[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                    IRAQ RECONSTRUCTION: AN OVERVIEW

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 15, 2007

                               __________

                           Serial No. 110-27

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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             COMMITTEE ON OVERSISGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   VIRGINIA FOXX, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                ------ ------
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 15, 2007................................     1
Statement of:
    Walker, David M., Comptroller General of the United States, 
      Government Accountability Office; Stuart W. Bowen, Jr., 
      Special Inspector General for Iraq Reconstruction; and 
      William H. Reed, Director, Defense Contract Audit Agency...    35
        Bowen, Stuart W., Jr.....................................    75
        Reed, William H..........................................    69
        Walker, David M..........................................    35
Letters, statements, etc., submitted for the record by:
    Bowen, Stuart W., Jr., Special Inspector General for Iraq 
      Reconstruction, prepared statement of......................    79
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................   130
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia:
        Prepared statement of....................................    29
        Staff memorandum.........................................    23
    Reed, William H., Director, Defense Contract Audit Agency, 
      prepared statement of......................................    71
    Walker, David M., Comptroller General of the United States, 
      Government Accountability Office...........................    38
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California:
        Prepared statement of....................................    16
        Prepared statement of Kiki Skagen Munshi.................    11
        Staff memorandum.........................................     3


                    IRAQ RECONSTRUCTION: AN OVERVIEW

                              ----------                              


                      THURSDAY, FEBRUARY 15, 2007

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Henry A. Waxman 
(chairman of the committee) presiding.
    Present: Representatives Waxman, Maloney, Kucinich, Davis 
of Illinois, Tierney, Clay, Lynch, Higgins, Yarmuth, Braley, 
Norton, Van Hollen, Hodes, Murphy, Sarbanes, Welch, Davis of 
Virginia, Souder, Duncan, Issa, and Sali.
    Staff present: Phil Schiliro, chief of staff; Phil Barnett, 
staff director and chief counsel; Karen Lightfoot, 
communications director and senior policy advisor; David 
Rapallo, chief investigative counsel; Theo Chuang, deputy chief 
investigative counsel; Suzanne Renaud, counsel; Molly Gulland, 
assistant communications director; Christopher Davis, 
professional staff member; Earley Green, chief clerk; Teresa 
Coufal, deputy clerk; Caren Auchman, press assistant; Leneal 
Scott, information officer; David Marin, minority staff 
director; Larry Halloran, minority deputy staff director; 
Jennifer Safavian, minority chief counsel for oversight and 
investigations; Keith Ausbrook, minority chief counsel; John 
Brosnan, minority senior procurement counsel; Steve Castor, 
minority counsel; Edward Kidd, minority professional staff 
member; Nick Palarino, minority senior investigator and policy 
advisor; and Benjamin Chance, minority clerk.
    Chairman Waxman. The meeting of the committee will please 
come to order.
    Last week, our committee focused on the $12 billion in cash 
that was sent by our Government into Iraq. We learned that no 
one knows what really happened to that money or even whether it 
ended up in the hands of terrorists. All we know is that the 
cash is gone and billions were wasted.
    Today we get more bad news. The Director of the Defense 
Contract Audit Agency is going to testify that there are more 
than $10 billion in questioned and unsupported costs relating 
to Iraq reconstruction and troop support contracts.
    This estimate is three times higher than the $3.5 billion 
in questionable charges that the Government Accountability 
Office warned us about last year. And, in this new report, $2.7 
billion in suspect billings are attributed to just one 
contractor: Halliburton. My staff has prepared a memorandum on 
this subject, and, if there is no objection, I will enter it 
into the record.
    [The information referred to follows:]

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    Chairman Waxman. Even worse, the actual amount of waste is 
likely even higher. The Defense Contract Audit Agency arrived 
at its $10 billion estimate after reviewing only $57 billion of 
Iraq contract spending. But American taxpayers have already 
spent over $350 billion for the war in Iraq. There is $300 
billion still to audit. The total amount of waste, fraud, and 
abuse could be astronomical.
    Let's add it up. Last week's $12 billion in cash and 
today's $10 billion in questionable charges combines for $22 
billion. And there is still the potential for tens of billions 
more in waste. It is no wonder that taxpayers all across our 
country are fed up and demanding that we bring real oversight 
to the ``anything goes'' world of Iraq reconstruction.
    Stuart Bowen, the Special Inspector General for Iraq 
Reconstruction, will tell us about a particularly egregious 
example of wasteful spending. It involves the State 
Department's contract with DynCorp to train and equip the Iraqi 
police.
    The Defense Contract Audit Agency has not yet reviewed this 
contract. But the Inspector General found that taxpayer dollars 
were wasted on an Olympic sized pool that was not authorized 
under the contract.
    The audit was critical of not just the company; it was 
critical of the Government for failing to conduct any semblance 
of proper oversight. In this case, the contracting officer did 
not even have a file--he literally didn't have a file--for this 
$600 million contract. And the Government could not demonstrate 
that it had actually received tens of millions of dollars in 
critical equipment, including armored vehicles, body armor, and 
weapons.
    This is the equipment that is supposed to be going to the 
Iraqis so they can take up the fight and allow our U.S. service 
members to come home. Yet virtually nonexistence government 
oversight has put the entire effort at risk.
    This is an intolerable mess. It is important that we hold 
people accountable for it, and just as important, that we 
prevent these outrages from happening again.
    President Bush is planning on sending 21,000 more American 
soldiers into Iraq. He is also proposing that we spend almost 
$200 billion more on the Iraqi war effort and an additional 
$1.2 billion for economic assistance to Iraq. He wants to spend 
over $800 million of that amount on a ``civilian surge'' that 
will increase the number of Provincial Reconstruction Teams. 
These are the teams that are supposed to work with local Iraqis 
to develop democratic institutions and procedures.
    I don't have the first-hand knowledge of these Provincial 
Reconstruction Teams. But Kiki Munshi does. Until last week, 
she was a team leader. She has concluded that the civilian 
surge won't work. She tells us the teams have been drastically 
underfunded, have an ill-defined mission, and have huge 
staffing shortfalls.
    She believes injecting more teams into Baghdad will result 
in a bureaucratic nightmare. And what's worse, she says that 
when members of these teams were consulted about the 
President's proposal in the fall, they raised exactly these 
objections, but were ignored.
    Mrs. Munshi could not be here today, but I would like to 
make her full written statement part of the official hearing 
record. And, without objection, that will be the order.
    [The information referred to follows:]

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    Chairman Waxman. As she says, ``none of the objections or 
recommendations coming from the field about the 'civilian 
surge' appears to have reached Washington.''
    I want to assure Ms. Munshi that we hear her, and I want to 
assure the American people that we aren't going to let a 
handful of corporations walk away with enormous windfalls while 
thousands of American soldiers are sacrificing everything to 
defend this country.
    I want to thank our witnesses for superb work in bringing 
accountability to the Iraq reconstruction efforts and I look 
forward to their testimony.
    [The prepared statement of Chairman Henry A. Waxman 
follows:]

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    Chairman Waxman. But before we hear from them, I want to 
call on Mr. Davis, our ranking Republican Member.
    Mr. Davis of Virginia. Thank you, Mr. Chairman. Let me also 
note I would like to put a supplemental memorandum into the 
record that our staff has drafted on the minority side.
    Chairman Waxman. Without objection, that will be the order.
    [The information referred to follows:]

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    Mr. Davis of Virginia. We meet for the second time in as 
many weeks to look into the complex range of issues arising 
from extensive contracting activities in Iraq.
    Mr. Chairman, I am of course pleased the committee is 
continuing this line of oversight that we began 3 years ago. 
But between last week's hearing and today's, I am afraid we may 
be peering into the wrong end of the telescope, looking first 
at very specific complaints about security contractors and then 
taking this much broader survey of troubled acquisitions in 
Iraq. That is backward and it risks spending the committee's 
time and credibility chasing transient or dated issues while 
systematic problems go without thorough scrutiny. I look 
forward to working with you in setting a more coherent agenda.
    Today we will hear from the three major oversight 
organizations tracking Federal procurements in Iraq. They have 
all testified here before, and they bring important 
perspectives informed by a substantial body of audit and review 
work. The picture painted by these witnesses is never pretty, 
nor will their testimony necessarily tell the complete story of 
an evolving, dynamic, and sometimes dangerous process. But this 
much is clear: poor security, an arcane, ill-suited management 
structure, and frequent management changes have produced a 
succession of troubled acquisitions. We need to know what has 
gotten better, what is being fixed, and, more importantly, what 
is still broken. And we need to refine our understanding of the 
difference between interim findings that may make this complex 
process look bad and the real implications of the 
``definitized'' costs ultimately paid by the Government.
    Without question, many reconstruction projects have fallen 
far short of expectations, and we have yet to completely 
resolve serious problems in contract management and oversight 
in deployment locations. The underlying causes: the lack of 
sufficiently focused, high-level leadership, mismatches between 
requirements and resources, and an inadequate number of trained 
acquisition and oversight personnel. While these challenges are 
not unique in Iraq, a highly unstable environment and 
consequent security problems have greatly exacerbated the 
impact of resulting cost, performance, and oversight issues.
    These failures have plagued acquisition efforts in the 
battle space from the beginning. Some of those initial 
challenges have been mitigated; many have not. A lack of 
planning and poor staff training caused many of the early 
reconstruction contracts to be awarded using other than full 
and open competition. Recent GAO reports show the vast majority 
of more recent contract awards have been made on a competitive 
basis. But GAO findings also point out that we still do not 
have data on the total number of contract employees or the full 
range of services they provide. That is a troubling blind spot 
in the effort to assess overall contract management and 
oversight in Iraq.
    And recent reports by the Special Inspector General for 
Iraq point to inattentive management and oversight systems that 
still allow large contracts to careen out of control, wasting 
millions of dollars and buying far less than agreed. At times, 
between sloppy records, sloppier performance, and AWOL contract 
monitoring, we can't even be sure we got anything at all for 
the huge amounts spent. SIGIR audit findings on construction 
contracts for a State Department residential camp and the 
Baghdad Police College describe ongoing, large-scale, and 
systematic vulnerabilities to waste and abuse in those 
critical, costly reconstruction programs.
    True, the Inspector General also concludes that 80 percent 
of the Iraq reconstruction projects have been completed 
properly, on time, and within budget. But there is a great deal 
of money committed and still in the contract pipelines, and we 
need to be sure those projects are not on the same oversight 
audit-pilot that steered over contracts into a fiscal ditch in 
Iraq.
    Many audits from the agencies represented here today have 
spent considerable time working in Iraq, and we value the 
experience and perspective our witnesses will provide on the 
important issues raised by the reconstruction contracts there. 
Much is at stake in terms of U.S. tax dollars and in terms of 
effectively helping the Iraqi people rebuild the basic 
infrastructure of their nation. We look forward to their 
testimony and to a frank, constructive discussion.
    Thank you.
    [The prepared statement of Hon. Tom Davis follows:]

