[Senate Hearing 112-502]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-502

   AFGHANISTAN RECONSTRUCTION CONTRACTS: LESSONS LEARNED AND ONGOING 
                                PROBLEMS

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

                                HEARING

                               before the

              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 30, 2011

                               __________

                   Available via http://www.fdsys.gov

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs












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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                  Michael L. Alexander, Staff Director
      Nicholas A. Rossi, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
            Joyce Ward, Publications Clerk and GPO Detailee


              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                       CLAIRE McCASKILL, Chairman
THOMAS R. CARPER, Delaware           ROB PORTMAN, Ohio
MARK L. PRYOR, Arkansas              SUSAN M. COLLINS, Maine
JON TESTER, Montana                  JOHN McCAIN, Arizona
MARK BEGICH, Alaska                  JERRY MORAN, Kansas
                     Margaret Daum, Staff Director
                Brian Callanan, Minority Staff Director
                       Kelsey Stroud, Chief Clerk












                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator McCaskill............................................     1
    Senator Portman..............................................     4

                               WITNESSES
                        Thursday, June 30, 2011

Larry D. Walker, President, The Louis Berger Group, Inc..........     7
Wahid Hakki, Chief Executive Officer, Contrack International, 
  Inc............................................................     9
William M. Solis, Director, Defense Capabilities and Management, 
  U.S. Government Accountability Office..........................    25
David S. Sedney, Deputy Assistant Secretary of Defense for 
  Afghanistan, Pakistan and Central Asia, U.S. Department of 
  Defense........................................................    27
Kim D. Denver, Deputy Assistant Secretary of the Army for 
  Procurement, U.S. Army.........................................    29
J. Alexander Thier, Assistant to the Administrator and Director, 
  Office of Afghanistan and Pakistan Affairs, U.S. Agency for 
  International Development......................................    30

                     Alphabetical List of Witnesses

Denver, Kim D.:
    Testimony....................................................    29
    Prepared statement...........................................    93
Hakki, Wahid:
    Testimony....................................................     9
    Prepared statement...........................................    59
Sedney, David S.:
    Testimony....................................................    27
    Prepared statement...........................................    90
Solis, William M.:
    Testimony....................................................    25
    Prepared statement...........................................    67
Thier, J. Alexander:
    Testimony....................................................    30
    Prepared statement...........................................   103
Walker, Larry D.:
    Testimony....................................................     7
    Prepared statement...........................................    53

                                APPENDIX

Picture referenced by Mr. Walker.................................    58
Additional statement from Mr. Walker.............................   109
Certificate referenced by Mr. Hakki..............................   151
Questions and responses for the Record from:
    Mr. Walker with attachment...................................   152
    Mr. Hakki....................................................   155
    Mr. Solis....................................................   158
    Mr. Denver...................................................   165
    Mr. Sedney...................................................   188
    Mr. Thier....................................................   209
Report referenced by Mr. Sedney..................................   234

 
                       AFGHANISTAN RECONSTRUCTION
            CONTRACTS: LESSONS LEARNED AND ONGOING PROBLEMS

                              ----------                              


                        THURSDAY, JUNE 30, 2011

                                   U.S. Senate,    
          Ad Hoc Subcommittee on Contracting Oversight,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:01 a.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Claire 
McCaskill, Chairman of the Subcommittee, presiding.
    Present: Senators McCaskill and Portman.
    Senator McCaskill. I am going to go ahead and call the 
hearing to order and begin my opening remarks. I know that 
Senator Portman is on his way and when he gets here, assuming 
he gets here before I finish, he will have a chance for his 
opening statement, and if the witnesses have begun, I will ask 
your indulgence to interrupt you long enough to give him a 
chance to make an opening statement.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. I have a formal opening statement that 
has been prepared, but I have decided to not give a formal 
opening statement and just express the reason for this hearing. 
This is not the first hearing we have had in this Subcommittee 
on contracting in our contingency operations, and I began 
working on this problem almost the day I arrived in the Senate.
    I traveled to Iraq to do nothing but look at contracting 
oversight because I could not figure out how in the world 
things have gotten so out of control in terms of contracting in 
Iraq. I went over to Iraq and I realized why they had gotten 
out of control. Contracting representatives in each unit were 
just the low man on the totem pole that had been handed a 
clipboard.
    There was no training. There was not sufficient effort made 
on sustainability. There were decisions made that, frankly, 
were made with an almost myopic look at the mission and not a 
realistic look at security and sustainability and competency in 
terms of available personnel to continue whatever money we were 
spending on reconstruction.
    I always point out the Logistics Civil Augmentation Program 
(LOGCAP) contract is probably, if you look up an example, the 
initial LOGCAP contract, and look up everything wrong with 
contracting, that would be the poster child. People may not 
remember that the estimates for that contract for the first 
year were supposed to be under a billion dollars. In the first 
year, that contract cost our country $20 billion. It is just 
one example.
    I want to try to focus today on reconstruction contracting, 
and the sad thing about this hearing is, I had been hopeful 
back in 2007 that by this year, we would have done a lot to 
overcome some of the problems in reconstruction contracting in 
theater. This hearing does not make me feel good about the 
progress we have made. There has been some progress, but the 
American people cannot afford this anymore.
    In next year's budget, the President has requested $17.3 
billion for reconstruction contracting in Afghanistan. Now, 
that is a big number if the United States of America was 
humming along. That is a big number if our roads were not 
crumbling because we do not have the money to fix them. That is 
a big number if we are not looking at cutting many programs 
that are essential to the health and welfare of this Nation.
    But in light of the fact that we are facing the fiscal 
problems we are in this country, that is an enormous number 
that is going to go into the country of Afghanistan to build 
roads, to build public structures, whether they are schools or 
other public structures, and I think it has now become an 
urgent matter for this Congress to look seriously at whether or 
not that kind of reconstruction money is absolutely essential 
to our mission in Afghanistan.
    I think if you look at the lessons that we have learned in 
the past in Afghanistan and Iraq, that the government has been 
very slow to apply those lessons, and I am not sure that the 
implementation of Afghan First is leading to the kind of 
outcomes that would make any American proud.
    I am not sure that the government and contractors have 
taken the steps necessary to provide the transparency and 
accountability that we have to demand in light of the 
incredibly difficult decisions that we are faced with in the 
U.S. Congress in terms of our fiscal picture in this country.
    This is the tenth year and we have spent over $61 billion 
total already on reconstruction, and the vast majority of the 
spending has been through contractors. The Defense Department 
(DOD) and the U.S. Agency for International Development (USAID) 
are primarily responsible for this and part of our problem that 
we will talk about today is that no one is totally responsible. 
There is no one that I can really find that wants to say, I am 
responsible.
    In fact, I will be surprised if I do not hear testimony 
today from people that say, I am not really responsible. It is 
time that somebody is responsible for money that is spent on 
roads that will not ever be sustained and for buildings and 
electrical power facilities that are built that no one there 
even knows how to use, much less access the power that 
supposedly we are going to provide.
    It is time for someone to step forward and say, I am 
responsible, I am the one that is planning these projects, I am 
the one that is certifying sustainability. The Department of 
Defense is not even certifying sustainability, and we all know 
that the Commander Emergency Response Program (CERP) funds 
which originally--I remember at the beginning we talked about 
CERP and here is what CERP was supposed to be.
    It was supposed to be almost like walking around with 
money. It was supposed to be money that was used by various 
units that were on the ground in Iraq to--the example I was 
given, I will never forget, in one of my very first Armed 
Services hearings. Well, Senator, this is if one of our 
sergeants is on the ground in a community and he knows there is 
a really good guy who is stabilizing the neighborhood and the 
window of his store is broken, and we need that sergeant to be 
able to say to that store owner, I have the money right here to 
fix your window.
    That provides goodwill, it provides stability, it is the 
kind of thing that wins the hearts and minds, it gives people a 
sense of community. We have gone from broken store windows to 
hundreds of millions of dollars of construction projects in 
CERP.
    And meanwhile, no one has really taken ownership of what is 
the difference between the responsibilities of AID, which 
traditionally has done big construction, and the 
responsibilities of the Department of Defense that is now 
engaged in seriously large projects for construction.
    Sustainability is going to be the key issue that we are 
going to talk about today, and it is going to be something that 
I think is very important that we get our arms around. 
Inadequate contracting and program management practices, once 
again, we are going to cover that ground. Contractors 
overseeing contractors, and obviously transparency, and 
insufficient contract personnel, which is another key problem 
that we have not yet dealt with.
    Are the contracting officer representatives (CORs) within 
the units getting better training now? Yes, they are, and I 
congratulate General Caldwell and others that have worked on 
doing better training. But we are still not where we need to 
be. Poor coordination of interagency efforts. I do not think 
anybody in this room is going to have a strong argument that 
the coordination has not been what it should be.
    Continual personnel turnover. We are getting a 1-year 
turnover on AID right now, and I know that is probably because 
it is very difficult to get folks that want to go to 
Afghanistan for 2 to 4 years. But when we embrace a constant 
turnover like we have in theater, we are going to have bad 
things happen. We are going to have problems that are going to 
occur because the beginning of the project is not going to have 
any idea what the end of the project looks like and vice versa.
    Security challenges obviously remain a big problem. And I 
think that we are going to have to try to dig through all those 
problems today. And I will tell you that if we do not get some 
strong substantive answers that every dime that is being spent 
in Afghanistan on reconstruction is being spent wisely and 
being spent with the kind of oversight that we would expect if 
we were building a highway down the road in the United States 
of America, then I think it is time that we focus on the 
mission where we are training security forces and we are 
working to provide stability against the Taliban and the kind 
of structure that we need to support going after al-Qaeda on 
the border of Pakistan and Afghanistan.
    Perhaps it is time to shut down $17 billion worth of money 
going for reconstruction projects when our track record really 
stinks when it comes to reconstruction projects.
    Now, I hope that you all are going to convince me that I 
have become cynical and angry and frustrated about the way we 
are spending money in theater, and I want to tell you, I am 
looking for good news and I hope we hear some today. But I 
think it is really time for a gut check because I have too many 
people in Missouri saying, why can't we fix this road?
    And then I look at the projects that we are building in 
Afghanistan and it is very hard to explain to them why we 
cannot fix that road, because we cannot afford it. But yet, we 
can throw money away in Afghanistan on projects that are 
clearly not sustainable, and if anybody would have spent any 
time thinking about it in the first place, they would have 
realized that. And that kind of planning has to begin happening 
and that kind of accountability has to be present.
    I am pleased that we have a number of witnesses today that 
are going to testify to contracting in theater. Senator Portman 
is here. I will give him time to get settled. We will continue 
to do these hearings and continue to provide oversight in this 
arena. I think that it is a place we need to draw the country's 
attention.
    I think we need to draw Congress's attention. I think we 
need to certainly bring the attention of the Department of 
Defense and the Department of State to these problems and we 
need to begin to do one of two things. Do it right or stop 
doing it. I will turn it over to Senator Portman for his 
opening statement.

