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




 
       DEFENSE BASE ACT INSURANCE: ARE TAXPAYERS PAYING TOO MUCH?

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 15, 2008

                               __________

                           Serial No. 110-83

                               __________

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


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 15, 2008.....................................     1
Statement of:
    Ginman, Richard, Deputy Director for Defense Procurement and 
      Acquisition Policy, Office of the Deputy Under Secretary of 
      Defense; Shelby Hallmark, Director, Office of Workers' 
      Compensation Programs, U.S. Department of Labor; William H. 
      Moser, Deputy Assistant Secretary of State for Logistics 
      Management, U.S. Department of State; James C. Dalton, 
      Chief of Engineering and Construction, U.S. Army Corps of 
      Engineers, Department of the Army; Joseph P. Mizzoni, 
      Deputy Auditor General for Acquisition and Logistics, U.S. 
      Army Audit Agency; and John K. Needham, Director, 
      Acquisition and Sourcing Management Issues, U.S. Government 
      Accountability Office......................................    31
        Dalton, James C..........................................    61
        Ginman, Richard..........................................    31
        Hallmark, Shelby.........................................    41
        Mizzoni, Joseph P........................................    68
        Moser, William H.........................................    55
        Needham, John K..........................................    77
Letters, statements, etc., submitted for the record by:
    Dalton, James C., Chief of Engineering and Construction, U.S. 
      Army Corps of Engineers, Department of the Army, prepared 
      statement of...............................................    63
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statement of.........................    28
    Ginman, Richard, Deputy Director for Defense Procurement and 
      Acquisition Policy, Office of the Deputy Under Secretary of 
      Defense, prepared statement of.............................    34
    Hallmark, Shelby, Director, Office of Workers' Compensation 
      Programs, U.S. Department of Labor, prepared statement of..    43
    Mizzoni, Joseph P., Deputy Auditor General for Acquisition 
      and Logistics, U.S. Army Audit Agency, prepared statement 
      of.........................................................    70
    Moser, William H., Deputy Assistant Secretary of State for 
      Logistics Management, U.S. Department of State, prepared 
      statement of...............................................    57
    Needham, John K., Director, Acquisition and Sourcing 
      Management Issues, U.S. Government Accountability Office, 
      prepared statement of......................................    79
    Waxman, Chairman Henry A., a Representative in Congress from 
      the State of California:
        Staff memorandum.........................................     4
        Prepared statement of....................................    20


       DEFENSE BASE ACT INSURANCE: ARE TAXPAYERS PAYING TOO MUCH?

                              ----------                              


                         THURSDAY, MAY 15, 2008

                          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, Tierney, Watson, Cooper, 
Sarbanes, Davis of Virginia, Duncan, and Issa.
    Staff present: Phil Barnett, staff director and chief 
counsel; Karen Lightfoot, communications director and senior 
policy advisor; David Rapallo, chief investigative counsel; 
Brian Cohen, senior investigator and policy advisor; Margaret 
Daum, counsel; Mark Stephenson and Denise Wilson, professional 
staff members; Earley Green, chief clerk; Jen Berenho Iz, 
deputy clerk; Caren Auchman and Ella Hoffman, press assistants; 
Leneal Scott, information systems manager; Sam Buffone, William 
Ragland, Lauren Belive, and Miriam Edelman, staff assistants; 
Larry Halloran, minority staff director; Jennifer Safavian, 
minority chief counsel for oversight and investigations; Mason 
Alinger, minority legislative director; John Brosman, minority 
senior procurement counsel; Ashley Callen, minority counsel; 
Emile Monette and Benjamin Chance, minority professional staff 
members; Patrick Lyden, minority parliamentarian and member 
services coordinator; and Ali Ahmad, minority deputy press 
secretary.
    Chairman Waxman. The meeting of the committee will come to 
order.
    One of the primary issues this committee has tackled, this 
Congress, has been the waste and abuse of taxpayers' dollars 
from crop insurance in Kansas to an Air Force base on Ramstein, 
Germany. We have held over a dozen hearings into Federal 
programs that don't seem to be using taxpayer money wisely.
    Today and next week we turn back to Iraq. Our subject today 
may seem obscure, insurance payments under the Defense Base Act 
of 1941, but the costs to the taxpayers are high.
    The Defense Base Act requires contractors operating in Iraq 
and Afghanistan to purchase Workers' Compensation insurance for 
their employees. Three agencies--the State Department, USAID, 
and the Corps of Engineers--have approached this requirement 
responsibly. They conducted a competition to select an 
insurance carrier to offer this insurance at low rates to their 
contractors.
    The Defense Department has taken a completely different 
approach. It allows contractors to negotiate their own 
individual insurance contracts. This approach has produced a 
boondoggle for the insurance companies and the private 
contractors and saddled the taxpayer with enormous costs.
    Typically, insurers offering Workers' Compensation pay out 
as much in claims and expenses as they take in through 
premiums. The carriers make their real money off of investment 
returns they earn during the interval between when they receive 
premiums and pay claims and expenses.
    This has been the experience of the State Department, 
USAID, the Corps of Engineers. In fact, the company that won 
these contracts, CNA, has actually paid out 8 percent more in 
claims and expenses than it has received in premiums.
    But these contracts represent only 10 percent of the 
insurance market in Iraq and Afghanistan. Ninety percent of the 
DBA market is controlled by the Defense Department, and the 
experience in the DOD market has been completely different.
    Under the DOD approach, private contractors negotiate with 
private insurers, but bill the taxpayers for the costs. This 
arrangement has been exceptionally lucrative for the private 
insurers and the contractors. Over the last 5 years, the four 
largest private insurers have made underwriting profits of 
nearly 40 percent. That is almost $600 million in profits.
    The LOGCAP troop support contract--the largest single 
contract in Iraq--illustrates what is going on. As a series of 
charts will illustrate--and we will have them on the screen to 
the right and the left--KBR paid an insurance company, AIG, 
$284 million for Workers' Compensation coverage. Since KBR's 
contract is a cost-plus contract, this $284 million premium 
plus a markup for KBR of up to $8 million gets billed to the 
taxpayers bringing the total costs to the taxpayers of $292 
million.
    Out of this amount, just $73 million actually goes to 
injured contractors, and AIG and KBR pocket over $100 million 
as profit.
    Well, this is really disgraceful. The taxpayer is paying 
nearly $300 million to deliver less than $75 million in 
benefits to injured contractors. Rube Goldberg could not design 
a more inefficient way to help employees wounded or injured in 
Iraq.
    The Defense Department has argued that the fact that Iraq 
is a war zone justified the high costs of the insurance 
program, but under the Defense Base Act, the taxpayer, not the 
insurance company, has to pay the costs when a contractor is 
wounded in action. The insurance companies only pay for the 
types of injuries that could occur at any work site.
    What makes the situation even worse is the people this 
program is supposed to benefit--the insured employees working 
for contractors. They have to fight the insurance company to 
get their benefits. Delays and denials in paying claims are the 
rule. Audit after audit has said that the Defense Department 
model doesn't work, but still the Defense Department won't 
change.
    When Congress passed a law in 2006 requiring the Defense 
Department to rethink its approach, the Department reported 
that it would be too expensive to collect the necessary data 
and ``there are no compelling procurement reasons for DOD to 
initiate any efforts.''
    My staff prepared an analysis of the Defense Base Act, 
which has been distributed to the Members as a supplemental 
memo, and based on new data from the insurers, it identified 
600 million reasons why the Defense Department should care. 
That is the amount of the excessive profits that insurance 
companies have earned at taxpayer expense in just 5 years.
    I would ask that this memorandum and the documents it cites 
to be made part of today's record. Without objection that will 
be the order.
    [The information referred to follows:]

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    Chairman Waxman. In the course of our hearings into 
Government waste, fraud, and abuse, we have learned to 
recognize the recipe for wasteful government spending, and all 
the key ingredients are here: an obscure Federal program, a 
procurement approach that leaves Federal taxpayers, not private 
contractors, liable for the biggest risks, and officials who 
ignore warning after warning.
    We need to stop this flagrant abuse of taxpayers' dollars, 
and this hearing is an important step in this process.
    [The prepared statement of Chairman Henry A. Waxman 
follows:]

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    Chairman Waxman. Mr. Davis, I want to recognize you for an 
opening statement.
    Mr. Davis of Virginia. Thank you, Mr. Chairman, for holding 
this hearing on the Defense Base Act Insurance Program. The DBA 
provides vital insurance coverage for the brave men and woman 
employed by the companies performing critical parts of our 
Government's overseas operations around the globe.
    This once obscure program has dramatically expanded since 
2003 with an unprecedented number of contractors working under 
wartime conditions supporting our efforts in both Iraq and 
Afghanistan. Thousands of contracts and subcontracts throughout 
the world are subject to DBA insurance requirements.
    Agencies and the contractors use several models to acquire 
the mandatory coverage. In general, Defense Department 
contractors purchase DBA insurance on their own and recover 
their costs under the terms of the contract. In contrast, the 
Department of State preselects one primary insurance carrier to 
provide the DBA insurance at a fixed rate for all of its 
various covered contracts.
    A few years ago the Army Corps of Engineers launched a 
pilot program based on the State Department model, and the 
Corps is here today to discuss that trial effort. Recently, the 
Congressional Budget Office suggested DOD adopt that single 
source method, but that approach may not be a panacea.
    Efficiencies and cost controls possible at lesser levels of 
operations may be overwhelmed by the vastly increased scale of 
the Pentagon's DBA responsibilities, which dwarf those of the 
State and the Corps both in size and the diversity of 
requirements. The CBO acknowledged such in an arrangement that 
presents a number of challenges.
    It is not clear that any insurance provider would be 
willing to underwrite DBA insurance for all DOD contractors, or 
the contractors who would be willing to participate on those 
terms. Concentrating so large a portion of current DBA coverage 
in the hands of one carrier could have the perverse effect of 
driving carriers out of the market, the resulting loss of 
competition risks making it easier to raise rates. The cost of 
initiating and administering such a centralized DOD-run program 
could further endanger any savings for any preselected master 
contract.
    Mandating a single source for all DOD contractors to obtain 
this insurance may in fact result in economies of scale and 
lower cost for the insurance in Iraq and Afghanistan where 
risks are higher, but it doesn't take into account the myriad 
places around the globe where Federal contracts are performed, 
and the risks are much lower.
    In those places where operational risks are lower, the cost 
of DBA insurance will almost certainly go up under a single-
source contract. The effect is like pushing on an inflated 
balloon. If you squeeze the balloon in one place, a bulge has 
to pop out somewhere else.
    This is a good opportunity for us to conduct some real 
oversight into whether we are spending the taxpayers' dollars 
in the most costs-effective manner. If there is a better, 
cheaper way to obtain DBA insurance, we need to pursue that 
route.
    However, Mr. Chairman, I think it is important we conduct 
balanced oversight, and that means bearing in mind this program 
covers thousands of contractors performing work in almost every 
country in the world. Viewing the entire DBA program through 
the lens of one audit of one contractors, even if the 
contractor is KBR, a former Halliburton subsidiary, risks 
missing the larger picture.
    The problem appears to be as much with Government controls 
and oversight of this increasingly expensive program as it does 
with any alleged contractor overcharges. Oversight focused on 
the general case, not the outlier, is far more likely to yield 
reforms that lead to meaningful savings.
    Thank you again, and we look forward to today's testimony.
    [The prepared statement of Hon. Tom Davis follows:]

