aside and was really in distress about the fact that he had to
close that college for 2 weeks because of its unsanitary
conditions, and his fear that he was going to have to close it
again when he has this parade of recruits that are lined up
ready to come through and learn how to bring security to
Baghdad.
The reality is that those issues are out there, but the
reality also is, as he told me, is the oversight was prompting
change. Indeed, the resources he was seeking and said he needs
are moving forward to address the significant problems there.
Mr. Chairman, you asked us to address contracting issues. I
am happy to discuss the lessons-learned report. They are the
subject of potential pending legislation from Senator Collins
and are I think aimed at adjusting the system to improve
contracting. But the point of my contracting report ultimately
is that the story of Iraq reconstruction from a personnel
perspective, from a contracting perspective, and from a program
and project management perspective, we are writing that report
now. It will be out in December. It is a story of gradual
progress. It is a story of adapting, learning lessons, and
improving the execution in a situation where security is a
fundamentally overriding matter.
I would be happy to address in the question and answer
section primary health care issues and the Basrah Children's
Hospital issue that you were concerned about.
Thank you for this time.
[The prepared statement of Mr. Bowen follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you.
Ambassador Satterfield, thanks for being with us.
STATEMENT OF AMBASSADOR DAVID SATTERFIELD, SR.
Mr. Satterfield. Thank you, Mr. Chairman, Ranking Member
Waxman, members of the committee. I appreciate the opportunity
to testify today before this committee on the progress we have
made to date on Iraq reconstruction, and also on the steps we
have taken to execute more effectively our oversight
responsibilities and ensure that the taxpayers' moneys are
spent wisely, effectively and to good purpose for the United
States and good purpose for the people of Iraq.
We recognize fully the enormous responsibility we have to
deliver tangible benefits to the Iraqi people, to manage
honestly and effectively the billions of dollars with which we
have been entrusted. We don't intend to underestimate or
understate the mistakes that have been made, but we also do not
wish to understate the successes that have been achieved, for
there have been significant successes, successes in the face of
perhaps the most difficult operating environment in the world.
Success is critical in Iraq in terms of our ability, Iraq's
ability and the support of the international community to
economic development and growth. Security measures alone, as
General Corelli and others have said, cannot secure a stable,
peaceful Iraq. Only security measures augmented by good
governance, progress on reconciliation, and development and
growth of Iraq's economy to provide a stake for all of Iraq's
citizens in a different, more peaceful Iraq can achieve those
goals.
We believe thoughtful, detailed, oversight can strengthen
our management of contracts and improve outcomes on the ground.
It already has. Over the last year, we have undergone a sea-
change, literally, in how we award, manage and monitor
contracts. We have shifted more contracts to Iraqis, revised
cost-to-complete accounting procedures, moved away from design-
build and cost-plus contracts, and have given grants directly
to Iraqi ministries. In short, we have learned from the past.
We are adapting. We will continue to adapt to changing
conditions on the ground.
We take seriously and we apply in real-time, lessons
learned from the excellent sustained work of the Special
Inspector General for Iraq Reconstruction, our colleague Stu
Bowen, the Government Accountability Office, as well as the
Inspectors General from the Department of State, USAID, and the
Defense Contract Audit Agency. We look forward to the
committee's observations and suggestions to help us further
improve this work.
I would like to begin with a brief review of what the IRRF
funds have accomplished, acknowledge the difficulties we have
encountered, and review the specific mechanisms that we have
put in place to tighten oversight of this program.
I would like to begin by outlining what we have achieved.
IRRF-funded projects have had a measurable and significant
impact on the lives of Iraqi citizens, but I want to make a
comment at the beginning. This impact, this positive impact
comes against the backdrop of the magnitude of need in Iraq for
basic infrastructure development. That is a need estimated by
the World Bank in 2004 at over $100 billion. It was never our
intent to meet through U.S. funds all of these goals. Our
intent was to begin a process, to start a process which Iraqi
efforts themselves and the support, the strong support, the
vital support of the international community and the Middle
East itself, Iraq's neighbors, would be required to complete.
Electricity, our projects have added, rehabilitated or
maintained almost 3,000 megawatts of electricity generation.
What this means is about one-third of all of the power
transmitted today, this day, to Iraq's citizens comes as a
result of our efforts and our funding. Other projects have
succeeded in rehabilitating Iraqi equipment that will provide,
when infrastructure is improved for transmission, still more
ability to deliver power.
On water, our projects have improved significantly. Access
to fresh water and to sewage treatment services have included
19 major water treatment plants, as well as smaller projects
that have improved access to drinkable water. Five million
Iraqis have access today to clean water and sewage services as
a result of our efforts. That is not insignificant, and
completion of all of our planned projects will bring drinkable
water to an additional 8 million Iraqi citizens.
Before the war, Baghdad had no functional sewage treatment
plants. All sewage was simply dumped into the Tigris River,
polluting all downstream consumption. Nine major plants have
been rehabilitated and have capacity to serve 5 million Iraqis.
Three of these plants are in Baghdad, two-thirds of the city's
population are being served by what they do. That is not
insignificant.
Our funding has rehabilitated or refurbished over 4,000,
that is over 30 percent, of Iraq's schools, trained 60,000
teachers, provided over 8 million new textbooks, and we have
inoculated through the efforts of AID virtually all of Iraq's
children against the diseases of polio and measles.
Oil production, vital to that country's economic future,
production and exports as a result of our efforts have
increased above 2002 pre-war levels. Exports have also exceeded
pre-2002 efforts. That is not insignificant.
We have also had setbacks, including work on the primary
health care centers and the Basrah Children's Hospital, and
like my colleagues, I am prepared to address those issues in
response to committee questions. But I want to stress in
closing, the lessons learned here. We have tightened, in our
mission in Iraq and here in Washington, the procedures through
which we oversee contracting, through which we assess the
situation on the ground. We have improved the way we do our
accounting numbers so that we can have a real-time estimate of
funds available, and can shift those funds within the
parameters set by the Congress to meet changing priorities on
the ground. We want to work with the committee. We want to work
with our oversight agencies with the various auditing systems
in place now, to improve still further our work. Lessons have
been learned and will continue to be applied on the ground as
we seek to better ensure that the taxpayers' money is spent
wisely and all benefit from those funds.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Satterfield follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you very much.
Mr. Bever, thanks for being with us.
STATEMENT OF JAMES A. BEVER
Mr. Bever. Thank you, Mr. Chairman and members of the
committee. USAID thanks you for the honor of being able to be
here with you this morning.
First, I would like, as a U.S. Foreign Service Officer, to
thank the chairman and members of the committee for the times
when you come to the field and see what we do in the field, and
you take the risks that we also take as Foreign Service
Officers in the field so you understand the challenges that are
there, and you bring us courage that what we do to serve our
country is the right thing. Thank you.
In addition to the support for democratic infrastructure
building and economic infrastructure building in the ministries
of finance, I would like to focus my very brief comments on the
physical infrastructure. There are some things that USAID and
American taxpayer dollars have done today which we take for
granted. First is Umm Qasr Port. The dredging of that port, the
repair of that port early on in this conflict allowed hundreds
of thousands of tons of supplies to come in to the Iraqis in a
timely fashion.
The repair of the airport, both in Baghdad and Basrah, has
allowed thousands of commercial and civilian flights to come in
and out of Iraq and around Iraq. Thousands of small
infrastructure projects in every one of the provinces of Iraq
have allowed the visible, tangible manifestation of American
goodwill and caring and improvement at the local level.
Ambassador Satterfield has also commented on the power
sector, and has commented on the water and wastewater. I won't
go further on that, except to say that we have also been very
active in the rural areas. This is where 25 percent of all the
jobs are created and maintained in Iraq. So much of our
assistance has been in building agricultural infrastructure,
and 500,000 farmers have water today that didn't have it a few
years ago.
The Ambassador also addressed our contribution to education
and to health. I won't go further there.
I would like to just close, and I will make my comments
very brief, by saying that our agency, recognizing the
importance of Iraq, recognizing the importance of SIGIR and of
GAO and the IG comments, has created a Special Deputy Assistant
Administrator position specifically for Iraq. I was brought in
by Ambassador Tobias, our Administrator, from Israel where I
was serving for the last 2 years to help enhance Israel's
security, and advance Congress' plans both there and in
Afghanistan before that, to focus on Iraq. So we welcome and
look forward to continuing to work with our accountability
agencies. We are proud of the Government Accountability Office
finding that USAID competitively awarded contract actions for
99 percent of all of our obligations and commitments.
And last comment, under our infrastructure activities, we
are also very proud that 97 out of 99 of our activities have
now been completed. The remaining two will be completed in the
coming year and we will be sharing those activities with Army
Corps and transferring them shortly.
Thank you.
[The prepared statement of Mr. Bever follows:]
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Chairman Tom Davis. Thank you very much.
Ms. Ballard, thanks for being with us.
STATEMENT OF TINA BALLARD
Ms. Ballard. Good morning. Thank you, Chairman Davis,
Congressman Waxman, and distinguished members of the Committee
on Government Reform, for this opportunity to report to you on
the U.S. Army's reconstruction contracting efforts in Iraq.
It is my privilege to represent the Army leadership and the
military and civilian members of the combined reconstruction
program management and contracting work force team. We
appreciate your wisdom, advice and steadfast support. The Army
is the executive agent for the Department of Defense
reconstruction and relief mission in Iraq, as outlined in the
IRRF, and is responsible for the execution of approximately $13
billion of the $18.4 billion appropriated by Congress for
projects in Iraq.
In January 2005, with the cooperation and leadership of the
U.S. Central Command, the Joint Contracting Command-Iraq and
Afghanistan [JCCIA], was established. This Joint Command, which
is headed by a two-star general, operates under the Army's
acquisition authority and has more than 160 people in two
theaters of war who are working in dangerous and difficult
conditions.
The JCCIA operates in full compliance with Federal
acquisition regulations and to date we have awarded more than
4,000 contracts for the reconstruction of Iraq. We do this
mission with great pride and gratitude to Congress, the Army
team and our interagency partners, the Department of State and
U.S. Agency for International Development. This team has proven
to be resourceful and resilient, while adjusting to every
challenge presented by the evolving conditions in Iraq.
I want to emphasize the following important point in
particular. The reconstruction program in Iraq has been one of
the most audited efforts ever undertaken by our Government.
From the beginning, we have welcomed this good government look
at our work. Our policy throughout this mission has been to
work side by side with every auditor in order to ensure the
proper expenditure and oversight of money allocated by the
Congress.
We have also found that the auditors serve a valuable role
in helping us execute our mission. While the challenges have
been daunting at times, we have maintained a tremendous sense
of urgency and intense operational tempo with regard to our
reconstruction mission.
In summary, we are an Army at war. We are proud of our
accomplishments and we want the people of this great Nation and
you, the Members of Congress who represent them, to know of
this great effort in helping to create and build a stable and
successful Iraq. With your continued support, we will succeed.
This concludes my opening statement, Mr. Chairman. Again, I
thank this committee for its continuing wisdom, guidance and
steadfast support. I look forward to your questions.
[The prepared statement of Ms. Ballard follows:]
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Chairman Tom Davis. Tina, thank you very much.
Mr. Tyler, thank you for being with us.
STATEMENT OF J. JOSEPH TYLER
Mr. Tyler. Mr. Chairman, Ranking Member Waxman, and members
of the committee, thank you for the opportunity to discuss the
successes and some of the challenges the U.S. Army Corps of
Engineers and the team we work with has experienced in
execution of the reconstruction program in Iraq.
I have had the pleasure of having oversight management for
this program from the time it originally started. I would like
to emphasize a few points included in my written statement.
First, the Corps of Engineers is committed to supporting
the Nation's global war on terror. We have supported the
operation in Iraq from the very beginning. Our entire work
force of 34,000 personnel has been available to support the
effort. About 3,300 personnel from both our civil works and
military mission areas have volunteered for deployment, many
for multiple deployments. The remaining personnel that stay
here in the States are often used for reach-back support of our
personnel on the ground in-theater.
Our multi-talented expeditionary work force has allowed us
to respond positively to this reconstruction mission. Our
current work force in Iraq consists of military personnel, U.S.
Government civilians, DOD contractors, and Iraqi associates. We
utilize these personnel in various capacities to allow us to
execute our mission in the most efficient and effective manner.
We will use the Iraqi associates in insecure areas which would
endanger U.S. personnel or draw unwanted attention to the
reconstruction effort. It is because the Iraqi associates are
able to move more freely throughout their country.
Now, beginning in October 2005, the Corps' office in Iraq,
our Gulf Region Division [GRD], and its three district offices,
began a gradual evolution toward consolidation with the Project
and Contracting Office [PCO]. This consolidation commenced as
reconstruction projects moved from the planning and design
stage of execution to the construction stage. GRD has always
supported PCO in construction oversight. Therefore, it made
sense from a cost and program execution perspective to
streamline our personnel and processes by consolidating the
offices and focusing on completing program construction. This
consolidation will be complete next month.
Overall, the Corps has been successful in oversight
management and execution of its reconstruction mission. We have
completed construction on 3,100 quality projects at a cost of
about $4 billion. There are slightly over 800 projects under
construction right now, and there are over 500 projects that
are anticipated to start construction in the next few months.