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    Chairman Waxman. Thank you, Mr. Davis.
    The Chair, without objection, will hold the record open for 
1 week to receive an opening statement by any of the members of 
the committee.
    Mr. Issa. Mr. Chairman.
    Chairman Waxman. But I would like to call on----
    Mr. Issa. Mr. Chairman.
    Chairman Waxman. If the gentleman would permit, I would 
like to finish my sentence.
    But the Chair would like to now call on Members who wish to 
make opening statements for 2 minutes, and will now look to Mr. 
Tierney.
    Do you have an opening statement you wish to make?
    Mr. Tierney. Mr. Chairman, I will put my remarks on the 
record if I have any, thank you. I would like to get to the 
witnesses.
    Chairman Waxman. OK.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. There are a couple of 
points I would like the panelists to focus on.
    I do want to thank the gentlemen for the great work, and we 
appreciate your helping the committee with its work.
    Mr. Chairman, just last week the Department of Justice 
announced that we had three more indictments--three former Army 
officers and also two U.S. civilians--for their role in a 
scheme to defraud the Coalition Provisional Authority in the 
South Central Region in Al Hilla in Iraq. Specifically, the 
indictments alleged that the defendants, which includes, 
troubling, the former comptroller and the former second-in-
command at CPA South Central, who funneled over $8.6 million in 
rigged reconstruction contracts to American businessman Philip 
Bloom in exchange for $1 million in cash plus an SUV, some 
jewelry, computers, airline tickets, liquor, and other items.
    These most recent indictments involving our reconstruction 
contracts in Iraq again beg the question whether the Defense 
Department is doing enough and, in fact, going back and 
reviewing all contracts that have been touched by these 
individuals and could have been compromised by these 
individuals who have been indicted or convicted for fraud or 
other violations of Federal law in relation to the contracts.
    We have been asking this for a while. About 6 months ago I 
asked the Defense Department panelists the same question since 
June 2005. Then we had indictments of Jeffrey Mazon, a former 
Halliburton procurement manager, and Ali Hijazi, the managing 
partner of La Nouvelle, a general trading and contracting 
company. They had a kickback scheme through which a Kuwaiti 
firm, La Nouvelle, billed the U.S. taxpayer for more than $5.5 
million for work that should have cost only about $680,000.
    Regrettably, the committee and the chairman have been very 
helpful on this, but we have received only vague assurances 
from Mr. Reed of DCAA and from the Department's Acting 
Inspector General, Mr. Kimball, that such a review is in fact 
taking place.
    Mr. Chairman, that is what I want to focus on, whether we 
are going back and reviewing. When we find fraud, abuse, 
corruption, bribes, are we going back, after conviction, after 
the indictments, and reviewing the contracts that these folks 
have been involved in? Because I fear that it is a pattern of 
abuse and not just an individual instance.
    Mr. Chairman, I want to thank you for your great work on 
this, and the ranking member, and I look forward to today's 
hearing for a discussion of all these compromised contracts. 
Thank you. I yield back.
    Chairman Waxman. Thank you, Mr. Lynch.
    Mr. Issa, do you wish to make an opening statement?
    Mr. Issa. Yes, I do.
    Chairman Waxman. The gentleman is recognized.
    Mr. Issa. Thank you, Mr. Chairman. Mr. Chairman, I thank 
you for holding this hearing. I think it is critical. Although 
I believe that under the previous chairmanship we certainly had 
a record of asking questions, as the war on terror and 
particularly the war in Iraq continues, it becomes more and 
more evident that we have to differentiate the inefficiencies 
of war and the ineptness that sometimes occurs on the 
battlefield from true fraud and abuse.
    I look forward to finding the fraud and abuse, but in the 
spirit of bipartisanism, I think it is also important that we, 
as a committee, recognize that war is wasteful, that, in fact, 
we, the American people, are thoroughly disappointed in the 
ineffectiveness of bringing a lasting piece to Iraq much more 
than we are the inefficiency of war. And I hope today that this 
hearing and our ongoing search not be misunderstood for telling 
our civilian and military personnel in combat that they 
shouldn't take risk. Taking risk, which sometimes leads to 
waste, is much better than having a perfect paper trail and bad 
outcome.
    Having said that, one of the main reasons that this 
committee's work is resonating with the American people is in 
fact that we are not satisfied with the results that are 
occurring in Iraq. The ongoing Sectarian violence is very 
frustrating.
    So I trust that we will send the right message, which is we 
will not tolerate dishonesty, fraud, or true abuses, but we do, 
as a committee and as a Congress, want people to continue to 
take the risk and the innovative investments that should lead 
to a lasting peace of Iraq, and that is why this committee has 
oversight, while at the same time the Appropriations Committee 
has been generous in continuing to grant the funding necessary 
for you all to do your job in a dangerous part of the world.
    With that, I yield back.
    Chairman Waxman. Thank you, Mr. Issa.
    Mr. Braley, opening statement?
    Mr. Braley. Thank you, Mr. Chairman and Ranking Member 
Davis, for hosting this hearing.
    Last week's hearings on the policies and spending practices 
of the Coalition Provisional Authority was valuable in 
revealing some of the disastrous and wasteful mistakes that 
have been made that have contributed to the ongoing bloodshed, 
chaos, instability, and costs in Iraq. The point of the hearing 
was not to point fingers or to place blame but, rather, to 
learn from past errors so that we can improve our policies and 
make real progress in Iraq reconstruction, a critical element 
of stabilizing the country and bringing our troops home.
    President Bush admitted, in his January 10th address to the 
Nation, in which he announced his plans to escalate the war in 
Iraq, that numerous mistakes had been made. He said that the 
current situation in Iraq is unacceptable and that it is clear 
that we need to change our strategy there. I agree. He also 
said that a successful strategy goes beyond military 
operations. Ordinary Iraqi citizens must see that military 
operations are accompanied by visible improvements in their 
neighborhoods and communities. I also agree with that 
statement.
    In light of the increasing violence in Iraq, and 
considering that the President is requesting billions of 
additional dollars from U.S. taxpayers to rebuild the country, 
it is critical that we eliminate the waste, fraud, and abuse 
that have been so prevalent in Iraq in the past 4 years. It is 
our duty to ensure that the current and future policies of the 
U.S. Government in Iraq keeps our troops safe, spends the tax 
money of American citizens responsibly, and makes real progress 
toward stabilizing and rebuilding the country so that our 
troops can come home.
    As he also outlined in his January 10th address to the 
Nation, President Bush recently appointed a reconstruction 
coordinator in Iraq, with the purpose of ensuring better 
results for economic assistance being spent there. I hope that 
the new coordinator, Timothy Carney, will take the information 
and insights provided last week and at today's hearings to 
heart. And I look forward to the testimony of our witnesses 
today and hope that this hearing will help us progress forward 
with more effective, responsible, and transparent 
reconstruction efforts.
    Thank you.
    Chairman Waxman. Thank you, Mr. Braley.
    Mr. Souder. Mr. Duncan, are you next? OK.
    Mr. Duncan. Well, thank you, Mr. Chairman, and thank you 
for calling this very important hearing.
    I have always been very proud that my party, the Republican 
party, has been the most fiscally conservative party throughout 
its history for this country, and certainly no fiscally 
conservative person should feel any obligation to defend some 
of the lavish, wasteful, ridiculous, even scandalous, contracts 
that we have heard about in Iraq. This war has not been 
conducted in a fiscally conservative way, and we need to look 
into this.
    Fiscal conservatives should be the ones most horrified by 
some of these things that we have heard about, and I know that 
DynCorp and some of these other corporations are so big and 
powerful and well-connected that probably nothing will ever be 
done to them, but if any of these things are true, then they 
should be prohibited from getting future government contracts, 
at least for some period of time.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you very much for your statement.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman. Once again I want to 
congratulate you for holding these hearings. The amount of 
waste, fraud, and lack of accountability in the Iraq 
reconstruction and contracting processes is truly outrageous 
and inexcusable.
    It is my understanding that the witnesses will testify 
today that $10 billion in questioned and unsupported contractor 
costs have now been identified in the Iraq reconstruction 
process, a truly shocking figure. The tragedy is that this 
amount of money could have gone to do so much good. Think, for 
example, what we could have done with this to rebuild after 
Hurricane Katrina.
    Maybe most discouraging, this administration seems to 
regard this problem as minor or inconsequential. According to 
the Defense Contract Audit Agency, the Defense Department has 
been uncharacteristically and suspiciously lax in recouping and 
withholding payment when contractor costs are called into 
question. One is left to wonder what is really going on here.
    There is no legitimate excuse for this lack of 
accountability. This is either an example of overwhelming 
incompetence or a willingness to look the other way because of 
personal or political relationships. In any case, the results 
are unacceptable.
    There is only one element of this tragedy that I can be 
sure of: those who presided over the situation, the political 
managers of this war, failed our soldiers in harm's way and 
they failed the American people.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Sarbanes.
    Mr. Souder. No statement? Then we go to Mr. Welch.
    Mr. Welch. I would just as soon hear the witnesses, Mr. 
Chair. I am fine, thank you.
    Chairman Waxman. Mr. Yarmouth.
    Mr. Yarmouth. I have no opening statement, Mr. Chairman. I 
welcome the panel and look forward to their testimony.
    Chairman Waxman. Mr. Higgins.
    Mr. Higgins. Thank you, Mr. Chairman, just briefly. Again, 
I thank you for your leadership and your diligence on this 
issue. Demanding accountability and transparency is our 
obligation, consistent with our oversight responsibility. You 
continue to bring to this panel issues and individuals that 
hopefully will help us demand that kind of transparency and 
accountability, particularly in a very, very difficult period 
in our American history relative to this war, relative to the 
costs associated with it, and relative to the abuse and 
corruption in the spending of American taxpayer dollars. So 
again I thank you and I look forward to hearing the statements 
of the panel. Thank you.
    Chairman Waxman. Thank you, Mr. Higgins.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    The issue of Iraq reconstruction is central to the hopes 
that so many of us in Congress have: to bring the war to a 
conclusion. There are a number of plans out there to stop the 
war, and they recognize that a solid reconstruction program is 
vital to enable the Iraqi people not only to rebuild their 
country, but to provide jobs for the Iraqi people. This 
committee is going to be hearing from Government auditors who 
have been tasked with the understanding of the state of 
contracting in Iraq.
    The gross mismanagement of prior contracting efforts in 
Iraq leave Congress no choice but to be skeptical of current 
and future contracting efforts. And this hearing is timely with 
the recent Administrative request for an additional $1.2 
billion in U.S. taxpayer funds for Iraq reconstruction efforts 
in fiscal year 2008.
    This committee, Government auditors, and media accounts 
have highlighted failure after failure of contractor efforts to 
reconstruct Iraq's basic infrastructure. Unfortunately, the 
administration has given low priority to reconstruction 
contracts and has failed to ensure these funds actually improve 
the situation in Iraq.
    Mr. Chairman, we spent $50 billion to reconstruct Iraq, but 
few Iraqis have seen their quality of life improve. It is 
absolutely essential that we find a way to create a viable 
reconstruction program as a means of taking Iraq to a condition 
of stabilization and peace.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Kucinich.
    I want to now introduce our panel. We are honored to have 
with us our Nation's top three auditors for Iraq 
reconstruction. David Walker is the Comptroller General of the 
United States. He will tell the committee about recent audits 
issued by the Government Accountability Office. GAO has 
uncovered many critical problems in the reconstruction efforts 
and with the Government's oversight of contractors.
    Stuart Bowen is a Special Inspector General for Iraq 
Reconstruction. Mr. Bowen's work on Iraq reconstruction efforts 
has allowed those of us in Washington to hear firsthand 
accounts of how reconstruction efforts are going on in the 
ground.
    And, finally, William Reed, who is the Director of the 
Defense Contract Audit Agency, will provide the committee with 
an update on his office's ongoing audits of spending on Iraq 
reconstruction and troop surge support costs. Mr. Reed's office 
has issued more than 1,800 audits relating to work in Iraq, and 
we are privileged to have him with us today.
    It is our policy to swear in all witnesses that appear 
before the committee, so I would like to ask you to rise, if 
you would, and raise your right hands.
    [Witnesses sworn.]
    Chairman Waxman. The record will note that each of the 
witnesses answered in the affirmative.
    And what I would like to ask each of you to do, your 
prepared statements will be in the record in full. If you would 
summarize your statements or make your oral presentation to us 
in around 5 minutes.
    Mr. Walker, let's begin with you.

   STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE 
  UNITED STATES, GOVERNMENT ACCOUNTABILITY OFFICE; STUART W. 
BOWEN, JR., SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION; 
  AND WILLIAM H. REED, DIRECTOR, DEFENSE CONTRACT AUDIT AGENCY

                  STATEMENT OF DAVID M. WALKER

    Mr. Walker. Thank you, Chairman Waxman, Ranking Member 
Davis, other members of the committee. I am pleased to be back 
before you this week to talk about various issues relating to 
our Nation's efforts to stabilize and rebuild Iraq.
    Prudence with taxpayer funds and our Nation's large and 
growing long-range fiscal challenges demand that the Defense 
Department maximize its return on the billions of dollars it 
has invested in Iraq-related reconstruction projects and 
support contracts. Further strengthening Iraq's fragile 
government institutions, which thus far have failed to 
adequately deter corruption, stimulate employment, and deliver 
essential services, is critical to establishing a peaceful, 
stable, and secure Iraq.
    DOD has relied extensively on contractors to undertake 
major reconstruction projects and provide a broad range of 
support services. But these efforts have not always achieved 
their desired outcomes, nor have they achieved such outcomes on 
an economical and efficient manner. The challenges encountered 
in Iraq are emblematic of a range of systemic and longstanding 
challenges faced by the Department of Defense. But these 
systemic problems are exacerbated and accentuated when you are 
dealing with contingency operations in a conflict zone. In this 
regard, we have identified DOD contract management to be high-
risk because of its vulnerability to fraud, waste, abuse, and 
mismanagement. We did this 15 years ago and we have continued 
to report related problems.
    In a report issued in July 2006, we concluded that the 
awards to contractors were large and growing, that DOD will 
continue to be vulnerable to contracting fraud, waste, and 
abuse of taxpayer dollars unless it ends up dealing with a 
number of recurring and systemic challenges. While DOD has 
acknowledged its vulnerabilities and taken some actions to 
address them, many of the initiatives are still in their early 
stages and it is too soon to tell what impact they may have.
    The Iraq situation is more complicated, as the United 
States must rely on the Iraqi government to play a larger role, 
which will require capacity not yet present. As we previously 
reported, amid signs of progress, the coalition faces numerous 
political, economic, and security challenges in rebuilding 
Iraq. In addition, the continued violence increases the risk 
that the United States will not be able to complete remaining 
reconstruction projects as planned. The violence also threatens 
the Iraqi government's ability to provide essential services to 
the Iraqi people.
    The challenges faced by the Department of Defense on its 
reconstruction and support contracts in many cases reflect 
these longstanding and systemic challenges that DOD has had in 
connection with contracting activities. Such shortcomings 
result from various factors, including poorly defined or 
changing requirements; the use of poor business arrangements in 
inadequate contracting provisions; the absence of senior 
leadership and guidance; and an insufficient number of trained 
contracting, acquisition, and other personnel to mange, assess, 
and oversee contractor performance. In turn, these shortcomings 
manifest themselves in higher costs to taxpayers, schedule 
delays, unmet objectives, and other undesirable outcomes.
    U.S. reconstruction efforts in Iraq continue to be hampered 
by a security situation that deteriorated in 2006. Although the 
number of trained and equipped Iraqi security forces has 
increased from about 174,000 in July 2005 to about 323,000 in 
December 2006, and more Iraqi Army units have taken the lead 
for counterinsurgency operations, attacks on coalition and 
Iraqi security forces and civilians have increased. 
Consequently, U.S. forces have continued to conduct combat 
operations in urban areas, especially Baghdad.
    Aggregate numbers of trained and equipped forces do not 
provide information on the capabilities and needs of these 
individual Iraqi units. Rather, this information is found in 
the unit level transitional readiness assessments. We have been 
attempting--we meaning GAO--since January 2006 in order to 
obtain access to this information. We have not been successful 
to date. It is absolutely essential, if the Congress wants to 
make informed decisions on authorization, appropriations, and 
in connection with oversight matters, that we get this 
information. We are talking about billions of dollars and 
thousands of American lives at stake.
    In summary, there are a number of conditions that exist in 
Iraq that have led to and will continue to lead to increased 
risk of fraud, waste, and abuse of U.S. taxpayer funds. DOD's 
extensive reliance on contractors to undertake reconstruction 
projects and to provide a broad range of support services to 
deployed forces requires that they address a range of systemic 
and longstanding challenges in an aggressive, consistent, and 
effective manner. This reliance raises broader questions as to 
whether DOD has become too dependent on contractors to provide 
essential services without clearly identifying the appropriate 
roles and responsibilities, having adequate contracting terms, 
and employing appropriate oversight and accountability 
mechanisms.
    Continuing reconstruction progress will require overall 
improvement in the security situation in Iraq. To do so, Iraqi 
security forces and provisional governments must be in a 
position to take responsibility for the security of their 
nation. At this time, their capacity to do so is questionable. 
Furthermore, the United States and the international community 
will need to support the Iraqi government's efforts to enhance 
its capacity to govern effectively and efficiently if it is to 
make a positive difference in the daily lives of the Iraqi 
people.
    Thank you, Mr. Chairman, Ranking Member Davis. I am happy 
to hear from my colleagues now.
    [The prepared statement of Mr. Walker follows:]

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    Chairman Waxman. Thank you, Mr. Walker. We will have 
questions of you after all the others have completed their 
testimony.
    Mr. Reed.

                  STATEMENT OF WILLIAM H. REED

    Mr. Reed. Good morning, Mr. Chairman and members of the 
committee.
    The Defense Contract Audit Agency has been an integral part 
of the oversight and management controls instituted by DOD to 
ensure integrity and regulatory compliance by contractors 
performing services in Iraq. DCAA's services include audits and 
professional advice to acquisition officials on accounting and 
financial matters to assist them in the negotiation, award, 
administration, and settlement of contracts. Decisionmaking 
authority on DCAA recommendations resides with contracting 
officers within the procurement organizations who work closely 
with DCAA throughout the contracting process.
    Since April 2003, DCAA has worked with all the U.S. 
procurement organizations supporting Iraq reconstruction to 
establish the resources and planning information needed to 
carry out required audits of contract costs as they are 
incurred and billed. These organizations include the Joint 
Contracting Command, the Army Sustainment Command, the U.S. 
Army Corps of Engineers, DCMA in Iraq and Kuwait, USAID, and 
the State Department. This coordination has enabled DCAA to 
maintain an inventory of Iraq-related auditable contracts.
    Based on the inventory of auditable contracts as of 
September 30, 2006, DCAA is responsible for auditing contracts 
at 93 contractors. These contractors hold more than 175 prime 
contracts with contract ceiling amounts of $51.8 billion, of 
which $38.5 billion had been funded at the end of fiscal year 
2006. DCAA audits of cost-reimbursable contracts represent a 
continuous effort from evaluation of proposed prices to final 
closeout and payment. Initial audits of contractor business 
system internal controls and preliminary testing of contract 
costs are carried out to provide a basis for provisional 
approval of contractor interim payments and early detection of 
deficiencies. Comprehensive contract cost audits are performed 
annually throughout the life of the contract and are used by 
the contracting activity to adjust provisionally approved 
interim payments and ultimately to negotiate final payment to 
the contractor.
    To carry out these audit requirements, DCAA did open an 
Iraq Branch Office in May 2003 and implemented planning and 
coordination procedures to effectively integrate audit work 
between that office and more than 50 DCAA CONUS Audit Offices 
with cognizance of companies performing contracts in Iraq.
    Through fiscal year 2006, DCAA has issued more than 1,800 
reports on Iraq-related contracts. We estimate issuing another 
600 reports in fiscal year 2007. DCAA oversight of contracts in 
Iraq has found a number of problems. Our resulting action has 
ranged from recommending changes in business processes, to 
reduction of proposed or billed cost, to referral of our 
findings to the Inspector General for investigation and 
possible legal action.
    The most frequent problems disclosed during our audits of 
business systems involve timekeeping procedures, cash 
management procedures, management of subcontracts, and 
documentation of costs on proposals. The majority of these 
problems have already been resolved or are actively being 
worked by contractors and contracting officers. Where 
appropriate, reductions to billed costs have been taken to 
avoid potential inaccurate payments until process deficiencies 
are corrected.
    Through fiscal year 2006, DCAA has recommended reductions 
in proposed and billed contract costs of $4.9 billion. Where 
appropriate, DCAA has taken action to reduce contractor billed 
costs for disputed amounts pending a contracting officer 
decision. In addition, as has been noted, DCAA has identified 
$5.1 billion of estimated costs where the contractor did not 
provide sufficient information to explain the basis for the 
estimated amounts. These unsupported costs were usually 
resolved through contractor submission of additional supporting 
information at the time of contract price negotiation.
    In closing, I want to underscore that DCAA has worked 
closely with all acquisition organizations to ensure an 
integrated, well-managed contract audit process in Iraq. We 
have had a continuous presence in Iraq and the Middle East 
Theatre of Operations since May 2003, staffing our office 
entirely with civilian volunteers. To date, more than 180 DCAA 
auditors have served tours and, fortunately, none have been 
injured or killed. The challenges in applying business 
practices and auditing in Iraq are daunting and have required 
our auditors to be flexible, while insisting that the 
Department will not tolerate the billing of costs that do not 
comply with contract terms or are not appropriately documented 
and supported. DCAA has been and will continue to be vigilant 
about contract audit oversight and protecting the taxpayers' 
interests.
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Mr. Reed follows:]

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    Chairman Waxman. Thank you very much, Mr. Reed.
    Mr. Bowen.