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    Chairman Waxman. Thank you very much, Mr. Davis.
    Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman. I want to congratulate 
you and the committee for the latest in the remarkable series 
of hearings that really benefit the taxpayer.
    Taxpayers are really upset that they don't feel that they 
are getting more value for their taxpayer dollars. The latest 
book reviewed in the Wall Street Journal said that, on average, 
taxpayers get about 24 cents of value for every dollar they pay 
in taxes. That obviously means 76 cents in something else, and 
a lot of that is waste, fraud, and abuse.
    So I appreciate your looking into this little known area of 
the law. I think that if this were used as a case study in 
business school in pretty much any business school in America, 
the students would be appalled.
    I have been teaching at Vanderbilt Business School now for 
over a decade, and I think the students at the ON School of 
Management in Nashville, TN, would be able to craft a much 
better system than the one we have today.
    So let's get the facts out, and let's see how we can help 
the taxpayer. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Cooper.
    Ms. Watson.
    Ms. Watson. Thank you, Mr. Chairman, for holding today's 
hearing concerning the importance of safeguarding taxpayers 
from incurring the costs of high insurance premiums related to 
the Defense Base Act.
    As you all know, DBA insurance is required for all private 
contractors and subcontractors who do business overseas with 
any Government agency currently. Our Nation's state of affairs 
has us occupying Iraq and Afghanistan where we rely heavily on 
large numbers of Government contractors which, consequently, 
has increased the amount spent on DBA insurance by the hundred 
millions of dollars.
    However, both the Federal Government and insurers do accept 
the risk of injury or death to contractors, but the Government 
absorbed the entire cost of injury or death if it is related to 
war risk hazards.
    Since the start of the wars in Afghanistan and Iraq, there 
have been 1,292 contractors killed and another 9,610 wounded as 
a result of their employment with various Government agencies, 
although DBA insurance is meant to protect contractors and 
their families by providing death, disability, and medical 
benefits for injuries sustained during the course of 
employment. This committee has found that adequate controls 
weren't in place to ensure the cost of DBA insurance were 
minimized.
    In order to make sure that the taxpayer dollar is used 
wisely and effectively, potential cost-saving measures should 
be explored to relieve the burden on the taxpayer from paying 
unusually high and unfair insurance premiums.
    Thank you, Mr. Chairman. I yield back.
    Chairman Waxman. Thank you very much, Ms. Watson.
    Mr. Sarbanes, do you want to pass on the opening statement?
    Mr. Sarbanes. Yes.
    Chairman Waxman. We will get to the witnesses. Thank you.
    We are pleased to have the following people here to testify 
before us: Mr. Richard Ginman, Deputy Director of Defense 
Procurement and Acquisition Policy, U.S. Department of Defense; 
Mr. Shelby Hallmark, Director of Workers' Compensation 
Programs, U.S. Department of Labor; Mr. William H. Moser, 
Deputy Assistant Secretary of Bureau for Administration 
Logistics Management, U.S. Department of State; Mr. James 
Dalton, P.E., Chief, Engineering and Construction, U.S. Corps 
of Engineers; Mr. Joseph P. Mizzoni, Deputy Auditor General for 
Acquisition and Logistics, U.S. Army Audit Agency; and Mr. John 
K. Needham, Director, Acquisition and Sourcing Management 
Issues, Government Accountability Office.
    We are pleased to welcome all of you to our hearing today. 
It is the practice of this committee that all witnesses that 
testify before us do so under oath, so if you have no 
objections, I would like to ask you to please stand and raise 
your right hands.
    [Witnesses sworn.]
    Chairman Waxman. Thank you. The record will indicate that 
each of the witnesses has answered in the affirmative.
    Your prepared statements that have been submitted to us 
will be in the record in full. We would like to ask, if you 
would, to try to limit the oral presentation to around 5 
minutes. We have a clock. When it is turned on, it will be 
green for 4 minutes, and then turn yellow for 1 minute, and 
after 5 minutes will be red. When you see the red light, it 
would be a good time to summarize and conclude.
    Mr. Ginman, we are pleased to have you, and there is a 
button on the base of the mic, be sure it is on. We are looking 
forward to hearing from you.

   STATEMENTS OF RICHARD GINMAN, DEPUTY DIRECTOR FOR DEFENSE 
PROCUREMENT AND ACQUISITION POLICY, OFFICE OF THE DEPUTY UNDER 
  SECRETARY OF DEFENSE; SHELBY HALLMARK, DIRECTOR, OFFICE OF 
   WORKERS' COMPENSATION PROGRAMS, U.S. DEPARTMENT OF LABOR; 
   WILLIAM H. MOSER, DEPUTY ASSISTANT SECRETARY OF STATE FOR 
   LOGISTICS MANAGEMENT, U.S. DEPARTMENT OF STATE; JAMES C. 
DALTON, CHIEF OF ENGINEERING AND CONSTRUCTION, U.S. ARMY CORPS 
OF ENGINEERS, DEPARTMENT OF THE ARMY; JOSEPH P. MIZZONI, DEPUTY 
AUDITOR GENERAL FOR ACQUISITION AND LOGISTICS, U.S. ARMY AUDIT 
AGENCY; AND JOHN K. NEEDHAM, DIRECTOR, ACQUISITION AND SOURCING 
    MANAGEMENT ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

                  STATEMENT OF RICHARD GINMAN

    Admiral Ginman. Chairman Waxman, Ranking Member Davis, 
distinguished members of the committee, thank you for the 
opportunity to appear before you today to discuss Defense Base 
Act insurance. I am Dick Ginman, and I serve as Deputy 
Director, Defense Procurement of Acquisition Policy in the 
Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics. I have more than 37 years in 
government and commercial business in a variety of acquisition 
positions.
    Before assuming this job, I held several private sector 
positions, including vice president of a line of business at 
General Dynamics. I also served in the U.S. Navy for 30 years, 
retiring as a Rear Admiral, Supply Corps.
    In the past, DOD permitted its overseas contractors to 
purchase the required DBA insurance from any insurance company 
approved for this purpose by the Department of Labor. In our 
April 1996 Report to Congress, we compared the State 
Department's and USAID's DBA rates to a sampling of rates paid 
by DOD contractors. We found that in most cases our rates were 
lower than those paid by State and USAID, sometimes 
significantly lower.
    We found that many firms purchased DBA insurance at very 
favorable rates, as riders to their regular State-side Workers' 
Compensation insurance programs. In addition, except for a few 
isolated instances DOD contractors were not having problems 
obtaining DBA coverage.
    We were concerned that the umbrella contracting approach 
did not provide an incentive for improving a company's safety 
record. Since all companies pay the same rate, there is no 
incentive for a company to be proactive about keeping rates 
down through better safety records, and thus be more 
competitive in the marketplace.
    Further, with a single contract with one rate, we would not 
be able to take advantage to the lower premiums available to 
industry for the majority of areas to which we were sending 
contractors at the time. After 9/11 and during the beginning of 
the Iraq War, however, we received complaints from companies 
doing business in Iraq concerning DBA insurance. They 
complained that the rates for the insurance had increased 
significantly going from $4 to over $20 per $100 of employee's 
salary, and in some cases they could not obtain DBA insurance 
at all.
    Also, minimum premium payments of $15,000 to $25,000 
dollars hit small businesses particularly hard. To determine if 
a single mandatory contract approach for DBA would provide cost 
savings for DOD, we sponsored a pilot program with the U.S. 
Army Corps of Engineers. Although the Corps' pilot program was 
competed, only CNA International submitted an offer. CNA's 
initial contract established worldwide DBA insurance rates of 
$5 to $8.50 per employee salary for services and construction, 
respectively. which were below the range of $10 to $21 GAO 
cited for contract workers in Iraq in their 2005 Report.
    While the Corps found that several small and local 
businesses were now able to obtain lower DBA insurance rates 
for Iraq and obtained insurance where they were previously 
denied, the Corps also discovered that in certain non-war zone 
areas, the umbrella DBA rates were sometimes higher than what 
individual contractors were previously obtaining. This is 
expected under the concept of risk-pooling where lower risk 
areas would pay a higher premium than the higher risk areas.
    In April 2008, CNA and the Corps agreed to a contract 
modification setting up two additional labor categories for 
security and for aviation with materially higher rates. This 
occurred because CNA was incurring significant losses in the 
war zone such as Iraq and that it could no longer continue 
contract performance at the current rates. They agreed to a 
$10.30 and a $17.50 rate per $100 of employee's salary for 
security in aviation, respectively, which are similar to the 
same rates at State.
    A pilot program goal is to provide data to build and to 
present to our office in the Army a formal business case to 
determine if the Pilot should be expanded Army or DOD-wide. To 
help the Corps develop such a case, the Army Audit Agency 
recently agreed to review the results of the pilot program to 
determine if it warranted permanent placement at the Corps and 
warrant further extension into the Army.
    To build this business case, the Department will pursue 
collecting DBA data from the top 50 defense contractors. Once 
Army's audit review is complete and we have collected the 
additional data, the Corps will develop the business case, and 
we will review the results to determine the Department's next 
steps.
    Mr. Chairman, I thank the committee for your interest in 
our efforts, and we would be happy to address any questions.
    [The prepared statement of Admiral Ginman follows:]

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    Chairman Waxman. Thank you very much. We have questions, 
but we will wait until all the witnesses have testified first.
    Mr. Hallmark.