This success was not without challenge. Construction
quality is always a challenge, even in the United States. The
challenge is amplified by the Iraqi environment. Our personnel
and our contractors, United States and Iraqi alike, are
constantly challenged in the day-to-day operations. In spite of
that challenge, we are able to deliver quality facilities for
the Iraqi people.
There are always the exceptions that rise to the surface in
getting significant scrutiny. These exceptions also demand our
intensive management, and often extraordinary actions to
achieve the appropriate remedy and the quality results.
Mr. Chairman, this concludes my opening remarks. Again, I
thank you for the opportunity to discuss the Corps'
reconstruction efforts in Iraq.
[The prepared statement of Mr. Tyler follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you.
Let me start. Ambassador Satterfield, let me just ask you,
in terms of electrical power, does Iraq have more power or less
power today than when we came in?
Mr. Satterfield. It has more power, Mr. Chairman,
significantly more power. There are limitations to the amount
that can be physically transmitted on Iraq's infrastructure,
but within that limitation, we are contributing as a result of
our projects, our efforts and our money, over one-third of the
delivered transmitted power today to Iraq's citizens.
Chairman Tom Davis. OK. Is there still a lot of sabotage of
that going on?
Mr. Satterfield. There is significant sabotage. If you look
nationally at electrical power, its operations and maintenance
deficiencies, fueling problems, that is delivering the right
kind of fuel to the right plants on time, that is the biggest
contributor, rather than sabotage. But if you look at Baghdad
as a signal piece of that puzzle, the amount of damage or
deficiencies due to sabotage is about one-third of the total
power.
Chairman Tom Davis. And Baghdad got the bulk of the power
under the previous regime.
Mr. Satterfield. Under the Saddam regime, Mr. Chairman,
Baghdad deliberately received the bulk of the power for
political reasons. The rest of the Nation was starved.
Chairman Tom Davis. Thank you.
Mr. Bowen, let me ask, you just released a report on the
shoddy construction of the Baghdad Police College that is all
over the headlines today. Obviously, this lax contract
oversight didn't perform. It just has to be unacceptable. What
were the prime contractor's reaction when these defects were
pointed out? And how did we get to this?
Mr. Bowen. It is a good question. It boils down to a lack
of oversight, both on the scene by----
Chairman Tom Davis. But even with oversight, the contractor
should have, I mean----
Mr. Bowen. You're right. The way this happened, it is
subcontracting. You understand this. Parsons got the design-
build contract for facilities in March 2004, a $500 million
IDIQ. Included in that were the health care and also other
facilities, including the Baghdad Police College. It is a $73
million project. The work is done through subcontracting.
Chairman Tom Davis. Let me ask, we do encourage them to
hire Iraqis for this. Isn't that part of the policy?
Mr. Bowen. That is exactly right. It is incumbent upon them
to hire Iraqi firms that are competent, and there are many. We
talked about the fact that many of our projects that we have
seen have been successful and they have been performed by Iraqi
firms. So that is not the dispositive issue. It is what
happened at the Baghdad Police College that is determinative.
But in constructing there, there were all manner of
shortfalls. They used the wrong pipes. They didn't have
fittings. They just cut pipes, cemented them together, and then
finished the floor. Of course, they burst, and that was in all
barracks. There is a half-completed laundry facility that
$300,000 was invested in that has to be torn down. They are not
going to finish it. There is another facility next to it, same
story. There is a beautiful classroom building out just beyond
that laundry facility that has no power.
Chairman Tom Davis. If this were out in Fairfax or in Los
Angeles, you would have building inspectors looking at all of
this. Do they not have that regime in place there?
Mr. Bowen. They did not. The Deputy Commander of GRD went
out there with me a week ago. I addressed this exact issue,
that you are pointing to. He was unaware of what the oversight
situation was from the GRD perspective before the turn of this
year. And so, that is something that we continue to drill down
on. This was a quick reaction report to draw attention to it,
to get the resources there to fix it now, because we are
scheduled to turn this over at the end of the year.
Chairman Tom Davis. What is the contractor's responsibility
in something like this? Ultimately, they are building it. If
you don't have a government regime doing the inspections, then
they need to do it, and it sounds like that wasn't done.
Mr. Bowen. You are exactly right. It is a multi-layered
oversight process and that is the case for every project in
Iraq. Parsons had a duty to supervise how this Iraqi firm was
doing. In other words, get a look at exactly what they were
planning on doing with that plumbing and not to let it all get
laid and then burst and be a disaster.
Chairman Tom Davis. I guess our problem is, I mean, you can
look at one project, but when something can go this badly, and
if anything could go wrong, it did go wrong here, and you can
point back and forth, but the concern that I have, and I think
Mr. Waxman and other Members have is, is this systemic? How
many other projects like this are going on?
Mr. Bowen. I am glad you asked that. I have a list here of
the 14 Parsons projects that our inspectors have visited; 13 of
them don't meet standards. Ironically, the one that does meet
standards, the Nasiriyah Prison project that I visited in May,
was terminated for default for other reasons, primarily for the
issues I saw then. It was de-scoped from serving 4,400
prisoners to 800, and the cost was 50 percent more. But I was
there and I saw the construction at that facility is of quality
service, but the forward border post at Sulaymaniyah, it was a
design flaw in the center beam that our engineers, actually my
inspectors are an engineer and an auditor, the engineer picked
up on it and adjusted the design. The Allaminon primary care
facility, the five PHCs we visited, all----
Chairman Tom Davis. My last question, I get you, but are
these taxpayer funds or are these Iraqi funds that were paying?
Mr. Bowen. Taxpayer funds. These are IRRF projects.
Chairman Tom Davis. Mr. Waxman.
Mr. Waxman. Mr. Bowen, did Parsons get paid?
Mr. Bowen. Yes.
Mr. Waxman. Are they going to pay any of this money back?
Mr. Bowen. No. The structure of contracting, cost-plus,
means that the U.S. Government bears the burden, so to speak,
of paying for what happens in the course of performing that
contract. That means if a subcontractor fails, and you have to
move on to somebody else, that cost is borne. That happened up
in Urbeyo, the water treatment plant I visited last November.
Same story.
Mr. Waxman. Well, let me interrupt you. You issued this
report that just came out about this Baghdad Police College. I
have some photos of the police college that I am going to ask
be available. You said our job in Iraq is to provide help for
their economy and their security. What could be a more
important symbol than giving them the ability to have police
trained for security and buildings that will give them a boost
to their economy? What you found in your report is truly
disgusting. The photos don't really even capture it all. It is
a civil security project in the country that is a failure. It
is the Baghdad Police Academy and it is a disaster.
I went through some of the points earlier in my opening
statement about fecal matter and urine going right through the
building. It is not a very proud symbol for the U.S. efforts in
Iraq, is it?
Mr. Bowen. As I said, the plumbing design and execution was
extremely poor. As a result, it failed once it came into use.
Mr. Waxman. Well, the chairman asked you this. Who is
responsible for this disaster? Is it Parsons? Is it the Army
Corps of Engineers? Or is it both?
Mr. Bowen. I think it is a shared responsibility.
Mr. Waxman. And is this the first project that Parsons and
the Corps of Engineers bungled?
Mr. Bowen. This is the most problematic project that we
have visited.
Mr. Waxman. But is it the first?
Mr. Bowen. As I said, we have visited 14 Parsons projects,
four border forts up in Sulaymaniyah, five PHCs in the Tamime
area. Total value of the projects we have looked at is $136
million, and I wouldn't use the word ``bungled,'' but I would
say that they have not met the contract's expectations.
Mr. Waxman. As I indicated, this is perhaps the new symbol
of the Bush administration's failure, the dilapidated and
disgusting facilities of the Baghdad Police College. We spent
$75 million of taxpayers' money on it. I am trying to figure
out how we got to this point. You have indicated you thought it
is a failure of oversight.
Well, the Washington Post reported in 2003 and 2004, a
Defense Department political appointee named Jim O'Beirne
directed and organized a systemic screening process to hire
Republican loyalists for the key Provisional Coalition
Authority. Mr. O'Beirne was the Pentagon's liaison to the White
House. Mr. O'Beirne's office posed blunt questions about the
political leanings of CPA applicants. People who were supposed
to work on overseeing these kinds of projects for this
provisional government that we were in charge of were asked
questions about whether they voted for George Bush in 2000, and
even their views on abortion.
To recruit the people he wanted, O'Beirne sought resumes
from the offices of Republican Congressmen, conservative think-
tanks, and GOP activists. He discarded applications from those
through his staff that were considered ideologically suspect,
even if the applicant's possessed Arabic language skills or
post-war rebuilding experience.
Ambassador Satterfield, is this true? Was the Pentagon's
White House liaison screening people to run Iraq on the basis
of how Republican they were?
Mr. Satterfield. Congressman, I cannot comment on the CPA
period. What I can comment on, though, is the extraordinary
professionalism, dedication and qualifications of the staff at
our mission in Iraq, in Baghdad and elsewhere, working on these
development issues today and over the course of the past years.
Mr. Waxman. But so much of what we are talking about,
including this police academy, was handled during the CPA
period. There was one specific example of this cronyism in the
health sector. There was Dr. Frederick Berkel, Jr. He was
removed as the head of Iraq's health care system 1 week after
the fall of Baghdad because, as I understand it, the White
House wanted a loyalist. My staff talked to Dr. Berkel. And the
e-mail he received informed him that he was removed purely on
politics.
Mr. Bever, you are USAID, can you tell us whether Dr.
Berkel was removed from his position based on politics? Did
USAID believe he was not qualified?
Mr. Bever. I am not qualified to answer that particular
question. I have not seen that e-mail, sir. We can get a
question for the record if you would like.
Chairman Tom Davis. We will put that on the record.
Mr. Waxman. Thank you.
Chairman Tom Davis. Mr. McHugh.
Mr. McHugh. Thank you, Mr. Chairman.
Obviously, the conditions at the extreme are unacceptable,
the hemorrhaging of taxpayers' money is despicable, and I would
hope we would all want to see it stopped. That is why we are
here, in large measure, I would hope.
Mr. Bowen, you mentioned the configuration of the contract
as cost-plus. What is the reason for that configuration?
Mr. Bowen. Because of the risks that contractors must bear
when going to a place like Iraq, about which requirements are
limited or unknown.
Mr. McHugh. Would it be your considered judgment, that is
an absolutely essential component of any contract to be
successfully let? Or is that just something we have allowed
ourselves to slide into?
Mr. Bowen. No, absolutely. It is an essential tool in
performing construction contracts in contingent environments. I
am not arguing for the abolition of cost-plus. I am just
arguing for a review of it to see how it can be better tuned to
meet the needs in contingent environments.
Mr. McHugh. Which leads me to my next question. Why is it
not possible, and this is not strictly in your lane, I
understand, but you have been there. Your folks have been
there. You understand the conditions. Why would it not be
possible, even with the security situation, and I have been
there six times, and I understand, not to have some codicil in
the contract structure that requires a minimum amount of
applicable oversight? It sounds to me as though Parsons was out
at the oasis somewhere.
Mr. Bowen. That is a significant point. The fact is that
the oversight is expected and part of the contracting process.
There are controls in the system that needed to be exercised
that didn't. For example, as one of our audits this last
quarter underscored with respect to DOD IDIQ contracts, the
need for definitization was viewed as voluntary, and that was
inaccurate as the General Counsel to the Army observed in a
June opinion.
The lack of that discipline within the cost-plus contract
system created leeway for waste.
Mr. McHugh. Do you think there was a cause of action
against Parsons?
Mr. Bowen. Let me put it this way, I have been an advocate
for terminations for default whenever the Commander of JCCIA
and I sees it as appropriate.
Mr. McHugh. Let me state, I do. I think, for the record,
for whatever that is worth, based on what I know, and maybe I
could learn more that would convince me otherwise, but it seems
to me, as I believe I heard you say, out of 14 Parsons
contracts, 13 you found to be unacceptable.
Mr. Bowen. The construction at the border posts and at the
PHCs that we visited, the Primary Healthcare Clinics, was
substandard, did not meet contract expectations.
Mr. McHugh. And 13 of 14, was that the figure?
Mr. Bowen. Yes. And the 14th was the Nasiriyah Prison,
which was ironically terminated for default.
Mr. McHugh. So when they get the construction right,
something else goes wrong?
Mr. Bowen. That is right. I think the reason was that the
scope was reduced from 4,400 to 800, without the cost being
similarly reduced.
Mr. McHugh. Thank you.
I would turn to Ms. Schinasi. You spoke about the
fundamental lack of oversight being, in your judgment, the No.
1 reason why we have the conditions we are talking about here
today. Did I hear you correctly? I would be curious if you are
able to evaluate the reason for that lack of oversight. In
other words, is it a resourcing problem from your judgment? Or
is it just a matter of lack of attention? Can you quantify
that?
Ms. Schinasi. I think it started out as a resource issue. I
mentioned the whole design-build construct, which is the
management structure under which a lot of these projects got
started. In that project management structure, we relied very
heavily on contractors to manage contractors. That was in part
a decision made for resource reasons.
Mr. McHugh. OK. I just have a few seconds left. My friend
from California, in his opening statement, talked about what he
described, I am sure he is absolutely correct, 15 years ago, a
very painful experience in oversight that he went through
talking about cronyism and corruption, two of the words he
used, at the highest levels of the Department of Housing and
Urban Development. In either of your two experiences, Mr. Bowen
or Ms. Schinasi, have you seen any indications that there is
corruption that would be found in the higher levels of the
agencies involved in these projects?