               STATEMENT OF STUART W. BOWEN, JR.

    Mr. Bowen. Thank you. Good morning and thank you, Chairman 
Waxman, Ranking Member Davis, and members of the committee for 
this opportunity to address the committee again on my office's 
oversight efforts of the U.S. reconstruction effort in Iraq.
    I leave tomorrow on my 15th trip to Iraq. I have spent just 
over a year of the last three overseeing the efforts of my 
staff that is deployed there. Right now I have 50 auditors, 
inspectors, and investigators working out of the Green Zone. 
They travel across Iraq visiting sites, investigating cases, 
and auditing programs.
    Our 12th report was released 2 weeks ago, 12th quarterly 
report, and it is a watershed report because it carries an 
important message, that is, the end of the Iraq Relief and 
Reconstruction Fund is here, and the burden of sustaining the 
recovery and relief of Iraq, financial burden, must shift to 
the government of Iraq at this point, and that means the Iraqi 
government must execute and fund a coherent reconstruction 
plan, and cannot leave its money in the treasury, as it did at 
the end of last year, leaving about $10 billion that should 
have been spent on reconstruction.
    The baton has passed. That is the message that I took to 
Secretary Rice and Deputy Secretary England, Secretary Gates 
when I met with them on the implications of our report. Also, 
in the last week, I met with General Petraeus and yesterday 
with Ambassador Ryan Crocker, who is just leaving for Iraq, and 
with both of them I know that we will continue the good working 
relationship that I have had with the embassy and with MNFI to 
date.
    Also, yesterday I met with the Department of Justice, with 
Assistant Attorney General Alice Fisher, on the 20 cases that 
we have pending there, and I am pleased to report that the 
coordinated interagency effort to effectuate aggressive 
investigative work in Iraq is getting better. It is improving. 
It has improved over the last year, and I am very confident, 
over the coming year, that we will see more progress in that 
area.
    And, Mr. Lynch, with respect to the question you raised, we 
have followed up on those issues. Philip Bloom, who was the 
primary driver behind the criminal scheme that occurred in 
Hilla 3 years ago, will be sentenced tomorrow, following three 
other persons who have already been sentenced and are going to 
prison. We have nine persons that have been indicted or 
convicted to date, and more to come.
    We did a followup audit on exactly the issue you asked, and 
our recommendation was that the Government needed to hire a 
contractor or needed to pursue exactly this issue: what 
happened in the other regions. And they hired a contractor to 
followup on those issues, and the contractor, based on our most 
recent review, did not receive clear direction and they did not 
receive proper oversight, and so that followup is yet to be 
completed, but I am going to push it moving forward. And when I 
get back to Iraq, I am going to take on this issue, and we will 
meet with you when you get over there and discuss progress on 
that.
    With my statement, I have submitted seven of our audits and 
inspections as examples of our work over the last 2\1/2\ years, 
as well as our quarterly report, and also I want to draw 
attention to an important issue that Ranking Member Davis 
raised, and that is the lessons learned that need to be drawn 
from our collective work, the collective work of those 
providing oversight.
    And we have produced two lessons learned report that are 
effectuating change within the government system through both 
legislative and regulatory amendment, one in human capital 
management. It came out a year ago. It has been an issue from 
the start; it is still a challenge today, but less so, 
certainly burdened CPA, as we heard last week. Contracting came 
out last August, and a series of recommendations has helped 
move real-time lessons learned, the application of real-time 
lessons learned in Iraq forward through the Joint Contracting 
Command in Iraq. I work closely with the commander there each 
trip, and things are better today than they have been certainly 
in the history of Iraq reconstruction.
    Finally, our lessons learned report on program and project 
management will be out in a little over a month, and it will 
tell the executory story of how programs were implemented and 
projects completed.
    Briefly, I want to touch on the audits I have submitted as 
examples, just to exemplify what SIGIR is looking at and how we 
try to carry out what I call real-time auditing, which means 
working with management to effectuate changes when we uncover 
problems, and that has to be the way it works in Iraq because 
of the limited timeframe, and I go back there to push that same 
philosophy forward tomorrow.
    The contract award fee process, an issue that came up 
during my June trip in 2005, and I discovered that the award 
fee process had no criteria and no documentation, it had no 
direction that it should have had pursuant to government 
regulations. But this is an example of how change happened 
immediately. As soon as that was uncovered, within a week, 
criteria were developed. The JCCI began to develop a new 
program, and within a month, before the audit came out, the 
problem had been fixed. The problem, though, was that award 
fees were being given, handed out based on weak criteria, 
limited oversight, and really in violation of the core 
principle of an award fee, that is, you award superior work, 
good work, something that exceeds expectations. That is going 
on today; it wasn't when we found this problem.
    The primary health care clinic issue is probably the 
program that has been the biggest large-scale disappointment 
since it was an ambitious attempt to bring health care out to 
the rural areas, to build 150 centers across Iraq for $250 
million. Two years later, $186 million had been spent and six 
were complete. The Corps of Engineers, to its credit, brought 
to our attention problems with Parsons, the contractor. We 
began to work immediately with the Ambassador Khalilzad to 
develop solutions to that. The execution of those solutions is 
still very gradual. A hundred twenty-one of those clinics are 
still under construction. We visited some of them in our 
inspections process, and they have shown to be substandard, as 
our reports reveal.
    Third, last June we released a report on definitization. It 
is an abstract auditor term, but it means getting a hold of 
costs when you start out on a cost-plus contract that doesn't 
have defined requirements. And the definitization requirement 
is essential to ensure that in a cost-plus program, which we 
have in Iraq, that eventually the government gets control of 
how much these projects are going to cost. And as our audit 
revealed, the definitization requirement was not followed in 
Iraq by the Department of Defense. We looked at 194 task orders 
valued at $3.4 billion that should have been definitized and 
warrant--the definitization requirement requires 180 days after 
work begins you have to define what costs are. The Department 
of the Army recognized that was an issue. The General Counsel 
issued an opinion saying the definitization should be followed, 
so it is moving forward, but it had not been before we began to 
look at it.
    Fourth, the Basra Children's Hospital, a USAID project that 
suffered from lack of oversight. The message there is you have 
to have more transparency. It fell behind, it was over budget, 
but that information didn't get up to levels that it needed to 
be. When it finally did, we recommended that Ambassador 
Khalilzad create a core group to manage this; he has. He moved 
management to the Corps of Engineers. It is moving forward, but 
rather than being done as it should have been a year ago, the 
hospital won't be finished for 6 to 12 months.
    Administrative task orders was an issue that came to my 
attention when I was visiting with PCO, Project Contracting 
Office, and its predecessor, Project Management Office, during 
the reprogrammings, and I was concerned about overhead for 
contractors that weren't doing work. So we delved into that and 
discovered that the need to control overhead costs wasn't 
managed well in Iraq.
    Finally, in our latest quarterly we have the report that 
the chairman referred to in his opening remarks about the 
police liaison officer camp that was going to be built at Adnan 
Palace, which is in the Green Zone, and was canceled. However, 
tens of millions of dollars was expended in buying the trailers 
anyway because of the lack of oversight of that project, 
including unauthorized work that was executed and equipment 
that, in the course of our audit, we were not able to account 
for.
    The inspection I have submitted is of the Baghdad Police 
College. It has been a problematic project; an important 
project, the largest police college in the world, the locus for 
training police in Baghdad, the most difficult place in the 
world, and it simply has not met expectations. I just heard 
today from my staff over there that the Corps of Engineers is 
executing new contracts to fix what has been difficult to fix 
to date and the Iraqis have not accepted the project, though it 
was due to be turned over last month.
    In closing, let me put this all in perspective. First of 
all, fraud. Fraud has not been a significant component of the 
U.S. experience in Iraq. Where we found it has been egregious, 
we continue to pursue it. I have a coordinated effort that I 
referred to, but it has not been a significant component of the 
U.S. experience. Waste is another issue, and I am working on 
with General Walker and Mr. Reed and others to identify that in 
clearer terms, and we are pursuing that and the Congress has 
directed my office to perform a forensic audit that will give 
you the hard data on that once it is completed. And, finally, 
we will complete a comprehensive lessons learned program in the 
course of this year, and from that effectuate what I expect 
will be positive change that will improve not only the 
continuing reconstruction of Iraq, but planning for any future 
efforts.
    Mr. Chairman, thank you for this opportunity.
    [The prepared statement of Mr. Bowen follows:]