              OPENING STATEMENT OF SENATOR PORTMAN

    Senator Portman. Thank you, Madam Chairman. I appreciate 
your holding the hearing today. It is an incredibly important 
topic given the resources that we are devoting to Afghanistan. 
I was there about a month or so ago and had the opportunity to 
meet not just with some of our brave soldiers and Marines, but 
also with some of the Federal Government agencies that are 
onsite and some of the contractors.
    I know this Subcommittee, under your leadership, has done 
some of the most diligent and searching oversight of Afghan 
reconstruction and development over the last several years, and 
again, it is critical work and I am pleased to now join you as 
your Ranking Member.
    The hearing is especially timely as it comes on the heels 
of a major announcement last week concerning the U.S. mission 
in Afghanistan. The President announced, as you all know, his 
intention to withdraw the full complement of the 30,000 so-
called surge troops by September 2012, with the first 10,000 
coming out by the end of this year.
    I have noted my concerns about the lack of clarity 
regarding some of the strategic objectives in Afghanistan, but 
what is clear is that we are now in a critical planning window 
with respect to our military and our civilian mission in 
Afghanistan. Today we have over 154,000 private contractors 
working for the Defense Department, State Department, AID in 
Afghanistan.
    The issue of effective and efficient use of those 
contractors assumes a new urgency as we near both the surge 
drawdown that I have talked about, and also the planned 2014 
transition to Afghan-led security. It is also, of course, a 
timely discussion given our fiscal problems and the fiscal 
crisis at our doorstep.
    Over the past 9\1/2\ years, our military service men and 
women have done everything they have been asked to do and more 
in Afghanistan. They have performed remarkably well, and again, 
with bravery and extraordinary skill under some very tough 
conditions.
    Given our reconstruction efforts in Afghanistan, which are 
incredibly important to the sustainability of this effort, we 
need to be sure that what we are doing is right, be sure that 
we are consolidating some of the hard-earned gains that we have 
achieved.
    The counterinsurgency strategy that was outlined by 
President Obama has been to clear, hold, and build, and 
ultimately transfer. And as we have reached the transfer stage 
in many areas of the country, the objective, I think, has to be 
leave behind a more functioning society and economy, more 
resilient local governing structure, and a stable, more 
constitutional and stable government in Afghanistan, one that 
is capable of withstanding the radical Taliban and other 
elements.
    So one of my questions, Madam Chairman, in this hearing 
today is going to be talking about that and the sustainability 
of some of the efforts. We have invested heavily, as Americans, 
to achieve this goal of building up Afghan institutions and 
fostering economic development and job creation since 2002.
    Congress has appropriated over $60 billion for relief and 
reconstruction in Afghanistan, the great majority of which has 
been channeled through private contractors. Now we know from 
experience in Bosnia in the 1990's and more recently in Iraq 
that a reduction in troop levels does not mean a drop in 
contractor activity.
    In fact, sometimes it has been an increase. In fact, there 
has been an increased reliance on contractors to fill some of 
the support and logistical roles once performed by the military 
in those two instances.
    Eventually, however, the contractor presence will also 
decrease as we move our support from large scale off-budget 
spending to more direct on-budget aid to the Afghan government 
directly. And this is why, again, our reconstruction strategy 
must focus now more than ever on ensuring that Afghans are 
prepared to sustain what we have helped to build.
    This means we must consider not only, for example, how many 
additional schools and health clinics we construct, but also 
whether Afghanistan will have teachers and medical 
professionals to sustain those institutions. It means we have 
to consider not only the megawatt output of a new power plant, 
but whether Afghans have the resources and expertise to manage 
the long-term operation and maintenance of those power plants.
    On a related note, as we encourage more contracting with 
local Afghan firms under the Afghan First Policy, we must 
consider seriously revamping the process for vetting 
contractors to ensure that they do not pose security risks. 
Reconstruction is a critical component of our counterinsurgency 
strategy and reconstruction dollars must never be diverted to 
support terrorists or insurgent elements, and that is one of 
the concerns that I have as we go through this Afghan First 
Policy.
    We should have no illusions that Afghanistan will 
immediately be prepared to stand alone, unsupported by friends 
and allies when the large scale U.S. military does conclude. 
According to a World Bank estimate, as much as 97 percent of 
Afghanistan's gross domestic product (GDP) is currently derived 
from spending related to international military and donor 
community presence.
    Think about that. Ninety-seven percent of their GDP. That 
reliance will not simply disappear with the drawdown of troops. 
But our reconstruction efforts must be directed to empowering 
Afghans to regain responsibility and control over their own 
future. So we have plenty of challenges and I look forward to 
the hearing today, and specifically, the discussion, Madam 
Chairman, about reconstruction contracts, lessons we have 
learned and some ongoing problems. Thank you.
    Senator McCaskill. Thank you, Senator Portman.
    Let me introduce--if we could have both of our witnesses, 
Mr. Hakki.
    Mr. Hakki. Hakki.
    Senator McCaskill. Hakki. Yes. Would you mind taking a 
seat? We are ready to begin. Did I pronounce it correctly? Is 
it Hakki?
    Mr. Hakki. Hakki.
    Senator McCaskill. Hakki. That will be easy for me to 
remember. Hakki.
    Let me introduce the two witnesses. Larry Walker is the 
President of the Louis Berger Group, an international 
consulting company which holds large contracts with USAID in 
Afghanistan. In that capacity, Mr. Walker is responsible for 
providing strategic direction for the firm and ensuring the 
company has adequate resources and support for the successful 
completion of its programs.
    He also oversees the development of strategic operating 
plans for each business unit, and oversees the implementation 
of company-wide initiatives. Thank you very much for being 
here, Mr. Walker.
    Mr. Hakki is currently the Chief Executive Officer (CEO) of 
Contrack International, Inc., which holds millions of dollars 
of contracts with the Defense Department in Afghanistan. Since 
joining Contrack in 1994, Mr. Hakki has been responsible for 
overseeing operations at the U.S. headquarters office.
    His responsibilities include oversight of U.S. material 
procurement, engineering review and quality control, shipping 
logistics and monitoring the staff of engineers and 
administrative personnel. Mr. Hakki holds a Master's in 
structural engineering from Penn State and has been in the 
construction business for nearly 30 years.
    I look forward to both of you coming today. I am glad you 
are both here and I look forward to your testimony. It is the 
custom of the Subcommittee to swear in all witnesses that 
appear before us, so if you do not mind, I would like you to 
stand and raise your right hands.
    Do you swear the testimony you will give before the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Walker. I do.
    Mr. Hakki. I do.
    Senator McCaskill. Thank you both. Mr. Walker.

 TESTIMONY OF LARRY D. WALKER,\1\ PRESIDENT, THE LOUIS BERGER 
                          GROUP, INC.