Ms. Schinasi. That is not an issue we have addressed.
Mr. McHugh. Sir?
Mr. Bowen. No. As I have said before, corruption is not and
has not been a pervasive component of the U.S. reconstruction
program in Iraq.
Mr. McHugh. Thank you.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
Mr. Lantos.
Mr. Lantos. Thank you very much, Mr. Chairman.
In reading all of these reports and all of this testimony,
one is confronted with a new language. It is sort of sanitized
bureaucratese, not English. So what I would like to ask each
member of the panel briefly is if you would be pretending that
you are in a living room talking to ordinary people, who don't
enjoy reading bureaucratese. How would you evaluate and
characterize the oversight and the accomplishments in this
field which has cost the American taxpayer $30 billion. We will
begin with you.
Ms. Schinasi. Yes, if I can back up from the oversight
question, I think where I would like to start answering that
question, is looking at the task we set out for ourselves and
understanding up front what that task was going to cost, and
making sure that we had the resources to assign to it, because
without understanding what you are able to accomplish, we put
projects in place that perhaps were not executable,
particularly when you look across the country as a whole.
So the oversight needs to come in to make adjustments to
those initial assumptions that proved faulty, and that
oversight has not been there. We have not been able to make
adjustments, and so we are at a point now where I think we have
to step back and look at what is it that we can do, and then
how are we going to accomplish that with the reconstruction
projects that are already on the books.
Mr. Lantos. What you are saying is that initially lots of
projects were proposed and approved, and according to the
Inspector General, paid for, which were not feasible to begin
with and never completed. Let me zero in on the primary
healthcare center issue, because quite frankly it simply makes
no sense what you are telling us, Mr. Inspector General. You
say this project began in March 2004, with a contract for 150
centers. Is that correct?
Mr. Bowen. That is correct.
Mr. Lantos. And only six were accepted as completed by the
U.S. Army Corps of Engineers 2 years later.
Mr. Bowen. That is right.
Mr. Lantos. Well, this failure ratio is a Guinness World
Book of Records answer. I mean, if you have 150 healthcare
centers that are planned, funded, construction begun, and 2
years later you find that only 6 are completed, this requires
an explanation.
Mr. Bowen. Mr. Lantos, your core point is correct. The
primary healthcare program in my view is the most significant
failure in the overall reconstruction program.
Mr. Lantos. This was a Parsons project?
Mr. Bowen. That is right.
Mr. Lantos. Parsons has a lot of experience. They have
completed many projects globally over many years. How is it
feasible, explain it to us in very simple terms, that Parsons
undertakes a project involving 150 health centers, and 2 years
later 6 are completed, the contracts are terminated, although
we paid Parsons. They walk away with the money for 144 that
were not completed. Explain this to me as a taxpayer.
Mr. Bowen. I would be happy to. The number of clinics was
de-scoped to 141, reduced to that number.
Mr. Lantos. ``De-scoped'' means? Let's use English.
Mr. Bowen. Right.
Mr. Lantos. I don't know what ``de-scoped'' is. We started
with 150 and then we moved it down to 141.
Mr. Bowen. To 141, you are right. I am sorry.
Mr. Lantos. That is English.
Mr. Bowen. I will speak in clearer terms. The six were
completed.
Mr. Lantos. Which means 135 were not?
Mr. Bowen. That is correct. Parsons agreed to finish 20 of
those clinics that were nearly complete, of which those 6 that
are complete are part of it. So that is down to 125. A couple
of clinics were handled by other direct contracting. But here
is the point, of the balance 122 clinics left in the number
that I am talking about, they are all either halfway or more
completed, 50 percent, 75 percent, 90 percent. What the Corps
of Engineers has done is picked up this mess and developed a
plan to solve it by contracting out the completion of those 125
clinics to Iraqi firms for about $40 million.
The Parsons point to me in the course of performing this
audit was that they had two significant complaints. One, this
was supposed to be a 2-year program and they were unilaterally
directed by the Corps of Engineers to make it a 1-year program,
so they were expected to build 150 clinics in a year and the
site selection was difficult in many cases. There was one that
was placed where there was a swamp. There was so much remedial
work that had to be done at a number of the sites that they
simply made some of the PHCs unworkable.
Mr. Lantos. Since time is short, may I just followup on one
item, Mr. Chairman?
Mr. Bowen. Yes, sir.
Mr. Lantos. When I was in Iraq, I met one of the most
impressive human beings I ever met, General Petraeus, who took
me around on his helicopter and we landed many places. He
showed us that with $5,000, with $20,000, projects were
completed. We looked at them. They were functioning, and so on.
In your report, Ambassador Satterfield, and I wonder if you
can tell us when you went out to take over this assignment?
Mr. Satterfield. In May of last year.
Mr. Lantos. In May of?
Mr. Satterfield. Of 2005.
Mr. Lantos. Of 2005. Your report says, and I can quote it,
but I will paraphrase it and you correct me. You say you took
many of these projects away from these multinational firms,
gave them to local firms, and saved something like 40 percent.
You are not in the field of construction management, but you
have some brains, and you took it away at this incredible
profit margin, gave it to Iraqi firms at a 40 percent cost
saving, and your inference was that they are now being
completed.
Mr. Satterfield. Yes, Congressman.
Mr. Lantos. How do you explain this?
Mr. Satterfield. Congressman, I will build with the remarks
to my two colleagues here, to answer in as plain English as I
can the query that you made. What is responsible for the
mistakes that have been made and what is the course to success
with the remaining funds, the remaining projects in Iraq that
taxpayer dollars provide for. It is an examination at the
highest levels, not just at a working level, of feasibility.
Does the project make sense? Does it make sense not when it was
conceived, which may be several years previous, but does it
make sense in the political, security and needs environment of
Iraq today?
That cannot be a one-time assessment. It has to be a
rolling assessment with dramatic re-thinking at all points as
necessitated. What is oversight? Oversight has to be
continuous. It has to be on the ground. It has to also reflect
the unique circumstances in Iraq. You need more, not less,
oversight in the difficult circumstances that prevail in that
country, both the issue of corruption, inadequate performance
standards, and also the security environment.
And finally, you need the ability to move from one project
or mode of funding or contracting to another, as flexibly as
possible, as you assess feasibility, as you review the results
of your tight oversight procedures. And you need to do it if
you are operating in Iraq in a way that is as integrated as
possible between all of the civilian and military agencies
operating in that country as possible. There can't be
stovepipes.
Chairman Tom Davis. The gentleman's time has expired. Mr.
Lantos, you have had 10 minutes.
Mr. Gutknecht.
Mr. Gutknecht. Thank you, Mr. Chairman.
First of all, I just want to say to Ambassador Satterfield,
on behalf of myself and Mr. Shays and others who were in Iraq
in July, I just want to congratulate you. I have seldom dealt
with someone who was more professional and told us the good,
the bad and the ugly of things that were actually happening on
the ground. The briefing that you gave us was among the best I
have ever received. I just want to say that we are fortunate to
have public servants like yourself, who serve at great
sacrifice in dangerous places like Baghdad. I appreciated not
only the information you gave us, but the professionalism. It
has had quite an impact on me.
I want to come back to a couple of things that are sort of
glossed over. Ms. Schinasi, this report, and I want to thank
you for it, I think it is helpful, but even the title, it seems
to me, is awfully soft: Continued Progress Requires Overcoming
Contract Management Challenges. ``Challenge'' is a pretty soft
word, isn't it?
Ms. Schinasi. It is one that we believe tries to reflect
the positive side, that something can be done, that we still
have time to make changes to get better outcomes.
Mr. Gutknecht. OK, well I will accept that, but let me come
back to something else that you said in a rather soft way. For
example, believe it or not, many years ago I was a business
major, and I wasn't all that great a student, but I do remember
Management 101. You start with objectives. You have a budget.
And then you figure out some way to measure or set up a matrix
in terms of how are you doing relative to your objectives, with
the budget and so forth.
It strikes me that we don't really have that now. In fact,
with all due respect to what we hear from the Pentagon often,
the answer to every question we give them is, we'll send more
money. OK? I am not one who believes that more money is the
answer. In fact, I will just tell you parenthetically that I
remember when Paul Wolfowitz came up and gave us a briefing
before this all started. I will never forget what he told us.
He said that if you divided up the wealth of Iraq per capita,
it was about the third wealthiest country in the world. And
that once Saddam was toppled, and we had regime change, which
sounded so simple and so soft, it was like changing a suit, and
this would be easy and it wouldn't be expensive for the
taxpayers.
The last time I checked, we have invested $323 billion in
that country. There doesn't seem to be any real end in sight.
And so what I want to know, again going back to the word
``challenges,'' do you foresee that we are really beginning to
set up using Management 101, real objectives with real budgets
and real ways of measuring those things?
Ms. Schinasi. Clearly, we have progressed from where we
were when we started. So we are on a continuum here. I think
there are different ways to look at the need to measure, but I
agree absolutely with you, if we don't know where we are trying
to go, and don't have the measures, then we won't know how far
it takes, how much longer it is going to take us to get there.
At the project level, I think something that Ambassador
Satterfield said is encouraging, and that is we are developing
measures now to understand what it will cost to complete these
projects, but the fact that has been lacking until now is a
very, very serious deficiency.
Mr. Gutknecht. Let me just come back to the last point, and
it is sort of embedded in all of our questions and all of the
concerns that we represent among our constituents, and that is
the word ``consequences.'' Because it strikes me that even
today, when we talk about some of these colossal failures, and
enormous cost overruns, it just seems that there isn't really a
consequence to these contractors.
I would welcome input from any of the members of the panel.
What can we do as a Congress to make sure that we have real
accountability and that people are held accountable for the
amount of money that is being wasted?
Ms. Schinasi. I think one of the most significant findings
in the report that we issued Monday, that the chairman
referenced on whether or not the Government is recovering costs
from contractors, is that we have a situation where we have not
been able to definitize our contracts. In English, that means
agree on the terms and conditions under which the contractors
will be operating, what are the Government's requirements.
What we found in that report that we issued Monday is that
if we do not definitize those contracts before we start work,
the contracting officers believe they have no flexibility to
recover costs that in retrospect are determined to be
unreasonable or unallowable or unallocable. So that is an
internal control that we expect to be working in this cost-plus
environment that we have talked about this morning, but it is
apparently not working.
Mr. Gutknecht. Mr. Chairman, my time is about expired. I
just want to say that we owe it, this committee owes it to a
much more aggressive oversight of all of this. I think it has
to be built on real objectives, manageable objectives, but more
importantly and finally, people have to be held accountable. I
think that is one area where both your office and this Congress
have really not done the job that needs to be done. I think it
is one thing that the American people expect and I don't think
those expectations are unreasonable.
I yield back my time.
Chairman Tom Davis. Thank you. Mr. Gutknecht, that is
always a problem is when things go wrong, nobody ever loses
their job, whether they are losing data or whatever.
Mr. Van Hollen.
Mr. Van Hollen. Thank you, Mr. Chairman.
I would agree with my colleague that we do need much more
aggressive oversight. On that note, I would like to ask the
chairman that we maybe have a hearing and bring before the
committee some of the individuals who were discussed in the
story about political cronyism at the Defense Department. I
think when you have the former Deputy Director of the CPA's
Washington Office saying publicly that we didn't tap the right
people to do the job. Instead, we got people who went out there
because of their political leanings, that we need to have
aggressive oversight on that issue. I would suggest that we
should have Jim O'Beirne, who apparently held this political
job at the Defense Department, and others to come up here and
under oath explain what they did and did not do.
Chairman Tom Davis. Mr. Bowen did report on that.
Mr. Bowen. Yes, sir, Mr. Chairman, I did.
Chairman Tom Davis. You are welcome to ask him.
Mr. Van Hollen. No, I heard you. You mean, in response to
Mr. Waxman's statement or something else?
Chairman Tom Davis. In response to your question right now
about the hiring practices over there.
Mr. Bowen. In February, we issued our first report on human
capital management and did identify in that report the fact
that there were allegations of political elements in
decisionmaking on hiring.
Mr. Van Hollen. Thank you. I understand and I appreciate
that. It seems to me we should get the people who were directly
involved, Mr. Chairman. That is what I am saying.
Let me go on. I have some questions with respect to
particular contracting, because I do think that in order to
protect the taxpayers' money and try to get at the bottom of
some of these contracting problems, we do need exactly the
oversight that we have all talked about.
There is a contract that this committee, in fact the
subcommittee that Mr. Shays chairs, has been pursuing with
respect to one of the Army's LOGCAP contracts. So Ms. Ballard,
I have a couple of questions for you, because back on June 13th
of this year in that subcommittee, I asked about a news report
about a contractor called Blackwater USA, which was one of the
fourth-tier contractors under Halliburton's umbrella contract
of $16 billion. They were a logistic support contract. We have
a copy on the screen. It is not that visible, but essentially
what it does is, and I hope you have a copy in front of you.