                  STATEMENT OF SHELBY HALLMARK

    Mr. Hallmark. Good morning, Mr. Chairman, and Ranking 
Member Davis and other Members. I am Shelby Hallmark. I am the 
Director of OWCP, the Office of Workers' Compensation Programs 
at the Department of Labor. I have served in that position, or 
its Deputy, since 1990.
    The Longshore and Harbor Workers' Compensation Program is 
the smallest of OWCP's programs. Our Longshore Division 
oversees the Defense Base Act enacted, as we know, in 1941 to 
provide Workers' Compensation protections for employees of 
Federal contractors overseas. Our Federal Employees' 
Compensation Division runs the War Hazards Compensation Act, 
providing Federal reinsurance for DBA losses incurred as a 
result of war.
    The DBA is a private sector insurance driven Workers' 
Compensation system similar to those run by each State. DOL's 
role is oversight. We assure that Federal contractors overseas 
procure the necessary DBA insurance coverage. We oversee 
insurers' handling of claims activities and issuance of 
payments, and we resolve disputes between insurers and 
employees when they arise.
    DOL has no authority to regulate insurance premiums under 
the Longshore and DBA statutes. In effect, the system is self-
regulating. The market determines premiums, and purchasers, 
contractors, or Federal contracting agencies can negotiate for 
better prices. Most claims are resolved without Federal 
intervention.
    In 2003, contracting subject to DBA rose dramatically. DOL 
launched a major effort to educate the many players in the 
system, insurers, contracting agencies, contractors, and 
attorneys, defense and plaintiff, on their roles and 
responsibilities. We sponsored numerous seminars and round 
tables aimed at clarifying requirements, addressing the special 
problems arising in the Middle East environment, and sharing 
best practices.
    Although all participants in the DBA system were challenged 
by the unique difficulties presented in Iraq and Afghanistan, 
we believe compliance assistance effort and the efforts of our 
stakeholders have improved the extension of DBA coverage and 
the delivery of services to workers.
    Two of the three major insurers have opened claims 
processing offices in the Middle East to over come distance, 
language, and cultural barriers, and have translated forms and 
brochures into Arabic. While claims processing is elongated due 
to distance and war zone conditions, overall outcomes are 
improving. Contracting agencies have acted to ensure that 
contractors and subcontractors have DBA coverage, and claims 
filing compliance has risen.
    The volume of DBA claims from Iraq and Afghanistan rose 
quickly from 2003 through 2007. DOL staff are acutely aware of 
the significant numbers of both American and foreign citizens 
injured or killed in the course of DBA employment, and our 
staff have worked extremely hard to ensure that the program 
functions as intended for these workers.
    While it appears that Iraq/Afghanistan claimants are 
somewhat less successful in obtaining benefits than domestic 
claimants in the Longshore program, we believe this discrepancy 
is largely explained by the unique circumstances involved in 
implementing an insurance program in a conflict zone where just 
finding and communicating with injured workers can be a huge 
challenge.
    I am proud to note, however, that Iraq/Afghanistan cases 
that do enter DOL's dispute resolution system receive very 
comparable outcomes, indicating that our efforts to reach out 
to these claimants are working.
    My written testimony provides examples of complex cases 
involving multiple vests of foreign nationals in which DOL was 
able to achieve relatively rapid payment of the large majority 
of the families involved, despite significant obstacles. Our 
New York office worked very hard to get benefits to scores of 
Nepalese, Iraqi, and Turkish families in just these three 
cases.
    Mr. Chairman, you voiced a specific interest in post-
traumatic stress disorder, PTSD cases. While the major insurers 
have generally handled DBA claims the same way they do domestic 
Workers' Compensation claims, PTSD presents challenges that are 
not normally faced in Workers' Compensation.
    In 2006, we determined that additional focus was needed in 
this area, specifically in DBA community. Relatively clear-cut 
PTSD cases were being reported but not getting appropriate 
resolutions swiftly enough. Employers were not providing 
counseling services that military members get, and, of course, 
these workers did not receive VA services.
    We, of course, push for proper resolutions in the 
individual cases we became aware of, but we also took action 
systemically working closely with insurers to raise awareness 
of PTSD issues and encourage best practices.
    My written testimony outlines OWCP's implementation of the 
War Hazards Compensation Act. This reinsurance program, paid 
from Federal entitlement funds, is being administered 
effectively. We have received less than 300 claims for 
reimbursement from insurers so far. We expect many more to be 
filed in the coming years.
    Thank you for this opportunity, and I will be glad to 
answer questions.
    [The prepared statement of Mr. Hallmark follows:]

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    Chairman Waxman. Thank you very much, Mr. Hallmark.
    Mr. Moser.

                   STATEMENT OF WILLIAM MOSER

    Mr. Moser. Chairman Waxman, Representative Davis, and 
distinguished members of the committee, thank you for the 
opportunity to appear before you today to discuss Defense Base 
Act insurance and the War Hazards Compensation Act program. As 
the Deputy Assistant Secretary for Logistics Management, the 
Department of State's central contracting authority reports to 
me, and I am happy to address the Department of State's 
contracting for DBA insurance.
    The Defense Base Act of 1941 mandates that Federal prime 
and subcontractors provide and maintain a broad form of 
Workers' Compensation insurance coverage for their personnel 
working on construction and service contracts outside the 
United States. The cost of DBA insurance is ultimately borne by 
the contracting agency, often, as we have heard here today, as 
a reimbursable cost. The Department's goal, however, is to 
ensure that all of our contractors, both large and small, are 
able to obtain legally compliant coverage at a manageable cost.
    DBA insurance covers U.S. citizens as well as host country 
and third country nationals who are working under State 
Department contracts. A waiver of DBA insurance is often 
available for local national employees who are employed under a 
Department contract if they are covered by a local host country 
Workers' Compensation Program that provides effective 
compensation for work-related illnesses and injuries.
    In Iraq and Afghanistan, however, the lack of an effective 
local worker compensation program requires that DBA coverage be 
extended to local nationals. All Iraqi and Afghani citizens 
working under State Department contracts in these countries are 
covered under the DBA. When any employee working under a 
Department of State contract is injured or killed, a 
determination must be made by the insurance carrier and, if 
there is a dispute the Department of Labor, as to the reason 
for injury or death and whether it might be covered by the DBA. 
The Department of Labor, subsequently, will determine 
eligibility for reimbursement under the War Hazards 
Compensation Act program, which we are very proud to work with.
    Prior to 1990, the Department of State required contractors 
to obtain DBA insurance independently, and rates varied based 
on the contractor's number of employees, claims history, and 
work location. Small businesses with limited overseas 
experience often found it difficult to obtain DBA insurance, or 
were required to pay very high premiums. The people that were 
working in our authority at that time really talked about how 
many times they had to pay an entry fee, essentially, to get 
DBA coverage.
    In 1990 a State Department Office of Inspector General 
audit concluded that the Department's DBA insurance costs could 
be significantly reduced if a blanket insurance contract were 
awarded to a single insurance provider. Subsequently, in an 
effort to control costs and provide uniform DBA insurance rates 
and coverage for all our contractors, both large and small, the 
Department competitively awarded a multi-year contract in 1991 
to CIGNA Property and Casualty Insurance Co.
    The follow-on DBA insurance contract was completed in 2000 
with four offerors competing: CIGNA, AIU, Ace International, 
and CNA. The contract was awarded to CNA in 2001 and remains in 
place today. So this is the same contract that we have had 
since 2001, is the one we are using today in Iraq and 
Afghanistan.
    This blanket contract business model has stabilized rates 
from 2000 to 2007. Premium rates were unchanged: $3.87 to $6.45 
per $100 of employee salary for services and $5 to $8.34 of 
employee salary for construction. In July 2007, the CNA 
contract was extended for 1 year with two additional specific 
service categories, which Mr. Ginman has also addressed, 
services without aviation and security services with aviation. 
Due to the high risk in claims associated with these 
categories, CNA proposed higher rates for these categories: 
$10.30 per 4100 of employee salary for security services 
without aviation and $17.50 for services with aviation.
    These rates became effective with the July extension, 
however, since most contractor policies are not renewed until 
June 2008, the effect of these rates have not yet been realized 
by our contractors or by the Department.
    In April 2008, the Department issued a synopsis in 
FedBizOpps announcing the availability of a fully competitive 
solicitation to continue to provide DBA insurance coverage. 
That solicitation is expected to be issued later this month.
    Mr. Chairman, thank you and the members of the committee 
for your interest in DBA insurance, and I would be happy later 
to address your questions.
    [The prepared statement of Mr. Moser follows:]

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    Chairman Waxman. Thank you very much, Mr. Moser.
    Mr. Dalton.