    Mr. Walker. Chairman McCaskill, Ranking Member Portman, 
Members of the Subcommittee, I am Larry Walker, President of 
the Louis Berger Group (LBG). I appreciate the opportunity to 
provide our firm's perspectives on the Gardez-Khost Highway 
project and our observations regarding reconstruction projects 
in Afghanistan.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the appendix on 
page 53.
---------------------------------------------------------------------------
    The Louis Berger Group is an international consulting firm 
of approximately 3,000 employees worldwide. We provide diverse, 
multi-disciplinary expertise including engineering, program and 
construction management, and economic development services. 
Many of our projects are carried out in some of the most 
fragile and challenging regions of the world.
    LBG first began working in Afghanistan in the 1970's, and 
in December 2001, the company was the first engineering firm to 
enter Afghanistan after the September 11th attacks. Our work in 
Afghanistan has consisted mainly of reconstructing and 
rehabilitating Afghanistan's physical infrastructure.
    We have successfully reconstructed more than 2,000 
kilometers of paved roads, provided nearly 40,000 jobs to 
Afghans, and trained thousands more. LBG's USAID-funded 
projects have irrigated more than 90,000 acres of land and 
constructed more than 90 schools and clinics to seismic 4 
standards.
    The improved road network has dramatically decreased 
transit times, which has spurred economic development along the 
road corridors and improved access to education and health 
care. I have traveled these roads myself and I can truly say 
that the work has improved the quality of life in Afghanistan.
    The Gardez-Khost Highway is a critical commercial link 
between Pakistan and Afghanistan. The road provides a reliable 
transportation route from the border province of Khost to the 
capital city of Kabul providing improved access to government, 
trade, health care, and education.
    I want to say a few words about the circumstances 
surrounding the reconstruction of this road. As the picture\2\ 
accompanying my written statement shows, the topographical and 
geological features of this area where our reconstruction work 
has occurred is some of the most challenging we have faced in 
Afghanistan.
---------------------------------------------------------------------------
    \2\ The picture referenced by Mr. Walker appears in the appendix on 
page 58.
---------------------------------------------------------------------------
    The degraded security environment has made this the most 
dangerous project our company has attempted. On this project 
alone, we have suffered 21 killed, 51 injured, and 4 missing. 
Security as a percentage of the overall project cost is around 
30 percent. To compare, in other parts of Afghanistan, security 
costs average oftentimes 8 to 10 percent of overall project 
cost.
    On the Gardez-Khost road alone, our project has experienced 
147 direct attacks, 108 IEDs, and 40 mine and other ordnance 
explosions. My point is that the traditional metrics by which 
the government measures the efficacy of projects and contract 
performance do not paint the full picture. The lack of existing 
infrastructure or technical capacity, the inexperience of 
Afghan companies, the need for capacity building, and the 
defacto war zone all work against measuring success just 
against scope, schedule, and budget.
    Sustainability is critical to ensuring the long-term 
benefits of construction projects for the Afghan people and to 
protecting the significant investment made by the American 
taxpayer and other donors. Even before the Afghan-First policy 
existed, the Louis Berger Group made a significant effort to 
hire locally and incorporate sustainability concerns into the 
training we provide our subcontractors and their employees and 
we continue to do so.
    This approach has been at the heart of LBG's work in the 
developing world for more than 40 years. In the long run, the 
ultimate sustainability of many projects in Afghanistan will 
turn on the ability of the Afghan economy to generate enough 
revenue to provide the workers and materials that will be 
needed in order to maintain and sustain projects we and other 
companies have completed.
    The security environment increases the importance of 
communications between the contractor and the government. We at 
LBG have worked hard to communicate with the contracting 
officers, technical staff, as well as the U.S. military to 
properly address security-related issues as they arise.
    The Louis Berger Group is honored to support USAID and 
other clients in the critical efforts to improve Afghanistan's 
physical, social, and economic infrastructure. We have met with 
the Commission on Wartime Contracting on four occasions to 
discuss reconstruction, and most recently, to discuss the 
recommendations found in their recent report.
    We support several of the Commission's recommendations 
including integrating contract support into operational plans, 
expanding and improving the qualifications and experience level 
of government acquisition personnel, expanding competition 
requirements, and requiring improved contract administration 
and oversight of contingency contracts.
    LBG believes these would all be constructive improvements 
in the contracting process. We applaud the efforts of the 
Commission and the Subcommittee to improve the manner in which 
the U.S. awards and oversees its contracts in overseas conflict 
environments, and its emphasis on sustainability of our 
reconstruction programs.
    At the Louis Berger Group we strive to deliver quality 
construction in a timely fashion and within the funding 
parameters for each project. The company and our employees do 
this work because we have seen the tangible improvements in the 
lives of the Afghan people that result from our work.
    Thank you.
    Senator McCaskill. Thank you, Mr. Walker. Mr. Hakki.

TESTIMONY OF WAHID HAKKI,\1\ CHIEF EXECUTIVE OFFICER, CONTRACK 
                      INTERNATIONAL, INC.