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    Chairman Waxman. Thank you very much, Mr. Bowen.
    Let me start with Mr. Reed. In your testimony today you 
highlighted some of DCAA's major findings related to Iraq, and 
I would like to ask you about some of these.
    First, you said in your testimony that DCAA has identified 
$4.9 billion in questioned costs and $5.1 billion in 
unsupported costs. When I added these figures together, I end 
up with a total of more than $10 billion in questioned and 
supported costs. That is correct, isn't it?
    Mr. Reed. That is correct.
    Chairman Waxman. OK. Now, that is an astonishing figure. 
Last fall, GAO reported to us that the number was $3.5 billion 
in questioned and unsupported costs. Now, just a few months 
later, the overcharges and unsubstantiated bills are nearly 
three times larger. Let me ask about each category of suspect 
charges.
    When you identify costs as questioned, your audits, with 
their experience and expertise, believe these costs ultimately 
should not be paid to the contractor. In fact, that is your 
recommendation to the contracting officer, isn't that right?
    Mr. Reed. That is correct.
    Chairman Waxman. And unsupported----
    Mr. Reed. If I could point out, however----
    Chairman Waxman. Sure.
    Mr. Reed [continuing]. In regards to the $4.9 billion, it 
is important to note that a large part of this questioned costs 
occurs during the pricing of the contracts, rather than the 
payments. And where we make recommendations during the pricing 
of the contracts, the contracting officer's job is to consider 
our recommendations in negotiating the price. So, hopefully, we 
achieve reductions in the prices before we incur these costs.
    Chairman Waxman. And unsupported costs are those with 
insufficient documentation from the contractor to justify the 
charges, isn't that correct?
    Mr. Reed. That is correct. And that area also deals with, 
in most cases, estimated cost, rather than billed cost.
    Chairman Waxman. The total amount of dollars that you 
examined, I believe, was $57 billion, is that correct?
    Mr. Reed. Yes, sir.
    Chairman Waxman. So that means that you are raising 
questions about 18 percent of the dollars you have reviewed. 
Put another way, about one out of every $6 that your office 
examined was either questioned or unsupported. That is a 
phenomenal amount of potential waste, fraud, and abuse.
    Mr. Reed, your office has been doing yeoman's work. You 
have issued more than 1,800 audits relating to Iraq contracts, 
I believe, but have looked at only a fraction of the spending 
in Iraq. And according to the Congressional Budget Office, we 
spent over $350 billion on the Iraq war. Do you know how much 
of the $350 billion has gone to private contractors?
    Mr. Reed. No, I don't. I can tell you that in terms of what 
DCA is responsible for auditing, $51.8 billion has gone to 
private contractors.
    Chairman Waxman. Mr. Bowen, you have looked at some 
contracts that Mr. Reed hasn't looked at. The DynCorp contract 
with the State Department is one example, and you found 
egregious examples of misspending, like building Olympic 
swimming pools, that Mr. Reed didn't seem to know about, at 
least hasn't reported on. Also, even when Mr. Reed may not see 
a problem based on his review of the billings, your inspectors 
who are visiting the actual sites may see enormous waste or 
substantial construction. This means that you are finding 
examples of poor performance or wasteful spending that even Mr. 
Reed doesn't know about, is that correct?
    Mr. Bowen. My mission, as assigned by the Congress, is to 
oversee the Iraq Relief and Reconstruction Fund, and we work in 
conjunction with DCAA, interact with them at least quarterly 
through the Iraq Inspector General's Counsel, and, indeed, on 
the contract you are referring to, we will continue to work 
together in getting to the bottom of where that money went. We 
have identified a series of issues, as you have pointed out, 
and we will followup on that. More importantly, what that audit 
tells me to do is to follow the rest of DynCorp's contracting 
in Iraq, and that we have an audit plan to do exactly that.
    Chairman Waxman. Now, let me ask each of you this question. 
Mr. Reed has identified $10 billion in questioned and 
unsupported costs. Do any of you think that the total amount of 
potential wasteful spending in Iraq is $10 billion or, when the 
final audits are done, will the amount of waste, fraud, abuse, 
and other types of unreasonable or unsupported spending be much 
higher?
    Mr. Bowen.
    Mr. Bowen. I am not ready to put a number on this. Our 
series of audits----
    Chairman Waxman. Well, higher or not?
    Mr. Bowen. Well, the forensic audit is going to get to the 
bottom of that, on the $21 billion of the Iraq Relief and 
Reconstruction Fund, but there are about $38 billion if you 
broadly define relief and reconstruction at work here, and that 
covers the Iraq Security Forces Fund, the Iraq Relief and 
Reconstruction Fund, the Commander's Emergency Response 
Program, the Economic Support Fund----
    Chairman Waxman. When you look at it all, is it going to be 
more than $10 billion?
    Mr. Bowen. I can't put a number on it right now, but there 
will be serious waste, significant waste that we will continue 
to identify and eventually come to a number.
    Chairman Waxman. I wasn't asking you for a number. Do you 
think it is going to be more than $10 billion?
    Mr. Bowen. I try to confine myself to what I know and can 
reasonably analyze, and I am not ready to answer that 
affirmatively.
    Chairman Waxman. Mr. Reed, do you think it is going to be 
more than $10 billion?
    Mr. Reed. Well, certainly, we have 600 audits planned in 
fiscal year 2007, and many of this contracts will extend beyond 
fiscal year 2007, so we have many years of contract costs yet 
to audit. However, the types of findings that we have cannot 
always be characterized as fraud and waste. Many of our 
adjustments are the routine part of administering contracts, 
negotiating prices, administering contracts for allowable 
costs. And while certainly some do fall into that category--and 
I don't want to diminish the importance--that is, to the 
Department--to catch that and deal with it, but certainly DCAA 
costs questioned will continue as we continue our audits.
    Chairman Waxman. Mr. Walker, is $10 billion going to be 
exceeded?
    Mr. Walker. Mr. Chairman, it is impossible to be able to 
answer that question without doing a statistically valid sample 
or having some basis to do it. There is little question that 
there are billions of dollars involved. How many, we can't tell 
you.
    I think there are two issues that are important for you to 
know. First, the first thing you have to do is define what 
waste is. On page 6 of my testimony is a joint definition that 
we came up with and has been agreed to by SIGIR, the DOD IG, as 
well as Department of State IG, so that is the first thing we 
have to do. We have the definition; there it is. We are all 
doing related work.
    And, second, the reason for the difference between DCAA's 
estimate and ours, primarily two things: one, they had a longer 
period of time and, No. 2, we only looked at final audits, we 
didn't look at pending audits. So those are the two primary 
reasons for the difference between our three point some billion 
dollar number and their $10 billion number.
    Chairman Waxman. That is understandable, but that means you 
haven't looked at all that Mr. Reed has looked at, and Mr. Reed 
hasn't looked at all the things that Mr. Bowen has looked at. 
But even if we just take it at about $12 billion or $10 
billion, it is an enormous sum of money. And my staff has 
researched what we might have gotten for these amounts, and 
they determined that an up-armored Humvee vehicle costs about 
$150,000 each. So for $22 billion we could have purchased more 
than 146,000 Humvees. That is about one Humvee for every U.S. 
service member in Iraq.
    The contractors in Iraq may be pocketing billions, we don't 
know how much, but the troops don't have the equipment they 
need, and the taxpayer is, in my view, getting gauged.
    Mr. Walker. In fairness, Mr. Chairman, there is no doubt 
there is a tremendous amount of waste, but it is also important 
to note that just because there has been a determination that 
there is not enough evidence yet doesn't mean that is waste. 
There is a tremendous problem in government in not having 
adequate controls, not having proper documentation, not 
definitizing requirements enough, etc., but that doesn't 
necessarily mean that it is waste.
    Chairman Waxman. OK, well, I appreciate that. We will look 
at some of the specific examples later in the hearing. But I 
now want to recognize Mr. Davis.
    Mr. Davis of Virginia. Let me try to clarify some issues 
here.
    Mr. Reed, there has been some concern raised about the 
ratio between the costs you flagged as questioned--I have seen 
a number of estimates as high as $10 billion--and the quantum 
of those costs that the contracting agencies have finally 
disallowed. Are you with me?
    In general, are you comfortable with the settlements made 
by the agencies with the contractors on these costs?
    Mr. Reed. The relationship between us and the contracting 
officer is one of advisor, and we fully respect and acknowledge 
their authority to consider our recommendation along with other 
advisors that they have. I respect their important job and I am 
satisfied they are fairly considering our recommendations.
    Mr. Davis of Virginia. Are there any particular instances, 
for example, the large settlement between KBR and the Corps of 
Engineers under KBR's Rio contract, that troubles you?
    Mr. Reed. No. I think the process worked, as it is defined, 
in terms of the responsibilities of DCAA versus that of the 
contracting officer and the Corps of Engineers. They rightly 
considered other evidence other than the audit reports and 
considered extenuating circumstances that might have affected 
the contractor's actions, uncontrollable circumstances, and 
they arrived at a----
    Mr. Davis of Virginia. In a war zone, that is fairly 
frequent, too, sometimes.
    Mr. Reed. Yes. And in that particular case it occurred 
during the first 9 months after the cessation of hostilities, 
and it was a very--obviously a very tense situation in that 
period.
    Mr. Davis of Virginia. And unsubstantiated costs versus an 
unsupported cost. An unsupported cost--my wife keeps our books 
and she wants me to account for everything. So if I go to the 
dry cleaners, I pick up the dry cleaning, I come back and I 
don't have a receipt and I pay in cash, that would be an 
unsupported cost, is that the equivalent?
    Mr. Reed. Yes.
    Mr. Davis of Virginia. It doesn't mean I wasted it, it just 
means at this point I don't have the backup documentation.
    Mr. Reed. That is correct.
    Mr. Davis of Virginia. Is that a perspective of what an 
unsupported cost is?
    Mr. Reed. Yes, it is.
    Mr. Davis of Virginia. And in a war zone, these kind of 
things--sometimes you get the higher unsupported costs than you 
might get, for example, if you are sitting down out in Fairfax, 
trying to move papers, is that fair?
    Mr. Reed. Yes, it is. And I would also point out, once 
again, that many of these unsupported costs are not actually 
incurred costs, they are based on estimates to establish a 
price for the contract.
    Mr. Davis of Virginia. Correct. You made that point.
    Mr. Reed. So at that point we hope to negotiate a fair and 
reasonable price based on solid evidence.
    Mr. Davis of Virginia. OK. I hear all sorts of things 
thrown around, like overcharges, unreasonable costs, suspect 
costs, to describe this $10 billion figure. What does that 
figure represent, are they really overcharges?
    Mr. Reed. No. These are--DCAA's activities take place 
during the administration of contracts. And certainly when you 
are dealing with price proposals and you are questioning costs 
or unsupporting costs in a price proposal, what you are talking 
about is how to negotiate a fair and reasonable price. 
Ultimately, the contractor will--after he is awarded the 
contract at the price, submits bills. These bills are audited 
by DCAA, and at that point we are looking at actual incurred 
costs, and these are differences of interpretation, in many 
cases, over regulations and in terms of what is compliant with 
the policies of the Department.
    Mr. Davis of Virginia. For example, if you didn't have some 
deficit there between your costs and the final costs, you 
really wouldn't be doing your job, would you?
    Mr. Reed. That is correct.
    Mr. Davis of Virginia. I want to make sure I am clear about 
the relationship between DCAA auditors and the contractor 
officers. The DCAA auditors act as professional advisors to the 
contracting officers on cost, pricing, and other related 
matters, correct?
    Mr. Reed. That is correct.
    Mr. Davis of Virginia. The contracting officer is then free 
to take the advice or not take the advice. For example, if DCAA 
may find that there is an overcharge of, say, $1 million, the 
contracting officer can then agree with that amount or not 
based on his or her judgment, correct?
    Mr. Reed. That is correct.
    Mr. Davis of Virginia. The contracting officer then has to 
initiate any action against the contractor, isn't that how it 
works?
    Mr. Reed. Yes.
    Mr. Davis of Virginia. OK. Has there ever been any pressure 
on DCAA from any source in the administration to take it easy 
on anybody, but particularly KBR, Parsons, or any other Iraq 
contractors, that you are aware of?
    Mr. Reed. Absolutely not.
    Mr. Davis of Virginia. Have most of the contractors that 
you have audited in connection with the Iraq reconstruction and 
support efforts been cooperative?
    Mr. Reed. Yes.
    Mr. Davis of Virginia. Any particular firms present any 
special problems?
    Mr. Reed. Well, certainly, KBR, being the largest by far in 
terms of the dollar amounts of contracts we are auditing, have 
been the focus of a lot of our attention, and in that regard, 
the numbers of audit reports and the issues would reflect that. 
I think companies, they have had their problems, all companies 
that we have audited in Iraq have had their problems in 
cooperation from the standpoint of having good business systems 
and records in field circumstances, and KBR has certainly had 
their share of problems.
    Mr. Davis of Virginia. And you hold them to a high 
standard, right, at least from a going-in perspective? You 
don't cut them a lot of slack, do you, because they are in a 
war zone and they don't have the systems up?
    Mr. Reed. We start from the same standards, but then we do 
try to be flexible and recognize that there are circumstances 
where the records might not be in perfect condition, given on 
the back of envelopes and things like that. So we try to be 
flexible in that regard, but we are not flexible in regards to 
having to have the evidence to support the cost ultimately.
    Mr. Davis of Virginia. Contract definitization is very 
important. Wasn't the lack--definitization. Wasn't the lack of 
definitization on many of these large contracts and task orders 
the root cause of many of the cost problems that occurred?
    Mr. Reed. Well, it certainly was a factor. I wouldn't want 
to say it was the largest factor, but it was a factor. And I 
would like to point out that, in that regard, we also raised 
concerns about the slow definitization process, particularly on 
the LOGCAP contract. In fact, I testified about that in one of 
my earlier appearances before your committee. And, in fact, we 
brought that to the attention of the Army contracting 
officials, and I think we were largely responsible for working 
out a good schedule for them to catch up with the 
definitization on the LOGCAP contract, and now they are in much 
better shape than they were during the period----
    Mr. Davis of Virginia. But that is a key issue, getting 
that nailed down, right?
    Mr. Reed. Absolutely.
    Mr. Davis of Virginia. How many fraud referrals has DCAA 
made in connection with the Iraq contracting effort?
    Mr. Reed. To my knowledge, five.
    Mr. Davis of Virginia. Do you think the fact that many of 
the costs that your auditors had questioned had already been 
actually incurred by contractors by the time the contracting 
officer was called upon to settle the charges was a significant 
factor in the low sustain rate of your audit findings?
    Mr. Reed. Yes, certainly, the Corps of Engineers has made 
that clear in some of the documentation of the results of their 
negotiation on the Rio contract, in particular, that there is a 
feeling that once the cost is incurred, it is much more 
difficult to challenge it. I, quite frankly, do not agree with 
that. I believe that the provisions of the contract are very 
clear that the costs must be determined allowable by the 
contracting officer. It doesn't matter if they have been 
incurred or not incurred.
    Mr. Davis of Virginia. Let me just say to all three of you, 
you have great reputations, at least with our office, in terms 
of calling balls and strikes, being fair, and we take what you 
say very, very seriously up here. But I think the perspective 
is also important as we measure this.
    General Walker, let me just ask you. You and a number of 
witnesses and members have noted that DOD does not know the 
number of subcontractors or the number of contract employees in 
Iraq providing services, particularly security services. It is 
pretty clear that, from a military operation standpoint, that 
it makes sense to know how many folks are there carrying guns 
or that need to be protected. I am less clear how valuable that 
information is from an acquisition management standpoint. When 
the services are performed under large primes, we pay the prime 
to provide the service specified and we hold the firm 
responsible for that performance. How important is it to know 
whether the actual performance is provided by a 1st-tier or a 
15th-tier subcontractor, as long as the price is reasonable, 
the services are performed in accordance with the contract? 
Aren't we, in effect, paying the prime contractor to manage the 
subcontracts and responsible for the overall performance?
    Mr. Walker. Several comments. First, we are using 
contractors in new and unprecedented ways in Iraq, and I think 
there is a need, separate from this hearing, probably, to have 
a discussion about the systemic and generic contracting 
problems, including what is appropriate to use contractors and 
not. But, second, no, there can be problems----
    Mr. Davis of Virginia. Before you go there, General Walker, 
I want you to finish----
    Mr. Walker. Surely. I will answer your question.
    Mr. Davis of Virginia. I think that is one of the problems, 
and we have had trouble getting Federal employees to come over 
there.
    Mr. Walker. We have.
    Mr. Davis of Virginia. And that is one of the reasons, 
isn't it, that we have had to use the contractors, and it has 
created a problem?
    Mr. Walker. Well, there are several reasons. No. 1, we 
don't have adequate in-strength; No. 2, we are having trouble 
getting people to come over. I mean, we can go through that at 
a separate time, but let me answer your question specifically.
    There can be problems when you don't know who the 
