[Senate Hearing 109-958]
[From the U.S. Government Publishing Office]
S. Hrg. 109-958
IRAQ RECONSTRUCTION: LESSONS LEARNED IN CONTRACTING
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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
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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
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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
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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.
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\1\ The prepared statement of Mr. Bowen appears in the Appendix on
page 41.
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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
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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.
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