    Mr. Hakki. Chairman McCaskill----
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hakki appears in the appendix on 
page 59.
---------------------------------------------------------------------------
    Mr. Hakki. OK. Chairman McCaskill, Ranking Member Portman, 
distinguished Members of this Subcommittee. On behalf of 
Contrack International, I thank the Subcommittee for the 
invitation to share some of our experiences and lessons learned 
as part of the reconstruction efforts in Afghanistan over the 
past 9 years.
    We share your interest in examining how the government can 
bring greater efficiency, transparency, and accountability to 
the construction contracting process. We believe these goals 
can help everyone deliver projects that are on schedule, within 
budget, and sustainable.
    Since 1985, Contrack has operated as a privately owned U.S. 
corporation headquartered in McLean, Virginia. I joined the 
company in 1994 as Executive Vice President and was appointed 
CEO in December 2010.
    Contrack has offices in Egypt, Qatar, Bahrain, and 
Afghanistan. We provide engineering, procurement and 
construction services, as well as facilities operations and 
maintenance (O&M). Our focus primarily is on military, 
institutional, and infrastructure projects throughout Northern 
Africa, the Middle East, and Central Asia.
    Over the past 9 years, Contrack has completed more than 
$1.5 billion worth of fast track design-build projects in 
Afghanistan for the U.S. Army Corps of Engineers (USACE) and 
the Air Force Center for Engineering and the Environment 
(AFCEE). Working as a prime contractor, we have constructed ANA 
Brigade camps, airfields, entry control points, ammunition 
supply points, bulk fuel storage and supply systems, forward 
operating bases, and other facilities.
    We were also awarded a contract for the permanent 
operations and maintenance services required to perform O&M 
work in numerous ANA and ANP sites throughout Afghanistan. 
Contrack's business model in Afghanistan is somewhat different 
than most contractors in that we self-perform the majority of 
our work, rather than acting purely as a construction manager 
of major subcontractors.
    Contrack has been a vital partner with the Corps of 
Engineers (COE) in accomplishing the AED's mission statement to 
provide sustainable development projects for the Afghan people 
that employ the populace, build skilled human capital, and 
promote the future stability of Afghanistan.
    In order to utilize the local labor force, the majority of 
Afghans must be trained in a skill. To accomplish this task 
Contrack set up a training center to train and educate the 
Afghans on a variety of construction trades. To date, we have 
graduated more than 3,000 students, most of whom are still 
employed by Contrack.
    As a prime contractor, we also try to foster relationships 
with local firms so they can succeed. This requires ongoing 
training and guidance concerning U.S. technical and contractual 
requirements and obligations. Under the challenges that we are 
still facing over there, we have here the contracting with 
foreign contractors.
    Afghan and international contractors often receive 
contracts which are more than they can handle. Many of them are 
also not familiar with U.S. contract requirements. 
Unfortunately, we share the perception in the international 
community that there is an uneven playing field and that 
foreign contractors typically are not subjected to the same 
standards as U.S. contractors.
    These include safety, ethics, bonding, and cost accounting 
requirements that are established both to protect workers and 
interests of the U.S. Government. We believe that the Corps of 
Engineers has begun recognizing the risks in awarding projects 
to foreign firms based on low price only.
    For example, the government recently awarded a MATOC 
contract to 14 firms, all of which are American firms. Future 
task orders will be competed among these 14 firms only. This 
promotes full and open competition with qualified construction 
contractors to deliver the best value for taxpayers' dollars 
invested in Afghanistan.
    We appreciate the difficulties faced by the government and 
commend the professional manner in which so many contracting 
personnel perform their work in a hostile region. However, the 
frequent rotation of COE field staff has created a cascade of 
challenges to the contractor and the government.
    For example, delays in resolving contract modifications due 
to government contracting officers and related personnel causes 
delays in payment to the contractors. Similarly, high turnover 
of government personnel in the field causes delays in 
submission of the final CCASS evaluations.
    Quality at the job site is overseen by the USACE's quality 
assurance (QA) representatives. COE QA representatives are 
experienced in other trades, but lack sufficient training to 
understand and enforce the technical requirements of the 
contract they are assigned to. Lack of partnering between the 
contractor and the COE is another unfortunate result of the 
personnel turnover.
    Contrack has participated in numerous partnering sessions 
with the COE in other regions such as Qatar, Bahrain, and 
Egypt. We believe these sessions vitally contributed to the 
success of the projects in those regions. However, in 9 years 
in Afghanistan, and after completing over 50 projects, we have 
had only one partnering session with the COE.
    High turnover of government personnel exacerbates lack of 
coordination between different government agencies in charge of 
the projects and their respective end users. This often causes 
delays to the project and cost overruns. Sometimes the end 
users' requirements are not fully understood by the Corps.
    For example, on design-build projects, early partnering 
sessions involving the contracting agency, the contractor, and 
the facilities end user would really help parties to achieve 
the end users' design goals.
    Transportation and logistics. The high volume of cargo 
creates delays at the base entry control points. Material and 
equipment convoys are at the mercy of the transporter. 
Meanwhile, border politics that can block or delay shipments of 
material to the project sites make matters even worse.
    Working with the Afghan ministries is a challenge. The 
Afghan ministries change procedures on a regular basis. 
Requirements for tax exemption documentation, approval of 
visas, et cetera, lack of stability is further compounded by a 
thin staff that lack the cross-training.
    New and constantly changing Presidential Decrees further 
increase the uncertain risk environment. For example, the 
latest ban on private security firms will cause disruptions, 
delays, and safety problems.
    We believe that the foundation of a good project is a well-
coordinated design. Such design must meet the general 
guidelines by the COE and address the end users' needs. On a 
project in Bagram Air Base, we were tasked to design and build 
the main entry control points.
    We had our designers onsite for a meeting with the COE and 
the Force Protection staff to agree on a design that satisfied 
everyone's requirements. This eliminated a lengthy review 
process and clarified the objectives of the project. All of 
these partnering efforts resulted in a successful project 
completed on time and on budget.
    I appreciate this opportunity to share our experience in 
Afghanistan and would be pleased to answer any of your 
questions.
    Senator McCaskill. Thank you both very much.
    Mr. Walker, I want to talk a little bit about the road. I 
understand where the road is located. I understand the 
strategic planning that went into this particular road, but I 
am trying to figure out whether or not someone along the way 
should have pulled the plug. Let us talk about the initial 
price tag of the road, and we are talking about now the 
highway, the Gardez-Khost Highway that goes down through rough 
territory and significant elevations and covered in snow in the 
winter and, frankly, a very challenging highway project under 
the best of circumstances.
    Clearly, very difficult under the circumstances, especially 
considering you are going through some significant Taliban real 
estate. The initial price was $69 million. We are now up to 
$176 million for 64 miles of highway. What went wrong in terms 
of the initial price tag for this highway? Why are we barreling 
toward three times as expensive as it originally was intended, 
and of that price tag, $43.5 million of that is security.
    So what we are seeing is that a third of the cost of 
building this is, in fact, security. Did no one have any idea 
that was going to be the case before it began?
    Mr. Walker. When we started with the project, the incidents 
of violence were not nearly as high as they were as we got into 
the project. The original estimate of security cost as a 
percent of the contract was around the 12 percent level, as I 
recall.
    The challenge was, as we got into it and probably a year 
into it, the attacks really began to increase and the security 
situation really began to significantly deteriorate. At the 
time--and we have worked on roads throughout Afghanistan for 
many years.
    At the time that the project was initiated, there was no 
reason to assume that the security conditions would deteriorate 
the way they did, recognizing that the possibility always 
existed, we have all been working over there and it is a very 
fluid and volatile situation. But no one anticipated the level 
of violence and the level of attacks that the project was going 
to sustain.
    Senator McCaskill. And who made the decision as to what the 
level of attacks would be? I mean, was that the military that 
decided the attacks--because it would be hard not to guess that 
this is going to be significantly different than many of the 
other highway projects just by sheer--the fact of where it is 
located.
    Everyone knows. Frankly, the reason they wanted the road in 
the first place is they wanted to clear out the hornet's nest 
of Taliban in the area. So I am trying to figure out who I can 
talk to that misjudged the security environment by so much.
    Mr. Walker. I am not sure it is a question of misjudgment. 
I can appreciate that perspective that it certainly might 
appear that way. The security in the country in general really 
began to deteriorate. At the same time, when looking at 
security in Afghanistan, it is not one single footprint. 
Clearly, the north and the west is a different security profile 
than what we have in the east and the south.
    When we began work on one road in the south, for example, 
working in the same type of conditions, other roads that we 
have worked in that area--as a matter of fact, the Kabul-Gardez 
road, which is the other extension of Gardez-Khost, we did that 
road. We did not have nearly the security situation that 
developed later into the program.
    So our historic experience was certainly at a serious level 
of security, but not to the extent of what we are experiencing 
now.
    Senator McCaskill. Is it typical that you would have as 
many subcontractors as you have on this project? Is this 
typical?
    Mr. Walker. Yes.
    Senator McCaskill. So you would typically have 24 first 
tier subs and 147 second tier subs on projects that you would 
work?
    Mr. Walker. The 24 first tier subs, most of those subs 
would be very small subcontracts.
    Senator McCaskill. Give me an example. I am trying to 
figure out, for 64 miles, you have 167 different subcontractors 
for 64 miles. What in the world are all those subcontractors 
for?
    Mr. Walker. You could have a small Afghan subcontractor 
whose job would be clearing ditches of debris. Another Afghan 
subcontractor who would build--makes new walls on the approach 
to a bridge. You would have another subcontractor who could 
work on the culverts with the primary and first tier 
construction firm.
    There are many small aspects to a construction project. One 
of the things that we wanted to encourage was the use of 
Afghans as much as possible, the use of Afghan firms.
    Senator McCaskill. How many of these subcontractors are 
Afghan companies?
    Mr. Walker. Without looking at the list I cannot say, but I 
would guess it is the majority of them.
    Senator McCaskill. Well, we would love to get the exact 
number.
    Mr. Walker. We can get you that for the record.
    Senator McCaskill. That would be very helpful. I am most 
concerned about the money that was paid on security to folks 
that there is every indication that they are the bad guys. Is 
this a reality that America has to accept, that in order for us 
to do things for the Afghan people, that we have to pay the 
people that are killing us?
    Mr. Walker. I do not believe that is the case. Certainly on 
this road, with the security firm that we have providing 
security on the road, all of the local Afghan security 
providers are placed into the military's biometric data system 
to check against the bad guy list.
    If someone were to turn up, the military, through USAID, 
would get back to us and say, We have a problem here.
    Senator McCaskill. Have there been any you have had to 
remove because of that?
    Mr. Walker. I am not aware of any.
    Senator McCaskill. Mr. Arafat.
    Mr. Walker. Mr. Arafat, his information, as I have been 
informed, was put into the biometric database and there was no 
indication that he was a person of interest. As a matter of 
fact, Task Force 2010 specifically told us that he was not on 
their list.
    Senator McCaskill. But he was fired?
    Mr. Walker. Pardon me?
    Senator McCaskill. He was fired?
    Mr. Walker. Consent to use him on the project was 
withdrawn, so his employment was terminated.
    Senator McCaskill. And he was getting a million a year?
    Mr. Walker. No, ma'am. He was responsible for providing 
drivers and vehicles. He did not provide security, as I 
understand it. His responsibility was to provide drivers and 
vehicles, which he did. The cost of those vehicles and drivers 
and fuel was $40 a day per vehicle. We compared that against 
similar charges for running vehicles and that was consistent. 
The charge of those vehicles was a little bit over a million 
dollars.
    Senator McCaskill. OK. I have additional questions that I 
will ask in the next round, but I will now turn it over to 
Senator Portman.
    Senator Portman. Thank you, Madam Chairman, and again, I 
thank the witnesses for being here today.
    Mr. Walker, I think this hearing should be forward looking, 
but I think there are some questions that should be asked and 
some assurances, I hope, can be given with regard to steps you 
have taken, not so much with regard to the road--I do have some 
questions about that following on the Chair's questions, but 
with regard to some of the over-billing practices and what kind 
of internal audits or other controls have been put in place.
    In November of last year, my understanding is that your 
firm received the largest fine ever imposed on a contractor 
working in a war zone of $18.7 million in criminal penalties 
and $50.6 million in civil penalties for over-billing.
    And as part of that deferred prosecution agreement, your 
company admitted that from 1999 to 2007, former executives 
submitted false, fictitious, and fraudulent overhead rates for 
indirect costs and correspondingly resulted in overpayments by 
the government in excess of $10 million. Federal prosecutors 
charged in addition to that between 15 and 20.
    But what I want to ask today, and give you a chance to 
respond to is, what assurances can you give the Committee that 
these kinds of abuses will not occur in the future with 
taxpayer dollars? Have you improved internal audit controls? 
How frequently do you plan to have your billing practices 
reviewed by outside accounting firms? What safeguards have you 
put in place?
    Mr. Walker. In 2006, we noticed a problem in our overhead 
and we initiated an internal review, and in June 2007, we 
initiated a refund to the U.S. Government of $4.3 million. In 
August 2007, the Justice Department (DOJ) let us know that we 
were under investigation and intervened with us at that point.
    Being that we had already seen that there were some 
problems in the overhead structure, we, of course, immediately 
pledged our full cooperation. We brought in an outside 
accounting firm to do a forensic analysis of what was going on 
in the overhead structure. We shared that completely with the 
Department of Justice.
    And what was determined was costs that were associated with 
one overhead pool were inappropriately moved to another 
overhead pool. That overhead pool was the overhead pool for 
U.S. Government overseas work. That was absolutely wrong.
    In looking at that situation and recognizing that we had 
that problem, we worked with the Department of Justice to, 
again, identify what the damages were to the U.S. Government 
and certainly volunteered our cooperation to initiate the 
refunds.
    The individuals who were associated with that improper 
practice are no longer with the firm. We initiated a complete 
restructuring. I took over the presidency of the firm about 
2\1/2\ years ago and initiated a complete restructuring of the 
