[Senate Hearing 109-958]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 109-958
 
          IRAQ RECONSTRUCTION: LESSONS LEARNED IN CONTRACTING 

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                             AUGUST 2, 2006

                               __________

        Available via http://www.access.gpo.gov/congress/senate

                       Printed for the use of the

        Committee on Homeland Security and Governmental Affairs

                              -------

                     U.S. GOVERNMENT PRINTING OFFICE

29-761 PDF                 WASHINGTON DC:  2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001
























        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

                        Jay W. Maroney, Counsel
                 Amy L. Hall, Professional Staff Member
             Michael L. Alexander, Minority Staff Director
                    Troy H. Cribb, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk






















                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Levin................................................     3
    Senator Voinovich............................................     5
    Senator Akaka................................................     7
    Senator Coburn...............................................     8
    Senator Lautenberg...........................................     8
    Senator Chafee...............................................     9
    Senator Dayton...............................................     9
    Senator Pryor................................................    11
    Senator Warner...............................................    20
    Senator Carper...............................................    29
Prepared statement:
    Senator Lieberman............................................    39

                                WITNESS
                       Wednesday, August 2, 2006

Stuart W. Bowen, Jr., Special Inspector General for Iraq 
  Reconstruction:
    Testimony....................................................    12
    Prepared statement...........................................    41
    Responses to post-hearing questions for the Record...........    49

                                APPENDIX

Report of the Special Inspector General for Iraq Reconstruction, 
  Iraq Reconstruction--Lessons in Contracting and Procurement, 
  July 2006,.....................................................    62


          IRAQ RECONSTRUCTION: LESSONS LEARNED IN CONTRACTING

                              ----------                              


                       WEDNESDAY, AUGUST 2, 2006

                                       U.S. Senate,
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Voinovich, Coburn, Chafee, 
Warner, Levin, Akaka, Carper, Dayton, Lautenberg, and Pryor.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order. Good 
morning.
    Today, the Committee will examine the status of the U.S. 
Government's contracting efforts in the relief and 
reconstruction programs in Iraq. Our witness is Stuart Bowen, 
who has been the Special Inspector General for Iraq 
Reconstruction since October 2004.
    The focus of this hearing is the ``Lessons Learned'' report 
on Iraq contracting, as well as the IG's newest Quarterly 
Report, both of which have just been released. The ``Lessons 
Learned'' report provides a chronological review of the 
contracting experiences in Iraq. It is a story of mistakes 
made, of plans either poorly conceived or overwhelmed by the 
ongoing violence, and of waste, greed, and corruption that have 
drained dollars that should have been used to build schools and 
health clinics, improve the electrical grid, and repair the oil 
infrastructure.
    What I found particularly remarkable about this report is 
how many of the lessons apply to any massive reconstruction 
undertaking. Iraq and the hurricane-ravaged Gulf Coast present 
some similar challenges. In both cases, massive public and 
private efforts, indeed more than $112 billion combined, have 
been mobilized to repair infrastructure, to care for people in 
need, to rebuild communities, and to reinvigorate the economy. 
In both cases, the Federal Government has awarded many 
contracts both large and small. In both cases, mistakes, 
mismanagement, and abuse led to unacceptable waste of taxpayer 
dollars and prolonged suffering.
    During this Committee's Hurricane Katrina investigation, 
the Inspector General for the Department of Homeland Security 
stressed that what we often call ``lessons learned'' are really 
only lessons recognized until the lessons are actually 
implemented.
    Last September, this Committee approved a proposal that 
Senator Lieberman and I developed that would have expanded the 
authority of the Special Inspector General for Iraq 
Reconstruction to include oversight of Gulf Coast relief and 
reconstruction. It is unfortunate that our proposal was blocked 
by the Administration. Had it been enacted, I believe that the 
thorough audits, extensive investigations, and vigorous 
oversight that have characterized the Inspector General's Iraqi 
experience would have helped to prevent the widespread waste, 
fraud, and abuse that have plagued assistance and recovery 
programs in the Gulf Coast.
    The report before us today lists 10 lessons learned 
regarding contracting in Iraq. Although I will leave it to our 
witness to explain them in detail, I believe that they can be 
summed up as describing the need for better planning and 
greater coordination in anticipation of what was known to be a 
massive reconstruction effort. From the failure to involve 
procurement personnel in the preliminary planning to the lack 
of portable and tested systems to an overreliance on non-
competitive and expensive design-to-build contracts, the 
lessons of Iraq are in many ways similar to the lessons of 
Hurricane Katrina.
    The six recommendations in the Inspector General's report 
also support the recommendations that this Committee made in 
the aftermath of its Hurricane Katrina investigation. In fact, 
our post-Hurricane Katrina legislation, which was approved by 
this Committee just last week, would implement four of the 
recommendations.
    From Iraq to our own Gulf Coast, recent events have shown 
that the existing procurement structure is inadequate for 
mounting a quick, effective, and accountable relief and 
reconstruction effort. The lessons that have been learned the 
hard way have resulted in wasted tax dollars and unfinished 
projects.
    We will also discuss today the latest Quarterly Report by 
the Inspector General, which has been just released. I have 
been briefed quarterly by the Inspector General on his findings 
and have worked closely with his office on oversight. Due in 
part to his office's aggressive oversight, the Iraq 
reconstruction effort is going better, but there is still so 
much room for improvement. It is in many ways a good-news/bad-
news story.
    For example, in the electricity sector, electricity 
generation rose above pre-war levels for the first time in more 
than a year. In the oil and gas sector, oil production reached 
the pre-war level of 2.5 million barrels per day for 1 week in 
mid-June, but unfortunately it then decreased for the following 
2 weeks. The report also reveals cost overruns, accounting 
irregularities, unfinished projects, and evidence of waste, 
fraud, and corruption.
    One notable failure was in the health care sector where the 
Basrah Children's Hospital project used an accounting shell 
game to hide ballooning costs and significant schedule delays. 
Originally budgeted at $50 million, a recent assessment 
identified several options to complete the hospital, and the 
most recent cost-to-completion estimates range from $150 
million to $170 million. In addition, the most recent projected 
completion date is now July 31, 2007, which is 576 days late.
    During this past quarter, the Inspector General completed 
10 audits and 12 project assessments that provide important new 
recommendations. In addition, the IG has opened 40 new 
investigations of alleged fraud and corruption and continues to 
pursue investigative leads in Iraq and throughout the Middle 
East, Europe, and the United States.
    Mr. Bowen's previous work has led the Department of Justice 
to file a plea agreement in which an army lieutenant colonel 
pled guilty to felonies. This plea is tied to two previously 
reported convictions--those of the CPA comptroller and an 
American citizen named Phillip Bloom. The three conspired to 
steer millions of dollars worth of construction contracts to 
Mr. Bloom's company.
    Another part of the IG's report raises a red flag that I 
find very troubling. Nearly $21 billion has been provided to 
the Iraq Relief and Reconstruction Fund since the start of this 
effort. As of the date of the Quarterly Report, $1.7 billion 
remains unobligated. Now, why is that of concern? It is of 
concern to me because the rush is on to obligate the remaining 
funds before they expire at the end of the fiscal year on 
September 30. As we have seen over the years, a rush to 
obligate and spend monies prior to the end of the fiscal year 
often produces projects that are wasteful and of questionable 
worth. The plan, according to the IG's report, is to obligate 
these funds now for projects that are not fully fleshed out and 
then to de-obligate them in the next fiscal year for other Iraq 
projects. This seems to me to be completely unacceptable and an 
invitation to waste.
    Never has the phrase ``haste makes waste'' sounded more 
ominous. To have almost $2 billion floating around this way is 
utterly unacceptable and will undoubtedly lead to wasteful 
spending, questionable obligations, and excessive costs.
    Our country has made a tremendous investment to promote 
freedom and democracy in Iraq, in the lives of our brave men 
and women in uniform, in the lives lost of civilian 
contractors, and in a tremendous expenditure of taxpayer 
dollars. In this time of transition, the success of the new 
Iraqi Government depends to a considerable extent upon the 
success of the ongoing reconstruction effort. Yet the reports 
of the Inspector General indicate that while billions of 
dollars have been spent, reconstruction has fallen far short of 
promised outcomes. I look forward to hearing from our witness 
today.
    Senator Levin, we are very pleased to have you in the role 
of the Ranking Member today in the absence of Senator 
Lieberman. Actually, it is a role that you could have chosen at 
any point, I guess, given your seniority.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you very much, Madam Chairman. Thank 
you for calling this hearing, and thank you for your long-
standing and strong commitment to congressional oversight. It 
has been so critically important in the work of this Committee 
and other committees on which you serve, and we are very 
grateful for it. And, most important, the Nation is very much 
in your debt for what you do in the area of oversight.
    Over the last 3 years, the U.S. taxpayers have spent almost 
$20 billion for the reconstruction of Iraq. An additional $30 
billion of Iraq funds was expended under the control of the 
U.S. Government for the same purpose. And before I continue 
with my opening statement, I do want to note what the Chairman 
said about this hurry-up, year-end spending, which is being 
proposed.
    Going way back in time, way, way back in time, I believe 
that one of the facts which produced the Competition in 
Contracting Act, on which our Chairman worked in an earlier 
capacity, was this problem of hurry-up, year-end spending, 
which proves to be so wasteful. And I was glad that our 
Chairman highlighted that, because it is unacceptable that we 
are going to hurry up and try to obligate money because if it 
is not obligated, it will not be spent. We cannot proceed in 
that fashion. It is very wasteful, and, again, I think our 
Chairman is very wise to point that out as being unacceptable.
    The area which our Chairman has identified is an area that 
just cries out for strong congressional oversight. We have had 
any number of reports in the press about contract 
mismanagement, abuse, and even outright fraud in Iraq 
contracting. For example--and these are just examples--the 
following questions have been raised by published articles 
about two multi-billion-dollar contracts awarded to the 
Halliburton KBR subsidiary. Why was the initial contract for 
reconstruction of the Iraqi oil industry awarded on a sole-
source basis to Halliburton? And why did that contract, which 
was supposed to be a ``temporary bridge contract,'' have a term 
of 2 years, with 3 optional years, and a dollar value of up to 
$7 billion?
    Why were the prices that Halliburton charged the Coalition 
Provisional Authority for oil so much higher than market 
prices? And did Halliburton benefit by overcharging the CPA by 
several hundred million dollars on oil purchased in Kuwait and 
delivered to Iraq?
    Why did Halliburton charge the Department of Defense for 
thousands of meals that were not actually served? And was this 
practice permitted by the Halliburton contract?
    Did Halliburton knowingly supply our troops with spoiled 
food and unsafe drinking water? And did the company 
intentionally withhold information from the government to avoid 
raising questions about the quality of its performance?
    Now, those two Halliburton contracts are by far the largest 
contracts that we have awarded in Iraq, but they are not 
unique. Both contracts are what we call ``indefinite delivery, 
indefinite quantity contracts,'' or IDIQ contracts. And what we 
did with these contracts and what we have done with most of our 
other Iraq contracts is to award a huge contract to a single 
company before we know what work the contractor will be asked 
to perform. These single-award IDIQ contracts basically give a 
single contractor the right to the sole-source award of 
innumerable, highly lucrative projects.
    That kind of contract, that IDIQ contract, lends itself to 
abuse because when we finally decide what work we want done, 
when we do that, we will have no competition. As a result, we 
pretty much have to take whatever estimate the contractor 
offers. Sometimes we can do the work on a fixed-price basis, 
but more often we end up paying the contractor whatever it 
``costs.''
    We are now starting to see the results of contracting 