contractors are and what the contractor terms are, even in your 
scenario. For example, we found that tens of millions of 
dollars of costs were incurred by the taxpayers in 
circumstances where contractors who were receiving a per diem 
allowance for subsistence were using the facilities and the 
food facilities that were being provided and, therefore, that 
is waste. I mean, that is clear waste, OK? And that was tens of 
millions of dollars. And so because we didn't know who the 
contractors were, because they didn't know what the contracting 
arrangements were for costs, that is one example of where you 
can have waste.
    Mr. Davis of Virginia. Mr. Waxman, I think that is fine.
    I would just ask Mr. Bowen a very quick question on the 
definitized contracts. Is that one of the biggest problems, is 
definitization?
    Mr. Bowen. Absolutely. Yes, sir.
    Mr. Davis of Virginia. I mean, it really boils down, at the 
end of the day, in a lot of this, to getting those large 
contracts----
    Mr. Bowen. If you are going to use cost-plus contracts, 
definitization has to happen at some point. There is a time 
line or a percentage complete milestone upon which occurring 
definitization should follow, and that was wrongly interpreted 
in Iraq. It is now being corrected, but waste occurred as a 
result.
    Chairman Waxman. Thank you, Mr. Davis.
    Mr. Tierney.
    Mr Tierney. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your testimony and your help here 
this morning.
    Mr. Walker, I am assuming that firms like KBR and Parsons 
get the contracts in the first place because they purport to 
have the kind of experience in these types of situations, is 
that right?
    Mr. Walker. That is correct.
    Mr. Tierney. So, Mr. Reed, you had about $10 billion in 
questioned or unsupported costs on the reconstruction on that, 
and you recommended that a certain amount of that money be 
withheld until those issues were resolved, is that correct?
    Mr. Reed. Yes, that is correct.
    Mr. Tierney. Now, you provided to the committee sort of a 
historical sustention rate that looked to me to be about 50 
percent to 75 percent most of the time, is that correct also?
    Mr. Reed. Yes.
    Mr. Tierney. But in this instance it looks like the 
Department agreed with you only about somewhere between 25 
percent and 37 percent of the time. Can you explain that 
difference?
    Mr. Reed. Well, I think the difference would go to the fact 
that we are dealing with a contingency contracting situation. 
Many of the awards are made under unusual and compelling 
authorities and, therefore, I think the contracting officers, 
in dealing with settling some of these very significant issues, 
one of which has been mentioned already, the Rio contract and 
the price of fuel, and the other was dining facilities, which 
were two very big issues that the contracting officer settled. 
In both settlements I think the contracting officer gave 
considerable weight to the obstacles and difficulties the 
contractors were facing because of contingent circumstances.
    Mr. Tierney. So we have firms that say they want these 
contracts because supposedly they know how to deal with these 
situations, and then they get relaxation from the Department 
because supposedly they ran up against exactly what they were 
hired as experts to deal with. I find that still a little 
problematic when you look at the difference between 75 percent 
of sustention and 37 percent. But my understanding also is that 
when you look at this situation or you examine and you audit, 
you take into account the fact that there are wartime 
complications, don't you?
    Mr. Reed. Yes, we did. In fact----
    Mr. Tierney. In fact, Halliburton, on the oil thing, didn't 
you give them a grace period to account for the fact that they 
were in a wartime emergency, even though they purported to be 
an expert able to deal with that?
    Mr. Reed. Yes, we did give them a grace period.
    Mr. Tierney. And, in fact, you didn't recommend withholding 
any charges for several months on Halliburton while they were 
making an adjustment to that environment, is that correct?
    Mr. Reed. That is correct.
    Mr. Tierney. At some point you finally said enough is 
enough and you made your recommendations, and your 
recommendations were a sustention rate significantly higher 
than 25 percent to 37 percent, correct?
    Mr. Reed. Correct.
    Mr. Tierney. Now, some have suggested that we may, the 
Pentagon may have become too reliant on contractors in general, 
and, Mr. Walker, you had some good testimony the other day 
about that issue, and I think it should have the attention of 
all of us. When that happens, when we rely so heavily on 
contractors, doesn't that in fact give them the leverage in 
these situations so if they go to the contracting officer, they 
have real leverage; they can just refuse to perform if somebody 
doesn't work out and pay them higher than the recommended 
sustention rate, they could lave the military with no 
alternatives. Is that a concern, Mr. Walker?
    Mr. Walker. Well, it can change the leverage. But we also 
don't have enough people who have the right kind of skills and 
knowledge to be able to oversee the contracting arrangements, 
even if the leverage is not changed.
    Mr. Tierney. Mr. Bowen, do you find that is a legitimate 
concern as well?
    Mr. Walker. Absolutely. A simple axiom is elicited by our 
collective oversight, and that is if you don't have the right 
people on the scene and both government and contractor looking 
at programs and projects, then you are going to end up with 
programs that fall off the rails like the primary health care 
clinic program or projects that don't meet expectations like 
the Baghdad Police College.
    Mr. Tierney. Did you want to add something, Mr. Walker?
    Mr. Walker. Real quickly. I think it is important to 
reinforce there are systemic problems that are longstanding 
with the Department of Defense. They are exacerbated and 
accentuated when you have a contingency operation, which 
Katrina and Iraq were both contingency operations, and a 
conflict zone, which Iraq is a conflict zone. So it is 
important we are focusing on Iraq, but this is the tip of an 
iceberg that we have to focus on.
    Mr. Tierney. I heard you clearly on that, and I believe 
that it is something we should look at.
    Mr. Bowen, let me just finish with you. You reviewed the Al 
Fatah pipeline situation, am I right?
    Mr. Bowen. Yes, sir.
    Mr. Tierney. That was along the Tigris River and 
Halliburton, in that instance. was asked to restore a crucial 
set of pipelines by digging across and under a river.
    Mr. Bowen. That is right.
    Mr. Tierney. What you found, I understand, is that they 
were just told by their expert that was impossible to do.
    Mr. Bowen. That is right.
    Mr. Tierney. And, yet, they went ahead and spent $76 
million digging what turns out to be a ditch to nowhere.
    Mr. Bowen. Yes. Eventually they followed what the 
consultant said to do after expending tens of millions of 
dollars fruitlessly.
    Mr. Tierney. And I guess that probably is one certain 
highlight, that kind of insanity, about the dangers of 
contracting too much out and having too few government people 
to monitor and oversee that.
    And all of you gentlemen, I thank you for your testimony.
    Mr. Walker, I think we should have a number of other 
hearings on that issue.
    Thank you, I yield back, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Tierney.
    Mr. Souder.
    Mr. Souder. I thank the chairman. I chuckle every time I 
hear longstanding problem in the Department of Defense that 
actually started with Robert Morris and the American Revolution 
and the question of financing and whether--because there is 
nothing more disgusting than fraudulent war profiteering when 
people are dying, and I think we all agree with that.
    I have--first off, I want to say I appreciate the caution 
all of you showed under questioning about what numbers might 
be. I want to insert for the record--because one of the things 
Mr. Bowen has done is corrected his initial estimate to what 
actually the actual potential auditing from October 2006 to 
January 2007, how much they actually saved in the process. 
Because until you actually followup even in your own 
projections and do a detailed audit process, you don't know for 
sure what these dollars are. And you can grab a headline with 
the huge number, but until we play the whole thing through, we 
don't know what we are dealing with. In fact, that seems to me 
one of the main things you are saying today, and I basically 
have several questions here, because is it or could more be 
done in the initial contract that when you are bidding for the 
contract you have to have more auditing and sufficient auditors 
and sufficient people doing the paper trail in the bid for the 
contract? It just seems like a basic cost of doing business. We 
are having to deal with this in FEMA as well, when we 
appropriated some of the Katrina money and added all those 
additional auditors. It seems like that ought to be an up-front 
cost with the dollars. Is it something--for example, if you are 
late on delivering a contract, there are huge penalties. Do we 
have and should there be penalties for failure to have adequate 
auditing and failure to keep the paperwork that could be added 
to contracts, much like we would do for being late in a 
contract?
    A second question is do we have the ability and do you 
sense that a lot of this problem isn't actually with the 
contractors, it is with the subcontractors? In the only case--I 
shouldn't say the only case, but the primary case, in one of my 
trips to Iraq, it was right in the middle of some of the 
Parsons hospital questions, you just can't be anything but 
appalled. But what was absolutely clear in that case was that 
we had a whole layer of subcontractors, and the American 
contractor is in many cases really just a broker. So we had an 
American person to broker, and then we got into their 
subsystem, and you have to buy off this group, you have to buy 
off this group, you have to buy off this group. By that time 
there is not any money left to build a hospital, so you get a 
substandard hospital; and the few that we have are falling 
down. And the question is do we have a system to figure out how 
to track the subcontractors? The fraud here isn't necessarily 
at the American level, it is how, in a war zone and in an 
unstable environment, do we track subcontractors.
    The third question I have is do you think the biggest 
problem here is lack of security? Because it seems to me that 
one of the problems is that money was thrown at a variety of 
things, possibly, I don't know, but possibly even extra housing 
and swimming pools and all that, because nobody wanted to go or 
they were getting shot at and it was hard to recruit. In the 
subcontracting, one of the things we heard from the Army Corps 
was that it was really hard; the subcontractors show up, they 
kill somebody from their family or they shoot somebody there, 
they disappear, they are pouring the foundation, they don't use 
the normal time they would let to have cement dry for fear of 
getting shot at, they start putting up a beam and decide they 
are not going to finish the project because somebody is getting 
shot at. How much of this problem is actually related to 
security?
    Mr. Walker. I will start.
    First, it is a shared responsibility between the government 
and the contractors at the prime and sublevel for the problems 
that we have. It is clearly a shared responsibility.
    Second, you talked about a number of different things that 
need to be looked at, but some of the things you talked about 
represented management responsibilities, some of the things you 
talked about represented oversight responsibilities, and some 
of the things you talked about represented audit roles; and I 
think we can talk about that separately, I think they are 
different.
    You have to have the right incentives, transparency and 
accountability mechanisms for the system to work. We don't have 
that right now.
    And, last, yes, security is the big problem. There was a 
presumption that we were going to have a permissive security 
environment and, therefore, it was going to be easy to engage 
in this reconstruction. We also assumed that the Iraqis were 
going to have an ability to maintain it after we did it. 
Thirty-three percent, on average, of contracting costs for 
reconstruction were going for overhead; 10 percent plus for 
security. That is obviously not what was expected when we 
originally planned on this and when Congress appropriated the 
funds.
    Mr. Reed. You mentioned several areas. I guess your comment 
about the need for having up-front audits before contracts are 
awarded, in regards to that area, I think that I agree with you 
totally; that is the prudent business approach. In this 
situation, the unusual and compelling circumstances made that 
somewhat problematic in terms of awarding what is called letter 
contracts, the authority to proceed, before the actual price of 
the contract was negotiated, which is referred to in that case 
as definitization, the problem we were talking about a moment 
ago. And so certainly I think it wasn't a case of the auditors 
not being available, it was a case of the speed of which 
contractors had to be authorized to proceed. As that became 
less of an issue, DCAA was involved in most of the larger 
pricing actions that led to cost reimbursable contracts.
    The issue of subcontractors, this has been a tough area for 
us in auditing particularly KBR, because we expect the prime 
contractor, KBR, to take responsibility for administering its 
subcontractors. And so we were looking to them to tell us 
whether they have negotiated fair and reasonable prices with 
their subcontractors, whether they are monitoring their 
performance adequately to ensure they are delivering what the 
subcontract requires them to. KBR has not always met our 
expectations in regards to demonstrating the reasonableness of 
some of the prices. In fact, that was in the restore Iraqi oil 
that we talked a moment ago, was one of the big issues, is 
their procurement files did not contain sufficient 
documentation to show us how they determined what was a fair 
and reasonable price in the case of one particular 
subcontractor. That continues to be a problem with the 
continuing subcontracts.
    We really expect KBR to be auditing its subcontracts, if 
they are awarded on a cost-reimbursable basis, and we are 
pressing them very hard to live up to their responsibilities in 
that regard and to share with us the results.
    Chairman Waxman. Thank you, Mr. Souder.
    We now go to Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    Just to followup, Mr. Bowen. I talked about earlier the 
Bloom case, where we actually got a conviction, and I 
recommended that we look at all of the other contracts that Mr. 
Bloom and the other people who were indicted and convicted had 
been involved in. It is my understanding, in response to that, 
you usaid that you had made that recommendation to the Pentagon 
as well, is that correct?
    Mr. Bowen. Yes, sir.
    Mr. Lynch. And that they had in fact hired a contractor?
    Mr. Bowen. Actually made it to the Joint Area Support 
Group, a DOD entity that is in charge of administrative 
management of the embassy.
    Mr. Lynch. OK, so who is doing the actual investigation of 
those individuals who have already been convicted and the other 
contracts?
    Mr. Bowen. Well, the followup--this was a development fund 
for Iraq investigation that arose out of development fund for 
Iraq audits, and so we make recommendations on our audits, and 
one of them was to followup on the other regions, just what you 
said. And the person responsible for following up on those DFI 
recommendations was the Joint Area Support Group in Iraq, and 
they hired a contractor to followup on that recommendation, 
check the other regions, but our review, which was completed 
this last quarter, following up on a recommendation concluded 
that they did not carry out the recommendation properly, so we 
are going to followup ourselves.
    Mr. Lynch. It is just getting worse. They had a failure of 
a contractor, so what do we do? We hire another contractor, who 
doesn't do their job. You know what I mean? Actually, the 
chairman and I have a bill that we are going to have to put on 
the floor at some point, which requires the Defense Department 
to take that up as well.
    Mr. Walker, I believe you have something to add?
    Mr. Walker. I think it is important to note that the DFI 
Fund is Iraqi money, not U.S. money. At the same point in time, 
we had a fiduciary responsibility to be prudent with regard to 
the use of that money. There are different pools of money, and 
we have different audit authorities depending upon which money 
is involved.
    Mr. Lynch. Right. I am sorry, Mr. Reed, go ahead.
    Mr. Reed. I think, without getting into details, it is a 
reasonable assumption that investigations are continuing in 
regards to these individuals and their association in other 
contracts. We are supporting investigations, and I am not at 
liberty to say much more about that.
    Also, I would point out that in terms of the La Nouvelle 
situation, you mentioned specifically and Mr. Mazon, we are 
demanding that KBR provide cost information on all subcontracts 
that he was associated with awarding. We are interested in 
whether those prices were fair and whether excessive profits 
were made on those subcontracts, and we are in the process of 
getting that information right now.
    Mr. Lynch. OK. I appreciate that, but it has been a while 
at La Nouvelle. Those folks were convicted quite a while ago, 
and we are still trying to get information from Halliburton?
    Mr. Reed. Certainly, our first priority was to make sure we 
recovered the kickback amounts and the penalties associated 
with the actual plea that was made, and we have been auditing 
the estimates of that amount and supporting the settlement in 
that regard. As we were doing that, we began to move into the 
secondary issues, and we are trying to--we obviously have to be 
careful we do not step on the toes of any investigators who may 
be proceeding down the same trails unbeknownst to my auditors.
    Mr. Lynch. Well, don't be too shy. Don't worry about 
stepping on some toes. If we can get to this corruption and the 
bribery and all that, that is very important.
    Mr. Bowen.
    Mr. Bowen. Mr. Lynch, if I may offer one other point. Last 
Wednesday we unsealed indictments on five other individuals 
that were the results of followup investigations with regard to 
the Bloom and Stein conspiracy in Hilla, and more are in the 
works. So there is followup with respect to them, but we also 
need to be sure we check the other CPA regions to see whether 
those comptroller offices operated properly.
    Mr. Lynch. I appreciate that. The point I am trying to make 
here is that there are some core responsibilities of government 
on oversight, and I just do not want to have those government 
responsibilities that are so central to our oversight function 
here to be contracted out. That is where we got in this problem 
in the first place. And I understand we are short on staff, but 
there has to be another way to do this.
    The central question I had, Mr. Bowen, last week we had the 