controls and policies and procedures in the company.
    I created a much more robust Compliance and Ethics 
Department in the company. We put the entire company through 
training, the Accounting Department, through many, many types 
of training. We put in place scores of new controls. We brought 
in yet another outside accounting firm to test those controls.
    It is one thing to have policies and procedures; it is 
another thing to make sure that they work. So I brought in 
another independent accounting firm to test us to see how we 
are doing because we need to make sure that not only does the 
policy and the control exist on paper, but that it exists in 
the culture of the company. And so, we have been in that 
process.
    As part of the DPA, as you are aware, we are under a 
monitor and we share everything, of course, with that monitor, 
all the training programs, all the testing to provide assurance 
that the controls that we put in place to protect the U.S. 
taxpayer.
    We have shared this from day one with the Justice 
Department, with USAID, many presentations, and we have just 
laid everything open bare to make sure that we are as 
transparent as we can possibly be in this situation.
    Senator Portman. Well, thank you. I am glad to have given 
you the opportunity to respond. Obviously what this Committee 
is concerned about is that there are ongoing efforts to have 
both internal and external reviews, and through the monitor and 
other safeguards, we want to be sure that, as I said earlier, 
this incredible expenditure of taxpayer funds is being properly 
spent. Given where we are in Afghanistan, it is all the more 
important.
    Let us go to the specific project, if we could, that you 
discussed with the Chair and that is the 64-mile highway that 
has now cost about $121 million. Final price tag, I am told, is 
expected to reach $176 million, or about $2.8 million per mile. 
Cost overruns, as I look at this, have now exceeded 100 
percent. I do not know if that is accurate or not, but that is 
the way I read the numbers.
    In your testimony, you attribute this to the security 
environment. You have responded to the Chair's questions about 
the security environment. I guess I would ask you a question, 
in addition to the security issue, can you tell us what is the 
cost overrun excluding, security costs?
    Mr. Walker. When Senator McCaskill had mentioned $69 
million, I would like to clarify it a little bit. That was our 
estimate of what we thought at the time it would cost to build 
that road, the construction cost. The bids that came in and the 
firm that won the contract, who was the low bidder, came in at, 
I believe it was $85 or $86 million.
    That was really the starting point for us for the 
construction of the road, not counting security or the 
construction management over the contractor. So from our 
perspective, the construction starting point is about $85 or 
$86 million. And the total cost at that starting point, when 
you include security and the construction management, was about 
$107 million.
    The $85 or $86 million that was bid by the construction 
firm, the job will come in basically at that price. The 
construction costs are not experiencing large overruns. The 
primary driver of these costs are security. It has exceeded 30 
percent. It has grown throughout the process. And it grew to 
such a point that--we are not in the security business and we 
saw that the security costs continued to grow as a result of 
the security situation.
    So last year in one of the modifications to the contract, 
without prodding by USAID, but on our own volition, we told 
USAID that we were going to forego profit on security moving 
forward from last year. And so, we were entitled to it, but we 
voluntarily chose to forego $1.4 million in profit on security 
because we are not interested in making profit because of that 
type of a situation, so we voluntarily decided not to.
    Senator Portman. My time is running out here.
    Mr. Walker. Yes.
    Senator Portman. We will have a chance for further 
questions in a moment, but if you could provide the 
Subcommittee with the cost overrun data, that would be helpful. 
You just said the primary driver of these costs are security-
related. What we would be interested in knowing is which of 
those costs are not security-related, understanding what you 
said about security and the fact that there is a change in the 
security environment in the country as a whole. But if you 
could give us the data on cost overruns that are not security-
related? If there are none, we want to hear that. If there are 
some, we want to hear what they are and why.
    Mr. Walker. Be happy to, Senator.
    Senator Portman. And there is, as I understand it, because 
of the basis of the contract being on a cost-plus basis, I 
assume there would be a profit involved. So we want to hear 
what those cost overruns are. Thank you, sir.
    Senator McCaskill. Let us just get an overview here. 
Approximately how many different contracts does your company 
have in Afghanistan, Mr. Walker?
    Mr. Walker. The largest one is the IRP IQC contract that we 
hold in joint venture with Black & Vetch.
    Senator McCaskill. Which is for all the highways, all the 
roads?
    Mr. Walker. Not all the roads. The roads are being executed 
under different contract mechanisms, but our responsibility has 
been roads. So under the IRP contract, road task orders, I 
believe we have done four roads, if I am not mistaken.
    Senator McCaskill. OK. And are there other types of 
projects that your companies are doing besides roads in 
Afghanistan?
    Mr. Walker. We have some small contracts where we are a 
subcontractor to some other firms on non-infrastructure. We 
also have some--we have had a couple of small projects under 
the AFCAP contract, but they are--I do not think we have any 
current and we have had just a handful of those.
    Senator McCaskill. Mr. Hakki, you indicated most of the 
work you have done has been under the aegis of work with the 
Army Corps for the military as it relates to structures either 
supporting the Afghan police, the Afghan national army, or the 
U.S. military.
    Mr. Hakki. Correct, ma'am.
    Senator McCaskill. Have you done any projects that would be 
considered civilian infrastructure projects, electrical plants, 
health centers, schools, anything of that nature?
    Mr. Hakki. No, we have not, ma'am.
    Senator McCaskill. OK. Let us talk about oversight. I was 
shocked in your testimony, Mr. Hakki, when you said in 9 years 
you had one meeting with the Corps of Engineers. For both of 
you, how often do you see USAID officials, Mr. Walker, at the 
Gardez-Khost project? How often are they there?
    Mr. Hakki. I am sorry, Senator. The meeting I was talking 
about was a partnering meeting, not normal regular meetings. We 
have regular meetings with the Corps in country on----
    Senator McCaskill. Partnering like the planning meeting?
    Mr. Hakki. Partnering planning meetings where we have top 
executives from both agencies, along with the end user, and 
they meet for a whole day or perhaps 2 days in a remote 
location and they discuss the strategy and the partnering for 
the whole project.
    Senator McCaskill. And sustainability, I assume?
    Mr. Hakki. And sustainability. For that, we have only had 
really one in Afghanistan, but as far as regular meetings with 
the clients, we have had those on a regular basis.
    Senator McCaskill. I understand. What about oversight on 
your end, Mr. Walker? How often does USAID show up onsite?
    Mr. Walker. In the projects that we have around the 
country, they definitely come in. One of the restrictions that 
USAID works under is the restriction for being able to move in 
the country. And I have known quite a number of USAID personnel 
who want to get out more than they are allowed to.
    They do come to the case of Gardez-Khost, USAID does come 
out to the road. They are forced to travel under very 
restrictive security restrictions such as movements in MRAPs, 
for example, but they do get out. They do get out to the road.
    Senator McCaskill. What about the contracting officers, the 
CORs? Do you all have very much contact with CORs, either one 
of you?
    Mr. Hakki. Yes, we do.
    Senator McCaskill. You do?
    Mr. Hakki. We do, but I have to emphasize that our projects 
are a lot different than the Louis Berger projects because our 
projects are all inside the wire.
    Senator McCaskill. Right.
    Mr. Hakki. They are all inside the perimeter of the base 
where most of the times, the COR's officers are there.
    Senator McCaskill. Right.
    Mr. Hakki. So it would be a lot easier for us to meet than 
they do.
    Senator McCaskill. Do you think the CORs are doing a better 
job in terms of contract oversight than 4 or 5 years ago?
    Mr. Hakki. They have definitely improved over the past 9 
years. We have definitely seen a lot of improvement in all 
aspects----
    Senator McCaskill. That is good.
    Mr. Hakki [continuing]. Including the government turnover 
of personnel that you just mentioned. Most of them are now on 
one year rotations, when initially in 2003, we used to see 
people on 60 day, 90 day rotations. Now they are getting into 
one year. I think there is still room for improvement there. I 
think they can still increase that, but there is definitely an 
improvement.
    Senator McCaskill. And let us talk about bribes. I mean, I 
spent some time in Afghanistan and I am hopeful that neither 
one of you will test us here and not acknowledge that bribes 
have been an essential part of us doing business in 
Afghanistan, regardless of what we are doing.
    What can you tell the Committee about bribes and the bribes 
that have been paid at various places and levels, whether it is 
under the aegis of security or other services that are needed 
by local folks that are used to getting their piece of the pie?
    Mr. Hakki. No, I can tell you, ma'am, we do not have any 
part of that whatsoever. We have a very strict company policy 
against bribes and we just do not participate in that. And on 
several occasions, it cost us delays and we had to suffer 
because we did not agree to play that game. But we really do 
not.
    Senator McCaskill. Mr. Walker.
    Mr. Walker. We have seen no evidence of our security 
personnel providing bribes. I mean, I think the casualties that 
we are taking would indicate that is not something that we 
sponsor or that our security provider sponsors.
    Senator McCaskill. Well, I assume when the security costs 
went way up, the casualties began to go down.
    Mr. Walker. No, ma'am.
    Senator McCaskill. The casualties have remained at the same 
level even though security has increased by a dramatic fashion?
    Mr. Walker. We have had, for example, 2 weeks ago, two of 
our security personnel were kidnapped and taken to a local 
village. They brought the villagers out and they executed them. 
Whether that happened 2 weeks ago or whether it might happen 30 
days from now we still have to maintain a level of security.
    In ramping up the security, it is one of those unknowns. We 
do not know what we may have prevented by having more security, 
better security. But what we do with our security profile is to 
create a security bubble and to make that as airtight as 
possible so that the work can occur.
    But when you move on from that bubble, you still have 
infiltration to plant IEDs, to plant mines. When workers go 
home, in the case of the gentlemen 2 weeks ago who were 
kidnapped, they were on their way home after they had left duty 
when they were kidnapped and then executed. We have to maintain 
a level to allow us to get our work done.
    Around 3 to 4 weeks ago, you all are probably aware of the 
attack that occurred north of the road in which 36 construction 
workers were killed. I believe it was a PRT road. They were 
trying to use a lower level of security, as I understand it, 
and the result was they could not withstand a serious assault.
    So how much is our security footprint a deterrent from a 
serious assault like that? I do not know if we can answer that 
question.
    Senator McCaskill. Right. You cannot prove what you can 
prevent.
    Mr. Walker. Yes.
    Senator McCaskill. Well, I do not think either one of you 
would say that bribing is not a serious issue in Afghanistan, 
right? I mean, you are not going to tell me that?
    Mr. Hakki. No, it is definitely a serious issue.
    Senator McCaskill. OK.
    Mr. Hakki. And it happens on a daily basis.
    Senator McCaskill. Right, everywhere.
    Mr. Hakki. We get threatened and we get calls to give the 
bribe and if we do not, we face the consequences. Like I said, 
we have been forced to suck it up and delay material delivery, 
delay in normal procedures with the government simply because 
we are not playing the game. We are refusing to succumb to 
that.
    Senator McCaskill. Right. Do you think we should have built 
this road, Mr. Walker?
    Mr. Walker. A couple of years ago, a reporter for the Wall 
Street Journal asked me if we should have built the Kabul-
Kandahar Highway, which we had constructed. It has been under 
attack. All the bridges have been damaged. And he said, it is 
under such attack, was it worth building the Kabul-Kandahar 
Highway in the first place?
    And I said to him that they are attacking it because it is 
important and if it is important, it is worth building. I think 
the question is not should we have built it or not built it, 
but is there a different way of building it that would get it 
done quicker or lower the casualty count or lower the security 
profile?
    Again, when we started the road, we were at one level and 
then it advanced. We built a road a few years back up to Tarin 
Kowt, which is in Uruzgan Province, under the REFS contract 
which was the first contract that we had, and we knew that was 
going to be bad from day one. And so, we got together with the 
military, I think it was the 864th Combat Engineer Battalion, 
and we embedded ourselves with them.
    So we had a battalion around us. They actually did the 
groundwork--did the earthwork. They had their 'dozers out there 
and they blazed it, and we came behind doing the asphalt work. 
And we were surrounded by a battalion. There were no casualties 
on that road, and Uruzgan Province was Taliban territory from 
day one that the United States came into Afghanistan. That was 
never----
    Senator McCaskill. So why don't you do the same on this 
road?
    Mr. Walker. Because when we started, no one recognized that 
it was equivalent to a Tarin-Kowt, and our experience working 
on roads in the area indicated that it was not like a Tarin-
Kowt.
    Senator McCaskill. But once you figured out it was, why did 
you not go back to the drawing board and do what you had done 
in the previous incident?
    Mr. Walker. Senator, I think that is a great question and 
my understanding with this hearing is getting to the lessons 
learned, and going back to my opening statement where I said we 
cannot just look at the typical metrics of scope, schedule, 
budget, there comes a time when we probably should have stepped 
back and said, We have to change the scope because we need to 
get the road done, but maybe there is a different way of 
getting that road done.
    What ended up happening is we all--we went into a reactive 
mode. So we have a security situation, we have to increase the 
security footprint to prevent that particular situation from 
happening again where we have another incident.
    So I think from the lessons learned, that we have to 
recognize how the security environment can change relatively 
quickly in a contingency environment like Afghanistan.
    Senator McCaskill. Well, it is sad to me that we are just 
now talking about that lesson learned because that lesson was 
learned many times in Iraq where the security environment 
changes and billions of dollars worth of investment was blown 
to smithereens because the security environment changed.
    And I guess what I would say is that it seems this is a 
long time that we have had lessons learned, and it is so 
frustrating that--let me ask this last question because my time 
is up. Who is the person that you would see, Mr. Walker, that 
could have, in this whole enterprise of building this highway, 
who is the person that should be held accountable for not 
changing the way the highway was being built in light of the 
security environment changing?
    Not within your company, but within the government part of 
this, the military or the State Department. Who is the person 
that should have said, We have to go back and do this 
differently?
    Mr. Walker. I do not know if there is any one person, but I 
do know that it is really important that we make sure that our 
communication between the military, between our client, with 
ourselves, is always at its best.
    Senator McCaskill. Who can I blame?
    Mr. Walker. Who can you blame?
    Senator McCaskill. Yes. Who can I blame that we did not 
change the way we were doing it sooner? Who could the American 
people look to hold accountable that we have poured tens upon 
millions of dollars into security not really sure where all 
that money has ended up? Who is it that I should ask to come in 
front of this Committee to talk to about it?