without competition. The Special Inspector General for Iraq 
Reconstruction, who will be testifying before us today, has 
identified what he calls a ``reconstruction gap''--the 
difference between what we set out to do in the area of Iraq 
reconstruction and what we have actually been able to 
accomplish.
    For instance, the Inspector General has reported that we 
set out to build 150 primary health care centers, then reduced 
that number to 141; but, unfortunately, the contractor 
completed only six of these health care centers, and the 
contract has now been terminated for default.
    This shortfall is not unique to health care centers. Last 
week, the Inspector General released a report on the 
construction of a prison facility in Nasiriyah, Iraq. According 
to the report, we originally planned to build a new prison to 
house up to 4,400 inmates. Because the prison was to be located 
in a rural area, with no utilities, we would have to build an 
on-site power generation plant, water treatment plant, and 
wastewater treatment facility. The contractor's first estimate 
for this work came in at $118 million. The second was $201 
million. We tried to reduce the cost by reducing the capacity 
of the prison by more than half, to 2,000 inmates. The estimate 
was still too high, so we reduced the capacity to 800 inmates, 
less than 20 percent of the original planned size. We then 
entered into a definitized contract, which called for the work 
to be done by March 2006 at a cost of $45 million.
    Despite these reductions in the scope of the contract, the 
contractor proved unable to complete the required work. 
Construction delays resulted in a 410-day schedule slippage and 
a projected cost overrun of $23 million. A month after the 
scheduled delivery date, the project was only 28 percent 
complete, and we now have initiated actions to terminate the 
contract with the prison still far from built.
    Today's hearing gives us an important opportunity to 
examine a few of these issues, but it is only a beginning. 
Every sign that we have points to significant waste, fraud, and 
abuse in Iraq contracting. The subject merits a series of 
hearings, and indeed, many significant issues regarding Iraq 
contracting, including many of the questions about the 
contracts awarded to Halliburton, apparently do not fall within 
the purview of the Special Inspector General for Iraq 
Reconstruction, who is before us today, or they have not been 
addressed by the Inspector General for a number of reasons.
    So I do hope that as we dig into this issue we can produce 
some significant reforms, and, again, I very much want to 
congratulate and thank our Chairman for her leadership and her 
tenacity when it comes to the very critical subject of 
congressional oversight.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you, Senator Voinovich.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Madam Chairman. Thank you for 
holding this hearing today to discuss the Special Inspector 
General for Iraq Reconstruction's report, ``Lessons Learned in 
Contracting.''
    Since September 11, 2001, the U.S. Government has spent 
over $437 billion to fund military operations, base security, 
reconstruction, foreign aid, embassy costs, and veterans health 
care. Iraq reconstruction has cost up to $30 billion. We have 
heard from the Inspector General that only part of it has been 
spent, and we are worried about rapid, quick spending. I think 
that we also have to recognize that these costs are going to 
continue to rise unless we can get more of our allies to pitch 
in to help with the reconstruction costs.
    I think it is important that we realize that we are 
involved in what I refer to as the ``Fourth World War,'' with 
the Islamic extremists who want to deny the Iraq people the 
freedom that is the right of all mankind. They have hijacked 
the Quran and attempted to do us harm, and I think the American 
people should know that Osama bin Laden has declared holy war 
on us, and Islamic extremists will not rest until they have 
taken over the entire Middle East. I think we sometimes don't 
put this war in Iraq in the context of this war that is going 
to go on for a long time.
    The men and women of our armed forces are putting their 
lives on the line to build a better future for the people of 
Iraq and the greater Middle East, and these sacrifices will 
continue to advance the security of our country and the 
principles upon which it was founded. Those are monies that we 
have to spend, and they are monies that we have to take care 
of.
    On the other hand, we owe it to the American taxpayer and 
our children and grandchildren to do everything we can to 
ensure that the money for reconstruction is spent wisely. While 
we have rightfully spent billions of dollars in response to 
these events, we continue to squeeze the nondefense 
discretionary budget. I think sometimes we forget about that. I 
believe that people are concerned about these cuts in the 
nondefense discretionary budget.
    So given these sacrifices, we must be sure that we have 
strict accountability for every dollar that is spent in the war 
and reconstruction efforts. I think one of the reasons the 
American people are concerned about Iraq, besides the loss of 
lives and those injured, is this enormous sum of money that we 
are spending. When they hear about horror stories of fraud, 
waste, and abuse, they are livid. It is one of the reasons why 
I think they are so angry; they read about the way this money 
is being spent. And I think they have a right to be.
    Mr. Inspector General, I would like you to know that the 
work that you and your team are doing is vital to protecting 
America's financial future and to respond to the concerns of 
the American people.
    Chairman Collins. Thank you. Senator Akaka.
    Senator Lautenberg. Madam Chairman, I thought we were doing 
early-bird arrival. I was here at 5 minutes to 10, and it was 
just the Inspector General and me. Perhaps we should have 
started the hearing at the time.
    Chairman Collins. Senator Lautenberg, the rule of the 
Committee is when the Committee is gaveled, those Members who 
are there at the time are recognized according to seniority. 
After the gavel falls, then it becomes an early-bird rule. That 
has always been the rule. I followed it today, and Senator 
Akaka is next.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you, Chairman Collins, for scheduling 
today's hearing to examine contracting and procurement issues 
in Iraq. Our Committee is responsible for government oversight, 
and nothing facing our Nation is in greater need of review than 
the costs of Iraq's reconstruction.
    I want to commend the Chairman for her opening statement 
and tell her that her statement justifies this hearing today.
    I want to also welcome you, Mr. Bowen, and to thank you for 
the important service you are providing to our Nation as the 
Special Inspector General for Iraq Reconstruction. Your reports 
remind us that just as war and crisis motivate citizens to heed 
the call of government and government service, others see it as 
an opportunity to enrich themselves unjustly at the 
government's expense. In these trying times, auditors and 
investigators are often the best protection the government has 
against these unprincipled individuals.
    Approximately $40 billion has been appropriated for the 
security and rehabilitation of Iraq. Given this tremendous sum, 
it is critical that there is oversight on how taxpayers' 
dollars and Iraqi funds have and will be spent.
    The first reason for the high cost of reconstruction in 
Iraq is the Administration's failure to plan for the post-war 
period. This has led to large-scale waste, fraud, and abuse, as 
the Chairman mentioned. During the debate on whether the United 
States should go to war, I said that the President lacked a 
strategy for winning the peace. I fear that the problems and 
abuses with contracts and procurements today bear out my 
concern.
    A second reason for the high cost of reconstruction in Iraq 
is the Administration's lack of truthfulness with the American 
people. Congress and the American people were told that Iraq's 
oil wealth would fund the rebuilding of the country's 
infrastructure; this was not true. That the American taxpayer 
would not be funding the reconstruction of Iraq; this was not 
true. That the Iraqi people would stand and put their own house 
in order; this has not happened yet.
    A third reason for the high cost of reconstruction in Iraq 
is the Administration's failure to oversee how money is spent. 
Mismanagement and misuse of American and Iraqi funds are 
commonplace. Auditors cannot account for over $9 billion in 
Iraqi funds. Contractors are providing incomplete and 
inadequate services or are overcharging for their services.
    For example, in February 2006, the Defense Contract Audit 
Agency found over $200 million in overcharges by Halliburton 
for its contract to import fuel and repair oil fields. I am 
appalled that large, highly recognizable American companies are 
abusing government contracts. Is the culture of corruption in 
our country so endemic that publicly known companies feel 
complacent during a time of war to defraud the government 
without any concern?
    We are now over 3 years into this conflict, and the 
taxpayers demand and deserve accountability. Make no mistake. 
What we undertake today determines the future. Given the 
stakes, there remains no room for error.
    Madam Chairman, the government's past failures in Iraq 
cannot be undone, but the lessons learned from yesterday should 
ensure that fraud and inadequate oversight do not reoccur 
tomorrow.
    Thank you again for holding this hearing, Madam Chairman. 
You are providing a great service to all Americans.
    Chairman Collins. Thank you.
    Senator Akaka. Mr. Bowen, I look forward to your testimony.
    Chairman Collins. Senator Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Madam Chairman, for having the 
hearing, and Mr. Bowen, thank you for your service and that of 
all your staff. You have done an excellent job, and I 
appreciate it. I just have a very few short comments.
    Your recommendations are excellent from your report. 
Senator Obama and I recognized some of the defects that we saw 
in what happened in Iraq, and that is why we recommended a CFO 
for Hurricane Katrina. It was flatly rejected not only by 
Congress but by the President. But basically in your 
recommendations that is what you are saying, is you need 
somebody in charge, somebody that everything flows through, 
that the Executive Branch can have a handle on. My hope is that 
as we go through this hearing, we will all understand the 
purpose of making one person accountable.
    You have done a great job in looking at it after the fact, 
but billions of dollars could be saved in Iraq had we had a 
financial manager with responsibility and authority on the 
ground to oversee this. And it is my hope that the Committee 
will join as a group from the lessons that we have seen and 
heard and make the appropriate changes in the future so that we 
do not have a repeat of this or a repeat of the waste, fraud, 
and abuse that we saw in Hurricane Katrina. Thank you.
    Chairman Collins. Thank you. Senator Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Madam Chairman, I am glad that we are 
finally holding this hearing, and as you are aware, I sent in 
eight written requests for hearings over the last 3 years. We 
are obviously long past due for a detailed investigation of 3 
years of waste, fraud, and abuse in Iraqi war contracts. And 
perhaps some significant savings for the American people might 
have occurred had we stepped up on time. We did diploma mills 
and credit card interest and DOD travel, but we could not find 
time in those 3 years to have a hearing on what was happening 
with no-bid contracts.
    I brought the amendment to the floor on a DOD authorization 
bill in May 2003 to make sure that there were no more no-bid 
contracts. The first step must be to understand what has taken 
place, and then to make sure contractors are held accountable 
for any wrongdoing.
    I am pleased to see Inspector General Bowen here. He has 
distinguished himself, and he will be able to help us shed 
light on some of the abuses in Iraq.
    There are many offenders, but the poster child for 
profiteering from this war is Halliburton, the company formerly 
run by Vice President Dick Cheney and from which he profited 
substantially with his stockholdings and his income from there. 
Halliburton has received more than $16 billion in cost-plus and 
no-bid contracts in Iraq, and the Defense Department auditors 
have identified more than $1.5 billion in questioned or 
unsupported costs.
    Auditors, whistleblowers, have caught Halliburton risking 
lives and U.S. property by driving empty trucks around Iraq. 
They have caught them overcharging for laundry and food 
services. And they have caught them serving spoiled meals to 
our soldiers. Those were some of the findings of the Pentagon's 
auditors, but today we have new allegations to discuss, and 
this information is coming from our witness, Inspector General 
Bowen.
    We will hear that Halliburton ignored the advice of its 
engineers and botched the restoration of an oil pipeline. We 
will hear that this negligence cost the Iraqi Government as 
much as $1.5 billion in lost oil revenue. We will hear that 
Halliburton could not account for more than a third of 
government property that the Inspector General examined. And we 
will hear about the Defense Department's incompetence in 
providing oversight of these contracts.
    Today's hearing is a good start, but it is only a start. We 
have a lot of ground to cover to make up for 3 years of no 
Committee oversight.
    Inspector General Bowen has done a great job. The surface 
is hardly scratched regarding the possible contract abuses in 
Iraq. For example, of Halliburton's more than $16 billion in 
Iraqi contracts, the Inspector General has examined only about 
$140 million. That is 1 percent of the total amount of these 
contracts. At our next hearing, which I am pleased that you are 
already planning, Madam Chairman, we should hear from the 
Defense Contract Auditing Agency whistleblowers, like Bunnatine 
Greenhouse, and the accused companies themselves.
    Today we begin to fulfill our constitutional duty to 
conduct vigorous oversight of the Iraq war contracts. It is 
about time, but we must not rest until we finish the job.
    Chairman Collins. Senator Chafee.