It shows that the individual employees that were hired by
Blackwater were being paid $600 a day. Blackwater was then
charging $815 a day. Then you go right up through the different
subs and get up to Halliburton. As Mr. McHugh was pointing out
earlier, one of the things about a cost-plus contract is there
is absolutely no disincentive to the person at the top of the
food chain or anywhere else to charge a reasonable price
because they get rewarded on a percentage basis on the overall
amount.
In any event, this is a list. We had a hearing to try and
figure out exactly what this contract was costing the
taxpayers. And so we wrote to the Secretary of the Army and we
asked a question with respect to these contracts. The response
we got back was in a letter dated July 14, 2006. I just want to
read the third paragraph, because it has created a real mystery
for the subcommittee. That paragraph says, under the provisions
of the LOGCAP contract, the U.S. military provides all armed
force protection for KBR unless otherwise directed.
Additionally, the LOGCAP contract states that KBR personnel
cannot carry weapons without the explicit approval of the
theater commander. And then there is this sentence, ``To date,
KBR has not pursued any requests under the LOGCAP contract for
personnel to carry weapons, nor has the theater commander
directed or authorized KBR or any LOGCAP subcontractor to carry
weapons.'' KBR has stated they have no knowledge of any
subcontractor utilizing private armed security under the LOGCAP
contract. Do you see that here?
Well, if this letter is correct, from the Army, it suggests
that this whole subcontract for private security personnel was
never authorized. Is that right?
Ms. Ballard. Congressman, the information stated in
Secretary Harvey's letter is accurate. I can't comment at this
time on this document that you have given me, but I would be
happy to take it back for the record. I checked before I came
over to testify, and in fact exactly what is quoted in Harvey's
letter is the information that I validated before this morning.
Mr. Van Hollen. Alright.
Chairman Tom Davis. And that question will be in the
record.
Mr. Van Hollen. Thank you, Mr. Chairman. If I could also
put those documents in the record?
[The information referred to follows:]
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Chairman Tom Davis. Without objection.
Mr. Van Hollen. Along with a contract that we found in the
course of this investigation, with Blackwater, between
Blackwater and Regency, that specifically outlines the
conditions for hiring private security personnel. In fact, it
says there are 34 vetted U.S. ex-pat professional security
personnel will form the core of the security organization that
will support ESS operations.
So this raises a lot of questions, because if you look back
at the contract, it specifically mentions that ESS is one of
the subs to Kellogg, Brown and Root, and Halliburton. So on the
one hand, we are doing an investigation to figure out what
these private security contractors were costing the taxpayer,
because it seemed to be lots of exorbitant costs.
In the process, according to the letter we received from
the Army, we learned that in fact the Army never authorized
Halliburton or any subcontractors from hiring private security.
Is that right?
Ms. Ballard. As I said, Congressman, the information stated
in Secretary Harvey's letter is correct. I did verify that, in
fact, again this morning before I came over to the Hill. But I
will pursue answers to your questions.
Mr. Van Hollen. Just in closing, Mr. Chairman, I just have
two questions to leave with you. No. 1, was it authorized? And
No. 2, did Halliburton get paid? Did the American taxpayer pay
Halliburton for those private security services through that
food chain on what is now said to be an unauthorized contract?
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
For more questions, we will go directly to Mr. Shays.
Mr. Shays. Thank you very much, Mr. Chairman, for holding
this hearing. This is obviously not the first hearing you have
held on Halliburton and others. This is generated by the
Comptroller General who basically said Halliburton may be the
catch-phrase, but there are a lot of other businesses that we
should be looking into if we don't want to be political. So now
we have a great opportunity.
I want to ask you, Ambassador Satterfield, first I want to
say ditto to what my colleague said about your service and your
candidness whenever we have interacted. I thank you for that.
I would like to know, you came in in 2004. When in 2004 did
you come in?
Mr. Satterfield. Mr. Chairman, I came in May 2005.
Mr. Shays. May 2005. OK. So a lot of this is looking back
for you. You weren't there when it was happening. But when did
the United States begin to have a sense that we were building
Rolexes instead of Timexes, and maybe Timex was what they
needed? In other words, we had some really big projects and yet
there was a recognition that maybe we should have done smaller
projects and just gotten a lot more done, and utilized Iraqis
to do it instead of foreigners. When did that start to become
evident to folks in Iraq?
Mr. Satterfield. I can speak to the experience with which I
am familiar, but I think it is generically the answer to your
question. During the summer of 2005, particularly the period
from June to August, we essentially worked, the military,
General Casey, new Ambassador Khalilzad, and our respective
teams, on examining all aspects of the U.S. presence, mission,
strategic goals, lines of operation, and action to achieve
those goals, benchmarks, monitoring mechanisms to see how
progress was being made, with an eye to exactly the sorts of
issues that have been discussed today, not just on the
development and project execution side, but also on the broader
issues of political and security goals in the country.
As I outlined a moment ago to you, that was the approach we
took. What was the strategic plan? What were the lines of
operation and action needed to get there? What was the
feasibility of those lines of operation and action based on
realities as we saw them and could best assess them in Iraq?
What were the benchmarks that you needed to put in place on all
of these goals, on all the lines of operation? And what kind of
monitoring mechanisms did you set up to ensure that the
benchmarks were or were not being made? And if they weren't,
what change in direction was necessary? Could you still achieve
the same set of strategic goals?
That was a fundamental revamping of the way we did business
in Iraq as a collective military-civilian mission. And the work
was assisted very much in the ongoing flow of reporting,
recommendations, assessments coming from the various oversight
entities working in Iraq.
Mr. Shays. So did that mean that ended up stopping certain
projects from continuing because there was an assessment that
they just weren't meeting the objectives?
Mr. Satterfield. It very much meant a review of contracting
procedures, execution and projects.
Mr. Shays. I have a particular bias because having been
there 14 times, the most memorable trips were when I stayed
with Mercy Corps and stayed with children. These were non-
government organizations that were given small dollars and they
were then requested to help build schools and to do programs.
What they did is, Save and Mercy Corps and others, they hired
Iraqis to be within their own offices. And then these Iraqis
hired Iraqis to do the job.
My understanding was, and I would like to know, Mr. Bowen,
if you have reviewed that, that a lot of these projects got
built and a lot of them are still standing.
Mr. Bowen. You are right, Congressman Shays, there were
other contracting approaches that succeeded, separate and apart
from the design-build phase. General Corelli told me last week
that there are six PHCs open and operating and they were built
with CERP funds. He approved those allocations and, according
to him as he represented, they are working.
So in our contracting lessons-learned report, the second
recommendation in there is to find ways to institutionalize and
carry forward alternate, more targeted contracting approaches,
and indeed that has been the emphasis of the last year under
Ambassador Khalilzad.
Mr. Shays. Thank you.
Mr. Bever, I saw you nodding your head. What is your sense
about the choice of projects and whether we build them? Just
weigh in on this. My time is ending, so just weigh in on how
you would respond to the questions that I asked the others.
Mr. Bever. Those particular projects you mentioned are
under the Community Action Program, U.S. PVO's, fully audited,
fully dependable, who then sub-grant to all kinds of community
organizations that in themselves also are subject to audit. We
have had very, very good performance on those, with very low
security costs, sir.
Mr. Shays. Mr. Chairman, I would like to just say to the
Members of Congress, we reinstituted dollars, but not a lot,
for this program. It has been one of the best. Projects have
been built throughout Iraq. They are still standing. The Iraqis
respect them. They built them themselves. It would be nice to
see more of this activity being carried out.
I just want to ditto Mr. Lantos's comments about General
Petraeus. He got it early on, but unfortunately there are
people that replaced him who didn't.
Chairman Tom Davis. Thank you, Mr. Shays.
Mr. Kucinich.
Mr. Kucinich. Thank you, Mr. Chairman.
Mr. Bowen, we have come a long way in this Congress from
the days of $600 toilet seats. Now we have a $75 million
building project that has been turned into a toilet. Are you
going to have to tear those buildings down?
Mr. Bowen. No, they are being refurbished as we speak. As I
said, effective oversight has moved resources to remediate the
problems at the Baghdad Police College.
Mr. Kucinich. In the recommendations, you say you are going
to perform a critical technical study of the structural
integrity and load-carrying capacity. How can you say, if this
report was just issued, that you are not going to have to
rebuild those buildings?
Mr. Bowen. Well, as I said earlier, the half-finished
laundry will be torn down. The building next to it will be torn
down. The assessment is critical, and I emphasized that to the
Deputy Commander of the Gulf Region Division of the Corps of
Engineers when I met with him a week ago. But from what my
engineers tell me in reviewing that, while there will be a
couple of buildings that will need to be torn down, the rest
will require significant work to bring them to standard.
Mr. Kucinich. Thank you. I have been looking at the
statistics after listening to Mr. Lantos, and 32 percent of
14,121 school buildings rehabilitated or refurbished. Have all
those been inspected to the degree that this has been
inspected?
Mr. Bowen. No.
Mr. Kucinich. Note that, Mr. Chairman.
Four percent of 141 buildings with respect to health
clinics have been completed; a $50 million hospital project
ends up costing $170 million at least. When I am looking at
these statistics, OK, this is the big leagues, right? It
doesn't get any bigger than this. This is the big leagues. And
when you look at these statistics, 32 percent of 114,121 school
buildings rehabilitated or refurbished, and you say they
haven't been inspected; 4 percent of 141 health clinics. This
is the big leagues. The worst team in the big leagues has a 373
percentage. OK? This performance is not major league. It is
bush league. And we have put the taxpayers' dollars at risk,
and we have been given a measure of performance here that I
think needs a little bit more explanation.
Now, Mr. Bowen, you had said in your testimony that your
inspectors reported on projects that represent more than $308
million in contract value. Of this total, almost $250 million
or 80 percent have met contract specifications. Now, you go on
to concede these figures are not statistically significant, but
let's put them into context of $30 billion in U.S. contracts;
$20 billion in Iraqi funds. So you have a total of $50 billion
in contracts, and $250 million of that has been reviewed and
basically passed on. That is one-half of 1 percent. That is
where we are, sports fans, major leaguers.
I want to raise another question here. Mr. Bowen, do you
know where the infamous missing $9 billion in Iraqi funds has
gone, for reconstruction?
Mr. Bowen. Yes, sir. You are referring to my audit of
January 30, 2005.
Mr. Kucinich. I am just asking if you are looking for this
$9 billion.
Mr. Bowen. We are working with the Board of Supreme Audit
to track the use of the DFI.
Mr. Kucinich. ``DFI,'' what do you mean?
Mr. Bowen. Development Fund for Iraq, which is what that $9
billion was. That was not taxpayer dollars.
Mr. Kucinich. No, but I want everyone to know for the
record, that wasn't taxpayers' money. That was Iraqi money. OK,
you made the point. Are you finding it?
Mr. Bowen. I made the point that it was not taxpayers'
dollars and it is Iraqi money, and that is why we are working
with Dr. Abelo.
Mr. Kucinich. Would you agree to a congressional request to
see the Coalition Provisional Authority documents to determine
what happened to the missing $9 billion?
Mr. Bowen. Yes.
Mr. Kucinich. Thank you.
Chairman Tom Davis. Thank you very much.
Who was next? Mr. Clay.
Mr. Clay. Thank you, Mr. Chairman.
I thank the panel for being here. Let me start with Ms.
Schinasi. I know for certain that mismanaged funds, your report
on the uncover could go a long way in helping to rebuild New
Orleans, or for that matter helping us in St. Louis, which I
represent. I am especially disgusted because our domestic
priorities are being ignored and States are struggling with
budget cuts as this administration continues to allow billions
of taxpayer dollars to be wasted year after year in Iraq.
Tell me, there has been over $50 billion in taxpayer money
spent toward rebuilding Iraq with little to show for the money.
According to your report, Pentagon auditors have challenged
$3.5 billion in questionable charges from contractors. It is
obvious that no one has been held accountable for wasting
taxpayer dollars. What is the potential for criminal charges
against individuals or corporations who have mismanaged these
dollars? Has any of this information been turned over to the
U.S. Attorney or Special Prosecutor?
Ms. Schinasi. Congressman Clay, we have not seen evidence
that we would believe needs to be turned over, and that is a
question that we do----
Mr. Clay. You don't think it needs to be turned over?
Ms. Schinasi. We do turn over information to the Justice
Department when we find it.
Mr. Clay. You don't see anything criminal about ripping off
taxpayers?
Ms. Schinasi. We have not seen anything----
Mr. Clay. You don't see that happening? Let me go to Mr.
Tyler. Mr. Tyler, let me ask you.
Chairman Tom Davis. I think she answered that.
Mr. Clay. Mr. Tyler, I am sorry. Mr. Tyler.
No, she didn't answer that.
Chairman Tom Davis. She said they didn't refer it.
Mr. Clay. Fine, Mr. Chairman. Let me do my time, OK?
In March 2004, Parsons received a $500 million contract to
rebuild hospitals, health clinics and buildings. After 2 years
and wasting $186 million taxpayer dollars, they were found to
be a poor contractor. Another Parsons contract for $99 million
was terminated after 2 years for failure to complete prisons.
Were any of these funds recouped or has the Inspector General
found that the poor contractor performance delayed completion
of the project and escalated costs?
Mr. Tyler. Sir, those contracts were managed. They were
worked with Parsons. It has already been documented that there
has been terminations I believe on all of those. And we are
working to close the contracts out with Parsons, while we are
working to finish the work through other contractual means.