    Mr. Walker. I am reasonably confident that we have 
maintained controls over the money that is going to security.
    Senator McCaskill. OK. I should not have added that. I am 
wanting to know, who is the person--and if there is not a 
person, that is the problem. Who is the person that I should 
ask to come in front of this Committee and explain that they 
were monitoring this expenditure of American tax dollars, that 
they saw it getting out of control, and they said, ``Stop, we 
need to have a meeting, we need to figure out a different way 
to do this, we are going to put way too much money into this 
project? '' Who is that person?
    Mr. Walker. And I guess I would have to say there is not 
one person who could be held to that standard. I think it is 
incumbent on all of us to sit down and look, is there a 
different way?
    Senator McCaskill. You know what happens with all of us? 
That means none of us because we do not know who we can hold 
accountable and we have to figure that part out. Somebody has 
to be held accountable. There has to be somebody in the whole 
organization that has primary responsibility and accountability 
for these projects if they are not sustained and they ended up 
costing way more than they should have cost and not achieving 
the objectives of the original project. Thank you very much. 
Senator Portman.
    Senator Portman. Thank you, Madam Chairman. Three quick 
questions and I would appreciate it if we could try to go 
through these quickly because there is another panel right 
behind you, I know, that is already here with us.
    Again to Mr. Walker, giving you chance to respond, you 
talked about the highway that is under discussion here today, 
the Gardez-Khost Highway, and we have talked about the security 
situation and the cost overruns.
    But let me give you a chance to respond to a report. This 
comes from the New York Times back in May. It is a quote, 
Despite the expense, a stretch of the highway completed just 6 
months ago is already falling apart and remains treacherous, 
end quote.
    One, do you agree that parts of the highway that you have 
already constructed is deteriorating, and if so, is your firm 
paying for the repairs to that stretch of road, or is USAID and 
the taxpayer picking up the tab?
    Mr. Walker. First, I would absolutely disagree with that 
reporter's assessment. The reporter was referring to one 
particular crack that was on the road. If you have the 
photograph that I included with the opening statement--and if 
you do not have it with you, you could look at it later--on the 
right-hand side of that photograph, you will see where that 
crack is.
    You will also see a fault line that runs down the mountain 
and the crack was a result not of workmanship. It was the 
result of a fault. It is there, the road goes over that fault, 
and whether it is Colorado where I used to live, whether it is 
West Virginia, whether it is Afghanistan, mountains move.
    It was not a quality issue. It was not an issue of 
workmanship. It was an issue of that fault moving. I have 
spoken--we have had a senior geotechnical engineer who has been 
out there taking a look at it. It goes over a fault.
    Senator Portman. Who is going to pay for the repair?
    Mr. Walker. In the case of it going over a fault, that is a 
maintenance repair. Where there have been issues of quality, as 
there is also some issue of quality, we have had the contractor 
pay for that when it is their responsibility. But when a 
mountain moves, it is not the responsibility of the contractor. 
It is a maintenance function.
    Senator Portman. To both Mr. Walker--and Mr. Hakki, we are 
not going to leave you out totally here. After all, you got 
your engineering degree from Ohio University.
    Mr. Hakki. Yes. I was hoping you would mention that, 
Senator.
    Senator Portman. Yes. We are proud of that. Let us talk 
briefly about Afghan First. As I said in my opening statement, 
this is a policy now of the Administration I supported. Hire 
Afghans first, buy Afghan products, build Afghan capacity. You 
addressed this a little bit in your opening statement with 
regard to the 3,000 students you say have graduated from a 
training course, and you said you have local firms engaged in 
some retraining efforts.
    I would ask you both, how do we get Afghans engaged in the 
sustainability I talked about in my opening statement? This 
road, the next time there is a crack and you all are gone and 
we begin our withdrawal, who is going to fix it? Can they 
afford it? Do they have the technological capacity to do it?
    I just would like to hear from, first, Mr. Hakki quickly. 
What are you doing exactly to ensure that there will be this 
ongoing support by retraining, by developing this expertise? 
What are the challenges you see by this stated policy, the 
Afghan First Policy, and do you see any unintended consequences 
of it? And I think Mr. Walker alluded to some of those earlier. 
But if you could respond to that, Mr. Hakki?
    Mr. Hakki. Yes, Senator Portman. The Afghan First program 
is really not something that we are very familiar with. That is 
very limited to Afghan companies. We know it is there, we know 
it has been fairly successful, but I really cannot comment on 
that because we have not really participated in that.
    Senator Portman. But the policy is to have contractors like 
you hire Afghans.
    Mr. Hakki. I think the Afghan First program is limited to 
Afghan companies, if I am not mistaken. But that does not mean 
that we are excluding the Afghans from our projects. Like I 
said, we hire a lot of Afghans on our projects, we train them. 
We also engage with the local Afghan subcontractors.
    Senator Portman. But you do it just because you think it is 
a good idea, not because there is any direction in terms of a 
policy related to your contracts?
    Mr. Hakki. Correct. There is a requirement in our contract 
that encourages the engagement of the local labor and local 
companies, but it is really not a requirement. We have taken 
that way over.
    Senator Portman. You would not have to do any hiring of 
Afghan subs.
    Mr. Hakki. Contractually speaking, no.
    Senator Portman. Interesting.
    Mr. Hakki. But we do that.
    Senator Portman. In terms of policy----
    Mr. Hakki. But we do that and it has been very successful, 
and the training center that we established really was 
completely out of pocket. There was no government funding 
associated with the training center that we developed. It was 
completely out of pocket and we thought it was a great idea 
because it really addresses Senator McCaskill's concern with 
sustainability. The best way to sustain these projects after we 
all leave Afghanistan would be the training and the education.
    The way we really did it is very simple. We hired these 
students, believe it or not. We had to pay them like a daily 
allowance. We had to transport them and we had to give them 
actually like food while they are there.
    But it is really peanuts. I mean, the cost of all that was 
very little compared to the overall reconstruction process. And 
in 2 to 3 weeks, we would graduate them with a simple--maybe I 
can introduce this as part of the record if it is possible.
    But it is a simple certificate,\1\ really, that states that 
this individual has been trained for about 2 to 3 weeks on a 
specific skill, and it really does not cost much, but it means 
the world to this individual because it provides him with the 
security and a skill and with a job that he can use long after 
we leave. So that is why it has been really successful, this 
whole program for us.
---------------------------------------------------------------------------
    \1\ The certificate mentioned by Mr. Hakki appears in the appendix 
on page 151.
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    Senator Portman. I look forward to talking to the 
government panel afterwards. There must be some disconnect here 
between the work you have done, which it sounds like successful 
in terms of moving toward not just using Afghan subcontractors 
and labor, but also training them for the future, and what my 
understanding was, which is that should not be something that 
is discretionary, but rather, part of a policy. So we will talk 
more to the government panel about that.
    Mr. Walker, other thoughts?
    Mr. Walker. Yes. Under USAID's auspices, we have a major 
and significant program of sustainability underway for roads. 
Currently, we have basically an Afghan-led program where 1,500 
kilometers of road under active maintenance, we have been 
developing the capability of the Afghan firms, the Afghan 
employees for a number of years now. And again, it is 1,500 
kilometers under maintenance.
    Our employees, our Afghan employees, we have moved up the 
ranks so that the deputy task order manager is a local Afghan 
engineer, Engineer Wali. He could take that program over 
probably in another 6 months, maybe a year.
    The important point about that is sustainability also means 
funding, and we have worked with the Afghan Government, with 
the Ministry of Public Works and the Ministry of Finance, to 
establish the framework for a road authority, as well as a road 
fund. The Minister of Finance has indicated that he feels it is 
very important in that roads can be funded, maintenance of 
roads can be funded through a fuel tax or something along those 
lines.
    This initiative is now on President Karzai's desk on the 
decision on whether or not the authority goes under Public 
Works or whether it is an independent authority. But I think it 
is an example of planning for things, as we have discussed here 
earlier, having some foresight into, will these roads be able 
to be maintained? And I believe the answer is yes.
    The crack that we talked about from the fault is being 
repaired by Afghans under that maintenance task order. So I 
think it is a real example of success in looking at 
sustainability and protecting the investment that the United 
States has made for roads.
    Senator Portman. OK. Madam Chairman, if I could ask one 
more quick question?
    Senator McCaskill. Sure.
    Senator Portman. And this is one that I think is important 
to get on the record. It has to do with, in a sense, what the 
Chair asked earlier about which was these multiple 
subcontractors, and GAO has raised concerns about this, what 
they call the excessive use of multiple tiers of 
subcontractors. They talk about concerns over project 
management, over vetting, over cost control.
    I am going to focus on one area and that is what kind of 
contract. It seems to me we are creating the wrong economic 
incentives when some of these multi-million dollar contracts 
are structured as cost-plus contracts. And in that case, prime 
contractors actually earn more when their subcontractors spend 
more. So you all would be earning more as they spend more, 
rather than creating an incentive for efficiency.
    Rather than encouraging subcontractors who, for example, 
economize on the material cost or delivery cost, prime 
contractors would actually profit from that waste at any level. 
So my question to you is, do you think we ought to change it? 
Do you think we ought to use fixed-cost contracts more widely, 
and why would that not be feasible in some of these 
reconstruction efforts? And if so, what kind of projects would 
those work best on? And if you think that we should not move to 
fixed-cost contracts, why not?
    Mr. Hakki. Senator Portman, 99 percent of our contracts are 
fixed price and we really have little subcontractors on them, 
because like I said, we always tend to self-perform the 
majority of the work. And I think out of 50 projects we have 
done in Afghanistan, only one has been cost-plus. All the 
others have been fixed price competitively bid with very little 
amount of subcontractors.
    Senator Portman. Fixed price for your subcontracts----
    Mr. Hakki. No, fixed price for us.
    Senator Portman [continuing]. Or for your contracts?
    Mr. Hakki. It is a fixed price for us.
    Senator Portman. And outside the wire, is that true, 
outside the compounds?
    Mr. Walker. Working outside the wire, it is extraordinarily 
difficult to do a fixed-price contract. There are just so many 
unknowns when you are dealing with mine fields on either side 
of a road that you are working on.
    What we have done is we have tried to blend pieces of 
fixed-price in with cost-plus, and to that end what we have 
done is we have created a contract modality where we have fixed 
unit prices so that the only thing that would vary would be the 
quantities. An example would be on the Gardez-Khost road, it 
cost $4.40 a cubic meter for dirt for excavation. That holds, 
and if it costs more than that, that unit price does not 
change.
    What changes are the quantities and the quantities are 
monitored every day, every dump truck to make sure that however 
many cubic meters are pulled out of a particular section are, 
in fact, accounted for. So we have tried as best we can to 
blend both aspects of fixed-price as well as cost-plus.
    Senator Portman. So is there more opportunity for fixed-
price contracting at the subcontractor level?
    Mr. Walker. If it is a smaller contract that is defined--
and that is really the key--if you can define what the work is, 
then it is certainly possible.
    Senator Portman. Thank you, Madam Chairman. One final thing 
I want to say and that is, just as we are concerned about the 
safety and security of our troops, we are for your employees 
and your subcontractors and we wish them well.
    Mr. Walker. Thank you.
    Senator Portman. Thank you.
    Mr. Hakki. Thank you.
    Senator McCaskill. Thank you both for being here. We really 
appreciate it and we will followup if we have any additional 
questions.
    Mr. Walker. Thank you.
    Mr. Hakki. Thank you, Senator.
    Senator McCaskill. And I want to second Senator Portman. 
While our job is to oversee the way money has been spent on all 
of these various contracting initiatives in Afghanistan and 
Iraq, make no mistake about it. The people who have worked on 
many of these projects are in as much danger as many of our 
military, and we certainly wish them well and certainly mourn 
the loss of people who work on reconstruction projects for our 
government, as much as we mourn the loss of our soldiers who 
lose life and limb in theater. So we wanted to pass that along 
to both of you. Thank you for being here.
    Mr. Walker. Thank you.
    Mr. Hakki. Thank you, Senator.
    Senator McCaskill. I will go ahead and introduce our next 
panel. Our first witness will be William Solis who is the 
Director, Defense Capabilities and Management Team at GAO. In 
that capacity, Mr. Solis is responsible for a wide range of 
program audits and evaluations, focusing on Army, Navy, Air 
Force, Marine Corps, and Defense Logistic Agency programs.
    His portfolio of work covers issues including operational 
contract support, operational energy, urgent needs, force 
protection for ground forces, in-theater supply chain 
management, maintenance, transportation, sustainment, and 
equipment reset. I understand that the schedule change for this 
hearing was very difficult for you and I want to thank you 
especially for joining us today.
    David Sedney has served as Deputy Assistant Secretary of 
Defense for Afghanistan, Pakistan, and Central Asia since 2009. 
From 2007 to 2009, Mr. Sedney was the Deputy Assistant 
Secretary of Defense for East Asia.
    Prior to joining the Defense Department, Mr. Sedney was a 
career diplomat with the State Department where he held a 
position on the National Security Council and was the Deputy 
Chief of Mission in Afghanistan as well as several other 
countries. Mr. Sedney previously testified before the 
Subcommittee at the April 2010 hearing on the Afghan National 
Police Training.
    Kim Denver is the newly appointed Deputy Assistant 
Secretary of the Army for Procurement. In that capacity, Mr. 
Denver manages the Army's procurement mission, including the 
development and dissemination of policies, processes, and 
contracting business systems. He directs the evaluation 
measurement and continuous improvement actions for over 270 
Army contracting offices worldwide.
    As the functional career representative for contracting, 
Mr. Denver oversees the recruitment, training, certification, 
and professional development of the Army's contracting 
workforce. He was previously the Director of Contracting for 
the U.S. Army Corps of Engineers National Contracting 
Organization.
    J. Alexander Thier has been the Assistant of the 
Administrator and Director of the Office of Afghanistan and 
Pakistan Affairs for the U.S. Agency for International 
Development since June 2010. Prior to joining USAID, Mr. Thier 
served as Director for Afghanistan and Pakistan at the U.S. 
Institute of Peace, and Chair of the Institute's Afghanistan 
and Pakistan working groups.
    Once again, as is the custom of the Committee, if you would 
stand so I can administer an oath?
    Do you swear that the testimony you will give before the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Solis. I do.
    Mr. Sedney. I do.
    Mr. Denver. I do.
    Mr. Thier. I do.
    Senator McCaskill. Thank you all for being here and we will 
begin with Mr. Solis.