              OPENING STATEMENT OF SENATOR CHAFEE

    Senator Chafee. Thank you, Senator Collins, and I would 
like to welcome the witness here today. I believe you appeared 
before the Foreign Relations Committee a few months ago, on 
which I serve, and I look forward to any changes that have 
occurred since then. And I know some of the questions are going 
to be between how much your Department has prosecuted some of 
the cases as opposed to whistleblowers instigating the 
prosecution.
    So welcome, and I look forward to your testimony.
    Chairman Collins. Thank you. Senator Dayton.

              OPENING STATEMENT OF SENATOR DAYTON

    Senator Dayton. Thank you, Madam Chairman, and thank you 
for holding this very important hearing.
    I also want to give proper credit to Senator Byron Dorgan, 
the Chairman of the Democratic Policy Committee, who has for 
the last 3 years been holding various hearings on this very 
important subject and has done more, I believe, than anybody 
else in the Senate to bring the truth about these misdeeds to 
his fellow Senators and to the American people.
    I would just like to reference excerpts from some of those 
hearings. One involved reports that KBR, a subsidiary of 
Halliburton, had been providing contaminated water, nonpotable 
but still used for bathing, washing, and the like by American 
soldiers in Iraq, putting their lives on the line, and 
knowingly did so for several months, or perhaps longer.
    On March 24, 2005, an e-mail was sent from the water 
control expert for KBR in Iraq to other members of KBR's 
administrative team, and it said, ``He had by inspection seen 
`small worms' moving in the toilet bowl. I went to inspect this 
myself and saw what I believe were mosquito larvae. During the 
same time, I went to the military ROPU site to inquire about 
the chlorination of the nonpotable water. I was informed they 
do not chlorinate this water at all. It is my opinion that the 
water source is, without question, contaminated with numerous 
microorganisms, including coliform bacteria. There is little 
doubt that raw sewage is routinely dumped upstream of intake 
much less than the required 2-mile distance.''
    Four months later, in July 2005, a response from one of the 
public relations people in KBR Halliburton said, ``It is 
possible we could receive some queries on this if these former 
employees decide to go to the press. Therefore, can you please 
run some traps on this and see what you can find out? I don't 
want it to turn into a big issue right now.''
    The next day she got a response from the man who was in 
charge of KBR operations in Iraq, who said, ``Fact. We exposed 
a base camp population, military and civilian, to a water 
source that was not treated. The level of contamination was 
roughly two times the normal contamination of untreated water 
from the Euphrates River. Duration of exposure undetermined. 
Most likely, though, it was going on throughout the entire life 
of the camp up until 2 weeks after my investigation concluded, 
in other words, possibly a year. I am not sure if any attempt 
to notify the exposed population was ever made.''
    That is from the KBR water quality, so-called, for Iraq.
    Last week, Senator Dorgan had a hearing--and I ask, Madam 
Chairman, for 2 more minutes to conclude my remarks
    Chairman Collins. Certainly.
    Senator Dayton. I thank the Chairman. Regarding another 
company, Parsons, presented by an Iraqi physician, who said, 
``Parsons is said to have taken a tender of over $4 million to 
reconstruct a hospital in Iraq. Parsons' local subcontractor 
did not perform the essential tasks like fixing the hospital's 
roof, which was weak and cracked because of the weather and 
other factors. Because of this flaw, rainwater is likely to 
damage the painting that Parsons did inside the hospital and 
possibly the flooring as well. The worst failure of the 
reconstruction efforts at the hospital is the lack of medical 
equipment, including incubators. The hospital has 14 in the 
NCU, 2 in the ICU, and 1 in the ER. All of those are old 
models, made in 1970, and many of them are broken and in very 
bad condition. Last, but not least, from my own observations 
and my conversations with hospital officials, it appears that 
Parsons did not do the most essential work necessary in any 
building--a fire alarm system. I don't know if Parsons can 
build a hospital in the United States without installing a fire 
alarm, but in Diwaniyeh, they did so because they said it was 
not part of the reconstruction's scope of work.''
    And, finally, there are other examples. Last week, it was 
also reported that the United States had dropped Bechtel, the 
American construction company, from a project to build a 
children's hospital in the southern Iraqi city of Basrah after 
the project fell nearly a year behind schedule and exceeded its 
expected cost by as much as 150 percent.
    The tragedy of these incidents--and these are just a few of 
many--is first of all that the Iraqi people are let down; and, 
second, that when they feel understandably angry toward the 
United States for its failure, our soldiers, who are putting 
their lives on the line in Iraq, bear the brunt of that. This 
is not only immoral, it should be illegal, it should be 
prosecuted to the maximum extent possible, but then they ought 
to have to face up to the families of the Americans who are 
maimed or killed in Iraq and explain to them why they have 
failed under these contracts to fulfill their responsibilities 
and why the sons and daughters and husbands and wives of 
Americans are left to bear those consequences. It is 
unpatriotic, and it is disgraceful, and, again, Madam Chairman, 
I look forward to the testimony, and I thank you for holding 
this hearing.
    Chairman Collins. Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Madam Chairman. I want to thank 
you for holding this hearing, and certainly I know that Senator 
Lieberman has been a real leader on this, as well as Senator 
Levin, and I want to thank the witness for being here today. I 
share the concerns of the Committee. Some of the reports I hear 
about waste, fraud, and contractor abuse are very disturbing. I 
think a lot of Americans feel like some of these contractors 
are soaking the taxpayer, and we are not getting our money's 
worth. But even more fundamentally than that, this is not good 
in the long term for Iraq. And I think that most Americans want 
to see us succeed in Iraq. They want us to transform that 
country into a democracy. But when you have circumstances like 
this around DOD contracting, I think a lot of Americans really 
scratch their heads and ask, Can we possibly get the job done 
with this type of abuse going on inside Iraq?
    So, Madam Chairman, I want to thank you for your commitment 
in trying to see this issue through, and I want to thank the 
witness for his testimony and his hard work. Thank you.
    Chairman Collins. Thank you.
    Mr. Bowen, you have been very patient sitting through all 
these opening statements. We look forward to hearing from you 
now.