Army in, and they testified that they had no idea--even though 
it was an open, competitive bidding process, they had no idea 
that Blackwater was being paid for security work under LOGCAP, 
even though it was an open, competitive bidding process. They 
testified several months ago that there was no contract. Last 
week--you were at the earlier panel--they testified that, yes, 
in fact, that had gone on. And the problem is the tiering of 
all of these contracts. You have a general contractor, you have 
a subcontractor, you have a sub-subcontractor, and a sub-sub-
subcontractor.
    I noticed in your report, Mr. Bowen, on page 8, we have an 
example of this problem. The State Department awarded DynCorp a 
contract to build a residential camp for Iraqi police. DynCorp 
then subcontracted the work to a company called Corporate Bank. 
Corporate Bank then subcontracted the work to an Italian 
company called Cogim SpA.
    Now, I want to ask you about this because it is down in 
your report. On page 8 of your report you say that DynCorp was 
awarded a subcontract to build this for $55 million. Now, they 
subcontracted to Corporate Bank to build it for $55 million on 
August 15, 2004. That is according to your report. Two weeks 
later, on September 1, 2004, that corporation, Corporate Bank, 
subcontracted it out to this Italian company, Cogim SpA, for 
$47.1 million, to do the exact same scope of work.
    Now, in that 2-week time period it appears that Corporate 
Bank made, I don't know, about $8 million. I just want to 
understand. Is that right?
    Mr. Bowen. I think you are alluding to a point Mr. Souder 
made as well, and that is visibility into how a prime 
subcontracts work and how that work is subcontracted down can 
result in dilution of financial effort and, as a result, lack 
of oversight. There is--the system that we operate under is a 
quality assurance program operated by the government, which 
expects that the contractor executes a quality control program 
over his subcontractors. And when the lack of visibility by the 
operational overseer, the government doing the QA program 
results in loss of visibility and cost controls.
    Mr. Lynch. I guess the central point of my question is 
this: Could you determine any value added by Corporate Bank in 
the 2-weeks they had the general contract? They made $8 million 
by re-subcontracting out the work to the Italian company.
    Mr. Bowen. No, we didn't, and I think the lesson learned is 
we need to carefully study the design-build prime contracting 
process that was used in Iraq, how subcontracting happened, and 
definitization needs to operate within the cost-plus contract 
environment to control costs. And we heard repeatedly today 
that was not executed effectively, has not been executed 
effectively.
    Mr. Lynch. Thank you, Mr. Chairman. I yield back.
    Chairman Waxman. Thank you, Mr. Lynch.
    Mr. Braley.
    Mr. Braley. Thank you, Mr .Chairman.
    Mr. Walker, Mr. Reed, Mr. Bowen, thank you for your time 
here today.
    Mr. Walker, I appreciated your comment about the fact that 
no matter how dire the circumstances are we are talking about 
here today, they really represent just the tip of the iceberg 
and the real problem that we are facing in Iraq and 
accountability.
    And, Mr. Bowen, I appreciated your comment about the 
watershed report that you issued in January. As you know from 
the last time we were together, I read that report and I was 
deeply disturbed by some of the forward-looking conclusions 
that you reached about the status of our situation in Iraq with 
future reconstruction efforts, so I thank you for your time.
    I would like to shift the focus and talk about swimming 
pools. I was very proud to be president of the Blackhawk Area 
Swim Team, where we had four teenage boys set three age-group 
swimming records in an Olympic swimming pool in Cedar Falls, 
IA, that no longer exists because of aging and deteriorating 
conditions. And one of the disturbing things about your report 
was that DynCorp's contract with the State Department revealed 
unauthorized work being performed under the contract, 
specifically the building of an Olympic sized swimming pool and 
luxury trailers without authorization from the State 
Department, is that correct?
    Mr. Bowen. That is correct.
    Mr. Braley. And I understand we have some pictures that 
were not included in your report. Maybe we can put those up on 
the screen while I ask you a question.
    This first photograph that we are looking at appears to 
depict a pool that is in pretty poor conditions. As I 
understand it, DynCorp had the pool built but then it 
collapsed, is that correct?
    Mr. Bowen. That is right.
    Mr. Braley. And this pool was built in 2004 and then was 
subsequently rebuilt.
    Mr. Bowen. That is right.
    Mr. Braley. So let's put the picture of the pool up as it 
appears today. Is that it?
    Mr. Bowen. Yes, sir.
    Mr. Braley. It looks like a pretty impressive facility.
    Mr. Bowen. Yes, sir.
    Mr. Braley. There are many swim clubs in this country who 
have limitations of being able to swim only in a 25-yard or 25-
meter pool, and that looks like one that would be available for 
competition level swimming.
    Mr. Bowen. Yes, sir.
    Mr. Braley. Now, do we know who paid for the pool to be 
rebuilt a second time?
    Mr. Bowen. No, we don't. That is something we are following 
up on through our investigative work.
    Mr. Braley. So it could have been someone else, but as I 
understand from the communications with your staff, this could 
have been built again by DynCorp, is that correct?
    Mr. Bowen. That is possible. That is a possibility, and we 
will get that answer for you in short order.
    Mr. Braley. But, theoretically, U.S. taxpayers could have 
paid for this pool twice.
    Mr. Bowen. We will find out the answer to that question, 
yes, sir.
    Mr. Braley. And do you know whose idea it was to build this 
swimming pool?
    Mr. Bowen. This was unauthorized work directed by the Iraqi 
Ministry of Interior. Apparently, from the course of our audit, 
it was approved by the senior advisor to the Ministry of 
Interior for the Coalition Provisional Authority.
    Mr. Braley. Did DynCorp have authorization from the State 
Department when they performed the work?
    Mr. Bowen. No, they did not. The system that we have set up 
depends on an effective contracting officer's representative 
exerting oversight of how the money is spent under a contract. 
That did not happen in this case and, indeed, it has been a 
problem with respect to the State Department's INL Office 
oversight of DynCorp. The result, one of the salutary results 
of our audit is that contracting officer's representative has 
been replaced.
    Mr. Braley. Can you tell the committee who the person was 
at the CPA who gave that authorization?
    Mr. Bowen. I think you should go to the INL Department for 
who that person is.
    Mr. Braley. At our hearing last week on the $12 billion in 
cash that the CPA failed to properly account for, Ambassador 
Bremer and others made the argument that we shouldn't worry 
because it was just Iraqi money, and I disagreed with that 
argument at the time. Nevertheless, today we are talking about 
U.S. taxpayer money, and these same CPA officials seem to be 
just as careless with taxpayer money as they were with Iraqi 
money.
    I hope, Mr. Chairman, that the committee will pursue this 
question with the State Department and push DynCorp to return 
all these millions of dollars, as the Inspector General 
recommended in his audit report.
    One of the other questions that I am concerned about are 
quality of life issues. One of the things we rarely talk about 
is the direct impact that these decisions have on the people in 
Iraq who are supposed to be benefiting from these dollars, and 
I am deeply disturbed about our continuing failure to meet the 
basic needs in the reconstruction in particular with the 
provision of electricity. Amazingly, although we have spent 
nearly $3 billion in U.S. taxpayer money to restore electricity 
in Iraq, the production levels in 2006 were actually below pre-
war levels.
    Mr. Walker, can we put that in everyday terms? In Baghdad, 
how many hours per day does the average family have electrical 
power?
    Mr. Walker. Six.
    Mr. Braley. And the GAO report indicates that the power 
supply that they have remains unreliable. Do people know when 
the power is going on or off, or does it just happen randomly?
    Mr. Walker. There is not a pre-announced, pre-planned 
schedule. And part of the problem here is because of the 
terrorism. I mean, there is an effort to try to sabotage the 
distribution of electricity even after it is generated from the 
generating plant.
    Mr. Braley. Does that have an impact upon the approach that 
we take in dealing with Iraqi people on a very fundamental 
daily basis in terms of their trust for the services that we 
are providing?
    Mr. Walker. Well, first, the responsibility to provide 
services, I would argue, rests with the Iraqi government. The 
Iraqi government is responsible for providing, electricity, 
clean water, and the basic essentials that every citizen cares 
about. We are trying to help them do that, but ultimately they 
are responsible and accountable. And the failure to be able to 
do that reliably and effectively obviously undercuts the Iraqi 
citizens' confidence in (a) their government and (b) the 
effectiveness of the Coalition to be able to generate results.
    Mr. Braley. Well, what impact does it have on the hearts 
and minds of the Iraqi people when their own government has 
billions of dollars that are supposed to be devoted to these 
reconstruction efforts and it remains unspent?
    Mr. Walker. I am not sure if they know that. I am not sure 
how much the Iraqi people know about what is or isn't being 
done with regard to their funds. I can't comment on that. Part 
of the reason they haven't spent the funds is they don't have 
the capacity with regard to the systems, the controls. They 
have bickering, believe it or not, between various departments 
and agencies. Some departments and agencies are controlled by 
Shi'a, some are controlled by other factions. And the bottom 
line is the citizens want the outcomes, they want to see the 
results, and they are not seeing them yet.
    Chairman Waxman. Mr. Braley, your time has expired.
    Mr. Braley. Thank you.
    Chairman Waxman. I presume they may not know whether the 
government has the funds and not using it, but they know they 
don't have the electricity.
    Mr. Walker. Right. And, in fact, I think it is important to 
note that we are trying to work with our counterparts, the 
Board of Supreme Audit, to try to help build their capacity to 
be able to do their job. And as was mentioned before with 
regard to the DFI funds, while they are not U.S. money, we had 
a fiduciary responsibility, and both Stuart Bowen and I have 
been trying to help make sure that the records are turned over 
to the Board of Supreme Audit of Iraq so that they can audit 
what happened with that money. I mean, $9 billion to $12 
billion is a lot of money. There needs to be accountability 
over that.
    Chairman Waxman. Thank you, Mr. Walker.
    Mr. Sarbanes, you are next.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    I wanted to go back and talk again a little bit more about 
the sustention rate and this notion of costs that get incurred 
before the contract has been definitized, as I guess it is 
called. If I am understanding what you have testified to, the 
chances that you can incur a lot of costs before definitization 
of a contract are improved in circumstances where contracts 
need to be let very quickly, where people brought on in 
``emergency circumstances,'' is that right?
    Mr. Reed. Well, I think the risk that----
    Mr. Sarbanes. The risk, OK.
    Mr. Reed [continuing]. From my viewpoint, is that there is 
no cost control before a contract is definitized. In other 
words----
    Mr. Sarbanes. So if I am an enterprising contractor and I 
know how the system works, it might be in my interest to get in 
on a situation where a no bid contract or the fast letting of a 
contract was occurring, because then I know that I can load up 
a lot of costs during this period where things are being 
incurred but nothing has yet been definitized, right?
    Mr. Reed. That is certainly a risk.
    Mr. Sarbanes. OK. And were the circumstances under which 
Halliburton and KBR and some of these other contractors came 
onboard were ones where things were happening quickly, 
contracts were being let in an expeditious--to use the sort of 
best connotation of it--way? There were circumstances like 
that, right? I mean, that is essentially what was happening 
here.
    Mr. Reed. Yes.
    Mr. Sarbanes. Do you want to respond?
    Mr. Walker. Mr. Sarbanes, I think it is important to note 
that when you are dealing with contingency operations--and I 
would respectfully suggest that Iraq is a military contingency 
operation; Katrina was a domestic contingency operation--the 
government must do a better job of planning in advance, 
engaging in advance contracting activities that you can draw on 
on a task order basis, rather than being in the situation where 
you have to negotiate things quickly, in a crisis circumstance. 
These problems are exacerbated under cost-plus contracts, which 
creates perverse incentives for people to define the scope 
broadly, to incur more costs for obvious reasons.
    Mr. Sarbanes. And I agree the government needs to do that, 
and I am looking at it from a contractor's standpoint in terms 
of if you are unscrupulous as the contractor, wanting to sort 
of take as much advantage of the situation as you could, you 
could seize upon these contingency situations and push hard for 
whatever rules and checks the government was trying to put in 
place to be relaxed a little bit because there are cost 
opportunities available to you.
    But let me switch gears real quick. The process by which 
the auditors make a recommendation to the contract officer 
regarding questioned or unsupported costs, for example, what is 
that exactly? Is there a meeting convened and who is at that 
meeting?
    Mr. Reed. No, we issue----
    Mr. Sarbanes. How does that work?
    Mr. Reed. We issue a written audit report.
    Mr. Sarbanes. OK.
    Mr. Reed. Which explains what we audited, what we looked 
at, and what our conclusions were, and our recommendations.
    Mr. Sarbanes. OK. Is there ever a face-to-face exchange 
around the recommendation? And, if so, what is that?
    Mr. Reed. Yes, there is continuous communication.
    Mr. Sarbanes. OK.
    Mr. Reed. Especially in more significant issues. We give 
the contracting officer an early alert that we are having a 
major issue developing. We certainly talk to them before we 
issue the audit report, and often we attend a negotiations 
side-by-side with them.
    Mr. Sarbanes. OK. So who is in the room for that kind of a 
meeting, that ``negotiation?'' So the contracting officer is 
there and their staff, members of your staff are there, having 
made the recommendation. Is the contractor there as well?
    Mr. Reed. It is usually a pre-meeting of the government 
people only to go over the strategy that the government side is 
going to take in whatever negotiation is going to take place, 
and then the contractor is brought in. In addition to the 
auditors, there may be government engineers, there may be 
contracting officer technical representatives who observe the 
physical work. It could be whatever the contracting officer 
feels he needs to support him in the negotiation.
    Mr. Sarbanes. OK, I have run out of time, but just real 
quick. Then, in terms of the contracting officer making a 
decision on what to accept, in a typical case, what kind of 
timeframe is involved there, I mean, from the time you bring 
your recommendation forward to the time the decision is made on 
which costs to allow or not allow?
    Mr. Reed. Well, there is considerable variation.
    Mr. Sarbanes. OK.
    Mr. Reed. It could range from within hours to months.
    Mr. Sarbanes. OK.
    Mr. Reed. Depending on the complexity of the nature of the 
issue.
    Mr. Sarbanes. All right.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Sarbanes.
    Mr. Welch.
    Mr. Welch. Thank you, Mr. Chairman.
    Mr. Bowen, in your audit of DynCorp's work for the State 
Department, it is pretty troubling. I am still not clear on 
exactly what the taxpayers got out, but let me ask you a few 
questions about some figures.
    First, the total amount at issue was $189 million, is that 
right?
    Mr. Bowen. That is right. This is a task order under a very 
large contract, but this task order covered that amount.
    Mr. Welch. OK. And you did not examine all of the costs, 
but you did examine quite a bit, and there is $51.6 million for 
the residential camp at Adnan Palace, right?
    Mr. Bowen. That is right.
    Mr. Welch. And there is no such thing as a residential camp 
at this moment at Adnan Palace?
    Mr. Bowen. That is right, and there won't be.
    Mr. Welch. So all the trailers that we bought for the Iraqi 
police are sitting unused in storage somewhere in Baghdad?
    Mr. Bowen. At the Baghdad International Airport.
    Mr. Welch. And do we have to pay rent to store them there?
    Mr. Bowen. Yes. Yes, sir.
    Mr. Walker. I might note we have a lot of trailers in Hope, 
AR related to Katrina. Systemic problem.
    Mr. Welch. Well, it sounds like FEMA was in charge of this.
    And I noticed on page 10 of your report that the State 
Department, when it realized it wasn't going to use these 
trailers, they actually considered donating them to the 
Hurricane Katrina victims, is that right?
    Mr. Bowen. Yes, sir.
    Mr. Welch. Do you know if they were planning on bringing 
the folks in New Orleans to Baghdad or the trailers from 
Baghdad to New Orleans?
    Mr. Bowen. Well, I think the solution that is on the table 
now is to use them for the new embassy compound.
    Mr. Welch. I mean, is this true, they literally have $51 
million, trailers that are empty with people who are homeless? 
That is the story?
    Mr. Bowen. The story is we purchased trailers that we 
didn't use, and haven't used yet.
    Mr. Welch. Who can we congratulate for this good work?
    Mr. Bowen. Well, what it has done is motivate me to look at 
the rest of the DynCorp contract.
    Mr. Welch. Well, thank you. Who is DynCorp?
    Mr. Bowen. It is a Falls Church company, a very large 
defense contractor. They had the LOGCAP contract previous to 
KBR.
    Mr. Welch. Let me ask you about another DynCorp contract. 
On page 2 of your audit you say that $36.4 million was spent on 
weapons and equipment, including armored vehicles, body armor, 
communications equipment. But in your report, on page 17, 
because of poor record keeping, nobody can verify whether we 
got anything that we paid for.
    Mr. Bowen. That is right.
    Mr. Welch. Did your auditors try to locate the equipment 
that was purchased for this $36 million?
    Mr. Bowen. We are following up on that, but our job was to 
look at how the equipment was managed, and it was managed in a 
way that provided no assurances of accountability.
    Mr. Welch. There were some questions earlier on suggesting 
that because it is a wartime situation, you can't keep records. 
I mean, is that really true? I don't get that. If you are 
dealing with corporations on these big purchases, $36 million, 