                  STATEMENT OF JAMES C. DALTON

    Mr. Dalton. Chairman Waxman, and members of the committee, 
thank you for the opportunity to testify before you today 
concerning the methods used by the Corps of Engineers to reduce 
DBA insurance costs, to the extent which other methods are used 
and how successful they have been, and the lessons learned from 
these efforts.
    Due to the increase in DBA insurance in 2003, the Corps of 
Engineers and the Office of the Secretary of Defense agreed to 
conduct a Centrally Managed DBA Insurance pilot program, 
centralizing the management and acquisition of Defense Base Act 
insurance for Corps contracts worldwide, and modeled the USAID 
and the Department of State.
    The pilot objectives were the following: make DBA insurance 
affordable through economies of scale; leverage lessons learned 
under DBA insurance undertaken by USAID and the State 
Department; pool the risk; centrally manage DBA insurance; and 
develop a business case analysis.
    This pilot, which is a series of two contracts, made the 
DBA insurance carrier the party responsible for dealing 
directly with Corps contractors requiring DBA insurance during 
performance of their contract. Insurance rates were based on 
category of labor and considered all risks and all possible 
geographic locations of contract performance, including hostile 
and non-hostile environments and safety considerations.
    The pilot provided a single entry point for coverage and 
access to DBA insurance for all Corps contractors and 
subcontractors at all tiers, no matter the business size or 
location of the firm requiring insurance. Insurance premiums 
were paid directly to the insurance carrier based on the rates 
in the Corps DBA insurance contract.
    Under the pilot, there were no minimum premiums paid by 
contract. When contractors independently acquired DBA insurance 
coverage, they could expect to pay a minimum premium of $15,000 
to $25,000 per contract. This adversely affected overall 
contract pricing and likely precluded small and local business 
firms from competing on supporting Global War on Terrorism 
programs.
    The first Corps DBA contract was solicited on a competitive 
best value basis and was awarded in November 2005 to the sole 
offeror, CNA insurance. The terms of the contract was 1 year 
and provided a coverage for services and construction labor at 
a premium of $5 per $100 of employee labor for services, and 
$8.50 per $100 for construction labor. These rates were well 
below the 2005 GAO Report which stated the contractors 
performing work in Iraq were paying DBA insurance rates between 
$10 and $21 per $100 of employee salary cost.
    The Phase I contract premiums proved lower than the GAO's 
report, and the Corps continued to a Phase II contract to 
gather additional data for the business case. The Phase II 
pilot contract was competitively solicited on the lowest price 
technically acceptable basis, and again one offer was received 
from CNA Insurance. The proposed Phase II premiums continued to 
decline with the CNA premiums now at $3.50 per $100 for 
services, and $7.25 per $100 for employee labor costs on 
construction.
    A Phase II pilot contract was awarded to CNA on March 31, 
2007. During performance of the contract, two additional labor 
categories were added for security and aviation. The contract 
also included standard insurance industry definitions of all 
labor categories. The standard definitions clarify the labor 
category applicable to the work performed in the contract and 
the rate applied for insurance.
    In March 2008, the contract was extended with the CNA 
insurance until 2008 to allow the Corps to solicit and obtain 
an award a follow-on DBA contract.
    A major success of the Corps' centralized DBA insurance is 
the ability to reach all tiers of subcontractors. The smallest 
subcontractor in Iraq has access to DBA insurance.
    To close, I would like to thank you once again, Chairman 
Waxman, for allowing the Corps the opportunity to appear before 
this committee today. I will be glad to answer any questions 
you or the members of the committee may have.
    [The prepared statement of Mr. Dalton follows:]

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    Chairman Waxman. Thank you very much, Mr. Dalton.
    Mr. Mizzoni.

                 STATEMENT OF JOSEPH P. MIZZONI

    Mr. Mizzoni. Mr. Chairman, Mr. Davis, and distinguished 
members of the committee, thank you for the opportunity to be 
here today to discuss our work related to Defense Base Act 
insurance for LOGCAP operations. I have submitted my full 
statement to the committee, and I ask that it be made part of 
the hearing record.
    I have been with the U.S. Army Audit Agency for 31 years 
and became the Deputy Auditor General for Acquisition and 
Logistics in October 2005. The Agency is the Army's internal 
audit organization, and throughout our history we have deployed 
with our troops in Vietnam and Bosnia, during Desert Shield and 
Desert Storm, and lately in support of Operations Iraqi Freedom 
and Iraqi Enduring Freedom.
    In December 2004, General Casey, then Commander of the 
Multinational Force Iraq, asked us to help him reduce the 
overall costs of LOGCAP operations supporting OIF. To help 
General Casey achieve his goal, we established two audit 
objectives. These objectives were to determine if overall 
management of the LOGCAP program was adequate and determine if 
LOGCAP operations was providing the needed services in a cost-
effective manner.
    Our LOGCAP audits have covered many topics to include 
Defense Base Act insurance. DBA insurance is basically Workers' 
Compensation insurance. It provides benefits to contractor and 
subcontractor employees who are injured or killed as the result 
of normal working conditions while working on U.S. Government-
financed contracts performed outside the United States. Because 
DBA insurance is required by law and because a LOGCAP contract 
is primarily a cost-reimbursable contract, the cost of this 
insurance is openly paid by the U.S. Government.
    The objective of DBA audit was to determine if adequate 
controls were in place to minimize costs paid for DBA insurance 
under the LOGCAP contract. We concluded that the Army was at 
risk at paying more than needed. Here is what we found: DBA 
insurance represented a significant cost of the LOGCAP 
contract. The LOGCAP contractor paid about $284 million in 
premiums for DBA insurance between fiscal year 2003 and fiscal 
year 2005. The premiums increased steadily each year from about 
$5 million in fiscal year 2003 to about $165 million in fiscal 
year 2005.
    DBA rates, which were a percentage of the contractor's 
total payroll costs for both contractor and subcontractor 
employees, increased substantially between fiscal year 2003 and 
fiscal year 2004. These rates then declined in fiscal year 2005 
and fiscal year 2006.
    The premium increases and year-to-year rate fluctuations 
seemed inconsistent with the risk associated with providing 
Workers' Compensation and with the contractor's good safety 
record.
    The estimated amount of claims expected to be paid was 
substantially less than the DBA premiums the Army paid. 
Excessive DBA premiums may have been paid because DBA rates are 
applied against total payroll costs. However, benefits paid 
under the DBA program are based on an employee's average weekly 
wage and are capped by statute. Many of the contractor's 
employees earned wages that exceeded the cap.
    The LOGCAP contractor pays many of its employees danger pay 
for working in areas such as Iraq and Kuwait. As a result, the 
LOGCAP contractor paid premiums on the danger pay component of 
the payroll. To address these issues, we recommended that the 
Office of the Assistant Secretary of the Army for Acquisition, 
Logistics and Technology use more cost-effective means of 
providing Workers' Compensation insurance.
    Although the Office didn't fully agree with all parts of 
the recommendation, the actions it proposed met the intent of 
the recommendation.
    In closing, I would like to thank you once again, Mr. 
Chairman, for inviting me to appear before this committee. DBA 
insurance under contracts issued by the United States, we are 
currently reviewing DBA insurance under contracts issued by the 
U.S. Army Command in Kuwait, and we have also recently agreed 
to review the cost-effectiveness of the Corps of Engineers DBA 
pilot program.
    We will remain responsive to Army leadership in continuing 
working to provide the best possible solution to Army 
challenges. I am very proud of my auditors in Southwest Asia. 
Their dedication and hard work has provided valuable real-time 
support to the Army.
    I appreciate the opportunity to testify before you today 
and would be glad to answer your questions.
    [The prepared statement of Mr. Mizzoni follows:]

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    Chairman Waxman. Thank you very much, Mr. Mizzoni.
    Mr. Needham.