TESTIMONY OF STUART W. BOWEN, JR.,\1\ SPECIAL INSPECTOR GENERAL 
                    FOR IRAQ RECONSTRUCTION

    Mr. Bowen. Thank you, Madam Chairman, Ranking Member Levin, 
and Members of the Committee. Thank you for this opportunity to 
address you today on the important matters regarding the U.S. 
role in the reconstruction of Iraq.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Bowen appears in the Appendix on 
page 41.
---------------------------------------------------------------------------
    Oversight works, and it's at work in Iraq in the 50 SIGIR 
personnel--auditors, inspectors, investigators--that today are 
carrying out the mission that you have assigned us. My Deputy 
Inspector General, Ginger Cruz, returned this week after 2 
months in Iraq, and her work is emblematic of what we have been 
doing. She made 28 trips outside the Green Zone. You cannot 
find out what is going on from inside the walls of the U.S. 
Embassy there.
    My Assistant Inspector General for Audit, Mickey McDermott, 
just returned this morning from Iraq. He spent the last quarter 
there. He oversees 28 auditors who are carrying out the very 
extensive and focused audits that SIGIR has underway.
    We have completed 65 audits with well over 100 
recommendations, and fulfilling my mission, what I have told my 
auditors to do, and that is, make a difference in real time. As 
you discover a finding, take it to the managers of Iraq 
reconstruction, whoever has oversight, bring that issue to 
their attention and change the way they are doing business. And 
I believe that is how we can best steward the taxpayers' 
dollars that are at work over there.
    Today, we are releasing our report, ``Iraq Reconstruction: 
Lessons in Contracting and Procurement,'' the second in our 
Lessons Learned Initiative. The first one addressed human 
capital management. The third one will address project 
management, how the program has been executed, and that will be 
out at the end of the year. We have also released our 10th 
Quarterly Report, and that encapsulates 10 audits, 12 
inspections, and the progress on 84 investigations going on 
there.
    In January 2004, I was appointed the Inspector General of 
the Coalition Provisional Authority. We were assigned then to 
provide oversight of CPA programs and operations with about a 
dozen staff in Baghdad. It was a big job, and it was primarily 
overseeing the Development Fund for Iraq, Iraqi money that the 
U.N. put under CPA stewardship for essentially the restart of 
that country's government.
    In October 2004, the Office of the Special Inspector 
General was created, 2 months before the scheduled termination 
of the CPA Inspector General. It renewed and extended our 
mandate to cover the Iraq Relief and Reconstruction Fund, the 
$21 billion in grants Congress has appropriated for Iraq. Our 
job is to work on the ground in Iraq to promote economy, 
efficiency, and effectiveness and to prevent and detect fraud, 
waste, and abuse in the programs there.
    SIGIR reports, interestingly, jointly to the Secretary of 
State and the Secretary of Defense, keeping them fully informed 
about the problems and deficiencies in IRRF programs, the need 
for and progress or corrective action, and we also report to 
six congressional committees.
    Of note, there is already response in the Department of 
Defense to our Iraq lessons learned on contracting. The Deputy 
Secretary of Defense has created a task force on Iraq 
contracting, appointed Paul Brinkley Deputy Under Secretary of 
Defense for Business Transformation to address exactly the 
issues that SIGIR has identified in this report.
    SIGIR is a temporary organization overseeing a finite set 
of programs. We will exist until 10 months after 80 percent of 
the Iraq Relief and Reconstruction Fund is disbursed.
    We have gone beyond the traditional purview of Inspectors 
General, as I was saying, beyond just issuing report cards, but 
into real-time consultative oversight that, when it identifies 
a problem, seeks to have it fixed well before any written 
report comes out.
    Most of our reports document the problems that we have 
detected, but they also show that we have corrected them. 
Virtually all of our findings have been concurred with and in 
most times resolved by the time the written report comes out.
    The Lessons Learned Initiative arose from the recognition 
that the situation in Iraq must direct improvement within the 
government system, an adjustment in how we approach contingent 
operations. Indeed, Secretary Rice said this spring that we 
must learn our lessons from the Iraq experience, and that is 
exactly the mandate that we are seeking to carry out through 
this process.
    We began the Lessons Learned Initiative in late 2004. We 
reached out to those who served in Iraq and collected 
information from documents and hundreds of interviews with 
individuals with on-the-ground experience in Iraq.
    Our research also encompasses the audits and inspections 
and investigations of other oversight organizations, other 
studies, after-action reports, and interviews by other entities 
that are conducting Lessons Learned programs.
    Each report, like this one, is preceded by a forum which 
draws together the leading experts on the issue, and with 
respect to the contract one, we had two forums. We had one that 
addressed the government experts, those who actually were 
involved in contracting from the government side, but we also 
had a second forum in this case that pulled together 
contractors because we wanted to get the other side of the 
story, what was the experience of contractors in working with 
government contracting personnel. It was very insightful and 
broadened our perspective in this report.
    The report tracks the evolution, as you pointed out, Madam 
Chairman, of the contracting experience from pre-war planning 
through the Organization for Reconstruction and Humanitarian 
Assistance, ORHA, their brief existence in the spring of 2003, 
through the succeeding organization, the Coalition Provisional 
Authority, until June 2004, and the experience of contracting 
since then driven by Joint Contracting Command-Iraq and other 
contracting entities.
    We examine the creation, deployment, and contracting 
activity of ORHA, how CPA stood up through the appointment of a 
head of contracting activity, how they managed the Development 
Fund for Iraq, how there were several different sets of 
regulations at work in Iraq regarding contracting, and the 
issues and problems that arose from that.
    After the termination of CPA in the summer of 2004, we look 
at the problems that were associated with transition to State 
Department management and how those problems were addressed. 
And, indeed, as I say in the overview of this report, the story 
of contracting in Iraq reconstruction is a story of progress. 
There were issues unanticipated and the structures left 
uncreated to address the contracting problem that was presented 
in the summer and fall of 2003. The United States responded by 
developing entities over time that addressed it, and 
contracting is significantly better today than it was even just 
a year ago.
    Our key lessons learned are divided into strategy and 
planning, policy and process.
    From a strategy and planning perspective, SIGIR observes 
that we should include contracting and procurement personnel in 
all planning stages for post-conflict reconstruction 
operations. The pre-deployment interagency working groups for 
Iraq reconstruction did not adequately include contracting and 
procurement personnel.
    The U.S. Government must clearly define, properly allocate, 
and effectively communicate essential contracting and 
procurement roles and responsibilities to all participating 
agencies. The failure to define these roles at the outset of 
the Iraq contracting experience resulted in a fragmented 
system, foreclosing opportunities for collaboration and 
coordination in contracting and procurement.
    The U.S. Government must emphasize contracting methods that 
support smaller projects in the early phases of contingency 
reconstruction programs. The Commander's Emergency Response 
Program and similar initiatives proved the value of relatively 
small, rapidly executable projects that meet immediate local 
needs.
    The U.S. Government must generally avoid using sole-source 
and limited-competition contracting actions. These exceptional 
contracting actions should be used as necessary, but the 
emphasis must always be on full transparency in contracting and 
procurement. The use of sole-source and limited competition 
contracting in Iraq should have virtually ceased after 
hostilities ended.
    In the realm of policy and process, these are the lessons:
    The U.S. Government should establish a single set of simple 
contracting regulations and procedures that provide uniform 
direction to all contracting personnel in contingency 
environments. The contracting process in Iraq reconstruction 
suffered from the variety of regulations applied by diverse 
agencies, which caused inconsistencies and inefficiencies, thus 
inhibiting management and oversight.
    The U.S. Government must develop deployable contracting and 
procurement systems before mobilizing for post-conflict efforts 
and test them to ensure that they can be effectively 
implemented in contingency operations. Contracting entities in 
Iraq developed ad hoc operating systems and procedures which 
limited efficiency and led to inconsistent documentation, a 
fact demonstrated repeatedly in our audits during CPA.
    The U.S. Government must designate a single unified 
contracting entity to coordinate all contracting activity in 
theater. A unified contract review and approval point would 
help secure the maintenance of accurate information on all 
contracts and enhance management and oversight. The fragmented 
oversight, the fragmented management really has made it 
extremely difficult for SIGIR to get our arms around all the 
contracting that is going on. There are so many different forms 
of it that have occurred.
    The U.S. Government must ensure sufficient data collection 
and integration before developing contract or task order 
requirements. This means, know what you are contracting for 
before you go contract. That is a challenge, admittedly, in a 
complex situation, but, nevertheless, be diligent and close 
those gaps, those information gaps on contracting. The lack of 
requirements, which is what it is called in contracting terms, 
resulted in waste.
    Let me just divert this discussion just for a moment to say 
that fraud has not been a pervasive component and is not a 
pervasive issue within the U.S. reconstruction program today. 
Waste is the chief issue that I think that these lessons that 
we need to learn can help address.
    Now, there has been egregious fraud, and we continue to 
pursue 84 cases, and we will prosecute and ensure the 
imprisonment of those who violated the law. But I want to be 
sure that the Committee understands that, as a percentage of 
the total experience in Iraq, it is very small.
    The U.S. Government should avoid using expensive design-
build contracts to execute small projects. It seems self-
evident, but it was not the experience in Iraq. The use of 
large construction consortia may be appropriate for very 
extensive projects, but most projects were small in Iraq and 
could have been executed through fixed-price direct 
contracting. More to the point, those kinds of contracts 
energize the economy in Iraq and build capacity because they 
put Iraqis to work.
    The U.S. Government should use operational assessment teams 
and audit teams to evaluate and provide suggested improvements 
to post-conflict reconstruction contracting processes and 
systems. That is the SIGIR experience. Real-time auditing that 
provides consultative advice that changes the way things are 
going on on the ground can save taxpayer dollars. That is my 
experience in Iraq. These oversight entities, as I said, should 
play a consultative role because the rapid pace of 
reconstruction in a contingency operation cannot easily 
accommodate the normal process of 9-month audits. By the time 
such an audit comes out, the situation is completely changed on 
the ground in the contingency situation.
    We have six recommendations, some of which, as Chairman 
Collins noted, are being addressed in legislation, some of 
which are being addressed by the DOD task force on contracting, 
some of which are being addressed by proposed amendments to the 
FAR under Part 18. Collectively, though, these efforts need to 
capture these recommendations and make them real for 
contingency planning.
    Recommendation No. 1. Explore the creation of an enhanced 
Contingency Federal Acquisition Regulation, the CFAR. This is 
the first thing that General Casey told me when I met with him 
last November and said we are doing a Lessons Learned Program 
on contracting. He said: Great, we have a problem. We have 
regulations all over the board, and our contracting officers 
are operating off a whole variety of menus of regulations. We 
need to consolidate them and make it easy for them so that we 
don't have this drawn-out process, confused process pointing 
to, ultimately, waste. Thus, it is No. 1 on our list.
    Although the existing FAR provides avenues for rapid 
contracting activity, the Iraq reconstruction experience 
suggests that the FAR lacks ease of use. Moreover, promoting 
greater uniformity through a single interagency CFAR, 
Contingency Federal Acquisition Regulation, could improve 
contracting and procurement practices in multi-agency 
contingency operations, which, by definition, is a contingency 
operation. They are always multi-agency. An interagency working 
group led by DOD should explore developing a single set of 
simple and accessible contracting procedures for universal use 
in post-conflict reconstruction situations.
    FAR Part 18 as proposed leaves it up to agency and 
department heads to decide what special regulations to use. 
Thus, I think it is a good start, but it needs to push beyond 
that. There needs to be uniformity in situations like Iraq.
    Recommendation No. 2: Pursue the institutionalization of 
special contracting programs. This is CERP. SIGIR has done two 
audits of the Commander's Emergency Response Program. It is a 
program that pretty much evolved on the ground amongst Army 
units that arrived in the spring and summer of 2003 and saw 
immediately what the needs were in the Iraqi villages that they 
were occupying, and they, up the chain, asked for funds, ``We 
want to fix this water treatment facility, we want to build 
this school, we want to repair this hospital,'' and that money 
came down. And you know what? It worked. And as a result, then 
word got up to Ambassador Bremer. He created it, formalized it 
through a CPA organization, giving it the name CERP, and 
eventually almost $2 billion have been spent. And our audits 
show that these represent the most successful programs and, 
indeed, mind- and heart-changing programs in Iraq. They meet 
the Iraqi needs at the ground level, which is what is happening 
now through the Provincial Reconstruction Development Councils 
and the Provincial Reconstruction Teams.
    Recommendation No. 3: Include contracting staff at all 
phases of planning for contingency operations. Again, should be 
self-evident. Did not happen. Because of the classified nature 
of the pre-war planning, contracting was not deemed important. 
There may be other issues connected to that, too, but as a 
rule, they should be included in all planning from the start 
for contingency operations.
    Recommendation No. 4: Create a deployable reserve corps of 
contracting personnel who are trained to execute rapid relief 
and reconstruction contracting during contingency operations. 
There has been a reduction over the past 10 years in the number 
of Federal contracting officers. I think we paid a price for 
that in Iraq, the lack of personnel available who were up to 
speed to do the kind of work necessary. As part of the State 
Department's movement to plan better for future contingency 
operations, contracting should be a part of it, and planning 
for a contracting contingent within the civilian reserve corps, 
which is a recommendation in our human capital management 
report, should be part of that.
    Recommendation No. 5: Develop and implement information 
systems for managing contracting and procurement in contingency 
operations. Again, axiomatic perhaps, but not present in the 
Iraq experience. In fact, our audits revealed that there was no 
system in place for managing contracts. It was difficult to 
account for them. We found missing contracts, lack of 
documentation. That's improved. The Joint Contracting Command-
Iraq has helped put order on top of that driven by our audits, 
as we have been told. But that should be done before 
contingency operations begin.
    Finally, pre-compete and pre-qualify a diverse pool of 
contractors with expertise in specialized construction areas. 
In Iraq, as this report points out, the Project Management 
Office, when things got going, had to wait for the competition 
on these design-build contracts to be completed, which took 
months. So they went searching for existing IDIQs and found one 
within the Air Force in San Antonio and began using that to 
build projects. Well, that kind of ran at cross-purposes, when 
I first learned about it, with what Congress was saying--be 
sure that all Iraq contracting is properly competed for Iraq. 
We did an audit of that. There were some issues with it. But in 
order to avert that kind of expediency, there should be a set 
of approved and competed construction entities before 
contingency operations begin so you do not have to go searching 
for mechanisms on an ad hoc basis.
    I see that my time is almost up. Our Quarterly Report is 
also out, and it addresses a number of issues that are 
significant and contemporary, and we can address them in the 
question-and-answer period, but the primary issues I will just 
briefly go over.
    As the year of transition continues--we are past the 
midpoint--security continues to be the biggest challenge 
limiting efforts on all sides. Corruption in Iraq is a major 
issue. When I talk about that, I mean within the Iraqi system, 
and we are working to improve that. We have an audit of the 
anti-corruption program on the U.S. side, and the Embassy has 
concurred with our findings there.
    There needs to be more coordination in transition. Capacity 
building is a continuing issue, and it needs to be pushed. The 
PRTs are pushing that as part of Ambassador Khalilzad's issue. 
And to me, the most important issue as we move forward in this 
next phase of Iraq reconstruction is to multilateralize the 
reconstruction effort. A compact is under consideration, 
managed by the U.N., that will try and realize the promise of 
Madrid. We have talked about the lack of participation by other 
donor nations in the reconstruction effort today. Indeed, 
Madrid promised $13 billion, just over $3 billion has come 
forward, mostly from the Japanese and the British. The rest 
have stood on the sidelines, perhaps because of the security 
and the corruption situation. But, nevertheless, the United 
States has carried the ball on reconstruction, well over $21 
billion. It is time to multilateralize the effort and finally 
move it into what will be the long-term relief and 
reconstruction in Iraq, which must be executed by Iraq with 
Iraqi funds.
    Madam Chairman, thank you for the opportunity to appear 
before you, and I would be pleased to answer any questions.
    Chairman Collins. Thank you very much for your excellent 
testimony.
    We are now going to begin a round of questions limited to 6 
minutes each. I want to inform my colleagues that we will have 
a second round, so I would appreciate their cooperation in 
abiding by the time limits.
    Senator Levin has made a request to me that he be allowed 
to question first, so I am going to accommodate him and defer 
to him for the first round of questioning.
    Senator Levin. Madam Chairman, thank you very much for 
switching positions with me on this because of a scheduling 
problem.
    Mr. Bowen, thank you for being here. I raised and pointed 
out a number of questions about Halliburton's performance in 
Iraq in my opening comment. I made reference to questions such 
as why was the contract, which was supposed to be a temporary 
bridge contract that had a term that was supposed to be very 
temporary, end up with a term of 2 years, with 3 optional 
years, and a dollar value up to $7 billion. What about the 
prices that Halliburton charged for oil that were so much 
higher than market prices? What about the charges of 
Halliburton for meals that were not actually served? Why did 
Halliburton receive a follow-on contract for the reconstruction 
of the Iraqi oil industry when the Defense Contract Audit 
Agency had warned that the company's systems were not up to the 
challenge of running two multi-billion-dollar contracts in 
Iraq? Did Halliburton knowingly supply our troops with spoiled 
food, unsafe drinking water? Did they withhold information 
intentionally from the government?
    Now, those issues are not covered, for the most part, in 
your report, and I am wondering why. Is there something about 
your jurisdiction or something else that did not include those 
issues?
    Mr. Bowen. Well, we do cover the evolution of KBR's receipt 
of the initial oil task order under LOGCAP. Then the no-bid oil 
contract and then the competitively bid oil contract for the 
southern region in Iraq. But let me answer the global question 
you ask about jurisdiction, and you are right, SIGIR has 
oversight of the Iraq Relief and Reconstruction Fund. Most of 
the money that KBR has received in Iraq has come through MILCON 
funding under LOGCAP or through Task Force Restore Iraqi Oil 
(Task Force RIO).
    Senator Levin. And who has jurisdiction for the oversight 
of those particular contracts?
    Mr. Bowen. That is the Department of Defense Inspector 
General's Office.
    Senator Levin. And so you did not include those in your 
report, except as you have indicated.
    Mr. Bowen. That is right. We did not get into the details 
of all that KBR has been involved in contracting-wise. As I 
said, we addressed the oil issue, which I think was----
    Senator Levin. Except for that----
    Mr. Bowen [continuing]. In the report because it was the 
first contracting event in preparation for Iraq reconstruction.
    Senator Levin. All right. So it is the DOD IG. Is there any 
other IG that should be reporting to Congress on those other 
issues?
    Mr. Bowen. The Defense Contract Audit Agency has been 
looking fairly regularly at KBR, so any discussion of KBR's 
involvement in Iraq should include DCAA.
    Senator Levin. All right. Thank you.
    Now I would just like to discuss for a moment the so-called 
reconstruction gap, which you have identified as the gap 
between what the Administration promised to do with the $18 
billion allocated for Iraq reconstruction and what it has 
actually done. I made reference to the construction of a prison 
facility in Nasiriyah, Iraq. I went through in my opening 
statement some of the problems with that deal where we were 
supposed to build a prison for 4,400 inmates that ended up 
being reduced to one-fifth of that, about 800 inmates. And yet 
the original cost for the work, the original estimate of $118 
million for that larger prison ended up costing us, with the 
overrun--I believe we have already spent almost $50 million, 
and it is only one-third completed. So we have ended up 
spending $48 million, according to your report, for less than 
one-third of the work.
    Now, that is under a definitized contract, which means that 
we are supposed to know specifically what we are getting for 
what price. Is that true?
    Mr. Bowen. That is actually under the Parsons IDIQ 
contract, which a task quota was issued for that prison that 
had a budget, but it was not definitized. So the costs were not 
all the way because--indeed, we have an audit in this latest 
quarterly addressing the issue of definitization, and I think 
it is a significant issue because the view that we uncovered 
was that definitization was voluntary under IDIQs and not 
required. And I think that raises real questions in a cost-plus 
environment about waste.
    But I visited the Nasiriyah----
    Senator Levin. Well, let me finish because I have one 
minute left.
    Why did we tolerate, why did you find that we spent $48 
million larger than the price of the contract was finally 
supposed to be for one-third of the work?
    Mr. Bowen. I asked that exact question in May in Nasiriyah 
of the commander of the Gulf Region South for the Corps of 
Engineers, and I said: You started out to build for 4,400 
prisoners, you are down to 800, but the cost of the project was 
not concomitantly reduced. And I did not get----
    Senator Levin. But why did we pay--we ended up agreeing to 
pay for the smaller prison that was supposed to be $45 million, 
we ended up spending $48 million for a third of the work?
    Mr. Bowen. This is one of the problems associated with 
cost-plus contracts.
    Senator Levin. But who is responsible? Who is being held 
accountable? Did anyone screw up here that should be held 
accountable? That is the bottom line.
    Mr. Bowen. The project is managed by the Corps of Engineers 
Gulf Region Division. So if you are looking for a place to 
apply accountability, that is it.
    However, in examining that issue, the cost of security--
when I was touring that prison in May, we were walking through 
it, and let me say first off that the prison itself, the 
construction that I saw, and as our inspection of it indicates, 
is quality, and it will provide a very modern facility, even 
though much smaller than expected. But the security was 
extraordinary; we had 15 guards walking with us, and there were 
only two Parsons personnel assigned to oversee that site.
    So I was concerned, and I raised it at the time, that the 
scope of extra costs related to security may be enormous in 
connection with that project, which may be emblematic for the 
entire program; and, second, the lack of oversight presence on 
the ground at sites is an issue that we have repeatedly 
identified.
    Senator Levin. Oversight by whom?
    Mr. Bowen. By the contractor and the Corps of Engineers. 
But in that case, the Corps was present because Nasiriyah is 
fairly close to the headquarters of the Gulf Region South.
    Senator Levin. Just to conclude, this is not a question, 
but if you take a look at Modification No. 2 dated March 11, 
2005, it did definitize the task order, according to the 
document that I have. We will give you a chance to answer that 
for the record as to the apparent difference on this.
    Mr. Bowen. OK.
    Senator Levin. Because I am out of my time.
    Mr. Bowen. Right.
    Senator Levin. Thank you. Thank you, Madam Chairman.
    Chairman Collins. Thank you.
    Senator Warner also is leaving with Senator Levin for the 
same important meeting. I would like to give him one minute, 
literally.