it goes to equipment that is of vital importance to the 
security of the troops. What is the problem, what possible 
justification can there be to not have a system, even in 
Baghdad, that allows the taxpayer to know that the equipment 
they paid to get to the troops was delivered?
    Mr. Bowen. Well, there is no doubt that operating, managing 
these contracts in a wartime environment is very challenging, 
but the cost of doing that is also built into the contract 
itself, or is anticipated to be so, and simply because we are 
operating in a wartime environment further does not dispense 
with the need for accountability.
    Mr. Welch. I really don't get that. I mean, this equipment, 
it is not like it is flown over in C-141s and just parachuted 
randomly to various locations, wherever it happens to land, it 
goes into the Green Zone or some secure location, right?
    Mr. Bowen. That is right.
    Mr. Welch. So the people who are dealing with the receipt 
of this equipment are in physically safe locations, right?
    Mr. Bowen. Reasonably.
    Mr. Welch. So what happens to the equipment after it goes 
out into the field is one thing, which may be difficult to 
understand and to account for, but its actual receipt in the 
country, that it arrived, that--why, in a war zone, is it any 
more difficult when, in fact, where the equipment arrives is a 
very secure location?
    Mr. Bowen. Well, your question cuts to a core lesson 
learned that needs to be learned and applied in Iraq and 
beyond, and that is in contingency relief and reconstruction 
and operations, there must be systems developed, trained, and 
ready to go that can ensure reasonable accountability of the 
taxpayers' money in the contingency operation.
    Mr. Welch. Let me just ask one last question. In your 
report there was an indication that a contracting officer 
didn't even keep a file for a $25 million contract. Is that 
right?
    Mr. Bowen. That is right.
    Mr. Welch. Literally, I mean, is there any justification, 
any justification for not keeping a copy of a contract for that 
amount of money?
    Mr. Bowen. No, there isn't.
    Mr. Welch. Thank you.
    Mr. Walker. Mr. Chairman, can I quickly touch on something 
here? Thank you.
    Chairman Waxman. Mr. Walker.
    Mr. Walker. Let me tell you why we continue to have these 
problems on a recurring basis; not just Iraq, but Department of 
Defense and other major departments. There is no 
accountability. The appropriations that are granted are not 
adjusted based upon these continued problems; organizations 
that are responsible for managing and overseeing these 
contracts are not held accountable. Contractors are not 
adequately held accountable; and the individuals involved and 
who were responsible are not held accountable.
    Mr. Welch. And what could we do----
    Mr. Walker. Why change?
    Mr. Welch. What could we do to hold them accountable?
    Mr. Walker. Well----
    Mr. Welch. What three things could we do?
    Mr. Walker. Well, one of the things you have to do is you 
have to deal with the systemic problems that I provided for the 
record as a followup to last week's hearing, and I hope to have 
a chance to testify on this.
    Second, you need to hold both contractors and government 
employees accountable when things don't go right. There has to 
be consequences. People ought to be rewarded for doing a good 
job, absolutely. And I think it is fair to say most contractors 
do a good job, and a vast majority of Federal employees do a 
good job. They ought to be recognized and rewarded. But when 
things don't go right, there have to be consequences. And if 
there aren't consequences, you are not going to get changed 
behavior. The government is no different than the private 
sector in that regard.
    Chairman Waxman. Mr. Welch's time is up, but, Mr. Bowen, 
let me, just on this question of DynCorp, is this the first 
time we have had an issue with DynCorp?
    Mr. Bowen. No, it is not. It is our first comprehensive 
audit by my office, and, as I said, we are initiating a series 
of reviews.
    And as to what can we do, Mr. Welch, I would also suggest 
the debarment and suspension process is a meaningful method of 
accountability that could be utilized more effectively.
    Chairman Waxman. Thank you, Mr. Welch, but let me just 
point out that in December 2005 report on INL asset 
verification that was conducted in July August 2005 reviewed 
DynCorp's inventory control and the report concluded INL cannot 
determine if the Bureau received what it paid for. I think this 
might be related to Bosnia. Are you familiar with that, Mr. 
Bowen?
    Mr. Bowen. Yes, that is right. That was an INL review. INL 
has identified internally problems with DynCorp. Indeed, they 
identified problems with this contracting office's 
representative, as our report points out, in Bosnia. And let me 
point out also that this was a joint review with the Department 
of State Inspector General's Office, so we will continue to 
pursue reviews with them of these issues.
    Chairman Waxman. Mr. Walker's point is what are the 
consequences of these things, and that is something we need to 
look at.
    Next on the list is Mr. Higgins.
    Mr. Higgins. Thank you, Mr. Chairman. I just want to try to 
get to the gut of this thing.
    The essential services for any functioning society are 
electricity, water, health care, education. None of that seems 
to be improving very much in Iraq. Some, but not all of that, 
obviously, is the responsibility of the government and who's 
contracting with the contractors to do a lot of this work.
    Mr. Bowen, you had indicated that this is the 12th 
quarterly report, there are 50 auditors and investigators on 
the ground in Iraq, and that the financial burden of Iraqi 
reconstruction is shifting to the Iraqis. Now, from what I see, 
is a government in Iraq that lacks legitimacy in the very eyes 
of the governed because it can't provide these essential 
services, and if we have $50 billion--$30 billion of which was 
U.S. money, American money; $20 billion of which is Iraqi 
money--and we are not seeing measurable progress toward 
restoration of essential services and also oil production, it 
seems hardly confidence-inspiring that the responsibility is 
now shifting to, based on anybody's observation, an honest 
assessment of the legitimacy of the Iraqi government, it is not 
confidence-inspiring. Your thoughts?
    Mr. Bowen. Well, one other essential element to a working 
society's infrastructure is rule of law, and I think the lack 
of security in Baghdad and elsewhere across Iraq has prevented 
success of what was planned, an effective relief and 
reconstruction operation.
    The other thing, let me point out, is that the U.S. 
investment was meant to get the Iraqis started going forward. 
The infrastructure was seriously deteriorated through decades 
of neglect, and The World Bank's estimate was $56 billion. In 
fact, that was low. I would say the cost to restore that 
infrastructure is at least $100 billion, given what we found.
    But trying to do a relief and reconstruction operation 
before stabilization is achieved is difficult at best. That is 
certainly a lesson in Iraq.
    Mr. Higgins. And that is the point, I mean, stability 
hasn't been achieved, and there is obviously a lot of waste and 
abuse of very significant money, and this Congress is being 
asked to authorize more money for an effort that everybody, I 
believe, concludes is an abject failure. And I think it speaks 
to the oversight responsibility of Congress. I mean, you 
indicated that there is a real-time audit method being used.
    Mr. Bowen. That is right.
    Mr. Higgins. After the conclusion of this 12th quarterly 
report, is there any signs of progress this situation is 
changing? I think that is a very important question relative to 
confidence or lack of confidence that this Congress has in the 
administration's ability to effectively administer this.
    Mr. Bowen. And the answer is yes, we have made progress. 
The taxpayers and the Iraqis have received a lot of successful 
projects as a result of the $21 billion investment, 
notwithstanding the problems that we have identified. Polio has 
been eradicated; 5,000 schools have been built or refurbished; 
there has been progress in the education sector, in roads and 
transportation, communications. But the key is developing a 
sustainable, coherent infrastructure strategy that brings the 
country together, at the same time bringing an effective and 
coherent rule of law strategy to bear in Baghdad and beyond, 
and that has been a continuing challenge. The investment 
targets, though, I think are the right ones to choose. The 
Provincial Reconstruction Team effort is the most important 
capacity-building endeavor in Iraq nationwide, and especially 
in Baghdad. The Commander's Emergency Response Program, we have 
looked at it a couple times; it is about maneuver units 
executing quick turnaround projects and, in an unstable 
environment, that is the right place to spend the money. The 
Community Action Program run by USAID has made a lot of 
difference at the very grassroots level. But progress has been 
mixed.
    Mr. Higgins. Woefully inadequate. What about internal 
structures to enhance the issue of accountability and 
transparency moving forward?
    Mr. Bowen. Well, that has been a story of gradual progress, 
partly driven by the presence of oversight on the ground in 
Iraq, both DCAA, GAO, SIGIR, auditors uncovering issues that 
need to get fixed. That is what I mean by real-time auditing, 
definitization, award fees, the hospital program, the 
management of property. It is about executing our job that 
incrementally brings improvement in the overall management and 
it is about working with management to get it done as we find 
problems, rather than to wait for reports to come out.
    Mr. Higgins. So you think it is a good thing that we are at 
this watershed period where the Iraqi reconstruction is 
shifting from U.S. influence to an almost exclusive Iraqi 
influence?
    Mr. Bowen. Well, regardless of whether it is good or not, 
it is the current reality. It is going to drive decisionmaking 
moving forward, and the burden has shifted. The truth is $38 
billion invested the last 4 years. That is a significant 
taxpayer investment in Iraq at every level. That period is 
past, and the Iraqis cannot leave $12 billion in their treasury 
again this year.
    Chairman Waxman. Thank you, Mr. Higgins.
    Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    Mr. Walker, you have talked about systemic problems which 
have made it more difficult for you to do the job which we have 
asked you to do, which is to look out for the taxpayers' money, 
so I want to focus a little bit maybe on an area that we 
haven't talked about, which is the level of cooperation you 
have received from other government entities.
    Last year, Congress was told that the Defense Department 
Inspector General had nobody on the ground in Iraq, which was 
astounding considering the amount of money that we are spending 
there. I understand that has been rectified and they have at 
least a few people there. It is also my understanding that you 
would like to have people on the ground in Iraq as well, and 
have made a request of the State Department for space, is that 
correct?
    Mr. Walker. We have space. I mean, we have already agreed 
with SIGIR that we are going to co-locate with SIGIR. What we 
have a request to the State Department, which they are 
incredibly slow in responding to, is formal approval for us to 
be able to have people in Iraq for longer periods of time. 
Right now they approve us to be in for 2 week periods of time 
and that is it, and we are asking for 3 to 6 months, for people 
to be there for 3 three to 6 months, and then we can project 
supplemental people in and out for 2 week periods as a 
supplement to, not a substitute for, a few people that would 
have a continuing presence.
    Mr. Yarmuth. What is the rationale that they have used to 
try to restrict you in that type of way?
    Mr. Walker. I am not----
    Mr. Yarmuth. They haven't used the not supporting our 
troops line?
    Mr. Walker. Well, no, the issue is that--separation of 
powers? That is what their--well, they need to read the 
Constitution. There is a lot of people that aren't very good at 
understanding what the Constitution is. I mean, we are there to 
help the Congress exercise its appropriations, oversight, and 
authorization responsibilities. They are just incredibly slow. 
I mean, the State Department is a big bureaucracy. Not 
everybody is for oversight; not everybody is for transparency; 
not everybody is for accountability. And it is time that they 
acted on this. And I am going to call Secretary Rice on Monday 
if they don't give us an answer before this. This has just been 
going on too long.
    The other thing we need, quite frankly, is the Congress is 
not supporting our agency enough. It does not give us adequate 
funds. I am going to have to ask for a supplemental in order 
for us to be able to get our people over there and pay for it. 
We generate $105 return for every $1 invested on us. Second 
place in the world is 10 to 1, and we are getting starved, and 
we hear about tens of--we have heard here about billions of 
dollars of waste. I mean, what is the priority here?
    Mr. Yarmuth. Mr. Chairman, I suggest we might want to have 
someone from State Department respond to these issues as well.
    Let me ask you about the Defense Department, turn to them 
for a second. It is my understanding that you have been 
studying the readiness and effectiveness of the Iraq security 
forces. Is that correct as well?
    Mr. Bowen. Yes, we have issued two audit reports last 
quarter on that issue, and I know GAO is looking at is, as is 
the Department of Defense Inspector General.
    Mr. Walker. We are, and that is a critical point. I 
appreciate your asking it. That comes back to the transitional 
readiness assessment reports that we have been seeking access 
to.
    Just so the members understand what that is, we have U.S. 
troops embedded with Iraqi troops, and those troops are 
responsible for doing detailed assessments as to leadership, 
equipment, training, and other factors to try to assess the 
true readiness of Iraqi troops. This is done for U.S. troops, 
and we have had access to that information on a recurring basis 
for many years. It is classified information, but we have 
people with all the necessary clearances. And while we have 
received some briefing from the Defense Department, we have not 
received the detailed records. It is essential we get those.
    You are being asked to give several billion more dollars. 
You are being asked to support an increase in troop 
deployments. You are being asked to provide additional funds 
for a variety of things to support the standing up of the Iraqi 
security forces, which will help us get out quicker. You need 
this information in order to be able to assess whether or not 
it is making a difference, and we are the agent to get it for 
you.
    Mr. Yarmuth. Again, has this been--the rationale for this, 
is this another separation of powers allegation?
    Mr. Walker. No. Believe it or not, I was really surprised 
to find out that, evidently, nobody in the Pentagon has 
actually seen this detailed information, that it has just been 
in the area of responsibility; it has been within Iraq and 
CENTCOM and the Multinational Force, MNFI. But my understanding 
is the Pentagon is just now getting some of this data, didn't 
even have it itself. People are concerned it is very 
``sensitive information.'' Well, it is classified, that is 
true, and that makes it sensitive, but that doesn't mean that 
the Congress doesn't need it and we don't have a right to it. I 
mean, we do have a right to it, and you need it and so do we.
    Mr. Yarmuth. Thank you, Mr. Walker.
    Mr. Chairman, I am sure we will want to insist that we get 
better cooperation from those two Departments.
    Chairman Waxman. Yes, absolutely. I agree wholeheartedly, 
and we will followup on that.
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman, for having this 
hearing, and I really want to thank GAO for providing us with 
nonpartisan accurate information. It is very vital for us to 
practice our oversight responsibilities and I, for one, will be 
supporting your request for additional funding so that you can 
give us the information to make good policy decisions.
    One of the reports that came out, which, in my sense, is 
government is the best, it was a bipartisan report with 
Congressman Hamilton and Baker, and in their report they said 
the situation in Iraq is grave and deteriorating. And one of 
their recommendations--their recommendations really called for 
a reversal of the policy that we are following now. They said 
we should start withdrawing troops, not sending in more troops.
    My brother is a former Vietnam veteran, Mr. Chairman, and 
he called me last night and he said that in Vietnam they kept 
sending more and more troops, and all they saw was more and 
more death, and it didn't work out, and he urged me to vote 
against increasing the troops there.
    But one of the key proposals in the Hamilton-Baker report 
was No. 21, that the United States should tell the Iraqis that 
the failure to meet their own milestones will only accelerate 
American withdrawal or result in a reduction of American 
support. So they are calling on us to really put their feet to 
the fire and tell the Iraqis very plainly, if they don't stand 
up and do their own work, then we are going to be leaving.
    The last constituent that I went to see, Mr. Chairman, at 
Walter Reed, it was a graduate of West Point, our finest and 
brightest; he was all shot up. I asked him how did it happen; 
he said, I wasn't on the front line, I was in charge of garbage 
removal. I mean, you could have knocked me over. I said, 
garbage removal? And he said, I knew I was in trouble when all 
my Iraqi colleagues started moving away from me, and then they 
came out and shot me.
    And I don't understand this policy where our troops are in 
a civil war. As one of them said, we are shooting and we don't 
know who we are shooting at. We don't know if they are an enemy 
or a friend; we don't know. We are in the middle of a civil 
war, and I question why American troops are being used for 
garbage detail in Baghdad. So I, for one, feel that it is time 
for us to be standing down and letting the Iraqi people take 
care of their problems. The longer we stay, they run away from 
their responsibilities.
    Now, the reports that we have been getting--and I want to 
mention one from a former PRT leader, a Provincial 
Reconstruction Team, and this was a report where she said that 
the--she is talking about the civilian surge, not the troop 
surge, but that the civilian surge is not working. She says--
and it is her words--that these teams, these reconstruction 
teams have not been successful to date, and she feels they are 
ill-defined mission and they will not be successful. And her 
comments are in opposition to this policy.
    But I have to come back. Mr. Walker, you mentioned that you 
were underfunded, and my constituents, I can't walk down the 
street without someone asking me about the $12 billion that was 
flown over of Iraqi money, and of which $8.8 billion is 
unaccounted for. That is the official term. Unaccounted for 