                 STATEMENT OF JOSEPH K. NEEDHAM

    Mr. Needham. Chairman Waxman, Ranking Member Davis, and 
members of the committee, thank you for inviting me here today 
to discuss the Defense Base Act and GAO's observations on the 
actions by the Departments of Defense and Labor, to address the 
findings from our 2005 Report on DBA's implementation in Iraq.
    We initiated our review of DBA in 2004 after concerns were 
raised over the cost of Workers' Compensation insurance 
provided under DBA. According to recent DOD data, there were 
over 163,000 contractor personnel working in Iraq. We obtained 
the rates spent on DBA insurance for 21 contracts held by 13 
prime contractors performing work under Iraq under cost-
reimbursable contracts.
    These contracts at the time represented 69 percent of U.S. 
appropriated contracting dollars awarded. We selected companies 
of difference sizes performing a range of services for DOD, the 
Department of State, and the U.S. Agency for International 
Development. We did not obtain DBA rates from subcontractors in 
our review.
    We were limited in what we can conclude about the cost of 
DBA insurance because investigations by several States into the 
practices of a number of insurance companies and brokerages 
during the course of our review, raised questions over the 
reliability of the information we obtained from the insurance 
industry.
    In April 2005, we reported that the total cost of DBA 
insurance to the Government, or the extent to which Iraq 
reconstruction funds were being spent on DBA insurance, could 
not be calculated due in part to the difficulty of gathering 
data on the large number of contractors and the multiple levels 
of subcontractors performing work in Iraq.
    There were wide variations in the amounts Federal agencies 
were paying for DBA insurance. We reported that eight DOD prime 
contractors paid from $10 to $21 per $100 of salary cost, a 
rate that was significantly higher than the rates paid by the 
State Department and USAID contractors, which are at that time 
$2 to $5 per $100 of salary costs to their respective and self-
insurer programs.
    Last, what we found was that there were challenges in 
implementing the DBA insurance requirements for Iraq, such as 
the lack of clarity in DBA requirements, delays in processing 
claims, and difficulty in monitoring contractor compliance. As 
a result of our work, Congress directed DOD to work with other 
agencies to address these challenges.
    Where do things stand today? As other witnesses have noted 
this morning, since the Army Corps implemented its single 
insurer program in December 2005, its insurance rates have 
decreased from what DOD was previously paying. While DOD has 
taken steps to reduce DBA insurance rates through the Army 
Corps' program, it has not yet implemented similar efforts 
Department-wide. DOD continues to lack reliable aggregate data 
on the total cost of DBA insurance.
    It should be noted that Congress directed DOD to identify 
methods to collect data on DBA insurance costs in fiscal year 
2006. While State, USAID, and the Army Corps can now obtain 
aggregate DBA cost data for their single respective insurer 
programs, DOD recently reported to us that it had not collected 
this data Department-wide.
    GAO has issued several reports on best practices, noting 
that agencies can analyze financial data to leverage their 
buying power, reduce costs, and better manage suppliers of 
goods and services. This is referred to as strategic sourcing, 
which calls for an organization to analyze its spending and use 
that information to make more effective business decisions 
about the acquisition of commodity conservatism.
    As we have noted on other occasions--and it bears repeating 
today--in discussing DBA insurance premiums, DOD needs to be 
more strategic, as it has been in the acquisition of other 
services. In short, it needs to manage the suppliers of 
insurance and not have the suppliers managing DOD.
    Turning to Labor's actions, Department officials told us 
that they have taken steps to address several of DBA's 
insurance implementation challenges that we identified in our 
2005 Report. For example, GAO found that there was uncertainty 
among Agency officials regarding when DBA insurance was 
required as well as problems in processing claims and 
monitoring compliance.
    Labor officials recently told us they have been receiving 
fewer questions after holding seven seminars through 2006 on 
DBA insurance for contractors, insurance companies, and Agency 
officials, as well as attorneys, to clarify what the DBA 
requirements were. While Labor officials also noted 
improvements in processing insurance claims, they still face 
challenges in verifying that subcontractors in Iraq have 
obtained DBA insurance.
    In conclusion, Mr. Chairman, there is one overriding issue, 
and that is DOD's need to manage the cost of DBA insurance 
premiums. While DOD has taken steps for the Army's Corps 
Insurer Program to reduce its Dod rates, it does not know what 
it is spending Department-wide on such insurance. Without this 
information, DOD is limited in its ability to make fully 
informed decisions regarding its options for minimizing 
Department-wide insurance costs and limiting its ability to 
manage its suppliers strategically.
    Furthermore, the lack of detailed information on these 
costs makes it difficult for Congress to conduct full oversight 
of the reconstruction funds.
    Mr. Chairman, this concludes my statement. I thank you for 
the opportunity, and I will be happy to answer any questions.
    [The prepared statement of Mr. Needham follows:]