Mr. Clay. Have they been put on a list as a poor
contractor, or not used again? Are you going to continue to use
them? Maybe Ms. Ballard can answer?
Ms. Ballard. Mr. Congressman, a contractor's past
performance is in fact kept record of in the department, and it
is used as an evaluation criteria in future acquisitions.
Contractors' past performance is kept record of in the
department and it is used as a basis for evaluation in future
acquisitions.
Mr. Clay. Let me ask Ambassador Satterfield, GAO reported
that Halliburton contracts total $1.4 billion of the $3.5
billion in question in unsupported costs in Iraq contracts. It
is unfortunate that a Halliburton representative is not present
to answer my question. They have been proven to abuse taxpayer
dollars again and again. Why does Halliburton continue to be
granted Government contracts when they have been proven to be
wasteful with taxpayer dollars?
Mr. Satterfield. Congressman, we take very seriously the
reports to which you refer. That is why we have supported the
work of the GAO, of the Special Inspector, and the other
auditing and accounting agencies and entities working in Iraq
today.
Mr. Clay. Have they been put on a poor contractor list? I
mean, has anyone decided that these are the people that we need
to protect our U.S. taxpayer dollars from?
Mr. Satterfield. I am not aware of any such decision.
Mr. Clay. Also, I ask you, Ambassador, the Washington Post
recently revealed the administration's system of hiring, which
you have heard already. A Frederick Smith, for example, was the
Deputy Director of CPA. Do you know a Frederick Smith?
Mr. Satterfield. No, Congressman, I do not.
Mr. Clay. Well, he went on the record and explained that
the key criterion for hiring people to serve in Iraq was that
they had the right political credentials; that they probably
worked in the Florida recount in 2000. Does anyone have any
reason to believe that he is not telling the truth? Do you have
a reason to believe he is not telling the truth?
Mr. Satterfield. Congressman, I simply can't comment on
those reports.
Mr. Clay. Is he telling the truth?
Mr. Satterfield. Congressman, I have no personal knowledge
of these allegations. I can't comment on them.
Mr. Clay. I thank you.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
Ms. Watson.
Ms. Watson. I think that the expenditures of funds for
reconstruction in Iraq are the best example we send to this
country, to the taxpayers, and to the world of waste, fraud and
abuse. We have been in Iraq for 3 years. We are trying to
rebuild it. And I am looking at Parsons, I am looking at
Halliburton. They have been paid off. They cut-and-run indeed,
and they get paid cost-plus. Why has it taken us 3 years, and
maybe we are to blame, Mr. Chairman, for not having oversight.
I was an ambassador. We had to report by cable to the
Department of State almost on a daily basis. Our watch, if this
kind of abuse occurred, we would have been out of there. I
cannot understand the professionals sitting in front of us not
giving us an outline on how we are going to correct it now. I
find your answers to be really considering us as of low
intelligence.
I am just going to say it. I am so frustrated sitting here,
because the costs of this war is almost $400 taxpayer dollars,
and we keep giving contracts out to people who cannot do the
job. I think that if you can't tell me who has lost a job, who
has been demoted, who had to step down for faulty planning,
then you ought to step down.
I just want to say that our contracts and our
reconstruction plans are opaque and with these no-bid and cost-
plus contracts, we are ripping the people of Iraq, who we are
trying to model a democratic government, and the taxpayers of
the United States.
So I want some brave soul in the group to tell me what has
been done constructively and what U.S. Government policies and
procedures have been changed so that the chaos that has
happened in Iraqi contracts will not happen again, and what
Government officials, as I said before, have lost their jobs or
been charged with crimes or malfeasance in regard to Iraqi
contracting. Is there a brave soul among you that would like to
respond?
Mr. Bowen. Yes, ma'am. My office has 25 cases right now at
the Department of Justice regarding wrongdoing. Five
convictions have been attained from our investigations, four of
them will be sentenced over the next few months. So I have 10
investigators in Iraq now pursuing 90 other cases.
And so yes, oversight is at work in Iraq, in Baghdad and
across the country. I have 10 inspectors who virtually every
week travel outside the Green Zone and bring back reports like
this, like the Baghdad Police College. And so yes, oversight is
there.
Ms. Watson. Let me interrupt you for a minute. Would you
send your response to Congresswoman Diane Watson, 125 Cannon,
as soon as we finish this hearing? I would appreciate that in
writing. Be sure there is a date on it and that you sign it.
Mr. Bowen. Yes, ma'am.
Ms. Watson. Because I am going to hold it up.
I thank the Chair for having this hearing. We have to do
more of it, because I have to go back to my district in Los
Angeles and explain to them why we are spending the taxpayers'
money the way we are as it relates to reconstruction. So I can
hold your document up that we are catching the wrongdoers.
Thank you so much for having the courage to respond to me.
Mr. Bowen. I will get you that answer today.
Ms. Watson. Thank you.
Chairman Tom Davis. Make it available to the committee,
too. I think we would all like to have it. Thank you very much.
The gentleman from Maryland?
Mr. Cummings. Thank you very much, Mr. Chairman.
Ms. Schinasi, I want to thank you for being here. GAO
issued a report on Monday regarding contracts in Iraq. Although
we don't have a Pentagon auditor here today, we do have your
report which is based on auditors' findings. I would just like
to ask you a few questions.
First, the GAO found that the Pentagon auditors have now
identified some $3.5 billion in questioned and unsupported
costs under Iraq contracts. Is that right?
Ms Schinasi. Yes, that is correct.
Mr. Cummings. That is a stunning figure, and that is a much
bigger figure than we have ever heard publicly. And your report
discusses two types of charges. First, the auditors identified
$2.1 billion in questioned costs. Is that right?
Ms. Schinasi. Yes, that is correct.
Mr. Cummings. The manual by the Pentagon auditors states
that questioned costs are unreasonable costs in amount and
exceed that which would be incurred by a prudent person. They
recommend that these charges not be paid to the contractor. Is
that right?
Ms. Schinasi. Yes, sir.
Mr. Cummings. Second, the auditors identify $1.4 billion in
unsupported charges for which the contractor has not provided
adequate documentation. Is that correct?
Ms. Schinasi. Yes, sir.
Mr. Cummings. Now, it seems, however, that the Pentagon
isn't following the advice of its own auditors. Traditionally,
the Pentagon upholds a majority of auditor findings and does
not pay most questioned costs. Normally, the Pentagon refuses
to pay contractors between 55 percent and 75 percent of the
costs identified by auditors as questioned. They call this
their sustention rate. Is that correct?
Ms. Schinasi. Yes.
Mr. Cummings. In your report, you identified some $386
million withheld from contractors in response to auditor
recommendations. Is that correct?
Ms. Schinasi. Yes, it is.
Mr. Cummings. That was out of $1.4 billion. Is that
correct?
Ms. Schinasi. Yes, sir.
Mr. Cummings. Now, that means that the Pentagon followed
its auditors' recommendations only 27.5 percent of the time, or
half the normal rate. Is that correct?
Ms. Schinasi. Yes.
Mr. Cummings. And why is that?
Ms. Schinasi. One of the reasons that we identify in the
report is this issue of beginning work before we agree with the
contract on what they are going to do and how much we are going
to pay them. And so what we found was that the contracting
officers to whom the auditors report believe that they did not
have the flexibility to get back costs that already had been
incurred by the contractor.
Mr. Cummings. Have we done anything to correct that
situation? Or is there anything that can be done?
Ms. Schinasi. As far as I am aware, as long as we have the
undefinitized contract issue that we have, unless we give those
contracting officers different directions than they appear to
have been given, we will continue to see the same kinds of
sustention rates.
Mr. Cummings. Now, I won't ask you to comment on the causes
behind this, but if my math is correct, $386 million was
withheld out of $1.4 billion in charges identified by the
Pentagon auditors as questioned. You are doing additional work
on this issue, I understand, for the committee. Is that right?
Ms. Schinasi. Yes, sir, for the chairman and the ranking
member.
Mr. Cummings. OK. And will you be able to break out for us
the biggest contracts and tell us how much the auditors
questioned, how much they identified as unsupported, and how
much was actually withheld from contractors? Will that be a
part of your report?
Ms. Schinasi. We believe we will be able to do that.
Mr. Cummings. Now, Ms. Ballard, let me turn to you for a
moment. As I said, the Pentagon historically has followed its
auditors' recommendations between 55 percent and 75 percent of
the time, but now GAO says that you are following those
recommendations only 27 percent of the time. Is that right?
Ms. Schinasi. That is what the report says.
Mr. Cummings. I can't hear you. I am sorry.
Ms. Schinasi. That is what the report says, yes, sir.
Mr. Cummings. OK. Do you agree with it or don't you?
Ms. Schinasi. Our policy is that the contracting officers
are responsible for investigating the questioned costs raised
by DCAA. In that process, they are supposed to either determine
if those costs are allowable and allocable and reasonable, or
they are supposed to disallow those costs. That is the policy
that we have.
Mr. Cummings. Well, in May 2005, the committee received a
briefing from the Pentagon auditors. We were told at that time
that under the LOGCAP contract, the largest contract in Iraq,
they had identified $813 million in questioned costs and $382
million in unsupported costs. Can you tell us today what the
current figures are under the LOGCAP contract? And how much in
questioned and unsupported costs have now been awarded to the
contractor?
Ms. Schinasi. I can tell you that today we have $468
million----
Mr. Cummings. I am sorry, Mr. Chairman, I can't hear.
Ms. Schinasi. We have $468 million in questioned costs
today.
Mr. Cummings. And what is happening with regard to that?
Ms. Schinasi. We are working to determine if those costs
should be recognized or disallowed.
Ms. Schinasi. When costs are disallowed, I mean, I notice
that like in Maryland, there is something called debarment. In
other words, you can't contract anymore, and there are small
contractors that are looking at this, looking at us on C-SPAN
right now and they are listening to all these billions of
dollars, and figuring out where they are going, and they are
being debarred for small numbers compared to this. I was
wondering, do we have such a mechanism in regard to this?
Ms. Schinasi. The regulation does specify the circumstances
under which we debar contractors. Usually that occurs when
there is a criminal act on the part of the contractor and we
comply with the regulatory guidance in following the process to
determine if a contractor should be debarred.
Mr. Cummings. Have we debarred anybody with regard to Iraq?
Ms. Schinasi. Not to my knowledge.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. OK. The gentleman's time has expired.
Let me just take a couple more minutes on each side. Let me
just ask Mrs. Schinasi, the way this works is the DCAA would
come up and question costs, right, in their report?
Ms. Schinasi. Yes.
Chairman Tom Davis. And that doesn't mean they are not
allowable. That really starts the conversation whether it is
allowable?
Ms. Schinasi. Yes, that is correct.
Chairman Tom Davis. And then a settlement is reached. Is
that correct?
Ms. Schinasi. Yes, that is correct.
Chairman Tom Davis. So a DCAA questioning the cost doesn't
per se mean that they are now allowable. They look at
documentation and oftentimes the contractor will come back and
have to either further document or explain what happens. Is
that correct?
Ms. Schinasi. Yes, that is correct.
Chairman Tom Davis. And we have asked you, have we not, to
take a look at once this is done, and DCAA has questioned
costs, and the contractors come in, and it is settled, we have
asked you to come back and look at those settlements at the GAO
and see if these settlements are within the ambit of what
should be proper. Is that correct?
Ms. Schinasi. Yes, and we are just starting that work now.
Chairman Tom Davis. I just wanted to make that clear
because questioning the cost doesn't equal unallowability or
mean that anything is necessarily wrong. In fact, I did this
for 20 years previously. Many times, it is DCAA's job to
question these things, but many times the contractor comes back
and can show for good cause that it is not necessarily
unallowable and that it was in fact proper. Sometimes they
don't, but we have asked you to look at those settlements so
the committee can then get further details in terms of how
these are carried out and that there is no favoritism and try
to answer those questions.
Mr. Van Hollen, I can give you a couple of minutes to
followup. Thanks.
Mr. Van Hollen. Thank you. Just a couple of things.
First, I was asking some questions earlier, Mr. Shays,
about the subcommittee hearing we had a while ago where we went
over some of the contracts, the Halliburton contracts. At that
time, you may recall that we asked for, we were thinking about
getting a subpoena, but instead you gave them 2 weeks to
respond. We haven't, for the record, heard anything back from
any of the folks either with respect to the documents on these
cases.
Mr. Shays [presiding]. Let me do this. Let me research
after the vote and tell you what we responded because I think
the gentleman is primarily right, but let me fill in the
details.
Mr. Van Hollen. OK. I have the transcript from the hearing
here, so I think we need to followup.
Mr. Shays. Yes, we will followup.
Mr. Van Hollen. If I could just ask a question of any of
the panel. This is a followup on the questions of political
cronyism and to what extent they infected our efforts and the
choice of people that we sent over for the reconstruction
period. In the Washington Post story, they talked about a
specific issue dealing with the public health where they
removed somebody and replaced him with a political appointee,
essentially, named James Haveman. Mr. Haveman, according to the
story, decided it was important to slash the list of drugs the
Iraqi doctors could prescribe. In fact, a Navy pharmacist was
brought in to come up with a new list, according to the story,
and this Lieutenant Commander found that the existing list,
``really wasn't that bad.'' And he told the Washington Post
that Mr. Haveman and his advisors, ``really didn't know what
they were doing.''