      TESTIMONY OF WILLIAM M. SOLIS,\1\ DIRECTOR, DEFENSE 
  CAPABILITIES AND MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Mr. Solis. Good morning, Madam Chairman, Ranking Member 
Portman. I appreciate the opportunity to be here to discuss DOD 
contract oversight in Afghanistan and the vetting of non-U.S. 
vendors by DOD, AID, and State. Collectively, DOD, AID, and 
State have obligated billions of dollars for contractor-
provided services and goods in Afghanistan.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Solis appears in the appendix on 
page 67.
---------------------------------------------------------------------------
    Given the magnitude of these obligations, the importance of 
contract oversight cannot be overstated. To this end, we have 
made numerous recommendations aimed at improving contract 
management and oversight. My statement today will focus on two 
areas. First, the extent that DOD's contracting officer 
representatives are prepared to conduct their oversight and 
management responsibilities in Afghanistan, and the extent that 
DOD, AID, and State vet non-U.S. vendors in Afghanistan for 
ties to terrorist or criminal activities.
    With regard to contractor officer representatives they act 
as the eyes and ears of the contractor officer and thus serve a 
critical role in providing contract oversight. To its credit, 
DOD has taken actions to better prepare CORs to conduct 
contract oversight and management in Afghanistan. However, CORs 
are not fully prepared for their roles to provide adequate 
oversight there.
    To improve the capability of CORs to provide contract 
management and oversight contingencies, DOD has developed a new 
contingency focus COR training course, issued new guidance, and 
developed a COR certification program. Nonetheless, gaps in 
training and technical capabilities exist.
    For example, according to the DOD personnel in Afghanistan, 
the required training does not provide CORs with enough 
specificity about contracting in Afghanistan such as 
information about Afghan First program, which encourages the 
increase in local goods and services or working with private 
security contractors.
    Also, whether a COR has relevant technical expertise is not 
always considered prior to assigning an individual to oversee a 
contract, even though CORs have a significant role in 
determining if products or services provided by the contractor 
fulfill the contract's technical requirements.
    According to officials, some CORs appointed to oversee 
construction contracts have lacked the necessary engineering or 
construction experience, in some cases resulting in newly 
constructed buildings that were to be used by U.S. or Afghan 
troops having to be repaired or rebuilt.
    According to CORs and commanders in Afghanistan, poor 
performance on construction contracts has resulted in money 
being wasted, substandard facilities, and an increased risk to 
bases. For example, contracting officials from a regional 
contracting center stated that construction of guard towers at 
a particular forward operating base was so poor that they were 
unsafe to occupy.
    In addition to oversight concerns related to CORs, we 
recently reported on the extent that DOD, State, and AID have 
processes in place for vetting non-U.S. firms in Afghanistan 
for ties to terrorists or criminal activity. We reported that 
while DOD began to vet non-U.S. firms in August 2010, there are 
several gaps in its process.
    For example, vendors with contracts below $100,000 are not 
routinely vetted. In fiscal year (FY) 2010, around three-
quarters of those contracts with non-U.S. vendors were below 
the $100,000 level. Subcontractors are also not routinely 
vetted. Command officials stated that the central command 
(CENTCOM) uses other risk factors to prioritize vendors to vet 
such as contracts performed in Taliban strongholds, but these 
factors have not been documented.
    While officials stated that the vetting cell was created to 
vet vendors prior to award, CENTCOM is largely vetting vendors 
with existing contracts, which means it is likely there are a 
large number of new vendors that have not been vetted prior to 
award and may not be vetted in the future.
    Also, the vetting effort now includes some Army Corps of 
Engineer vendors. However, the vetting cell has not been 
staffed to accommodate this workload. So it is uncertain how 
existing resources will be able to vet vendors in a timely 
manner.
    In January 2011, AID created a process intended to vet non-
U.S. implementing partners in Afghanistan. However, this 
process may face similar limitations as CENTCOM's. According to 
AID officials, this decision was based on urgent need to 
mitigate the risk of AID funding being diverted to insurgent 
groups.
    While AID's process is in the early stages, it proposes to 
vet non-U.S. implementing partners in at least the first tier 
subcontractors with contracts valued at $150,000 or more. AID 
officials said they are considering changing the dollar 
threshold or vetting of other potential assistance recipients 
based on risk. However, the available documentation does not 
include other risk factors.
    As of March 2011, State had not developed a process to vet 
contractor firms in Afghanistan. Since 2008, State has required 
a terrorist financing risk assessment to be completed of any 
new program or activity prior to a request or obligation of 
funding. However, it does not use the same information that 
CENTCOM or AID use in their vetting cells. Additionally, its 
use of Afghan vendors may increase under Afghan First Policy.
    In closing, the Secretary of Defense has recently called 
for a change in the Department's culture related to operational 
contract support and directed the Joint Staff to identify 
resources and changes in doctrine and policy necessary to 
improve it.
    We echo his call and believe that these changes should 
include an examination of how DOD manages and provides 
oversight of contracts and contractors in deployed locations. 
This concludes my statement. I will be happy to answer any 
questions.
    Senator McCaskill. Thank you, Mr. Solis. Mr. Sedney.