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    Chairman Waxman. Thank you very much, Mr. Needham.
    I want to thank all of you for your testimony. We are now 
going to have questions from members of the panel, and I want 
to start off those questions.
    To illustrate this program which might seem very complex, I 
wanted to focus my questions on a particular example. The 
insurance purchased by KBR under the Army LOGCAP contract, the 
LOGCAP contract is the single biggest contract in Iraq. It is 
worth more than $27 billion. Halliburton's KBR Division won 
this Cost Plus Contract in 2001, and this committee has raised 
a number of questions about it since then.
    Mr. Mizzoni, your agency, the Army Audit Agency, issued a 
report about KBR's charges under the LOGCAP contract for DBA 
insurance, and the committee obtained a copy of the report, and 
we are making it public today. I thought your findings were 
pretty astounding.
    KBR hired AIG as its insurance company. Your report, page 
5, says that AIG charged KBR about $284 million for DBA 
insurance from----
    Mr. Mizzoni. That is correct. One clarification, though, 
sir. My understanding is that KBR actually did not buy the 
insurance. I am not an insurance expert, but I understand that 
KBR actually had to use an insurance broker in the State of 
Texas, and that insurance broker then bought the insurance for 
KBR.
    Chairman Waxman. And did the insurance broker get a fee for 
doing that, that purchase?
    Mr. Mizzoni. I honestly don't know, sir.
    Chairman Waxman. OK. The total cost of providing this 
insurance is actually higher than the $284 million. KBR has a 
Cost Plus Contract so it can add up a markup up to $8 million 
on top of the $284 million premium to AIG. This makes a total 
cost to the taxpayers as much as $292 million, all of which I 
mentioned in my opening statement.
    Your report, page 8, also says that of that $292 million 
AIG will pay out about $73 million in claims after all 
adjustments and reimbursements. Is that right, $73 million?
    Mr. Mizzoni. That is what we found, sir, yes.
    Chairman Waxman. So looking at it from a taxpayers' 
perspective, the purpose of this insurance is to provide 
injured workers with benefits, yet under this contract the 
taxpayer is paying nearly $300 million, and the injured workers 
are getting less than $75 million. I am trying to figure out if 
this makes any sense.
    Mr. Needham, you represent GAO. Do you think the taxpayers 
are getting a good return on their investment?
    Mr. Needham. Based on the data that has been presented 
today, Mr. Chairman, it is not apparent that they are. One of 
the concerns that we have had is that DOD needs to be more on 
top of this in terms of what it is that we are spending.
    DOD took on a practice of doing spend analysis several 
years ago after we had issued reports on these best practices. 
They have done this for other areas, clerical services, they do 
it for software, wireless services. This represents an 
opportunity for DOD to get on top of that so they could get a 
better return.
    Chairman Waxman. Well, that is certainly one of the 
purposes of the hearing, but we are trying to see where we are 
before we push them even harder to get where we should be. KBR 
and AIG set the price of the insurance. Neither of them pays 
the bills.
    Mr. Needham. Right.
    Chairman Waxman. The taxpayer does. That means they have no 
incentive to keep costs low. Because KBR is operating under a 
cost plus contract, the higher the premiums it pays AIG the 
more money it makes.
    Now, Mr. Mizzoni, do you think it makes sense to rely on a 
contractor like KBR which has a cost plus contract and 
negotiate its own insurance premiums?
    Mr. Mizzoni. Again, sir, the way I understand it, they did 
not negotiate it; it was the insurance broker in Texas.
    Chairman Waxman. They relied on their broker, but none of 
them paid the bills?
    Mr. Mizzoni. None of them paid, correct.
    Chairman Waxman. And they had no reason to hold down the 
costs?
    Mr. Mizzoni. It is a cost reimbursable contract. We do pay 
the cost. One or two things I would like to mention is that KBR 
safety record was actually very good, and the safety record is 
used when negotiating award fees.
    During our audit, when we brought this to the attention to 
the KBR as far as the rate increases from fiscal year 2003 to 
fiscal year 2004, they did question their broker.
    Chairman Waxman. Well, the concerns about this problem are 
not new. Since 2005, auditors and experts have been warning 
that the taxpayers are being overcharged, but it has been hard 
to get a definitive picture of what is really going on with 
this program because the administration has not wanted to 
compile the data. So that is what we tried to do.
    We asked the top four insurance companies that account for 
more than 99 percent of the DBA market to provide the committee 
with profit and pay out data, and we are now able to see some 
concrete trends. What the data shows is that from 2002 through 
2007 these four insurance companies received $1.5 billion in 
premiums under contracts negotiated with private contractors in 
Iraq and Afghanistan. These companies will pay out $928 million 
in claims and expenses, and they will retain net underwriting 
gains of $585 million. In other words, these four insurance 
companies have retained as profit 39 percent of the premiums 
they receive.
    Now my time has expired, but I certainly want to pursue 
this with Mr. Ginman and others because it seems to me it is 
quite excessive. But other Members may want to question on this 
point, and I think it is well worth going into.
    Mr. Davis of Virginia. May I answer your----
    Chairman Waxman. Well, I had a long series of questions, so 
why don't you go ahead.
    Mr. Davis of Virginia. Thank you very much.
    Chairman Waxman. If not, other Members on the second round.
    Mr. Davis of Virginia. Mr. Moser, let me start with you. 
You note in your testimony there were four offerors during 
State's most recent DBA competition, is that correct?
    Mr. Moser. Yes, that is correct.
    Mr. Davis of Virginia. When was that contract awarded?
    Mr. Moser. In 2001.
    Mr. Davis of Virginia. Could you speculate for us why State 
gets more offers than the Army Corps?
    Mr. Moser. Well, it is very difficult for me to make 
comments about any other agency's contracting activity. I will 
say for our contracting activity, we very much want to promote 
as much competition as we can get, so I will turn that over to 
Mr. Dalton for comments about the Army Corps.
    Mr. Dalton. I think maybe one of the reasons why we get 
fewer offerors than the State Department is because we 
concentrate heavily in more hostile areas than perhaps the 
State Department. A large part of our work is in Iraq, is in 
Afghanistan, and some over in the Balkans, and so when we get 
our prices and contractors take a look at where we are working, 
there is a higher risk associated with bidding on Corps of 
Engineer contracts than perhaps State Department that are more 
spread out across the world.
    Mr. Davis of Virginia. Thank you. Last year the CBO 
estimated that creating a single DBA insurance pool for the 
entire DOD would save the Government millions of dollars. But 
the CBO also warned that due to the increased Government 
administrative costs and the uncertainty over whether insurance 
providers would be willing to underwrite such a massive policy, 
the creation of such a pool would not necessarily result in 
savings for the Department of Defense.
    Creating a pool would also effectively subsidize 
contractors in more dangerous areas by charging inflated rates 
to those in safer areas than subsidized contractors--you 
understand what I am saying. Would the creation of this type of 
Department-wide insurance pool result in savings to the 
Government, let me just ask? I will start with the GAO.
    What effect would it have on contractor safety systems? 
Would this type of arrangement result in more contractors 
moving to self-insurance model? What is your thought on that?
    Mr. Needham. Mr. Davis, in terms of looking at options, one 
of the things we recommended back 3 years ago was that DOD 
begin to assess the various options. What they actually did was 
adopt the Army Corps single insurer program for the Corps.
    What we would like to see them do is to look at possibly--
the Government has a self-insurer, but that is one option--but 
you could create multiple pools. There are tradeoffs, and 
according to Admiral Ginman, they are going to be looking at 
these possible business cases on this and what they can do in 
terms of what the risks are with various job categories in 
various parts of the world.
    This is what we are looking for is that they make this kind 
of a tradeoff analysis. They haven't done this yet.
    Mr. Davis of Virginia. Let me ask this, Admiral Ginman. 
Could you, for example, do a single provider system for Iran 
and Iraq, another in other regions of the world, and do three 
or four single provider systems? Would that work, seeing that 
it is so large and diverse?
    Admiral Ginman. Mr. Davis, I think, as Mr. Needham just 
said, there are a lot of options available to us. We, frankly, 
don't have the data today, and we have committed that we will 
go collect the data. A single contractor for in a risk pool for 
Iraq/Afghanistan is certainly an option. The single contract 
concept that State and USAID and the Corps are using is an 
option.
    Mr. Davis of Virginia. Well, let me ask you this. Wouldn't 
a single contractor for Iraq/Afghanistan make more sense than 
one across all regions given the different diversity and risks?
    Admiral Ginman. I think from risk pool perspective, having 
a single contractor in Iraq and Afghanistan would make sense to 
me, personally, but I am dong that without the benefit of the 
business analysis to make that determination behind it.
    Mr. Davis of Virginia. Right. How many insurers are there 
in Iraq and Afghanistan, do you have any idea?
    Admiral Ginman. Department of Labor has worked with the 
Joint Contracting Command in Iraq and Afghanistan. There are 
currently three that are being used, and Department of Labor is 
working to add a fourth. So that the contractors doing work, 
particularly the local contractors, have an option of three 
today and, hopefully, they will have an option of four soon.
    Mr. Davis of Virginia. What generally happens is the 
contractor hires the company?
    Admiral Ginman. Absolutely. It is the contractor's 
responsibility to get the insurance.
    Mr. Davis of Virginia. And they have to take it off an 
approved list?
    Admiral Ginman. Yes. It is approved by the Department of 
Labor.
    Mr. Davis of Virginia. OK, that is fine.
    Chairman Waxman. Thank you, Mr. Davis.
    Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman. What we are really 
talking about here, folks, is war profiteering. Private 
companies making money, profits, off of people who are injured 
or killed in a war zone. When Mr. Waxman left off his 
questioning, he pointed out that the profit margins are 
unusually large, 39 percent, whereas a domestic ratio would be 
maybe closer to 1 percent.
    That is not a pretty picture. Now, I suppose there are a 
lot of bureaucratic reasons for this, but, Admiral Ginman, as 
the DOD representative here, are you concerned that insurance 
companies have made nearly $600 million in profits as a result 
of the War in Iraq and Afghanistan?
    Admiral Ginman. Am I concerned. I think any time the 
Government is taken advantage of, it is a concern.
    Mr. Cooper. Can you speak louder?
    Admiral Ginman. I said any time the Government is taken 
advantage of, it is a concern.
    Mr. Cooper. Well, you have been on duty in this assignment 
since October 2006.
    Admiral Ginman. Yes, sir.
    Mr. Cooper. Has the Government been taken advantage of 
during your time on duty?
    Admiral Ginman. I don't have the data that the chairman 
provided, so based on simply what he said and the data that was 
there, if in fact 1 percent, as you provided, is a correct 
number, and 39 percent is in fact the percentage that is being 
made, that would certainly be an opportunity to go look in more 
detail at those specifics.
    Mr. Cooper. Admiral Ginman, you are acting like this is a 
new issue. This was raised in 2005, 2006, 2007. Congress passed 
a law in 2006 requiring the Secretary of Defense to do exactly 
what the GAO has been recommending. So this isn't news.
    Admiral Ginman. And we implemented the pilot program with 
the Corps of Engineers to go collect the necessary data so that 
we would have the data to do a reasonable business case 
analysis to make a determination on a DOD-wide or an Army-wide 
or service-wide approach.
    Mr. Cooper. Who completed those?
    Admiral Ginman. And the pilot program showed $19 million in 
savings that DOD did nothing to implement it more broadly. So 
here you had a very encouraging result, and we are dragging our 
feet. I mean the pilot program has not been completed and has 
not reported out all of the analyses, and we are looking for 
support from the Army Audit Agency and from the Corps of 
Engineers to be able to provide us the data to make that 
business case analysis.
    Mr. Cooper. Mr. Needham, you represent GAO. Don't you think 
these are high-profit levels for these insurance companies and 
for the KBR contractor?
    Mr. Needham. Based on what the norm is for the insurance 
industry, that is what I have been told, that these are high.
    I would mention, too, that part of that is driven by what 
the loss rate is, and the loss rate that was cited by the Army 
Audit Agency for the contract that they looked at was 26 
percent. That is pretty low. The normal is about 68 percent 
according to AIM. Best that has done studies of this. So if you 
have a high rate of losses over a period of years, you may try 
to increase your profits in some years so you can compensate 
for those losses in those later years.
    This is the kind of analysis that needs to be done: What 
should we be paying so that we are a smart buyer when it comes 
to these kinds of insurance products?
    Mr. Cooper. Let's try to put it in plainer English. If you 
were a private insurance contractor and you faced a risk in a 