Are any of you personally familiar with this particular
case and could you comment on why this person was brought in?
With USAID, Mr. Bever, was this someone who was brought in
under UsAID contract?
Mr. Bever. Absolutely not, sir.
Mr. Van Hollen. The person who had been there was with
USAID.
Mr. Bever. Absolutely, yes, sir.
Mr. Van Hollen. And for the record, the person who you had
as your expert was removed. Is that correct?
Mr. Bever. Absolutely, yes. He was highly qualified, with a
master's in public health and a highly experienced health
officer, sir, in conflict situations.
Mr. Van Hollen. I'm sorry?
Mr. Bever. In conflict situations.
Mr. Van Hollen. Yes, and the highly experienced person was
removed in favor of a political appointee. Is that right?
Mr. Bever. I can't comment on that. I don't know the
details of that, but we can get an answer for you. We will try.
Mr. Van Hollen. If you could please provide the details
about how the decision was made to remove the expert with long
experience under conflict situations, and replace him with
someone with no experience in this kind of situation.
Mr. Shays. And you do agree that the person who came in did
not have experience?
Mr. Bever. I would have to research this more fully. I am
generally aware of the press reports, but I have not seen the
details and we want to make sure we have an accurate
administration answer for you on this.
Mr. Van Hollen. Thank you very much, Mr. Bever.
Mr. Shays. Thank you.
Mr. Bowen, I just want to make sure the record is clear.
Whatever the record is, but when I constantly hear the
reference to $9 billion missing, I am curious as to why you
don't, or maybe you didn't feel you had the time, to share with
us whether it is $9 billion missing, or whether it is an issue
of billions missing, not $9 billion. My recollection is that
dollars were given, say, to Generals to pay troops. They don't
have a checking system, so dollars are given. Then the General
gets those dollars and supposedly gives them to his troops.
But the real issue is that we don't have a paper trail of
that $9 billion. Is that right?
Mr. Bowen. That is right. I didn't get a chance to finish
the point on this, but we have discussed it at previous
hearings that you chaired. The core issue is that there was a
lack of sufficient controls to track how the money that was
transferred from the CPA to that fledgling government of Iraq
with ministries barely standing back up, and how they used that
money. KPMG did audits on the Iraqi side. We just looked at
what the U.S. controls were and they were inadequate.
Mr. Shays. The U.S. controls were?
Mr. Bowen. Yes.
Mr. Shays. So we can't be certain of how much of the $9
billion that we had control of originally actually got to the
Iraqis?
Mr. Bowen. We know it got to the Iraqis, but we don't know
how it was used.
Mr. Shays. But do we know, do we have a paper trail that
says we gave certain dollars to certain Government officials.
Mr. Bowen. Yes, we do.
Mr. Shays. Mr. Satterfield, you can answer, too, yes.
So the issue is, once it got into Iraqi hands, what
happened to the $9 billion?
Mr. Bowen. Right. Under UNSCA 1446, CPA was the de jure
government of Iraq and had stewardship responsibilities,
fiduciary I would venture to say, over the development fund for
Iraq. Therefore, my criticism was fairly narrow. What was in
place with respect to the transparency requirement was not
sufficient to ensure full transparency.
Mr. Shays. So the bottom line is, though, this was dollars
that we ultimately had a responsibility for because we were
``the occupying Nation.'' They had the $9 billion to spend on
their own, and the challenge is there is no paper trail to know
how the Iraqis spent their own $9 billion. Is that correct?
Mr. Bowen. That is correct. And the key point that I
continually make whenever this issue comes up is that we did
not say it was lost, stolen, or misappropriated. The finding in
the audit was that there were insufficient controls to account
for its use and the anecdotal investigation that we did on the
Iraqi side of the ledger raised concerns.
Mr. Shays. I mean, huge concerns.
Mr. Bowen. They were significant concerns, and indeed the
corruption issue that Mr. Gutknecht addressed on the Iraqi side
of the ledger is, while we don't draw the line, may be related
to the fact that there was a very large sum of cash, all of it
cash, transferred to fledgling ministries in 2003 and 2004.
Mr. Shays. Do the Iraqis have a checking account system
now?
Mr. Bowen. They do not have electronic funds transfer, and
that continues to burden the management of money in Iraq.
Mr. Shays. Oh, it has to.
Is there any comment that any of you would like to make
before we get to the next panel? Any other comments?
Let me thank you all for your service. I appreciate your
being here today.
We stand at recess until the next panel.
Did you want to say something?
Mr. Bowen. No. Thank you, Mr. Chairman.
Mr. Shays. Thank you.
[Recess.]
Chairman Tom Davis [presiding].
If we can get the witnesses in. Thank you for bearing with
us. We have Mr. Earnest O. Robbins II, senior vice president of
Parsons, I guess you drew the short straw today, and Cliff
Mumm, the president of Bechtel Infrastructure Corp. Thank you
for being with us.
It is our policy we swear you in. You just raise your right
hand.
[Witnesses sworn.]
Chairman Tom Davis. Thank you very much.
Mr. Robbins, you can go first. I think you know the rules.
We just appreciate your patience with us as we move through.
Thank you.
STATEMENTS OF EARNEST O. ROBBINS II, SENIOR VICE PRESIDENT AND
MANAGER, INTERNATIONAL DIVISION, PARSONS INFRASTRUCTURE AND
TECHNOLOGY GROUP; AND CLIFF MUMM, PRESIDENT, BECHTEL
INFRASTRUCTURE CORP.
STATEMENT OF EARNEST O. ROBBINS II
Mr. Robbins. Good afternoon, Mr. Chairman, members of the
committee. I am Earnie Robbins, senior vice president of
Parsons Infrastructure and Technology Group. I joined Parsons 3
years ago, and I serve as the manager of our Infrastructure and
Technology Group's International Division. Management of
Parsons' Iraq reconstruction projects fall under my division.
As you may be aware, the Coalition Provisional Authority
divided the Iraqi reconstruction effort into six sectors.
Parsons submitted proposals for several of those sectors, and
in early 2004 was awarded design-build prime contracts in two
of the six: security and justice, or S&J; and buildings,
education and health [BEH].
Parsons understood there would be risk involved with these
contracts, but many of the challenges could not have been
foreseen. Before I explain the challenges and lessons that we
have learned, let me first identify for you a few things that
went right. I will focus on projects completed, our safety
record, and our capacity-building contributions to the U.S.
Government's reconstruction efforts.
We repaired or rebuilt several large Iraqi ministry
facilities and judicial facilities. We repaired and improved 12
hospitals, constructed 119 border forts in far-flung, remote,
often to the point of inaccessible locations. We built five
border points of entry, constructed 54 fire stations, and even
the public health clinic program, hospital renovations, prisons
and the Baghdad Police Academy were on their way to having
additional successes before the government issued termination
notices.
We are also proud that Parsons consistently achieved safety
metrics that exceed the average for companies performing
similar construction within the United States. In the process,
we constantly stressed the need for personal and collective
safety on hazardous constructionsites.
Parsons successfully trained, educated and employed
thousands of Iraqis. The Government required design-build prime
contractors to provide measurable contributions to capacity
building within the Iraqi private sector. This was defined as
promoting the growth and modernization of the Iraqi engineering
and construction sector. Parsons aggressively met our
responsibilities in this area from the earliest stages of our
arrival in Iraq. For every U.S. engineer or related
professional we deployed to manage these contracts, we hired
approximately four Iraqi engineers, architects, planners,
accountants, inspectors, schedulers and so forth.
At the high point of our presence in-country on these two
contracts alone, we had 140 expatriate employees and 600 Iraqis
working side by side with us. Through hands-on and classroom-
type training, we introduced Iraqis to contemporary engineering
and management processes and techniques, including U.S.
approaches to project safety, quality control, contract
administration, finance, design procedures and standards.
As noted by the Corps of Engineers and other Government
agencies, the ability of some companies and individuals within
the Iraqi engineering and construction community to absorb and
particularly to apply Western ways of doing business proved to
be problematic. The concepts of competitive contracting,
transparent business practices, detailed documentation
regarding invoices, and even rudimentary job-site safety were
all alien to the majority of Iraqis we worked with.
Add the issue of security due to the rising tide of
terrorism and sectarianism to the formula and the desired
results became increasingly difficult for anyone, either
Parsons or the Government, to attain. Despite our recognized
achievements in capacity-building, we encountered a shortage of
capable Iraqi managers and skilled craftsmen. This was
particularly challenging given the sheer number of
reconstruction projects simultaneously conducted as requested
by the Government.
This leads me to a discussion of the challenges we did
face. There were many unusual challenges, but I will mention
three: sole definition of our contract scope; the impact of the
deteriorating security situation; and the turnover among key
Government staff.
At the time of the contract award, the Government did not
know precise scope of work or even where it wanted many of the
facilities to be located, and thus neither party knew the exact
site conditions and could not accurately predict costs and
schedules. Key factors such as this are typically known, or at
least better understood prior to contract bid, award and
execution. As mentioned by the GAO member of the preceding
panel, this disconnect between requirements and available
funding was always obvious. In some cases, it took up to 15
months for the Government to identify to Parsons what was to be
built, where it was to be constructed, and what funding was
available.
Again, I believe the GAO statement this morning summarized
the impact of this issue. The delay in definitizing task orders
significantly impacted both costs and schedule. A description
of the situation can be found in various of the Special
Inspector General's reports, including report No. 2 dated July
2006, in which the following statement is made: ``By law,
undefinitized task orders must be definitized within 180
days.'' The PMO/PCO usually did not meet this 180-day
definitization deadline.
Even when we thought the scope of a particular project was
definitized, we often continued to struggle with constant
changes and interpretations regarding our contractual
requirements.
The next challenge was security. As the Special IG has
noted in previous reports, the presumption made by the
Government and accepted by Parsons was that the security
situation would be permissive. That environment simply did not
materialize.
One aspect of our contracts with the Government-established
measure of merit was hiring subcontractors. Iraqi construction
companies performed all of the actual construction work under
our management and supervision. We awarded over 1,700
subcontracts to Iraqi firms and at the peak of construction we
had over 11,000 Iraqis employed on security and justice and
medical projects. Even the day-to-day oversight of those Iraqi
subcontractors was, as a result of cost and security concerns,
conducted almost entirely by Iraqis hired and trained by
Parsons.
Our reliance on Iraqi construction firms, and even to some
extent, our dependence on Iraqis to assist us in managing those
subcontractors made us extremely vulnerable to adverse schedule
and cost impacts as the security situation deteriorated.
The third challenge I will address today was the well-
documented and constant turnover of U.S. Government managers.
This resulted in an endless stream of changes in priorities,
expectations, direction and procedures. The results of these
frequent changes are discussed in several of the Inspector
General's reports. I would categorize them as counterproductive
at best.
Finally, I want to address the inference made by some that
Parsons walked away from the public healthcare clinics after
completing only 20 of the 150 under contract. That is not
accurate. The Government terminated us, our task orders for
convenience. At that time, we had completed 20 of those PHCs
with 35 additional clinics between 75 percent and 100 percent
complete, and an additional 66 between 50 percent and 75
percent constructed. Parsons fully intended and wanted to
complete those projects, but the Government apparently decided
it could complete them faster and cheaper by other means.
In summary, we are proud of the role Parsons has played in
assisting the U.S. Government and the Iraqi people in the
reconstruction effort. The men and women who work for Parsons
and for many other contractors present in Iraq have endured the
daily danger, family separation, and lack of personal comfort
and convenience that come with working in a combat zone, and
they have for the most part received little credit or
appreciation for doing so. When the final stories of the Iraq
reconstruction are told, their efforts will hopefully be more
objectively recognized and appreciated.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Robbins follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you very much, Mr. Robbins.
Mr. Mumm.
STATEMENT OF CLIFF MUMM
Mr. Mumm. Good afternoon, Mr. Chairman and members, and
thank you for this opportunity to appear before this committee.
My name is Cliff Mumm. From April 2003 through December
2004, I was the chief of party of the USAID Iraq Reconstruction
Project. During that period, I lived in Iraq. I lived and slept
in Iraq. I maintain ongoing executive responsibility for the
USAID-Bechtel work in Iraq and I continue to travel back and
forth to Iraq frequently.
Bechtel won two competitive contracts from USAID to cover
the restoration of essential power, water, civil and
telecommunications infrastructure. It did not, neither of the
contracts, included oil or gas sectors. Under my direction,
Bechtel delivered its first team to the region within 3 days of
winning the contract.
One of our first priorities, and in those days you could
travel because the security situation was such that it allowed
it, was to crisscross the country and assess the state of
Iraq's infrastructure so USAID and the U.S. Government could
make a determination of the highest priority needs.
In addition to war damage, our teams discovered that many
critical facilities such as water treatment and power plants,
had been wrecked by years of neglect, looting, and ministry
mismanagement. Our assessment concluded that approximately $15
billion was needed to bring that country up to some regional
standard. Given the country's vast needs, no one expected that
our contracts, which totaled $2.3 billion, could complete the
job. The work under those contracts could and did, however,
provide a platform upon which the Iraqis could build and
sustain themselves.
To help get the country back on its feet, we used Iraqi
contractors every place we could. In fact, we awarded to Iraqi
contractors three-quarters of our work, and anyplace we didn't
award to Iraqi contractors, such as power suppliers, we
required in their contract that they award to Iraqi
contractors. At peak, our work employed 40,000 Iraqis across
the country.