              OPENING STATEMENT OF SENATOR WARNER

    Senator Warner. Yes, one minute. Thank you, Madam Chairman. 
I recall when we were on the floor in the debate with the Armed 
Services annual bill, I recommended that this Committee get 
into this very important subject. You have the staff, the 
breadth, the historical perspective to look into this type of 
work. And I have had the opportunity now to work with Mr. 
Bowen, and you are just back. The last I saw you, you were on 
the way over.
    Mr. Bowen. And I am leaving on Monday again.
    Senator Warner. Leaving on Monday again.
    Mr. Bowen. Yes, sir.
    Senator Warner. Well, perhaps between now and Monday we 
could spend a few minutes together by phone.
    Mr. Bowen. Yes, sir.
    Senator Warner. I would appreciate that because I am very 
appreciative of your hard work, and I want to follow it.
    Mr. Bowen. Thank you.
    Senator Warner. Thank you. I thank the Chairman.
    Chairman Collins. Thank you.
    Mr. Bowen, I want to get back to one of the audits that you 
just referred to that has to do with the pervasive use of what 
I would call a letter contract. I guess you can call it an 
undefinitized contract, but I think most people know it as a 
letter contract. And those are contracts issued by letter where 
the terms, important terms, such as the complete scope of the 
work, the cost, the performance standards, the schedule for 
completion, have not been spelled out.
    Now, I understand that letter contracts may be necessary in 
certain urgent circumstances, but you identified an overuse, it 
seems to me, of letter contracts that ultimately did not have 
the important information filled in within the amount of time 
that procurement regulations require.
    You also identified 194 task orders issued under indefinite 
duration, indefinite quantity contracts valued at some $3.4 
billion, which were not definitized. In other words, those 
critical details were not filled in.
    I am alarmed that so much money could be spent on contracts 
that lack basic terms. It seems to me that opens the door to 
wasteful spending and to a lack of expectations and 
understanding on exactly what is going to be delivered.
    What is necessary to fix that problem? Do we need new 
regulations? Do we need new legislation? What is the answer to 
the overuse of open-ended letter contracts?
    Mr. Bowen. First let me address the issue on the ground in 
Iraq today, and I think the problem has been addressed by the 
Joint Contracting Command-Iraq and Ambassador Khalilzad's 
emphasis on moving from design-build IDIQs to direct 
contracting. That shift began a year ago and has had enormous 
effect, particularly over the last 6 months. Virtually all 
contracting has moved to direct contracting; it is not being 
done by the design-build. And, second, a lot of the design-
build contracts are being canceled and re-bid as direct 
contracts, most of them to Iraqi firms. So as a practical 
matter on the ground, the contracting managers have addressed 
the issue.
    But you are asking from a planning perspective. How do we 
adjust the system to avoid repeating this kind of situation, 
and I think it is a careful examination, perhaps a regulatory 
framework, for the appropriate use of cost-plus contracts in 
contingency situations, whether it be administrative guidance 
or time-driven legislation that requires definitization 
regardless of situation by a certain date. I don't know the 
precise solution, but you put your finger on the problem, and 
that is, the use of cost-plus contracts means that the taxpayer 
pays for everything. Successes, failures, whatever happens in 
the duration of that cost-plus contract is billed, and there is 
not a legal basis for challenging it.
    Definitization is supposed to help give notice to managers 
about how much money is going to be needed. Cost to complete, 
which you asked for in the legislation and which we did three 
audits on and it never really was complied with, is the other 
regulatory tool to try to control spending under cost-plus 
contracts. So cost-to-complete and requiring definitization and 
enforcing it, really, I think are the keystones.
    Chairman Collins. Thank you. I mentioned in my opening 
statement my concern about the enormous cost overruns and 
schedule delays for completing the children's hospital in 
Basrah. Congress specifically authorized $50 million for this 
project. It is way over cost. It is way behind schedule. There 
is also, though, a disturbing issue about information related 
to the cost overruns being reported in an accurate and timely 
way to Congress.
    In your judgment, was there a deliberate effort by USAID to 
conceal the extent of the cost overruns?
    Mr. Bowen. I don't think there was--I can't speak to the 
motivations. What I can tell you is that in the Section 2207 
Report, which is the Quarterly Report due to Congress about 
progress on Iraq reconstruction projects, there was 
insufficient reporting about overhead costs associated with the 
Basrah Children's Hospital that failed to notify you of the 
actual cost of the project.
    Second, there was insufficient reporting as there should 
have been, in that Quarterly Report to you, about delays. The 
project was supposed to have cost $50 million and should have 
been done last December. It is going to cost $150 million and 
will not be done until a year from today. We did not find out 
about that until our audit.
    Chairman Collins. And it is very difficult for us to 
exercise oversight if accounting games are being played and if 
there is not information that is accurate and timely.
    Senator Coburn. Madam Chairman, will we have an opportunity 
to submit questions for the record?
    Chairman Collins. Absolutely.
    Senator Coburn. I have to leave, and so I will submit my 
questions to the record. Thank you.
    Chairman Collins. Thank you, Senator. Senator Akaka.
    Senator Akaka. Thank you, Madam Chairman.
    Mr. Bowen, there have been some improvements in Iraq's 
reconstruction. For example, outputs in electricity have risen 
above pre-war levels for the first time in a year. But much 
work remains to be done. Your July 2006 report notes that 178 
projects within the electricity sector have not been started, 
even though Congress appropriated more than $4.2 billion of the 
IRRF funds to the sector. This 30 percent gap represents the 
largest percentage of projects not started for all of Iraq's 
critical infrastructures.
    Why is there a delay in implementing projects and programs 
for the electricity sector? And are these delays caused by 
security issues or mismanagement issues?
    Mr. Bowen. I think security issues certainly affect 
everything that goes on in Iraq and have accounted for the 
delays. But the other issues I don't think are mismanagement, I 
think that as the move toward direct contracting has developed 
away from design-build contracting, the contracting entities in 
Iraq and the project contracting office that manages this 
sector must identify Iraqi firms that can perform contracts, 
and that process has taken time.
    Moreover, there is a schedule of programs that are spaced 
out over time to coordinate so that different pieces of the 
electrical system that are being constructed are produced and 
connect up. That has been a problem in our oversight, as you 
know. For instance, in Basrah we had inspections of five 
transfer substations that were done, were perfectly well done, 
but the connecting wires were not part of the project so they 
are not providing electricity to the citizens of Basrah.
    I think that the electrical sector is trying to respond to 
that need for coordination and, thus, carefully reviewing the 
projects ahead to ensure that the grid gets the most benefit.
    Senator Akaka. What improvements will we see in the 
electrical infrastructure throughout Iraq as the remaining $2 
billion of IRRF-2 is applied?
    Mr. Bowen. Well, there are some significant generation and 
transmission projects that will come online over this quarter. 
The al-Dura project will be completed, and that will put 
additional megawatts on the grid. As long as infrastructure 
security is maintained--and we have a classified audit we 
produced this quarter that addresses this issue and notes 
progress--then I think we can expect the output on the grid to 
continue to stay above pre-war levels. But I say as a 
cautionary note, the lack of security last year caused it to 
drop below and stay below pre-war levels for over a year.
    Senator Akaka. Thank you. I believe one of the major 
problems with assessing the progress of reconstruction in Iraq 
is that there is no overall strategy. There is no big picture 
that links reconstruction efforts with counterinsurgency 
efforts, and despite the Administration's National Strategy for 
Victory in Iraq, many strategic questions remain.
    How confident are you that the overall reconstruction 
strategy has improved the two critical areas of security and 
infrastructure in Iraq?
    Mr. Bowen. I think the strategy has significantly improved 
under Ambassador Khalilzad's leadership. Most importantly is 
the development of the Provincial Reconstruction Teams, which 
advise Provincial Reconstruction Development Councils, Iraqis 
at the local level that make decisions about what projects need 
to get done. That is a process that mirrors, I think, the CERP 
program and is aimed at winning hearts and minds, which will 
have a pacifying effect in the long term and ultimately 
energize local economies.
    Senator Akaka. Reconstruction programs and projects will 
fail unless the Iraqi Government can sustain these programs 
without continued American technical assistance and funding. 
Your new report discusses how the sustainment and transfer of 
critical reconstruction programs and projects remains a 
challenge for the new Iraqi Government.
    Mr. Bowen. Yes.
    Senator Akaka. An earlier SIGIR report found no overall 
strategic plan for turning over control to the Iraqi 
Government. What are the key issues that are standing in the 
way of transferring so many reconstruction programs?
    Mr. Bowen. Sustainment is an enormous issue. It is one that 
SIGIR has been focusing on since our October report of last 
year. The Iraq Reconstruction Management Office in the Embassy 
responded to that audit by creating a Sustainment Office. 
Sustainment is now discussed at every strategy meeting. There 
is a working group that addresses sustainment every week. So 
the issue is on the front burner. It is a matter of funding and 
capacity building--funding to ensure that what the United 
States has provided continues to operate after those assets are 
transferred, and capacity building which seeks to ensure that 
Iraqis are able to operate that new infrastructure.
    Our review of the advanced first responders network in this 
Quarterly Report is a caveat, a cautionary tale about the 
failure to ensure sustainment. That system is not working. It 
is too complicated really for the Iraqis to operate, and it 
requires more funds than they have budgeted to continue.
    Senator Akaka. Thank you, Madam Chairman.
    Chairman Collins. Thank you. Senator Voinovich.
    Senator Voinovich. Thank you, Madam Chairman.
    I have been thinking about the big picture here, and if you 
go back in our history, I don't know that we ever had the kind 
of post-conflict challenges that we have had in Iraq. If you go 
back maybe to the Second World War, the Marshall Plan, and then 
I don't think we had anything up until this. Not even 
Afghanistan is like what we have in Iraq.
    When I think back to when I was governor of Ohio, there was 
very careful deliberation prior to the Persian Gulf War. We 
took a lot of time, figured it out, trained the forces, tried 
to anticipate the future. But there was not any contemplation 
at the time of reconstruction of Baghdad because the decision 
was made that we were not going to go into Baghdad.
    I have to believe that from a historical point of view, 
this miscalculation or failure to calculate the post-conflict 
challenges is one that will go down as a major mistake. I 
cannot help but think, Madam Chairman, that before the Senate 
Foreign Relations Committee, of which I am a member, we had 
witness after witness talking about what are you going to do 
after you win the war. If you really think about it, somebody 
should have put a sign up, ``Stop, look, and listen,'' and 
started thinking about all of these things that we are now 
dealing with today. In other words, we really did not properly 
plan and prepare for Iraq's needs: Security, infrastructure, 
the utilities, water, sewer, electricity, and general 
governance. We are paying the price for it today. Hopefully, 
should this occur in the future, we will be better prepared.
    Obviously we did not have the right people with the right 
knowledge and skills at the right place and at the right time. 
That gets back into human capital again, which is something 
that I have been focused on for the last 8 years. We now know 
that we did not have the right people on board after this 
happened.
    What is the status of the workforce today, the procurement 
and the contracting staff?
    For example, what is the longevity of somebody that is over 
there doing this kind of work?
    What kind of help are we giving to the Iraqi Government? 
Somebody asked the question: Are we letting them take over? 
Well, the main thing is are they competent to take over.
    I will never forget when I became mayor of Cleveland, we 
started looking at contracting and some management concerns. We 
had commissioners that did not have the necessary skills to get 
the job done, so we brought in the private sector to provide 
training. My main concern is that reconstruction has to start 
providing more electricity, more water, more sewers, more 
hospitals, and more schools. Otherwise, the local Iraqis are 
just going to throw up their hands and lose faith in our 
efforts.
    What is the status of the contracting workforce in Iraq and 
the training for these individuals?
    Mr. Bowen. Good question, Senator Voinovich. We are several 
orders of magnitude better than we were 2 years ago. The 
turnover issue is still there, but it was uncontrolled 2 years 
ago. Now we have a Joint Contracting Command-Iraq. We have 70 
contracting officers working in there, at least. We had three 
working in CPA's head of contracting office.
    Senator Voinovich. What are the incentives for them to 
continue in their job?
    Mr. Bowen. Well, most of them are military, and there has 
been a move by the commander of JCC-I to achieve more 
uniformity. But you are right, the problem with turnover is 
still there. But back 2 years ago, the Air Force was there for 
2 to 3 months, the Navy for 4 to 6 months, the Marines for 6 
months or a year, and the Army. So there was a lack of 
uniformity. There was a constant turnover and, thus, there were 
contracts that were left unmanaged, as our audits revealed.
    Our study on ``Lessons in Human Capital Management,'' 
released in January of this year, tells this unfortunate story 
in detail. But it also acknowledges the fact that under JCC-I, 
Joint Contracting Command-Iraq, the issue has been recognized 
and addressed. There is now training that is effective. Indeed, 
the commander of JCC-I now gives this report to every new 
contracting officer who comes into the country so they 
understand what came before. There is strategic planning going 
on for it, and there is sufficient predecessor/successor 
handoff to ensure that the gaps in contracting oversight don't 
recur.
    Chairman Collins. Thank you. Senator Lautenberg.
    Senator Lautenberg. Thank you, Madam Chairman. Thanks, Mr. 
Bowen, for your comments and your work.
    Mr. Bowen. Thank you.
    Senator Lautenberg. It is very important that we recognize 
what is taking place there, and though you said there is not 
too much fraud, the fact is there is plenty of waste. I learned 
something when I was but a buck private in the Army and I had 
KP on a train, and as we neared our destination--this was in 
America. As we neared our destination, the cook said, ``OK, now 
throw everything overboard.``
    Well, I came from a poor family, and I was unaccustomed to 
throwing out jars of pickles, or whatever it was, cans of 
pineapple. So I said, ``Sarge, why are we doing this?'' He 
said, ``Because if we don't get rid of it now, when we put in 
our next order, we're not going to get as much as we got this 
time.'' So I think that attitude still exists, and it is too 
bad.
    How many permanent staff members does DOD Inspector General 
have in Iraq?
    Mr. Bowen. Right now, none.
    Senator Lautenberg. Zero?
    Mr. Bowen. That is right. I talked to the Acting DOD IG 
yesterday, and he is in the process of deploying some auditors. 
We have made space for them in the Embassy, and I expect their 
arrival soon.
    Senator Lautenberg. Does it surprise you that they do not 
have any personnel there on scene? You described it as there is 
nothing like being there to understand what is taking place?
    Mr. Bowen. I think I welcome their presence in the 
oversight effort.
    Senator Lautenberg. When you audited the Halliburton 
subsidiary, KBR's use of government property vehicles, 
generators, under its contract, could they account for all the 
government property that they had?
    Mr. Bowen. No, they didn't. Our audit pointed out--and we 
did several audits of KBR's support to CPA, in part of our 
mission as CPA IG, and found that they could not account for 
over a third of the property that they had on their books for 
CPA, including a generator, an expensive power generator.
    Senator Lautenberg. I am glad they did not work for me when 
I was in the industrial world.
    Did your audits find missing property and problems that DOD 
did not identify in its investigations?
    Mr. Bowen. You are referring to the Kuwaiti Hilton issue or 
the property accountability issue?
    Senator Lautenberg. The property accountability issue.
    Mr. Bowen. Well, again, we just focused on CPA, which is a 
small fraction of the LOGCAP support in Iraq. And we did two 
audits of that. We did an audit of property accountability in 
Baghdad, property accountability in Kuwait. We did an audit of 
the support services to the Kuwaiti Hilton, and we did an audit 
of Task Order 44, which was----
    Senator Lautenberg. What did you find?
    Mr. Bowen. Well, we found them wanting in every case--
shortfalls, missing property. The Kuwaiti Hilton story is an 
issue. When I first visited Iraq--this is about being on the 
ground, as you saw in your shipboard experience. When I arrived 
at the Kuwaiti Hilton and I looked around and I saw how many 
things were free--free laundry, the food was free, and it was 
being given to contractors and others--it raised concerns. So I 
immediately got with my Director of Audit and said we need to 
review this, it does not seem appropriate. Indeed, our audits 
held them accountable on that front, and during the next visit, 
they were no longer free. There were signs up that said, 
``Unless you qualify, you do not get this service.''