war zone, you would essentially be trying to exaggerate that 
risk so that you would protect your ability to make money. You 
would essentially be betting against our Government and our 
servicemen because you would want to be prepared for the worst 
possible case. That puts our private companies in a terribly 
awkward and unpatriotic position in anticipating a worst case 
scenario for the outcome of the war and for the welfare of our 
contractors, when there are other ways to do this.
    Mr. Mizzoni mentions one in his testimony talking about 
retrospective risk analysis rating plans where you can see the 
actual results in the field, so you are not betting against the 
Government and our Army and our military, so you can see what 
the losses are and compensate insurance companies 
appropriately, based on their actual losses so that they can 
make a profit but not an extraordinary war profiteering profit.
    Mr. Mizzoni, has the retroactive approach been used?
    Mr. Mizzoni. I believe other parts of the Government have 
used it, but certainly the Army has not. Like you say, sir, our 
recommendations to the Assistant Secretary for Acquisition and 
Logistics technology gave them several options. One was to use 
retrospective pricing plans.
    In their reply back to us, they indicated they wanted to 
see the end of the pilot program, which was supposed to be 
March 2008, and decide the success of the program to see if it 
should be expanded Army-wide.
    Our position, or my position, is if that program does not 
get expanded Army-wide, our recommendations to include 
retrospective pricing plans or self-insurings are on the table 
again.
    Mr. Cooper. I apologize, I see my time has expired, but 
this is May 2008. The decision was supposed to have been made 
in March 2008, and that has not been done, right?
    Thank you, Mr. Chairman.
    Mr. Tierney [presiding]. Thank you, Mr. Cooper.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman. I have a little bit 
of a cold so I apologize for my voice.
    I am listening to this and I remember the images way after 
we invaded Iraq of the terrible looting that occurred. You all 
may remember that. I saw those images on television. I think 
Secretary Rumsfeld ascribed that to the enthusiasm of democracy 
or something in a way that later didn't prove out as a 
particularly sensible observation.
    But listening to this and thinking back over the various 
hearings that we have been having about what Congressman 
Cooper, I think, has accurately referred to as war 
profiteering, that initial spate of looting was immediately 
followed by another round of looting. This is kind of white 
collar looting. It is looting with a tie sitting in an office 
someplace.
    The definition of looting I just found on my Blackberry is 
to plunder, to seize booty in a conquered or sacked city. And 
this one was interesting: to carry off as plunder, or to secure 
a prize lawfully by war. So whatever definition you want to 
use, I view this as looting: high-end, upscale, white collar 
looting.
    Now, what is the most troubling, and it is really 
grotesque, the whole thing, but what is most troubling is the 
profit margins that we have discussed already, and that is 
troubling for two reasons.
    One is it can mean that the premiums are being exaggerated 
beyond what the risk is so that, in other words, there is a 
dedicated effort to make money off the enterprise beyond what 
is appropriate or acceptable.
    That is bad enough, but there is also evidence that maybe 
the profits are the result of not paying out the claims that 
are deserved, which is even more offensive. I mean in the first 
instance you are making more money in a situation in which 
maybe you are paying the premiums that people ought to have, so 
at least those being injured as being fairly compensated, even 
if the taxpayers are being taken advantage of.
    But there is evidence that not only were the premiums 
exaggerated to get some of these profits, but in addition, 
there was denial of the claims going on, on the other end to 
help maximize the profits, which is supremely offensive because 
that means people who are injured were not getting the 
compensation they deserve.
    I think my time has started but isn't being accounted for 
there, so I wanted to ask about these insurance companies 
delaying the benefits because, in the committee's 
investigation, the committee staff spoke with a number of 
injured employees, their families, physicians, and others who 
have been engaged first hand in trying to get their claim 
satisfied, and they indicated that despite receiving massive 
profits under this DBA program, many of the insurance companies 
are fighting which are to make claims.
    So I guess, Mr. Hallmark provided a briefing on the DOL's 
role in monitoring the DBA claims and told us that the 
insurance companies are contesting at the outset virtually 
every DBA claim that is being filed. Is that essentially 
correct for substantial numbers of those claims?
    Mr. Hallmark. I don't believe I indicated that statistic. 
The Longshore DBA process is a complicated one, and there are 
filings that occur on many, many cases called contraversions 
which are filed oftentimes routinely. They don't necessarily 
mean that the insurer is not paying the claim.
    So it could be viewed as opposition of claims when it is 
simply an ineffective administrative filing.
    Mr. Sarbanes. Well, I gather we discovered that about, in 
45 percent of the claims made by the employees' insurance 
companies were filing formal disputes, and when it goes up the 
chain to a judge, the companies are winning those disputes at 
only a rate of 5 percent.
    So this just gets back to the notion of them fighting as 
hard as they can to secure profits against these exorbitant 
premiums that they are getting.
    Then I will just finish up, let me just finish up because I 
know I am probably out of time here----
    Mr. Tierney. That would be appropriate.
    Mr. Sarbanes [continuing]. By noting--I won't ask you to 
answer this question--but I gather that the way the benefit 
capping works as it was described, the premium is set against 
the salary, and so it can be, if you have a salary of $180,000 
versus $90,000, the premium that is being charged by the 
insurer can be double, so they are obviously getting a higher 
premium. But the payout is capped by law at $90,000 as it would 
be for the person making $180,000. So there is obviously 
something wrong with that system.
    So in any event, clearing insurance companies have been 
taking advantage, and setting up these pools seems like a 
better approach.
    Thank you, Mr. Chairman.
    Mr. Tierney. Mr. Sarbanes.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman. Mr. Dalton, if the 
reports of widespread fraud by mostly, we will just say, Iraqi-
based companies, contractors, who in fact are charging for 
insurance that is never purchased and thus the absence of 
benefits often comes from the fact that there was no coverage, 
and the company may selectively decide to take care of their 
employees.
    What are you able to do to end that double-billing, billing 
for a service not received?
    Mr. Dalton. Actually, what we are taking a look at right 
now is part of our normal--I will call it the Q/A process of 
contract, which is contract administration--is we are requiring 
contractors to provide those certificates of insurance prior to 
us allowing them to proceed with construction work.
    Now, certainly, there are cases where we might miss some, 
and we are trying to be a lot more diligent in following up on 
those. Recently, a case was cited where we had a contractor 
doing just exactly what you just mentioned. That was found 
through just part of our routine oversight of the contracts.
    While we don't have it perfect yet, and we are still 
learning as we go with the DBA insurance how to administer it, 
what we are doing is making sure that we train our people to 
watch for those areas that might be fraudulent. We train folks 
before they actually go in the theater, and that is how this 
particular case got identified.
    Mr. Issa. Mr. Dalton, I served with the Corps of Engineers 
before most of the people sitting behind me were born, so we 
have been doing contract oversight for a long time, both 
domestically and around the world.
    If Congress empowered or passed a law, today we seem to be 
concentrating in some cases on profit made rather than real 
oversight and reform, if we in fact said, look, your general 
contractor must supply the umbrella for all subs, and then they 
have to administer it, and then we have a single point of 
contractor on each prime, would that make it easier for you to 
ensure, one, that there was insurance, and, two, that there 
was, in fact, a single point of accountability on multiple 
contracts, but comparatively few? Would that make it more 
possible for your inspectors to actually accurately inspect?
    Mr. Dalton. I think it definitely would. I mean, the 
contracts that we administer now, as you well know, we have 
multiple subs, and to try and reach into and look at all the 
tiers of subs to verify they have insurance is not an easy 
task.
    Mr. Issa. So it would be fair to say that right now the 
system is a system in which you only hope to get better, and in 
fact a change in the system would be what would allow us to 
have a confidence that you would be able to get to 100 percent 
compliance.
    Mr. Dalton. I think it is fair to say that if we had the 
ability to do, as you described, a one contractor being 
responsible that it makes it a lot more easier to administer, 
and it places the responsibility within that prime contractor.
    Mr. Issa. Mr. Needham, we are supposed to be the committee 
on Oversight and Government Reform, and as I was alluding to, 
once you find out there is a problem the question is, should we 
be part of the reform?
    Let me pose a question from my years in business. On the 
size contract that we are dealing with, I have to tell you, 
long before I got to the size of KBR, and certainly long before 
I got to the size of USA, Inc., I would have an administrative-
only contract in which I would bear the responsibility as the 
Federal Government with no markups for the actual payouts, 
effectively realizing that I have more money as the U.S. 
Government than any insurance company, and I would be paying 
for an administrative-only fee, meaning that $73 million in 
payout, I would have paid, and whatever the delta is that was 
mentioned by the chairman earlier by AIG, that would be on a 
fee basis, an administrative cost plus basis, if you will.
    Why in the world haven't we looked at that? That is one-
step removed from the scenario I gave Mr. Dalton. That is 
saying, why is it, in fact, we don't treat these contractors 
under best case scenario similar to the way we dealt with 
maneuver damage in Europe when you ran over a chicken. You 
didn't call somebody's insurance company. We had active duty 
personnel whose job it was to go out and deal with that in 
order to not have a premium paid over and above the payout.
    Mr. Needham. Your question being, why haven't we looked at 
that?
    Mr. Issa. Yes. Why wouldn't you say today in your opening 
remarks that the system is fundamentally wrong to begin with, 
that on these size dollars we should only be paying for 
administration because the actual payout, numerically, we 
don't--we could absorb the risk as the Government much easier 
for less money than AIG or any other company, even if it was a 
single contractor is doing today.
    Mr. Needham. Right. That is one of the options we wanted to 
have explored that we talked about with OMB and DOD back in 
2005. When that was put into legislation for them to look at 
options, we expected that there would be a full range of 
options looked at: the self-insuring, also the single 
contractor which--the idea of a single insurer, though, there 
is a question about whether or not any one company would step 
up and take that on.
    Mr. Issa. And I am not proposing a single insurance 
company. I think it is pretty easy for us all to see that the 
size and scope, you could split this up into different 
theaters, different administrative contracts, but the idea that 
we would essentially not self-insure at the size of our 
exposure seems to be absurd, considering this committee 
regularly sees us self-insuring, if you will, the success of a 
new destroyer coming out of the Coast Guard. And when it fails, 
we pay the bill. By the way, we are paying a big bill on some 
of these new ships.
    But why? Is it that we failed you, to give you the right, 
or that you failed to be able to exercise that, 
administratively?
    Mr. Needham. The reason this is now an issue is because of 
the size of the premiums we are paying. I think the Army Audit 
Agency mentioned that they were paying $5 million in 2003, and 
it was up to $165 million 2 years later.
    I mean it is DOD's responsibility now with this kind of 
increase to go back and look at what are the reasonable 
tradeoffs here, and what should we be doing--not continuing 
business as usual, which is what they have allowed to happen 
without the--I mean, aside from the Corps' program of the 
single insurer.
    DOD-wide, there has not been anything else looked at, and 
that needs to be done.
    Mr. Issa. Then I guess I will close by saying, when will 
this committee know what the comparative cost would have been 
had we simply, essentially self-insured and paid administrative 
costs and not allowed, whether it is true or not, contractors 
to essentially go out and bid a local broker to get an 
insurance policy on this size. It seems to me like that is a 
question we would like to have answered coming out of this 
hearing, if possible. Is that something you can help us with?
    Mr. Needham. Certainly. I mean, we can begin to look at 
that. We looked at this 3 years ago. We stopped the work 
because we couldn't rely on the data we were getting from the 
insurance industry at that time. So we focused our efforts on 
what DOD was doing or not doing in that case.
    Mr. Tierney. Thank you, Mr. Issa.
    Mr. Issa. Mr. Chairman, I appreciate that, but I hope the 
record can indicate that is something that I think, on a 
bipartisan basis, the committee should followup on, because 