Among other accomplishments, we dredged and refurbished
Iraq's only deepwater port of Umm Qasr, which hadn't been
opened since the Iran-Iraq War. We restored the bulk of Iraq's
water treatment and sewage treatment capacity, which is capable
of serving millions of people. Our work in the power sector
increased capacity by more than 1,200 megawatts.
Hundreds of thousands of Iraqi children were able to attend
classes in 2003 in more than 1,200 schools we refurbished. We
repaired three major bridges for humanitarian and commercial
traffic, and we also restored the national telecommunications
grid.
One of our most important contributions was in
institutional strengthening. More than 600,000 hours of
training programs were provided by Bechtel, which improved
Iraqi skills in plant operations, in plant safety, construction
management, and information technology.
The security environment we encountered in Iraq was
profoundly difficult. Armed insurgents stop at nothing to
sabotage major infrastructures. Key Iraqi operating staff are
often forced to abandon their posts in the face of murder and
kidnaping. And power generation is often stranded when fuel
pipelines are blown up or transmission lines cut.
In the case of the Basrah Children's Hospital, escalating
violence frequently made work impossible. In May 2006 alone, 85
people were murdered in Basrah, including nine British
soldiers. Iraq's Prime Minister declared a state of emergency
in the city and that state continues to today.
In the face of all of this, our team still managed to
complete the essential civil and structural work for the
hospital, leaving it in the good condition that it is today for
future consideration.
We are proud of the work we did in Iraq on behalf of the
American and the Iraqi people. We are also proud of our own
people, including the over 600 professional Iraqi colleagues.
USAID has attested that Bechtel performed exceptionally well
under extremely difficult circumstances.
I am honored to share my experience with you this morning,
and look forward to questions.
Thank you.
[The prepared statement of Mr. Mumm follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Thank you both very much.
I am going to start Mr. Robbins off. I will start with you
on the Academy. Your firm had the contract for construction of
the Baghdad Police College. Of course, when we asked you here,
this wasn't even on the agenda, but the report got, so I have
to ask you. It was the subject of today's Special Inspector
General's Report.
I understand that much of the work in question was actually
performed by a subcontractor, but your firm had the overall
responsibility for the project. What is the explanation?
Mr. Robbins. Mr. Chairman, in fact we had 13 Iraqi
subcontractors working on this complex.
Chairman Tom Davis. Well, you saw the report. This isn't
the type of work that Parsons has traditionally been associated
with. That is fair to say, isn't it?
Mr. Robbins. No, it is not. The buildings in question, the
cadet barracks, were all completed in the April-May timeframe
of 2006. They were inspected and the quality control was done
by Parsons, with quality assurance by the Corps, both of whom
signed off on the facilities as being completed. The plumbing
systems which have caused this problem were pressure-tested
according to standard.
Chairman Tom Davis. Who tested them?
Mr. Robbins. We had independent labs and our own engineers.
There is a normal test that you conduct on a pressurized drain
system.
Chairman Tom Davis. But there is no city inspectors or
Federal Government inspectors that come out?
Mr. Robbins. Other than the Corps QA person that was there
and witnessed the test, along with the Parsons person----
Chairman Tom Davis. So the Army Corps was there to witness
the test?
Mr. Robbins. Yes, they were.
Chairman Tom Davis. And basically did they approve who you
had testing it and everything else?
Mr. Robbins. Yes, they did.
Chairman Tom Davis. So the Corps was overseeing this?
Mr. Robbins. The test results were published and approved.
The buildings were accepted. Again, this was in the late April,
early May timeframe. And Parsons was essentially complete then.
We turned the buildings over to the government.
Chairman Tom Davis. And you got paid?
Mr. Robbins. Well, we are still getting paid, but yes, sir.
We submitted invoices and that continues as subcontractor
invoices come in.
About the first week of July, we were notified by the Corps
that there was a problem with the plumbing in these facilities
and even though, again, our contract was completed, they asked
us if we would send our engineers out to assess the issue, and
we did. We dispatched a couple of our engineers from the IZ,
the International Zone, to look at it. They discovered this
workmanship issue. There was no question. You are right. This
is not correct.
We, with the Corps, got the subcontractor who had performed
the work to come back.
Chairman Tom Davis. Had this subcontractor done previous
work for you?
Mr. Robbins. This was the only subcontract that he had with
us, was for these barracks.
Chairman Tom Davis. OK. This was an Iraqi contractor?
Mr. Robbins. Yes, it is an Iraqi subcontractor.
Chairman Tom Davis. It wasn't Halliburton?
Mr. Robbins. Oh, no, sir.
Chairman Tom Davis. OK. I just wanted to take that off the
table.
Mr. Robbins. As I said earlier, all of our subcontracts
were with Iraqi firms for construction.
Chairman Tom Davis. OK.
Mr. Robbins. And we had withheld payment on that sub until
some time had passed, and the warranty on the work was in fact
passed to the Corps down to the Iraqi Police Academy
administration to enforce the warranty. So they called the
company, the subcontractor, back in. And as the IG report
notes, the Iraqi subcontractor is in fact replacing all of the,
it is not substandard plumbing, it is substandard installation.
So the entire plumbing network for those barracks is being
replaced.
Chairman Tom Davis. Now, you heard Mr. Bowen say that they
had 13 out of 14 contracts they had looked through, that your
work was basically inadequate. At 14, you talked about the
termination for convenience, and frankly he didn't go after
that contract. He didn't get into that.
Mr. Robbins. Right.
Chairman Tom Davis. What is going on here? What is your
explanation?
Mr. Robbins. I was not able to take the notes fast enough
on which 13 sites he visited, but I recall he said he visited,
for example, 5 border forts, and I think we did 119. I
mentioned how remote they were. What he said was that the
construction was substandard. Each of those facilities was
completed by Parsons' subcontractors. Inspections were
conducted by us and by the Corps and the buildings were all
accepted as complete and in compliance with the contract in
terms of materials and workmanship.
Chairman Tom Davis. By the Corps of Engineers?
Mr. Robbins. By the Corps. Now, I don't know without seeing
exactly what Mr. Bowen is talking about what kind of issues
there were on those border forts.
Chairman Tom Davis. Right.
Mr. Robbins. But I have also heard this morning quite a bit
of discussion about expectations from Iraqi subs. I would
suspect that it is safe to say the further you get from the
large cities, industrial areas, the less likely you are to find
any skilled craftsman to do work. And subcontracts, in Iraq I
think it is safe to say all contracts is local. You deal with
the firms that are there. These were all competitively bid.
Tenders were put out on the market in the Iraqi market.
Chairman Tom Davis. Was your contract competitively bid as
well?
Mr. Robbins. Yes, sir.
Chairman Tom Davis. OK, so you beat out other companies to
be able to do this.
Mr. Robbins. That is correct.
Chairman Tom Davis. Well, I mean, you saw the pictures. A
picture is worth 1,000 words, and I don't need to sit here and
walk through it, but this has to be corrected. The fact that
they went back and looked at 13 out of 14 projects they
inspected were substandard tells us there is a problem. I think
the Corps of Engineers will be called up appropriately, but I
also think, if you look at that as the contractor in charge of
that, that there is a problem here that we are going to have to
take a look at obviously. I am sure you are going to have
auditors crawling all over as we move this through.
Mr. Robbins. Yes, sir.
Chairman Tom Davis. Mr. Waxman.
Mr. Waxman. I am going to let Mr. Van Hollen go ahead.
Chairman Tom Davis. Mr. Van Hollen.
Mr. Van Hollen. Thank you, Mr. Chairman. I would like to
followup on some of the questions regarding the Police Academy,
because as I understand it, you signed off, Parsons signed off
on the project. Right?
Mr. Robbins. That is correct.
Mr. Van Hollen. It is a simple question. How could you sign
off on a project, or how could it be that the tests conducted
did not reveal the huge problems we see? I mean, how can any
reasonable test designed to determine whether or not this is
ready for the purposes it was designed for, not reveal these
massive, massive problems?
Mr. Robbins. Sir, the tests were conducted. The systems
passed the test and were signed off by our inspectors and the
Corps. I can't address why the tests, which were conducted
according to standard methodology, failed to detect these
fittings. I have some conjecture, that is all it would be, and
that is, it took a while of use for this to manifest itself,
for the fittings to come loose or whatever.
That is purely conjecture, but to me it is the most
explainable explanation.
Mr. Van Hollen. How much was Parsons paid for the Police
Academy project?
Mr. Robbins. Our definitized final agreed-on costs for the
entire program was about $72 million.
Mr. Van Hollen. About $72 million?
Mr. Robbins. Yes, sir.
Mr. Van Hollen. And how much profit did Parsons make on
this project?
Mr. Robbins. Sir, all of our Iraq contracts, the two
design-build contracts, had a 3 percent base fee and a 12
percent award fee associated with them. The 3 percent base fee
applied primarily to labor and some other direct costs. It did
not apply to others, such as security, life support.
Mr. Van Hollen. So 3 percent on top of costs, and then 12
percent?
Mr. Robbins. And then 12 percent award fee based on the
Government's evaluation of our performance.
Mr. Van Hollen. So what was the amount of that award fee,
the 12 percent?
Mr. Robbins. Well, there are different periods, so the
first period covered part of when we were doing the design.
What I will tell you, on the period in question, our award fee
was zero.
Mr. Van Hollen. What was the cumulative award fee?
Mr. Robbins. Sir, I really don't know.
Mr. Van Hollen. Can you get that for the record? Look, I
mean, that is a question here. The question I think the
American people would be asking, my constituents would be
asking is how is it that a job that clearly turned into this
kind of disaster, how is it that the Federal Government would
actually pay the money? Is this something that you are going to
go in, and are you going to return the money? What is the
recourse for the taxpayer in these circumstances? Don't you
think that Parsons, given what has turned out to be a very
shoddy job, should return some of its profits to the taxpayer?
Mr. Robbins. Sir, I will merely say that Parsons will abide
by the terms of the contract and we will deal with the
Government on a fair basis, and we will abide by whatever the
decision is.
Mr. Van Hollen. So you won't voluntarily look at this and
say, given what has happened in this project, we will return
the profit.
Mr. Robbins. No, sir, I will not.
Mr. Van Hollen. Do you think this was a job well done?
Mr. Robbins. I think parts of it and a lot of it was well
done, yes, sir.
Mr. Van Hollen. Do you think the taxpayer got a good return
on its investment for this project?
Mr. Robbins. I think the taxpayers got what our contract
called for it to get.
Mr. Van Hollen. I am sorry, but you think that this is what
the contract called for?
Mr. Robbins. No, sir. And that is why we are repairing it
at no cost to the Government. It is being repaired at no cost
to the Government. We have warranties on construction. There
are no construction bonds in Iraq. And so the situation is
being remedied.
Mr. Van Hollen. The cost-plus feature of these contracts
provides no incentive to the contractor to keep down costs. Is
that right?
Mr. Robbins. No, sir. It provides every incentive, I
believe, to the contractor to keep costs down.
Mr. Van Hollen. I thought I understood your testimony to be
you got paid 3 percent on top of costs.
Mr. Robbins. Yes, sir. I would suggest that 3 percent is
not particularly a very good return on investment. In fact, the
reason for the award fee is to in fact incentivize you to do
your best and to be recognized for doing that. The Government
determines the amount of that award fee.
Mr. Van Hollen. OK. Just sticking to the cost-plus, I mean,
3 percent of a bigger number is going to be a bigger number,
right?
Mr. Robbins. That is correct.
Mr. Van Hollen. So I mean, there is no incentive in that
system to keep to costs.
Mr. Robbins. Well, actually there is because of the
definitized costs. You are paid your base fee based on a
definitized cost. Any growth after that, there is no fee paid.
Mr. Van Hollen. OK. I will just close. So what were the
criteria that the U.S. Government used to determine that you
got the 12 percent award fee?
Mr. Robbins. Sir, it changed about four times over the
course of the last 2 years, but it was everything from how well
we did the capacity-building aspects of it. There are safety
features. There are quality issues. There are schedule metrics.
There is a whole litany of measurement that the Government uses
to determine the award fee.
Mr. Van Hollen. OK.
Chairman Tom Davis. Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
In August 2004, Bechtel was tasked with building a state-
of-the-art children's hospital in Basrah. The hospital was
supposed to be finished by the end of 2005 at a cost of $50
million. By March 2006, however, the expected completion date
had slipped by 19 months and the expected cost had grown to $98
million. As a result of the schedule delays and cost overruns,
USAID took Bechtel off the project in June, and the Army Corps
of Engineers contracted directly with Bechtel's Jordanian
subcontractor, MidCon, in September. I have a copy of the Corps
of Engineers' justification and approval document. Mr.
Chairman, I would like to place this document in the record.
[The information referred to follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tom Davis. Without objection.
Mr. Waxman. In this document, the Corps explains why it
decided to take Bechtel out of the loop. The document notes
that Bechtel ``employees state they were unable to visit the
project from October 2005 to March 2006.'' Mr. Mumm, is that
true? Were Bechtel employees unable to visit the
constructionsite for 6 months?