means missing, gone. And I know that it has been looked at, but 
I can't get it out of my mind and my constituents can't get it 
out of their mind that if we had been better stewards of the 
Iraqi money and the reconstruction, then we wouldn't be 
spending our American money on the Iraqi reconstruction.
    And I want to ask Mr. Bowen, Mr. Reed, Mr. Walker, if you 
have any insight on what happened to that $8.8 billion? And you 
say we should be more accountable. Can you help us in figuring 
out how to be more accountable on that $8.8 billion that 
dissolved into ether or whatever? And I just am very 
frustrated. If you could give us some stronger markers for the 
administration.
    They say there are weapons of mass destruction. We can't 
find the weapons of mass destruction. They say give us a surge. 
We give them a surge, it doesn't work. We have given them four 
increases in troops and it hasn't worked. Can you think of any 
guidelines or oversight that might get the Department of 
Defense to have standards by which they will agree that, after 
a certain amount of misleading and failure, that they will 
begin to step down and ask the Iraqis to step up and take 
responsibility for their own country?
    Anyway, Mr. Walker.
    Mr. Walker. I will start. First, as you know, I had a son 
who was a Marine Corps officer who fought in Iraq, so I have 
not only been working on this in my responsibility as 
Comptroller General and GAO's responsibility, I obviously have 
an interest given that I have a son that fought over there, 
although he is out now.
    Second, we did do a lot of work in support of the Iraqi 
Study Group. I was one of the first witnesses before the Iraqi 
Study Group. We gave them all of our reports and made access to 
all of our people there.
    Third, one of the things that we have recommended a long 
time ago to both the executive branch and the Congress is that 
you need to have more metrics and milestones both for what the 
United States is supposed to do and trying to accomplish and 
what the Iraqis are supposed to do and trying to accomplish. If 
you don't have appropriate metrics and milestones, and if you 
don't have adequate transparency over those metrics and 
milestones, you don't have any idea whether you are making 
progress or not and you can't make informed decisions.
    Part of that is why you need the TRAs, but it needs to go 
not just with regard to Iraqi security forces, it has to deal 
with some of the other issues that have been talked about here, 
electricity, water, a variety of other factors, oil production, 
for example. So there need to be more metrics and milestones 
and you need to be able to have somebody like GAO and others in 
the accountability community to assess the reliability of the 
information that you are being provided. The old trust but 
verify approach.
    Chairman Waxman. Thank you.
    Mr. Bowen.
    Mr. Bowen. As we addressed last week and the CPA did not 
follow either its mandate required under the U.N. Security 
Council Resolution 1483 or its own rules in managing the 
Development Fund for Iraq and, thus, the Iraqi Ministries 
distributed that money, used that money, spent that money 
without any accountability back to CPA as to how it was used. 
The Board of Supreme Audit continues to look at that issue.
    I have worked with GAO to provide the documents to the 
president of the Board of Supreme Audit so he can complete his 
audit. The audits that were completed by other entities 
employed by the U.N. looking at this issue found a lack of 
controls within the Ministries and, thus, no accountability. 
And, finally, the Commission on Public Integrity, the law 
enforcement arm in Iraq, ironically, created by the CPA, has 
hundreds of fraud cases ongoing with respect to what happened 
to that money.
    So it is not a good story as our audit reported almost 2 
years ago.
    Chairman Waxman. Mr. Reed, do you want to respond?
    Mr. Reed. I defer to Mr. Walker and Mr. Bowen and the god 
work they are doing in this area. It doesn't fall, of course, 
as a contract audit issue, but as a private citizen, I share 
your concerns equally.
    Mr. Walker. If I may real quick, Mr. Waxman. As you know, 
and hopefully your constituents do, the $9 billion, roughly, is 
Iraqi money, but that doesn't mean we shouldn't be concerned 
about it. We had a fiduciary responsibility with regard to that 
money, and that should be taken very seriously. We are, in 
part, going to be viewed as being responsible and accountable 
as to whether or not those funds were used properly and for 
appropriate purposes and with positive outcomes irrespective of 
whose money it was.
    Now we need to make sure that the legitimate institutions 
of the Iraqi government, namely, the Board of Supreme Audit, 
has access and cooperation in order to conduct their audits of 
what happened with that money. And I and Stuart Bowen are 
trying to make sure that happens, but there are varying degrees 
of cooperation that are occurring there.
    I found out recently, for example, that my counterpart, his 
home was entered into by our Army; all of the weapons were 
confiscated; no explanation, no apology. His predecessor was 
assassinated. The job is a pretty tough job. Not everybody is 
for transparency and accountability. Fortunately, in this 
country, people debate about it rather than resort to violence.
    Chairman Waxman. Thank you, Mrs. Maloney.
    Mr. Bowen, just before I call on Mr. Clay, a clarification. 
Last week, when you were here with Ambassador Bremer, it seemed 
to me that both of you agreed there was no fraud. But now you 
are telling us that there is a fraud investigation by the 
Iraqis.
    Mr. Bowen. Right.
    Chairman Waxman. So there was--there certainly appears to 
have been fraud by the Iraqis in the use of that cash, is that 
correct?
    Mr. Bowen. Right. What I said was that our audit made no 
findings of any fraud with respect to the disbursement of that 
audit. What I have said today is that the CPI commissioner 
reports to me, when I go visit with him, that he has ongoing 
cases with respect to allegations of fraud, allegations of 
fraud--and I think I said that last week as well--on the use of 
that money.
    Chairman Waxman. CPI?
    Mr. Bowen. Commission of Public Integrity. It is the Iraqi 
FBI.
    Chairman Waxman. OK. Thank you.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman, and thank you for this 
series of hearings on Iraq.
    In his speech last month announcing his new strategy for 
Iraq, President Bush asked Congress for an additional $1.2 
billion in economic aid to Iraq. That is a lot to ask of 
American taxpayers who have already spent $30 billion on Iraq 
reconstruction. The President also said that, as part of this 
plan, the Iraqis have promised to spend $10 billion of their 
own money. But when we examine previous Iraqi commitments, we 
find a troubling pattern.
    Mr. Walker, according to a recent GAO report, the Iraqi 
government budgeted about $6 billion for reconstruction 
projects for 2006, but as of August 2006 it had spent only $877 
million of that amount. That is only 14 percent of what they 
promised to spend, isn't it?
    Mr. Walker. You are correct that they have not spent near 
what their budget allows. And I think one of the things that 
Congress needs to think about when it is considering this 
appropriations request is whether or not you ought to have a 
matching concept, our funds will flow when their funds flow. We 
do that between Federal and State support circumstances and, of 
course, employers do that for pensions with regard to 401K. We 
need to think about that concept and to what extent that 
concept might apply here.
    Mr. Clay. So like dollar for dollar, then, is what you are 
talking about.
    Mr. Walker. Not necessarily dollar for dollar. If they 
committed to do $10 billion, for example, and we have committed 
$1 billion too. That is 12 percent. Maybe when their funds 
flow, our funds will flow. It is just a concept to think about.
    Mr. Clay. Let me also ask you about the GAO report that 
also found that the Oil Ministry had spent less than 1 percent 
of its capital budget in 2006, is that correct?
    Mr. Walker. It is a very low percentage. I am not sure that 
it is less than 1 percent, but it is very low. That sounds 
about right.
    Mr. Clay. OK, thank you.
    Mr. Bowen, at our hearing last week you informed us that at 
the end of last year there was about $12 billion left in the 
Iraqi treasury unspent.
    Mr. Bowen. That is right.
    Mr. Clay. Is that accurate?
    Mr. Bowen. That is the number that I was told. Two days ago 
the Iraqi Minister of Finance himself acknowledged at least $9 
billion that should have been spent on reconstruction and 
relief activities in Iraq was unspent and left in the treasury 
last year.
    Mr. Clay. What reason did they give you for not spending?
    Mr. Bowen. No reason is given, but we have an audit in our 
latest quarterly report that addresses ministry capacity 
development, a very significant issue in Iraq in that there are 
a variety of reasons I have heard, and one is the difficulty of 
the contracting system in Iraq. The regulatory process is 
byzantine, the fear on the part of Iraqi bureaucrats to sign 
anything because of potential prosecution. But I think that 
probably the overarching issue is the lack of a consensus upon 
a strategic plan on the Iraqi side for a relief and 
reconstruction program for the country.
    Mr. Clay. Now, the fact that the Iraqis have failed to 
spend this money raises a question whether the Iraqi government 
is trying to fund the reconstruction. I am concerned that the 
Iraqi government may be waiting for the United States to spend 
American taxpayer dollars so that it doesn't have to spend 
Iraqi money on reconstruction of its own country. Do you get 
that sense?
    Mr. Bowen. That is an issue of political will and it is a 
plausible conclusion.
    Mr. Clay. And so, in your work in Iraq, you have seen signs 
that the government does not want to spend its money and they 
are waiting on American taxpayer dollars to flow.
    Mr. Bowen. Well, as my latest report points out, the Iraq 
Relief and Reconstruction Fund is coming to an end, it is the 
end of the earth now, and that means, by simply definition, the 
Iraqis are going to have to sustain, going forward, the 
financial burden of the recovery of their country.
    Mr. Clay. Thank you for that.
    And, Mr. Walker, do you have a similar impression, that the 
Iraqis may be waiting for the United States to spend their 
money before they spend any of the Iraqis?
    Mr. Walker. They clearly have a number of capacity 
challenges which prevents them from spending the money; they 
don't have an overall plan. And, frankly, I mean, obviously, if 
somebody else is willing to spend money and you don't have to 
spend yours, then that has behavioral impacts.
    I might note that according to my very capable staff, 
almost 30 percent of DOD's reconstruction projects won't be 
completed until late 2008. So while we have made substantial 
progress, there is still work to be done.
    Mr. Clay. And just to close, Mr. Walker, I sense a level of 
frustration on your part at this entire ordeal of the Iraq 
reconstruction, and maybe I am reading it wrong, but I 
certainly sense it.
    Mr. Walker. My frustration is broader than that. I mean, 
the Defense Department is No. 1 in the world in fighting and 
winning armed conflicts, but they have 15 of 27 high-risk areas 
and there are billions of dollars wasted every year. Billions.
    Mr. Clay. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Clay.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    Let me thank all the witnesses for their testimony today.
    Mr. Walker, I had some questions regarding the State 
Department's diplomatic security operations and the contracts 
they let under that, and I don't know to what extent GAO has 
done recent work in this area. I know you have looked at it in 
the past, but there is the Worldwide Personal Protective 
Services Program and there are a number of firms that have 
contracts under that overall umbrella, including DynCorp, 
Triple Canopy, and Blackwater.
    And there were some press reports back over the last summer 
that suggested that some audits had found some major 
discrepancies in terms of the amounts of moneys paid for and 
not being able to track the costs that those were allocated to. 
I don't know how familiar you may be with those, and I wondered 
if you could----
    Mr. Walker. I am happy to try to go back and find out what 
we have done and provide something for the record. I am not 
familiar to be able to talk about it now. I will tell you that 
we are using contractors in new and unprecedented ways, 
including with regard to security arrangements. I mean, if one 
goes--and I am sure you have been, I have been a couple of 
times--to Iraq and in the Green Zone, you see a lot of private 
contractors basically responsible for security, including 
around where we currently have our Ambassador, which is not 
normally what you would see when you go to a U.S. embassy 
elsewhere in the world.
    Mr. Van Hollen. Right. That used to be a function carried 
out by the Marines or other U.S. official members of the armed 
forces.
    Mr. Walker. Well, but obviously our presence is much larger 
there; we have a lot of contractors, we have troops there. But 
let's just say that there has been a blurring of the roles and 
responsibilities, and part of that is because we don't have 
enough in-strength, we don't have enough boots on the ground to 
do some of the things that need to get done.
    Mr. Van Hollen. Does GAO have an estimate of how many so-
called private soldiers are over there, people who are not 
members of the armed services but have responsibilities for 
security?
    Mr. Walker. We don't, and, frankly, that is one of the 
problems, is that nobody is really responsible and accountable 
for maintaining some type of control over how many contractors 
we have, what are they doing, what are the contracting 
arrangements, etc.
    Mr. Van Hollen. OK. I am going to ask you to look into 
there were some press reports about a contract that was let 
under the Worldwide Personal Protective Services contract of 
the State Department, one to Blackwater, where they were, under 
the original contract, to be paid about $229 million over 5 
years. And yet, as of June 30th last year, according to a 
highly redacted audit statement that we have, they were 
actually paid an additional $100 million under that contract, 
and I am interested in what the additional $100 million was 
spent on. And if you can comment on that now, great; otherwise, 
we will make sure you get this information.
    Mr. Walker. I will try to get some more details, but it is 
my understanding that contractors do provide security for our 
Ambassador and certain other State Department personnel in 
Iraq.
    Mr. Van Hollen. No, as you say, I have been there too and, 
you are right, when you get escorted from the airport and 
others, you often have private security.
    Mr. Walker. Right.
    Mr. Van Hollen. And it is an overall policy question as to 
what extent we should rely on those individuals.
    Mr. Walker. I agree.
    Mr. Van Hollen. And then there is the separate question, of 
course, when you do provide these contracts to provide for 
private security, whether or not the taxpayer is getting what 
it paid for, whether there are problems with the contract.
    Mr. Walker. Value for money, right.
    Mr. Van Hollen. So there is a particular contract here that 
I would ask you to take a look at going forward.
    Mr. Walker. I will go back and find out what we have done 
and will touch base with you. We also want to coordinate our 
efforts to make sure there is not duplication of effort as to 
what might be being done by other members of the accountability 
community, but we will get back to you, Mr. Van Hollen.
    Mr. Van Hollen. OK. I don't know if either of the other 
witnesses want to testify. This is within the State Department, 
as I said, the Worldwide Personnel Protective Services.
    Mr. Walker. Well, we would want to talk to the State 
Department IG, for example, to find out what, if anything, the 
State Department IG has done on this.
    Mr. Van Hollen. OK.
    Mr. Reed. We have done work at DynCorp on some of their 
protective service contracts, not the one, unfortunately, that 
Mr. Bowen addressed earlier, but some of the earlier ones we 
have been doing contract audits.
    Mr. Van Hollen. OK. Thank you.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you very much, Mr. Van Hollen.
    I want to thank the three of you.
    Did you have anything further, Mr. Lynch?
    Mr. Lynch. May I, Mr. Chairman? I just have one quick 
question.
    Chairman Waxman. The gentleman is recognized for one quick 
question. [Laughter.]
    Mr. Lynch. Thank you, Mr. Chairman.
    I know I have spoken to Mr. Bowen before on this. I have 
enough experience in the construction industry to be dangerous, 
and I know that in the private sector in this country we use a 
tool called critical path management, where you actually have a 
construction diagram, a blueprint, if you will, of a project 
and it is all laid out what function has to go next, pouring 
concrete, erecting steel, and it has the whole project laid out 
in a blueprint so that anybody walking onto that job to do 
oversight, to find out whether the project is on schedule or 
over budget can basically look at that document and find out 
whether or not the project is on schedule and on budget.
    Do they use anything like that in any of these--and this is 
a question that is certainly open to Mr. Walker and Mr. Reed. 
Do you use any tools like that are required of these defense 
contractors and folks that are actually building these projects 
for us? Because, for us in the private sector in this country, 
it offers an objective assessment of where the projects are at, 
and it is a great cost-containment tool. In my trips--I have 
been over there five times--I haven't been able to locate any 
documents that would help me make that type of assessment, and 
I just didn't know if you had access to those types of tools; 
critical path management, it basically lays out an 
accountability tool that you can track the projects on a case-
by-case basis at a specific moment in time.
    Mr. Reed. We have not seen that in our review of quality 
assurance programs. The quality assurance burden is broader and 
it requires the government to ensure that the contractor has a 
quality control program. That is where that tool would come 
into use if it were there. But as we have heard today, the 
levels of subcontracting sometimes step down two or three steps 
beyond the prime, and that leads to a weakening of oversight, 
an attenuation of insight, and has cost some waste.
    Mr. Lynch. OK.
    Thank you, Mr. Chairman. I yield back.
    Chairman Waxman. Thank you. Good question, Mr. Lynch.
    I want to thank the three of you. You have been very 
helpful and I appreciate your testimony and look forward to 
continuing hearing from you and learning from you as to what 
accountability we are getting for the money that is being 
spent. Thank you.
    That concludes our business. The meeting stands adjourned.
    [Whereupon, at 12:37 p.m., the committee was adjourned.]
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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