    Senator Lautenberg. In your third audit of Halliburton's 
LOGCAP contract, you found this and said, ``During the 
initiation of our field work, we found we could not effectively 
address the overall audit objective due to the weaknesses in 
the KBR cost reporting process.'' You used plain English, KBR, 
accounting system so bad you were not able to do an audit, you 
did not have the basic information that you needed to do an 
audit?
    Mr. Bowen. That was a problem with KBR in several areas in 
Iraq that they had the same issue with respect to their 
southern oil contract. Cost accounting procedures were 
inadequate, and they were put on notice by the Defense Contract 
Audit Agency. For a full report on that, I would direct you to 
the DCAA as they have done a fairly extensive review of KBR's 
cost accounting procedures and have documented their 
shortfalls.
    Senator Lautenberg. Other than outrage, it is hard to 
understand what it is that would have people so careless with 
the resources that the American taxpayers provide, soldiers 
putting their lives on the line, all kinds of awful occurrences 
taking place there, and these folks not worried enough about 
how they are spending the money to make it look like they are 
part of this serious effort.
    What proportion of Halliburton's more than $16 billion in 
contracts in Iraq have you examined?
    Mr. Bowen. We only look at the part that falls under the 
Iraq Relief and Reconstruction Fund. You talked about four 
audits we did of KBR during CPA. That was the LOGCAP support. 
We are currently performing an audit of their support to the 
Department of State, Task Order 130--in other words, the 
follow-on to Task Order 144, and that was done at the request 
of Ambassador Engle, who was Director of Management at the 
Embassy and was very concerned and raised those concerns to me 
directly about cost issues related to KBR's provision of 
services to the Embassy. We will have that report out in the 
next quarterly.
    Senator Lautenberg. So what portion do you think you had a 
chance to look at, what portion of the $16 billion worth of 
work?
    Mr. Bowen. I will have to get back to you on a percentage 
number, but as I said most of the KBR dollars are MILCON or 
LOGCAP money, and they fall under the ambit of the DOD IG or 
DCAA.
    Senator Lautenberg. Madam Chairman, we have more questions, 
and I would ask that we keep the record open long enough for us 
to submit those questions in writing.
    Chairman Collins. The record will remain open for 15 days 
for the submission of any additional questions. In addition, we 
are going to do a second round of questions, as I explained 
earlier.
    Senator Lautenberg. OK.
    Chairman Collins. Senator Dayton.
    Senator Dayton. Thank you, Madam Chairman.
    First of all, Mr. Inspector General, I want to say that for 
your staff to go even once outside of the Green Zone, much less 
28 times, to perform on-site audits takes a lot of courage and 
a lot of dedication, and to you and to all of them, I would say 
I really respect that enormously, having been in Iraq myself 
and recognizing the real risks that are involved in that. Thank 
you.
    Mr. Bowen. Thank you, Senator.
    Senator Dayton. You said at the beginning of your remarks 
that oversight works, and as a former State auditor, I agree 
with you about that. My father said that in business you get 
what you inspect, not what you expect, and that is true in 
other aspects of life, too.
    Mr. Bowen. That is right.
    Senator Dayton. So I am taken by what you just said, and I 
want to ask if you would clarify this because I was just 
returning from another hearing when Senator Lautenberg asked 
you are there any--is this correct?--Department of Defense 
auditors currently in Iraq auditing projects, and you said 
none. Could you clarify what----
    Mr. Bowen. DOD IG is what I said.
    Senator Dayton. OK.
    Mr. Bowen. The Department of Defense has more auditing 
entities. There are and there have been since the beginning of 
the program Defense Contract Auditing Agency auditors on the 
ground in Baghdad and other places across Iraq.
    Senator Dayton. Do you believe that the oversight--you are 
issuing this report today. These contracts from their inception 
have been underway for almost 3 years now, various lengths of 
time but some of them. Do you believe that there has been 
proper oversight--setting aside your work--has there been 
proper oversight into these projects on an ongoing basis? What 
is being performed, the work being performed on a daily basis? 
What quality of work is being performed?
    Let me just qualify it. Some of these overcharges or some 
of these statements made about shoddy work, the lack of 
contractors and subcontractors, employees actually on site 
performing work, the number of meals that supposedly have not 
been provided, whatever, I mean for months on a scale that it 
would seem that anybody who is providing proper, ongoing 
supervision would be aware of that.
    Mr. Bowen. Well, we know about the overcharge for meals, we 
know about the overcharge for fuel because of oversight on the 
ground in Iraq. DCAA discovered----
    Senator Dayton. But how long has it been going on before 
that oversight either occurs or at least before these reports 
are brought to light and we find out about them?
    Mr. Bowen. Well, those two issues were discovered early on, 
but the point you are making is beyond that, what has not been 
uncovered, and I think that the oversight presence, an 
aggressive oversight presence on the ground has a twofold 
effect: One, it deters wrongful conduct. I remember when I 
first showed up in Iraq, and I was walking down the halls of 
the Embassy, just appointed, and walking behind somebody, and 
they were talking about something. I did not hear what they 
were talking about, but I heard this sentence: ``We cannot do 
that anymore; the Inspector General is here.'' And that told me 
that I had a big job ahead of me. And I think that is true.
    The point is this: It has deterrent effect. And, therefore, 
I am not here to point fingers at any oversight entity. I am 
here to say that oversight works, and it works when it shows 
up.
    Senator Dayton. With all due respect, I agree with 
everything you have just said, but one of the problems I think 
exists because you and your counterparts are unwilling to point 
fingers at any other oversight entity. I respectfully disagree 
with what you said earlier about the extent of sufficient 
oversight on these projects. Again, I do not have time to put 
into these comments all of the back-up information that has 
come to light, where these e-mails and reports and other 
whistleblowers, employees of these companies on site are aware 
of these serious deficiencies: Hospitals not being built, roofs 
not being repaired, water leaking in, incubators from the 1970s 
provided, the lack of fire codes, and the like. And this is not 
just one instance. These are repeated. And as I said earlier, 
this puts our troops at greater risk, no question about it, not 
to mention if they are using water for washing or whatever 
purposes that is contaminated by raw sewage dumped in less than 
2 miles upstream, and they are not even told about it, even 
after they come back to the United States. These matters are 
not brought to light. Somebody is looking the other way. 
Somebody either does not know and should know, someone knows 
and does not care, or somebody is not performing their 
responsibilities. And then everybody--by the time the reports 
come out, months or even years have gone by. Some of the 
perpetrators, I think some of the corporate entities are 
starting to be held accountable, but very little accountability 
by the Department of Defense.
    Again, I am not saying you, but I am saying those who are 
responsible for administering these contracts, for standing up 
to these companies, I think some of this has been made more 
problematic by the fact that Halliburton is a major contractor 
and the Vice President used to be the CEO. I do not blame the 
Vice President for the conduct of Halliburton after he left 
that position. The chief executive and the other executive 
members and the board of Halliburton are responsible for the 
company after that time. And they are not the only 
perpetrators--Bechtel, Parsons, whoever else. But they have not 
been held accountable, and not only have they not been held 
accountable, they get another sole-source contract, or they 
just go on and contract somewhere else in the Department of 
Defense.
    There is not nearly enough accountability. There is very 
little consequence other than maybe a bad story that somebody 
hires a public relations outfit or internally deals with, and 
then that passes. And it is just more business as usual. And it 
is endemic throughout the whole system, and it is even more 
apparent in a place like Iraq, and it is even more 
consequential in a place like Iraq because those failures count 
and are used against our own best efforts there.
    It is frustrating because it is very hard to manage an 
Executive Branch agency from the Legislative Branch. I have 
been in Executive Branch agencies in State and local 
government. I have been in the Legislative Branch now here in 
Congress. It is very hard for us to do anything more than 
appropriate money, hold oversight hearings, which we properly 
should, but the day-after-day responsibility is in the 
Executive Branch, and these failures are so egregious and so 
ongoing and so consequential in their magnitude in dollars and 
in effects and in human lives that it is a national disgrace. 
And, meanwhile, things will just continue as normal tomorrow. 
Thank you.
    Chairman Collins. Thank you. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Mr. Bowen thank you for being with us 
today. Just initially just a question about how often do you go 
to Iraq? When you are there, what do you do? Who do you meet 
with?
    Mr. Bowen. I go on my 13th trip this Monday. My rhythm 
currently is to go every third month, although this trip will 
be for 7 weeks. I meet with senior leadership--Ambassador 
Khalilzad; General Casey, Commander of MNF-I; General McCoy, 
Commander of the Gulf Region Division; and then down to their 
deputies; the Deputy Chief of Mission, Ambassador Speckhard; 
the Director of the Iraq Reconstruction Management Office, 
Ambassador Saloom, whom I have been dealing with regularly on 
the phone and I think is doing a great job in his new 
appointment. And then I go down and I meet with each sector, 
the contractors that are managing oil and gas, water 
facilities, health, and spend hours with them debriefing. And I 
have been doing those debriefings every visit now for over a 
year. And that has provided the meat for Section 2 in this 
report. Section 2 of our Quarterly Report gives a detailed 
breakdown of how taxpayer dollars are being spent in Iraq. 
Project by project, program by program, which is what the 
statute that you all have directed us to do provides.
    And then I travel outside the wire, and I visit sites. I 
visited the Nasiriyah prison, as I said, this last quarter. I 
visited the Erbil water treatment plant. I visited the Basrah 
airport, which we report on in this report as well. And I will 
be doing the same thing this trip, making trips out with my 
inspectors to see what we have actually gotten for our 
investment in Iraq reconstruction.
    Senator Carper. When you look at the areas we have been 
investing our money in, a lot of it, and you feel that the 
money has been especially well invested, what are some of those 
areas? And when you look at some of our investments where we 
are not getting what we ought to be getting, what might they 
be?
    Mr. Bowen. I think the schools, the school program has been 
very effective. Thousands of schools have been built. The 
vaccination program, extremely successful. USAID's vaccination 
program has eliminated polio and other serious infectious 
diseases from Iraq, period. And I think that we see progress at 
the airports. Five airports are now functioning, and they were 
not at the end of the war. We have a lot of facilities that are 
ready to operate if security would permit. There are around 90 
railway stations refurbished, 25 engines ready to work, but 
they are not running because of the security situation.
    There have been shortfalls in health care. The primary 
health care clinic program is the most notorious among them. 
The hospital program is not much more successful, and the 
prison program. Those are all Parsons' projects. It is my 
intent to do an audit of all of Parsons' work in Iraq and 
provide a listing of what they have produced, how much it cost, 
what the value of what they have produced is, and what the 
delta is.
    Senator Carper. Would you talk with us a little bit about 
the part of your operation that touches on the development of 
Iraq's oil capabilities and their ability to ship oil around 
the world and sell it?
    Mr. Bowen. Yes, we did an audit this quarter of 
infrastructure security, an issue we raised in January as a 
significant challenge to the oil sector. Last year, attacks on 
the pipelines accounted for the drop of production below pre-
war levels. They have been below pre-war for over a year until 
they rose above them, 2.5 million barrels per day in mid-June. 
It was down to 1.7 million in January.
    Senator Carper. What is the potential? Is it roughly twice 
that?
    Mr. Bowen. Potential capacity? I will have to get back to 
you on the exact number for that, but it is much higher. But 
exports have resumed out of the northern pipeline, which has 
been the subject of many attacks, to Turkey, and that accounts 
for the increase in revenue into the treasury, which is 
essential because the Iraqis ultimately, as I said earlier, 
must fund and execute the ultimate relief and reconstruction of 
their own country.
    Our program, the U.S. program, has gotten them off to a 
good start. The multilateral phase, which is just beginning, 
will be a bridge to the phase that must be Iraqi driven.
    Senator Carper. Initially, I had heard that a big part of 
the problem with the inability to produce oil to their capacity 
was laid at the feet of those who were sabotaging the 
pipelines. More recently, I have read that the problem is as 
much corruption and thievery as sabotage.
    Mr. Bowen. Well, you are exactly right. Corruption in Iraq, 
as we point out in this Quarterly Report, is endemic. We call 
it a pandemic. And, indeed, the focus of it has been primarily 
in the Ministry of Oil and the Ministry of Defense. The 
Ministry of Oil is beset by smuggling problems and by sheer 
thievery.
    The new Minister of Oil is, I am told, a man of integrity 
and a man who recognizes the problem. The Deputy Prime 
Minister, Barham Saleh, recognizes the problem. The Prime 
Minister Maliki recognizes the problem. There are efforts to 
build institutions to fight that problem. The Minister of Oil 
IG has issued his own report giving us all the details of it.
    So I think those are positives that, in light of the big 
negative of corruption, there is some fighting going on.
    Senator Carper. I don't mean to be rude in interrupting, 
but it seems like we have a pretty good idea what the problem 
is. Whose job is it to fix it?
    Mr. Bowen. Our audit of the anti-corruption effort in Iraq 
has found it wanting. It is my expectation that the Embassy's 
concurrence with our findings will mean there will be more 
funding to bolster and train Iraqis to fight corruption.
    Senator Carper. Who is tasked with fixing this problem, on 
our side or on the Iraqi side?
    Mr. Bowen. It is a joint effort. I mean, the Iraqis 
ultimately have to fight the battle. It is our task to teach 
them how.
    Senator Carper. Yes, but who? Who is tasked with that 
responsibility on our side and on the Iraqi side?
    Mr. Bowen. The anti-corruption working group in the Embassy 
is a working group comprised of representatives from all 
agencies operating in Iraq. On the Iraqi side, it is the 
Commissioner on Public Integrity. It is the Board of Supreme 
Audit, the President of the Board of Supreme Audit, and it is 
29 Inspectors General.
    Senator Carper. All right. Madam Chairman, thanks very 
much. I have other questions I would like to submit for the 
record, if I might.
    Chairman Collins. Without objection.
    Senator Carper. Thanks very much.
    Chairman Collins. Thank you.
    In your report, you talk about the reconstruction gap. You 
have just outlined several successes, but there are also many 
projects that are left unfinished in this year of transition. 
You state in one of your audits, you concluded that, ``There is 
no overall strategic plan for transitioning the reconstruction 
projects and assets to the Iraqi Government.``
    Now, this would be less of a problem if we did not have the 
reconstruction gap, if the projects that had been contracted 
for actually had been brought to completion before the 
handover.
    What do you believe are the potential consequences of a 
lack of a plan for transitioning these projects?
    Mr. Bowen. There are three I can think of right off the 
bat. One is breakdown. The lack of a coordinated plan to ensure 
operations and maintenance training and funding for the assets 
we are handing over means that they will not operate as 
expected or needed for Iraq's infrastructure.
    Two, the lack of a plan means there are pieces within that 
infrastructure that need to be there that are missing, caused 
by the reconstruction gap, and that means that the outputs on 
the infrastructure, particularly in electricity and oil, will 
be less than optimal.
    And, three, the breakdown, the lack of connectivity, the 
lack of strategic connectivity within infrastructure planning 
means more money will have to be invested. That means donor 
money, and that means perhaps U.S. funding as part of the donor 
plan, and ultimately Iraqi funds to fix--to pay for shortfalls 
in planning.
    Chairman Collins. To get to an issue that several of us 
have mentioned, whose job was it to come up with a strategic 
plan to guide the transitioning of these half-finished 
projects?
    Mr. Bowen. Well, the Ambassador has the lead under NSPD-36 
for all Iraq reconstruction planning, but it is a collective 
effort among the DOD, the Corps of Engineers, USAID, the 
Department of State, and other participating entities, as well 
as the contractors, to draw together all the issues connected 
to transition and develop a strategic plan that pushes them 
forward.
    Chairman Collins. I guess the reason that many of us keep 
asking you who is accountable, who is going to fix the problem, 
is you have identified some very serious problems, ranging from 
inadequate planning to wasteful spending. And our frustration 
is that we do not know who is going to fix those problems, who 
is going to hold contractors accountable if they have fallen 
down on the job, who is going to ensure this does not happen 
again, who is going to take the remedial steps that your 
reports outline.
    It is a frustration on our part because you have done a 
great job identifying the problems, but that does not fix 