this could represent billions of dollars that a system change 
would have to be implemented to do. That is what we do best is 
when we ask for system changes that save America money.
    Mr. Tierney. Thank you, Mr. Issa.
    Mr. Cooper, you are recognized for 5 minutes.
    Mr. Cooper. Thank you, Mr. Chairman. I would like to 
congratulate my friend from California on his line of 
questioning because it is a fundamental business point that I 
had actually hesitated to bring up in a hearing like this. It 
is who is the appropriate risk-bearing entity? And my friend 
from California hit the nail on the head: even a large company 
can effectively self-insure, but certainly the U.S. Government 
is the best insurance company of all, and we don't have to pay 
the premium, the overhead, the stuff like that. It is an 
amazingly efficient mechanism if we allow ourselves to use it.
    Sadly, the rhetoric of recent years has called that big 
government, even though it might save the taxpayer the most 
money. So it actually ends up being smaller government than 
relying on all sorts of contractors who each have to have their 
huge profit margins.
    But another key point, we have been sold a bill of goods 
here, and again my friend from California hit the nail on the 
head. We did not need to buy insurance from a private carrier. 
All we needed to buy was administrative services only, ASL, 
maybe a little help with the paperwork because we, the U.S. 
Government, are the best risk-bearing entity. It sounds like 
the GAO was discouraged from even seriously considering this 
first best solution. Instead we have been paddling around with 
pooling and things like that are second or third-best 
solutions.
    But I would join my friend from California, and let's put 
all the solutions on the table because our job is to get the 
taxpayer the best deal. But the key point here is clearly 
seeing what is at stake.
    I have seen this over and over in health care. Giant 
academic medical centers with billions of dollars in the bank 
hiring a little puny insurance company to provide HMO services 
when they should have been buying ASO services, not HMO 
services. So let's think large. So that has been one problem, 
failure to clearly perceive.
    Another problem is foot-dragging. Again, Admiral Ginman, 
you know, the deadline was March 2008. I know you haven't been 
eager to pursue this topic, but this hearing would have been a 
great opportunity to announce a bold new initiative from DOD to 
save the taxpayer money.
    Admiral Ginman. Yes, sir.
    Mr. Cooper. That opportunity has not happened.
    Admiral Ginman. One, it is my understanding that the pilot 
has been extended out to September 2008.
    Mr. Cooper. Can you talk louder?
    Admiral Ginman. I said it is my understanding the pilot has 
been extended out to September 2008 and that we don't have the 
data and the business case analysis back. We will happily work 
with the GAO to take a look and evaluate the option of, does it 
make sense to be a self-insurer in this instance.
    Mr. Cooper. Could you repeat that last sentence?
    Admiral Ginman. I said we will happily work with GAO to 
make a determination as we look at the business case analysis 
as to whether it makes sense as one of the options on the table 
to look at being a self-insurer.
    Mr. Cooper. Well, here we have a 3-year pilot program that 
in the first 6 months we knew it saved $19 million, and now the 
pilot program has apparently been extended. You don't seem 
anxious to tackle this problem.
    If the FDA discovers a new medicine that is clearly 
superior and lifesaving, do you know what they do--and doesn't 
have bad side effects? They go ahead and allow the people to 
buy the new medicine. This is an example like that. We could 
have saved tens of millions of dollars, but you don't appear 
eager to tackle this project.
    Admiral Ginman. I don't know the impact that decision has 
on the rest of the insurance programs that we have around the 
world when I go to the single program that has today four 
rates: one for construction, one for services, one for 
aviation, and one for security services that I am now going to 
apply not just in Iraq and Afghanistan but to all of the 
insurance coverages throughout all of the countries that we 
operate in.
    Mr. Cooper. There are always uncertainties, but can you 
guarantee this committee you will not be going to work for one 
of these companies, because I assume your tour of duty is going 
to be about up this fall, right?
    Admiral Ginman. Well, one, I retired in 2000 from the Navy. 
I worked in private industry for 6 years, and I made a decision 
to come back to the Federal Government. It is my intention to 
stay with the Federal Government. I am not a political 
appointee, I am a career civil servant.
    Mr. Cooper. So you are planning on staying. Well, that is 
good.
    Admiral Ginman. So I plan to be around to help work this 
issue.
    Mr. Cooper. I would hate to have to educate a new group 
right when the Pilot Study is finally completed. Can you help 
this committee understand? Have you received any memos, phone 
calls, or other contacts from superiors asking you to slow-walk 
this issue?
    Admiral Ginman. We have not been asked to slow-walk this 
issue by anyone, sir.
    Mr. Cooper. So you have done the slow walking on your own? 
[Laughter.]
    Admiral Ginman. Again, I would like to think that we are 
waiting until we had adequate data to do a significant business 
case analysis so that we understand the decision we are making, 
as opposed to making a decision based on information that is 
not yet complete.
    Mr. Cooper. Well, what was the key factor that requires the 
Pilot Study to be extended another 6 months? What information 
was lacking? Why wasn't it wrapped up March 2008 and you have a 
great report for us here today?
    Admiral Ginman. I would have to ask the Army the question 
as to why it was extended another 6 to 8 months. I know when we 
just----
    Mr. Cooper. You would have to ask who to know?
    Admiral Ginman. I would have to ask the Army why the pilot 
program was extended another 6 months. I do not know the answer 
to that question.
    Mr. Cooper. Can the Army answer that?
    Mr. Dalton. I can answer that. So the reason why we 
extended for another 6 months was because we were not 
necessarily just to collect the data. The data is something 
that we have ongoing to try and provide to OSD so that they can 
have the business case analysis.
    But the reason we extended it for 6 months was because we 
needed to have time to actually get a new contract in place 
because this contract simply would expire and we would be left 
with no DBA central insurer. So it was not to just collect 
additional data; it was actually just to maintain continuity in 
having an insurance company, single DBA insurance company.
    Some of the things that we need to provide to OSD to help 
approve the business case are things like, for instance, the 
impact across the rest of the work that we do. For instance, 
there have been claims that if you have DBA insurance and pay 
higher rates, or lower rates in places like Iraq/Afghanistan, 
then--I think it has been alluded to here--that if there is an 
increase in places that are more in a non-hostile environment--
we are looking at that now to try and help us to help OSD with 
the business case, in the few that we have found, we haven't 
found there has been a substantial increase in those insurance 
premiums as was certainly mentioned in the beginning.
    Just as an example, in one contract in the Balkans, we only 
found it was about a $2,000 increase, I think. So there is 
information that we are gathering in terms of overall costs on 
contracts, subcontracts that we need to provide to prove the 
business case.
    Mr. Cooper. Thank you. Mr. Chairman, I know my time has 
expired, but foot-dragging seems to be contagious.
    Mr. Tierney. Well, I think the point is well taken. If you 
look back in 2005 when the GAO issued a report, you know, then 
you follow that up in 2006 when Congress made a particular 
ruling on this; 2007 the Defense Department issued a paper 
about its pilot program, did nothing to extend the program, the 
obvious factor is the information that you are now looking for 
is information that you probably should have started collecting 
and had mostly done since 2005.
    So the frustration of the committee I hope is appreciated, 
that there are just so many times you have to be told to do 
something before you actually get off the back side of your lap 
and do it. That is the frustration that is here.
    Mr. Needham, at the Government Accountability Office you 
issued a report on the DBA program in 2005. In it you stated 
that the agencies lack reliable data on how many contractors 
and subcontractors are in Iraq, the cost of the Government of 
DBA coverage of contractors and whether all contractors 
operating in Iraq provided their employees required DBA 
coverage. Is that right?
    Mr. Needham. Yes.
    Mr. Tierney. Mr. Hallmark, as I understand it, the 
Department of Labor has the responsibility to process DBA 
claims to ensure the workers get the benefits they are entitled 
to. You don't track how many employees are covered or how DBA 
rates are determined, or the overall cost to the employer, is 
that correct?
    Mr. Hallmark. That is correct. We don't actually process 
claims, we oversee the delivery of those claims through the 
insurance companies.
    Mr. Tierney. And, Mr. Ginman, turning to the Department of 
Defense, can you tell us the total amount of Pentagon 
expenditures on DBA insurance.
    Admiral Ginman. I do not know the answer to that question.
    Mr. Tierney. Mr. Moser, can you tell us how many State 
Department contractor employees are covered by DBA insurance?
    Mr. Moser. No, we can't, but we feel that figure is not 
really important, because we felt that we got good rates out of 
our contract for DBA insurance, and we are satisfied with that 
contract. Then the number of employees employed by each of our 
individual contracts depends on the nature of the work that 
they are doing.
    Mr. Tierney. Mr. Dalton, can you tell us how many contract 
employees are covered by DBA insurance at the Army Corps?
    Mr. Dalton. I can't do that at this point in time. I can 
tell you how many contracts we have, but certainly not the 
number of contracting employees.
    Mr. Tierney. So, Mr. Needham, it doesn't look to me like 
everybody is following your advice here. At least they are not 
putting the kind of attention to it that we would have thought 
would be warranted by that report.
    What, exactly, did your report recommend back in 2005? 
Didn't you recommend at that point in time that the Office of 
Management and Budget, the OMB Office, get involved?
    Mr. Needham. Yes, we did, Mr. Chairman. We met with the 
Office of Management and Budget prior to--we had been 
discussing this with DOD. We then had formulated a 
recommendation. We met with OMB, they looked at it, and they 
said this makes perfect sense.
    We then put the recommendation into the draft report and 
went to the Department of Defense. When it came back, there was 
disagreement from both OMB and DOD as to what we were 
recommending. At that point we met with Senate Armed Services 
Committee, and they took our recommendation and placed it into 
legislation.
    Mr. Tierney. What, specifically, was the White House's 
response to your recommendation?
    Mr. Needham. I don't know if there was any White House 
response. There was a Department of Defense response.
    Mr. Tierney. OK. And OMB didn't make a response?
    Mr. Needham. No.
    Mr. Tierney. OK.
    Mr. Needham. I don't think so.
    Mr. Tierney. Mr. Waxman.
    Chairman Waxman [presiding]. Thank you very much. Before we 
conclude the hearing, I just wanted to say that I am very 
grateful for the witnesses that have appeared today to talk 
about this issue. I am disappointed, and I have to say it, 
about what I have heard from the Department of Defense.
    For 3 years Congress, auditors, and other experts have 
raised concerns about DOD, about the cost of the Defense Base 
Act insurance, and we have tried to get this whole issue moved 
forward. I don't think Congress can simply allow a waste of 
money to continue. I have prepared legislation that would 
require DOD to establish an agency-wide single insurer risk 
pool for Defense Base Act insurance, the same approach 
successfully used by the Department of State and the Corps of 
Engineers, to hold down costs.
    We have already submitted it to CBO, and under their 
analysis it would save taxpayers over $360 million over the 
next year. I have determined to end the waste and abuse in the 
Defense Base Act Insurance Program. This legislation I think 
will do that. We are going to look to both sides of the aisle 
to see if we can get this legislation enacted.
    This hearing was to be constructive. I hope it will be 
constructive, and I hope we will get the kind of result that 
will make sure we have the insurance we need at a price that 
the taxpayers can afford.
    Mr. Davis.
    Mr. Davis of Virginia. Oh, thank you. Just very quickly, I 
want to thank all the witnesses. I know how CBO scored it, I 
would like to see GAO take a look at this as well.
    Chairman Waxman. Yes.
    Mr. Davis of Virginia. One of the concerns is when the 
Corps of Engineers went out there, they just got one bidder. I 
don't know that you can save money under those circumstances 
where we have real competition going on. But I am open on the 
question.
    Let me just particularly thank Admiral Ginman for coming 
back into Government service after you retired. I appreciate 
your service both before and after and your willingness to step 
out from the big salaries in the private sector to come back 
and serve the public.
    Admiral Ginman. Thank you.
    Mr. Davis of Virginia. And to all of you who serve the 
public, thank you as well.
    Chairman Waxman. I thank you all and Admiral Ginman, and I 
also want to praise you for your service. My criticisms, of 
course, in no way are personal to you. It is the issue that we 
are looking at.
    Thank you. That concludes the hearing. We stand adjourned.
    [Whereupon, at 11:40 a.m., the committee was adjourned.]

                                 
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