Mr. Mumm. I can't speak to whether or not those months are
exactly right, but I think that what is important to understand
about the Basrah Children's Hospital is, first, we were not
taken off by USAID. I will come to that in a moment. In fact,
what you have to do if you think about Basrah, if I think about
the Basrah Children Hospital or Iraq in general, is one has to
think about kind of the security environment.
There is nothing more in Iraq that affects both schedule
and costs than security. It is both a direct cost and an
indirect cost.
Mr. Waxman. I understand the security concerns, but the
Government was paying your firm to oversee your subcontractors.
How could Bechtel provide adequate oversight if its employees
were not present at the site for 6 months, is the figure we
have? This Army document refers to Bechtel's failure to perform
contractually mandated oversight. Do you disagree with the
Corps of Engineers that Bechtel failed to perform required
oversight?
Mr. Mumm. Yes, in fact we provided the oversight and in
fact, if you talk to the Corps of Engineers, what you will see
is that we did in fact provide a facility, a structure, the
civil and structural work completed in a quality manner. They
will tell you that.
Mr. Waxman. Well, this document from the Department of Army
says the U.S. Army's intent to award this contract to MidCon is
occasioned by the U.S. Agency for International Development's
decision to stop work on the BCH construction project under its
2004 contract with Bechtel. MidCon was BNI's construction
subcontractor on this project. And the justification was the
inattentiveness to oversight. It states that Bechtel failed to
pay MidCon progress payments in a timely manner. Is that
accurate?
Mr. Mumm. We paid MidCon in a timely manner, but we did not
pay MidCon for things that MidCon had not completed. I was part
of that, Congressman, and was back and forth to Jordan and to
Iraq talking to MidCon at every level, trying to get MidCon to
continue performing.
I want to go back to the security issue just a moment, if I
could.
Mr. Waxman. No, I don't want you to because I have some
questions. If we have time, I want you to go further into it.
But if Bechtel wasn't actually building the hospital, and the
question is whether you were overseeing the Jordanian company
that was doing the construction, and the claim is that you
weren't paying that company on time, why were we paying
Bechtel? Wouldn't the Government have been better off to
contract directly with the Jordanian subcontractor earlier than
it did?
Mr. Mumm. The Government actually, I don't know if they are
or not, going to contract with MidCon. MidCon is reluctant to
continue. So I am not sure about the document, Congressman
Waxman, that you are talking about. I have not seen it.
However, the reason we left the project, or are leaving the
project and turning it over to the Corps of Engineers, is
because there is a real question about whether or not, now that
the project is in a stable condition, that is the civil and
structural work are completed on it, whether or not it should
continue, or whether it should sit in abeyance for a period of
time, not costing more blood and more money.
We did provide absolute oversight and the quality of the
work, and maybe this could be part of the record, the quality
of the work will absolutely substantiate that this is a quality
installation. Twenty-four people, Representative Waxman, 24
people died getting it to that place.
Our contract ends, period, ends at the end of October.
Mr. Waxman. Mr. Mumm, you have to----
Mr. Mumm. OK. I am just keyed up. I am sorry. I am not
trying to be rude.
Mr. Waxman. As you can see, I have a red light and that
means I have a limit on time, and sometimes the witnesses like
to get keyed up and run our time out.
Mr. Mumm. Sorry.
Mr. Waxman. But this document is from the Department of the
Army, and we will certainly make it available to you. I am
surprised you haven't seen it, but it is their document of why
they decided to abandon you and go to MidCon. You are saying
you did a good job. They say you didn't. I would like to see
that document and I see no reason why we shouldn't put it in
the record.
How much profit did Bechtel make off this project? If you
can give me that answer quickly?
Mr. Mumm. One is, we weren't working for the Department of
the Army, sir. They didn't make a decision about whether or not
to remove us from the project. We instigated the idea.
Mr. Waxman. How much profit did you make?
Mr. Mumm. Our profit was not tied to either the cost or the
days or the schedule of that particular hospital.
Mr. Waxman. If you don't have a number, please get it for
me for the record.
Mr. Mumm. We don't have one tied to that. I'm sorry.
Mr. Waxman. OK.
Mr. Mumm. Our profit is actually a line item, and it is not
tied to the contract.
Mr. Waxman. It is a line item in the appropriations?
Mr. Mumm. Yes.
Mr. Waxman. This children's hospital was supposed to be a
model for Iraq's reconstruction. Instead, it has been a
disaster, with cost overruns, schedule delays and absence of
oversight. Just in my mind, I have to tell you, there is no
wonder this reconstruction is failing. This is what the Iraqi
people see, these kinds of projects, these kinds of problems.
Mr. Mumm. What the Iraqi people will see is a quality
installation. The Iraqis themselves are afraid to go there and
work on this installation. Again, I will reiterate, 24 people
died. Our own site security manager was murdered. Our site
engineer's daughter was kidnaped and he was forced to go. Our
site manager was threatened by two different militia groups.
They summarily marched out our electrical mechanical contractor
and murdered 12 of them. And you probably saw in the press a
few months ago where they took our concrete supplier on one
Saturday, the subcontractor providing the concrete and
installing it, they took him out, marched him out and executed
11 of them.
Under those circumstances, what we did in reaction to that
was focus very hard on bringing this hospital in, and we
accomplished that before our contract finished to a very stable
state, and then in a very transparent way, went to USAID and
suggested that they take a look at how we go forward with the
hospital, which they did. And the decision was made, since our
contract was ending, that we would turn that work over to the
Corps of Engineers and we have done exactly that.
We have one project that we have not finished in Iraq, and
that is it.
Mr. Waxman. OK. I am sorry for the losses of people and the
difficulties. It is difficult in Iraq.
Mr. Mumm. It is profoundly difficult.
Mr. Waxman. Many people have suffered as a result. I want
to look at your document. I know what the Army said. It is a
question that I think we have to evaluate and I want to do it
in a fair way.
Thank you.
Chairman Tom Davis. Let me just wrap up, both for Mr.
Robbins and Mr. Mumm. How do we stop the kind of problems that
we had at the Police Academy? What is the best way to ensure
they don't occur? If we can't look to the contractor to produce
the result, where are we supposed to look?
Mr. Robbins. A very valid question, Mr. Chairman. I think
for one thing it goes back to a point that was made I think by
the GAO witness this morning about requirements and resources,
and I would add time to that. The pressures on all the
contractors to complete these projects in time periods far less
than it would take to do this kind of work in the United
States, let alone when, as Mr. Mumm has so well articulated,
and it is true for us as well, when your subcontractors are
being intimidated. There is no real rule of law to govern
business practices in the country. The amount of oversight is
probably much greater, not probably, it is definitely much
greater than the Government wants to allow, and in this case,
than the Government can guarantee us free access to the job
sites.
Chairman Tom Davis. How many employees have you lost in
Iraq?
Mr. Robbins. Fortunately, we have lost none of our U.S.
employees. What we have lost, and I don't have an exact count,
but I would guess across all of our contracts, at least two
dozen Iraqi subcontractor employees. Typically, they are Iraqi
citizens.
Chairman Tom Davis. Mr. Mumm, how many have you lost?
Mr. Mumm. We have lost people and casualties associated
with our work are something about 101. Of those 52 died.
Chairman Tom Davis. OK. So it is tough doing business over
there, obviously.
Mr. Mumm. I'm sorry?
Chairman Tom Davis. It is obviously very, very difficult
doing business there, getting continuity, getting workers.
Mr. Mumm. It is difficult doing business there, but we did.
We went in. We said what we were going to do with USAID. We had
99 jobs orders and we did every one of them, and we did it in a
way that sustained, and we have provided a platform for the
Iraqi people that they could build on if they had a stable
environment going forward. We are absolutely proud of what we
did, and there is no quality issue.
Chairman Tom Davis. Given the difficulties that you have
had, do you regret doing business in Iraq?
Mr. Mumm. I'm sorry?
Chairman Tom Davis. Do you regret doing business in Iraq in
retrospect? Or would you do the same thing over again?
Mr. Mumm. You know, I wish I could tell you. I have lived
and breathed Iraq for all these years since after the invasion.
I wish I could tell you how emotional I get about this, or just
even coming to this hearing today, all the people that wrote to
me and said, tell them this, tell them that. All of us feel
attached to the Iraqis and to the people there and to the
things we did, and we wanted this to work. You cannot imagine
the imperative that we felt, the sense of urgency, or the
emotional investment and the tearful farewells that we have.
Absolutely, I don't regret it.
Chairman Tom Davis. Who paid for the security forces for
your workers? Did you have to handle that yourself, or were
those passed through in the contracts?
Mr. Mumm. It was passed through in the contract, but we
managed it ourselves.
Chairman Tom Davis. How about you, Mr. Robbins?
Mr. Robbins. Sir, on our constructionsites, we actually
made site security the responsibility of the Iraqi construction
firm that was doing the work. So our security costs reflected
only the cost of protection and transportation for our
expatriate employees in the Green Zone, and then as they would
travel to a job site.
Chairman Tom Davis. And you understood, Mr. Robbins, when
you took this contract that you would be hiring Iraqis to do
most of the work. Wasn't that part of the policy?
Mr. Robbins. Absolutely.
Chairman Tom Davis. Let me ask you both, what kind of
quality have you had out of the Iraqi workers and the
subcontractors? I am going to ask you the same thing, Mr. Mumm.
Mr. Robbins. First of all, on the one hand, we have 600
Iraqis working side by side with Parsons. So these were people
that were actually helping us administer and manage the
contracts. When you get 600 people, you will have a lot of good
ones and maybe a few not so good. The not so good ones you try
to bring along, and if they don't work out, you dismiss them.
But I would echo Mr. Mumm's comments about the dedication
and sincerity and hard work, the ethic that these people went
through every day just to get to work was mind-boggling. They
would have to take a circuitous route, different forms of
transportation, then go stand in line at the gate at the Green
Zone, at the International Zone, which is the most vulnerable
place you could possibly be. You are a target waiting to go
through all the detection and inspection necessarily conducted
by the U.S. forces guarding it. On the other hand, the
subcontractors, when you have 1,700 Iraqi subcontractors,
you're going to have some good ones and you are going to have
some bad ones.
Chairman Tom Davis. Did you have any problems, either one
of you, in people that you hired or had access to your sites,
of people trying to set it back, blowing it up, or anything
else? Any problems with that?
Mr. Robbins. You mean sabotage of our work?
Chairman Tom Davis. Sabotage.
Mr. Robbins. We did, yes, sir.
Chairman Tom Davis. You did.
Mr. Mumm. We had no problems with that. We actually
instituted this in Iraq. We were the first ones in and we
realized we had to go local and go deep, just from all the
years that I have spent in the Middle East and Bechtel has. But
institutional strength is an important thing. You can bring
people on that are bright and energetic, but you need to teach
them how to do it the right way, get process and procedure.
People don't like that, but you have to get process and
procedure in place, and they respond to it. And the Iraqis
absolutely responded to it. They are so good that where we can,
we are trying to put Iraqis on other work that we have in other
places. They are just an outstanding group of people, and no
sabotage.
Chairman Tom Davis. Maybe you ought to share your list with
Mr. Robbins and his group as they go through.
Mr. Mumm. Well, we are very covetous of our people. We hang
on to them.
Chairman Tom Davis. Mr. Waxman.
Mr. Waxman. Mr. Chairman, I am moved by the statements that
have been made, how difficult it has been for the contractors
in Iraq. But I have to put it somewhat in perspective with
Parsons, when we are told that 13 out of the 14 projects were
not successful, and the 14th was canceled. We are talking about
these two projects today. If those were the only ones, that
would be one thing, but when you have so many others.
If we are spending billions of dollars and we don't get
anything for that money, we don't get anything that is
worthwhile and lasting, it is a waste of money. In Mr. Mumm's
cases, for his firm, it was also a waste of many lives.
Now, we are looking at an Iraq that seems to be moving fast
to a civil war. If we have had problems up to now, I can't
imagine the problems are going to get any easier. No doubt the
Iraqi people are looking to find out why we are there, and if
we are there to help them be more secure and get on their feet,
I don't think we can be judged successful in that regard if we
find more and more projects not getting completed.
In fact, I worry about the Police Academy being a symbol
for the failure of this country in Iraq. I worry about our
failures in the health sector to be a reminder to people in
Iraq that we haven't added to their well being. And their
electricity and the drinking water, and other things that
people want and expect, and don't have on a regular basis, are
a reminder to them that we haven't given them what they wanted,
other than for most of them, maybe most, or certainly many of
them, we got rid of Saddam Hussein, but they want a better
life.
So I thank you for this hearing. I think it has been
worthwhile. My sympathies go to all the people that are trying
under such difficult circumstances, not just the contractors we
hired and then had to pay for their security, and that still
wasn't enough, but for all the men and women we sent there who
didn't get paid as much as the contractors and subcontractors,
but in many cases are going to have to live with the injuries
for the rest of their lives, their psychological trauma, and of
course, for those who are gone, the families trying to
understand the loss in their lives.
That is the only comment I wanted to make.
Thank you, Mr. Chairman.
Chairman Tom Davis. I want to thank you for being here
today, for being patient with us.
The hearing is adjourned.
[Whereupon, at 1:50 p.m., the meeting was adjourned.]
[The prepared statements of Hon. Jon C. Porter and Hon.
Stephen F. Lynch, and additional information submitted for the
hearing record follows:]
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