anything.
    Mr. Bowen. Well, part of our effort is to apply lessons 
learned in real time, and this is a good area where it is 
happening. We have raised this issue in the course of 
performing this audit, and as a result, there is a working 
group meeting weekly and now coordinating on asset transfer, 
specifically just on this issue, Asset Transfer Working Group, 
to address sustainment and O&M costs.
    There is a real challenge on Iraqi capacity. The capacity 
within ministries is very inconsistent. The Oil Ministry has 
more capacity over time, but Health much less, just as an 
example. And so there is no one-size-fits-all solution. What 
needs to be done is the analysis to recognize which area needs 
focused effort to ensure sustainment.
    Chairman Collins. Let me turn to a specific case. I 
mentioned in my opening statement my concern that there is $1.7 
billion left that, if it is not obligated by September 30, 
within the next 2 months, will expire. It will revert to the 
Treasury. That is going to produce a use-it-or-lose-it 
mentality, a rush to obligate the funds in ways that may not be 
wise, or a rush to obligate the funds for projects knowing that 
those are not really the projects the money is going to be used 
for ultimately because the money can be reobligated later. But 
the whole focus is to prevent this money from lapsing.
    You have raised a red flag about that. I am grateful that 
you have. But who is going to ensure that nearly $2 billion is 
not frittered away in an attempt to prevent the money from 
expiring? Who are you going to be working with or sharing your 
concerns with to make sure that does not happen?
    Mr. Bowen. We already have shared our concerns with the 
Commander of the Joint Contracting Command-Iraq, who has 
primary responsibility for managing this contracting process. 
He is aware of the issue, and he is aware of our concerns and 
of our intent to audit the issue down the road. So I expect 
that will serve--I hope it serves as an appropriate deterrent 
or motivating factor in ensuring that your worries are not 
realized.
    Chairman Collins. And you will continue to audit this money 
as well?
    Mr. Bowen. Yes, we will.
    Chairman Collins. Thank you. Senator Lautenberg.
    Senator Lautenberg. Thank you, Madam Chairman.
    Mr. Bowen, we had a DPC hearing last year, and we heard 
testimony from a former Halliburton employee, Rory Mayberry, 
and he said that when he was going to talk to auditors, he was 
threatened that he should not do it, and as a result of his 
challenge, he was sent to another location under fire in 
Fallujah.
    Have you heard anything that says that people were asked, 
prohibited, directed not to talk to you?
    Mr. Bowen. No, we haven't, and indeed we have talked to 
whistleblowers specifically from KBR, and we have ongoing 
cases. Beyond that I cannot say anything.
    Senator Lautenberg. But the guy in the hall who let you 
know that the fox was in the chicken coop had to kind of behave 
a little bit differently.
    Mr. Bowen. I think oversight provides deterrence.
    Senator Lautenberg. I agree with you. Do you think the fact 
that the LOGCAP contract was cost-plus contributed to KBR's lax 
attitude toward controlling costs?
    Mr. Bowen. I think the cost-plus issue needs review, not 
just in the context of LOGCAP but as a general policy matter.
    Senator Lautenberg. Senator Dayton mentioned some 
overcharges at the Kuwait Hilton. What did your audit find that 
they overcharged for such things, let's say for laundry? If 
controlling costs were not an issue at all, would Halliburton 
have used the expensive hotel laundry services, do you think?
    Mr. Bowen. Well, I cannot speculate what they might have 
done. What I can tell you is that when I saw what I believed 
was inappropriate service provision, I ordered an audit, and 
that audit, I think, provided the appropriate deterrence.
    Senator Lautenberg. How egregious was it? Just give us a 
clue on what kind of advantage was being taken advantage of.
    Mr. Bowen. Well, the free laundry services, the food 
provision was generally free, and that changed after our audit. 
Certain services were removed, and regulations were put in 
place, and in my subsequent visits, I was satisfied that 
corrective action was appropriate.
    Senator Lautenberg. Services you say were free, but they 
were paid for by somebody.
    Mr. Bowen. That is correct.
    Senator Lautenberg. And there were significant overcharges 
in your review, enough that you commented on them.
    Mr. Bowen. That is right.
    Senator Lautenberg. And I asked for any recall that you 
might have had. What was the size of the overcharge?
    Mr. Bowen. I will have to give you that answer for the 
record to give you details on the numbers.
    Senator Lautenberg. It is a small issue, but I think it is 
demonstrative of what was taking place.
    You did some work overseeing KBR's rebuilding of the Al 
Fatah oil pipeline project under the Tigris River. What 
happened, briefly, on that project?
    Mr. Bowen. That was an attempt to--at the Al Fatah 
crossing, which is a critical oil and gas node in Iraq, 13 
pipelines crossed there going from Bayji to Baghdad to Turkey. 
Some are export pipelines; some are refined fuel pipelines; 
some are crude pipelines. So it is just a critical--perhaps the 
most critical node in Iraq.
    There was a bridge actually that was taken out during the 
war. One of the pipelines was attached underneath it. That 
pipeline had to be rebuilt. The proposal was to drill under the 
river and put that in, rather than separate the river as 
normally done and lay it.
    Because of the consistency of the soil, that became 
virtually impossible to do. The point you are alluding to, 
though, is that KBR was advised by its subcontractor not to 
pursue that approach because of the sandy soil issue, and a lot 
of money was wasted while the horizontal drilling project was 
pursued anyway.
    Senator Lautenberg. So how much money was thrown away as a 
result of that misadventure?
    Mr. Bowen. Well, I will have to give you that exact number 
for the record, but it was millions of dollars that was wasted 
on the horizontal drilling part of the program until finally it 
was recompeted or actually the project was given over to 
Parsons International Joint Venture, and they proceeded to 
pursue the pipeline laying in the manner that I described 
earlier.
    Senator Lautenberg. Did you see any evidence that DOD paid 
Halliburton, KBR, or other contractors for work that was not 
done?
    Mr. Bowen. We do not look at KBR DOD contracts. We only 
look at IRRF contracting, and so I don't have any answers for 
you on the DOD KBR LOGCAP.
    Senator Lautenberg. Any way you could get that information 
for us, or is that just out of province?
    Mr. Bowen. That would be the Defense Contract Audit Agency, 
I think, would have answers on that matter, and the Department 
of Defense IG has purview of it.
    Senator Lautenberg. Thanks very much. Thank you, Madam 
Chairman.
    Chairman Collins. Senator Voinovich.
    Senator Voinovich. Mr. Bowen, I want to thank you very much 
for the sacrifice that you have made to serve your country.
    Mr. Bowen. Thank you, Senator.
    Senator Voinovich. And thanks to your family for the 
sacrifice they make so you can do this job. It is important 
that we restore the American people's confidence in our mission 
in Iraq, and I really believe that reconstruction of the 
infrastructure there may be more important than anything else.
    Does Prime Minister Maliki understand how important this is 
substantively and politically for a successful future?
    Mr. Bowen. Yes, sir, I believe he does.
    Senator Voinovich. How about the people that he has hired 
to do the work? Are they competent?
    Mr. Bowen. I cannot give a general answer to that. I can 
tell you that the Deputy Prime Minister Barham Saleh is very 
competent and comprehends these issues in detail.
    Senator Voinovich. One of the things that I am concerned 
about, and you are, is the high turnover of the American 
civilian workforce in Iraq. I would like to have for the record 
the number of people that we have there and how long they have 
been there. I also would be interested to know your suggestions 
on what might be done to provide some stability within that 
workforce.
    Mr. Bowen. Yes, sir. We have some recommendations in our 
Human Capital Management Lessons Learned report.
    Senator Voinovich. Another concern I have is funding. We 
were led to believe that we were going to get financial help 
from some of our allies for reconstruction. I think that if you 
look back to Desert Storm, about 80 percent of that war was 
paid for by our allies, and during this conflict we are picking 
up almost the entire tab. What is the status of financial 
commitments from other countries for reconstruction? Are there 
any joint projects with our allies underway?
    Mr. Bowen. Yes. Multilateralizing the reconstruction 
process is essential to the future success of Iraq. Getting the 
political and economic buy-in of a broad scope of donor nations 
will move the country forward, the fledgling democracy forward.
    The promise of Madrid 2003 has not been realized by any 
stretch--$13 billion was pledged; between $3 and $4 billion has 
come forward.
    The U.S. pledge, by the way, was our IRRF, and we have come 
fully forward with that, of course, as we have been talking 
about.
    The compact, which is under discussion now, is the key to 
the multilateral phase, and it is also essential to realizing 
the promise of Madrid and ultimately achieving that 
international political and economic buy-in.
    Senator Voinovich. I would say that their performance based 
on the pledge and what they have done is not that encouraging.
    Mr. Bowen. That is true. The security situation and the 
corruption situation would probably account for the 
disinclination of donor nations to have advanced more funds 
than they have to date.
    Senator Voinovich. Madam Chairman, I recall that when we 
provided the money for Iraq reconstruction, we are supposed to 
get reports about the participation of our allies. Have we ever 
gotten those reports, do you know?
    Chairman Collins. I don't know.
    Mr. Bowen. There is in this Quarterly Report a detailed 
explication of how donor nations have contributed or not 
contributed to the program.
    Senator Voinovich. What is the State Department doing to 
encourage our allies to fulfill their promise?
    Mr. Bowen. The compact for the future of Iraq is the 
initiative that is driving that issue.
    Senator Voinovich. Are you making any progress?
    Mr. Bowen. Yes, sir, they are. It is an issue that has been 
ongoing since the spring, and I think we will be seeing reports 
of progress on that front soon.
    Senator Voinovich. You were saying that the State 
Department ought to have a deployable reserve corps of 
contracting personnel trained to execute reconstruction 
contracting and contingency operations. Do you want to 
elaborate that?
    Mr. Bowen. Well, it was not so much the State Department 
having--the State Department has a new Office of Stability and 
Reconstruction, and they, along with DOD, are taking the lead 
in systemic adjustments to the U.S. Government to prepare for 
future contingency operations. Part of that planning must 
include contracting.
    Our Lessons Learned Report on Human Capital Management 
proposed this civilian reserve corps. This report says, as a 
part of that civilian reserve corps, there should be a 
contingent of contracting officers.
    Senator Voinovich. Well, it is tough to get them.
    Mr. Bowen. It is. Yes, sir. The reality is that the 
government has reduced the number of contracting officers over 
the last 10 years, and to a certain extent, we are suffering 
the consequences of that, both in Iraq and in the Gulf Coast.
    Senator Voinovich. It gets back to the nondefense 
discretionary budget. If you look at some of the budgets of the 
departments, they are getting less money than they got last 
year and being asked to do more. It just does not make any 
sense at all.
    Thank you very much.
    Mr. Bowen. Thank you, Senator.
    Chairman Collins. Thank you, Senator. Senator Dayton.
    Senator Dayton. Thank you, Madam Chairman. Again, I want to 
thank you for holding this very important hearing, and I want 
to follow up on your line of inquiry, which I think is a very 
important one, about how do we go forward and make these 
efforts more effective. How do we avoid this catch-22 situation 
where, if we turn more of the responsibility, as we must and 
should have been able to do already, to the Iraqi Government, 
and they--you talk about the rampant corruption, which others 
have also cited within the government, the Iraqi 
subcontractors, and the like. And they mismanage these projects 
as badly or even worse than they have been heretofore, so the 
projects don't forward or they are substandard or whatever, the 
Iraqi people, directly or indirectly, blame the United States 
for those continuing failures, problems. For example, I am told 
electricity in Baghdad is about 8 hours a day, and in many 
parts of the country, it is less than it was previously under 
Saddam Hussein. I was in Iraq along with the Chairman when it 
was 115 degrees in the middle of the summer and without 
electricity. That is no air conditioning, no refrigeration, in 
some of the cities no sewer or no running water and sanitation, 
and now we are in the fourth summer since the military deposed 
Saddam Hussein. Understandably, people there are extremely 
unhappy. And, again, our soldiers bear the brunt of this, and 
that is what disturbs me most of all.
    So they are in a sense held hostage, given the President's 
policy, which I accept as the necessity in this current 
predicament of not allowing the country to fall into civil war 
and a bloodbath or anarchy. But the longer these projects fail, 
the longer somebody is going to be consigned to be there to 
hold the glue of the country together.
    So how are we going to get beyond this? As you hand these 
projects over--not you, but as our government hands over these 
projects to the Iraqi Government, who is your successor 
indigenous to the country that is going to try to pursue these 
and see that they do not fall apart?
    Mr. Bowen. Let me say this first about Iraqi 
subcontractors. When proper oversight is provided, they have 
done very well, and they have done well at less cost than the 
cost-plus contractors. But as you say, oversight is an 
essential component to proper conduct and effective outcomes.
    The keystones for that in Iraq are the Ministry IGs, 29 
Inspectors General that were created by the CPA. They need more 
training. They need more coordination. They need funding. And 
they need law, actually, to ensure their continuation. They are 
not protected by any current law in Iraq.
    Second, the Commissioner of Public Integrity is essentially 
their FBI. He has hundreds and hundreds of cases involving 
corruption, upwards of $5 billion. Those need to be prosecuted. 
All investigations are window dressing until someone is 
prosecuted and put in prison. Then deterrence kicks in. There 
have been very few convictions to date for corruption in Iraq. 
The central criminal court of Iraq is in charge of that. Their 
procedures have tended to limit progress there as well as their 
limited number of judges. There is an effort to expand that, 
but that is still an ongoing capacity-building issue.
    Third, the Board of Supreme Audit, that is their GAO. And 
let me say, GAO has been very aggressive and present on the 
ground in Iraq providing good oversight. Their GAO, the Board 
of Supreme Audit, we have met with him. He seems like a good 
man. They have the legacy of having existed under Saddam's 
reign and served as a cover. So they are going to have to 
overcome that burden of history, of their own history, but they 
have an important and a central role, the one you are pointing 
to, to play in Iraq, and that is to make sure oversight works. 
You cannot do that unless you develop credibility through 
meaningful audits that change behavior.
    Senator Dayton. Well, I hope that we can look ahead with 
some of the cautious optimism that you have noted here. Again, 
there was a hearing of the Democratic Policy Committee that 
Senator Byron Dorgan of North Dakota chairs last week, one of 
several that he has held on these contracting abuses. And one 
of the witnesses was Dr. Richard Garfield, a professor of 
nursing at Columbia University, who had been involved with the 
efforts in the health care system in Iraq. He said that, ``The 
first post-CPA Iraqi Minister of Health believes he has largely 
rooted out corruption in the medicine supply system, while 
people in the system say it became more corrupt than under 
Saddam Hussein.'' So I think that is indicative of the 
magnitude of the problems, and that is just one segment of 
their society. Again, my concern is that there are limits to 
what we can do to affect this, especially as we turn these 
responsibilities over. But to the extent that we are turning 
them over and they are not being followed through, that there 
is no oversight, as I say, our troops will suffer and our 
efforts there will suffer. And so whatever you can do to help 
us, if we can play any role here in designing and funding 
systems to help assure that, I certainly would ask you to do 
so.
    Thank you, Madam Chairman.
    Mr. Bowen. Thank you.
    Chairman Collins. Thank you.
    Mr. Bowen, I want to thank you for being here today and for 
all of your hard work. I want to echo the comments made earlier 
by the Senator from Minnesota about the courage that you and 
your staff have exhibited.
    Mr. Bowen. Thank you.
    Chairman Collins. I have been to Iraq twice. I know how 
dangerous it is to go beyond the Green Zone, and I noticed that 
many people associated with the American Government stay within 
the Green Zone. And your staff has been the exception to that 
rule, going out to actually inspect projects to see what is 
occurring and getting the kind of ground truth that is really 
essential for you to do your work effectively. But you do so at 
considerable risk to your personal safety, and I want to join 
my colleague in acknowledging your courage and thanking you. 
The work that you are doing is extremely important, and we want 
to continue to work closely with you.
    I am also grateful that you have given me quarterly updates 
on all of your work. I found those briefings to be very 
helpful. So we wish you well, and we all urge you to be safe as 
you return to Iraq. And, again, my gratitude to your staff as 
well. The work you are doing is enormously important, not only 
to this Committee but to the American taxpayer. So thank you 
for your efforts.
    This hearing record will be held open, as I mentioned 
earlier, for 15 days for the submission of questions and any 
additional materials.
    Mr. Bowen. Thank you, Madam Chairman.
    Chairman Collins. This hearing is now adjourned.
    [Whereupon, at 12:24 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


                PREPARED STATEMENT OF SENATOR LIEBERMAN
    I thank the Chairman for holding this essential hearing examining 
our reconstruction contracts in Iraq.
    In virtually every past war, shameless profiteers have swindled the 
government for an easy buck. Investigations led to shocking revelations 
after both World Wars. It is the Federal Government's job to do its 
utmost to prevent these abuses, to detect them when they occur, to 
punish the guilty, and to shed light on the offenses so that we can 
learn from them. Already, the Administration's failure to ensure the 
integrity of the contracting process in Iraq has caused immeasurable 
harm, and gross neglect by contractors and by agencies responsible for 
overseeing them has undermined our war effort.
    I supported our war in Iraq but I have always questioned the way it 
was being executed. From the beginning, I have called on the 
Administration to engage in better advance planning and to commit 
resources more effectively to ensure a successful reconstruction and 
transition to democracy. Instead, it has been a much rockier road than 
it had to be--a just cause marred by poor planning and implementation. 
For years I and others in Congress have criticized the Administration's 
failure to ensure sound contracting practices with respect to Iraq 
reconstruction, but the problems continue. Our hearing today is 
focusing on lessons we can learn for the future, and our witness, the 
Special Inspector General for Iraq Reconstruction, has provided a 
valuable set of recommendations that this Committee should seriously 
consider.
    Waste, mismanagement, and fraud have occurred on a massive scale. 
Billions of taxpayer dollars have been squandered. Our soldiers in the 
field have been shortchanged, and the war effort impeded. And the only 
beneficiaries of waste and fraud are the same bad apples who are 
responsible for it. Halliburton, for one, has overcharged the 
government over $1 billion, with the apparent approval of the agency 
responsible for overseeing the contracts. U.S. Government employees 
have colluded with contractors in flagrant embezzlement schemes. Some 
have been prosecuted, but how many other crimes have gone unpunished?
    The Special Inspector General has done an exceptional job bringing 
to light many of the abuses we do know about. Stuart Bowen quickly 
established a large office in Baghdad, and he and his staff 
courageously travel throughout Iraq to inspect projects large and 
small. In one report he documented that the Coalition Provisional 
Authority could not account for nearly $9 billion it distributed to 
Iraqi ministries. He documented how Halliburton wasted $75 million on a 
failed pipeline river crossing project, after the company and the Army 
Corps of Engineers ignored the determination of its engineering 
consultant that the complex soil conditions required further study. 
Just this week, the IG released a damning report describing how the 
U.S. Agency for International Development resorted to accounting tricks 
to hide huge cost overruns from Congress.
    Unfortunately oversight has been lacking elsewhere, and the IG has 
found few allies in this Administration. The Department of Defense 
Inspector General has never maintained a permanent presence in Iraq. 
Although the Department of Justice established a task force and 
announced a zero tolerance policy with respect to Hurricane Katrina 
fraud, the Department's investigative work on Iraqi contracts fraud has 
been less than zealous. I'm unaware of DOJ having initiated any 
criminal prosecutions other than those cases it received from the 
Special Inspector General. And the Administration has been attempting 
to phase out the office of the Special Inspector General for some time.
    Poor policies and practices have marred every aspect of the 
contracting process in Iraq. In many instances U.S. agencies awarded 
contracts without using competitive procedures at great expense to the 
Treasury and, ultimately, the American taxpayers. For example, the 
Department of Defense improperly awarded Halliburton a $7 billion 
contract for reconstructing Iraq's oil sector, without first opening 
the award to competitive bidding. Similarly, USAID waived regulations 
requiring competition in its reconstruction contracts, an action it 
could have avoided with better planning. Our government contracting 
system relies on fair and open competition to ensure the best products 
and services will be provided at the best price, and in Iraq that 
principle was too readily abandoned.
    Agencies also have failed to oversee contracts they awarded. The 
CPA lacked contracting regulations or trained contract officers, and 
the contracting environment there remained chaotic until the CPA's 
dissolution. More inexcusable, established agencies sometimes seemed 
more interested in protecting their contractors than exercising their 
responsibility to oversee them.
    The collusive relationship between the Army Corps of Engineers and 
Halliburton provides a telling example of this phenomenon. In December 
2003, a DOD auditing agency made a preliminary finding that Halliburton 
was overcharging the U.S. and the Iraqi people tens of millions, if not 
hundreds of millions of dollars, for importing fuel into Iraq; the 
final audits determined that the contractor's overcharges amounted to 
$263 million. The Army Corps went to great lengths to suppress the 
results of the audits and to ignore their findings. First, the Corps 
waived the regulatory requirement that Halliburton justify its prices 
with supporting data, in a transparent effort to negate the auditors' 
findings. When the U.N. oversight board responsible for safeguarding 
Iraqi funds requested a copy of the final DOD audits, the Pentagon 
allowed Halliburton to redact all of the audits' negative findings 
before turning them over. Finally, the Corps rejected the audits' 
findings and paid Halliburton for 96 percent of the costs that had been 
challenged by DOD auditors.
    This incident and similar ones starkly illustrate a central problem 
that has plagued the contracting environment in Iraq. The combination 
of lack of competitive bidding, poor oversight, and absence of 
accountability eliminated the safeguards designed to prevent waste and 
fraud by contractors. These safeguards are doubly important in time of 
war, as poor contractor performance can imperil our troops and 
undermine the war effort.
    Committing troops to battle is the most consequential decision our 
government can make. When it does so, it must take no shortcuts in 
formulating and executing its strategy. When it came to planning and 
implementing the reconstruction of Iraq, this Administration took far 
too many shortcuts. We continue to suffer the consequences, as do the 
Iraqi people.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]