TESTIMONY OF DAVID S. SEDNEY,\1\ DEPUTY ASSISTANT SECRETARY OF 
   DEFENSE FOR AFGHANISTAN, PAKISTAN, AND CENTRAL ASIA, U.S. 
                     DEPARTMENT OF DEFENSE

    Mr. Sedney. Thank you, Senator. Thank you for inviting me 
here to testify today. My office falls under the Under 
Secretary of Defense for Policy, so I would like to comment on 
the overall larger strategy background for the contracting 
activity that is being executed in Afghanistan.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Sedney appears in the appendix on 
page 90.
---------------------------------------------------------------------------
    I will begin by reiterating the U.S. objectives in 
Afghanistan: To deny safe havens to al-Qaeda, and to deny the 
Taliban the ability to overthrow the Afghan Government. To 
support these objectives, U.S. and Coalition forces are working 
to continue to degrade the Taliban-led insurgency in order to 
provide time and space to increase the capacity of the Afghan 
National Security Forces and the Afghan Government, so that 
they can assume the lead for Afghanistan's security by the end 
of 2014.
    As you know, based on the success of our strategy, 
President Obama recently announced that United States would 
begin a deliberate responsible drawdown of our surge forces. An 
initial drawdown of 10,000 troops will occur over the course of 
this year, with a further drawdown of the remainder of the 
surge by the end of the summer of 2012.
    Our strategy in Afghanistan is working. The momentum has 
shifted to the Coalition and the Afghan security forces, and 
together we have degraded the Taliban's capability and achieved 
significant security gains, especially in the Taliban's 
heartland in the south.
    As we look ahead, the key to our success is the presence 
and the capability of the Afghan National Security Forces and 
those forces are making progress in both size and capability. 
By the end of the summer of 2012 when the last of our surge 
forces are out, there will actually be more Afghan and 
Coalition forces in the fight than there are today.
    That is because we will have increased Afghan security 
forces to 352,000 by October 2012, in addition to the 68,000 
forces that we will have and an--and that is also augmented 
with forces by a number of our partner allies in NATO and 
elsewhere.
    These security gains are enabling key political initiatives 
to make progress. We have begun a transition process that will 
ultimately put Afghans in the lead for security nationwide by 
the end of 2014. We are beginning to see reintegration and 
reconciliation processes gain traction and are discussing a 
strategic partnership with the Afghans to signal our enduring 
commitment to regional peace and stability.
    I want to emphasize that while our progress in Afghanistan 
is substantial and our strategy is on track, significant 
challenges remain. The Taliban will make some strong and 
sometimes spectacular efforts, as they did the other day in 
Kabul on the attack on the InterContinental Hotel, in order to 
try and regain the momentum. However, just as that attack was 
defeated, those attempts will also be countered.
    At the same time, we find that the enemy is increasingly 
facing an Afghan population that, through experiencing the 
benefits of stability and self-governance and seeing those 
become clear to them, they are becoming part of the transition 
process. Afghan communities are providing useful lessons in 
security and governance, as well as a potential model for other 
parts of the country as we move forward in our strategy.
    I want to emphasize how important the role of our Coalition 
partners is in Afghanistan, 48 countries with over 47,000 
troops today. These partner nations have made significant 
contributions and significant sacrifices.
    Madam Chairman, Senator Portman, I want to close by 
thanking you and your colleagues in the U.S. Senate for your 
support for our men and women in uniform. Thank you again for 
allowing me to appear before you today.
    Senator McCaskill. Mr. Denver.

 TESTIMONY OF KIM D. DENVER,\1\ DEPUTY ASSISTANT SECRETARY OF 
              THE ARMY FOR PROCUREMENT, U.S. ARMY

    Mr. Denver. Madam Chairman, Ranking Member Portman, and 
distinguished Members of the Subcommittee on Contracting 
Oversight, thank you for the invitation to appear today to 
discuss the lessons the U.S. Army has learned and the ongoing 
challenges in management and oversight of contracting in 
Afghanistan. I will provide brief opening remarks and request 
that my full written statement be submitted for the record.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Denver appears in the appendix on 
page 93.
---------------------------------------------------------------------------
    The U.S. Army has had boots on the ground in Afghanistan 
for nearly a decade. As we know from past military engagements, 
when our Army deploys, they depend on civilian support from 
contractors. Currently, more than 90,000 contractors are 
supporting our troops in Afghanistan, a ratio of just under one 
contractor for each soldier.
    The contracting force supporting our troops in Afghanistan 
is the largest contract oversight mission the United States has 
ever managed. We still face challenges, but the Army has made 
significant progress in improving contract management and 
contract oversight.
    I would like to share with you what the Army has done to 
change the contingency contracting environment, how we award 
and manage contracts, our oversight, and the training our non-
acquisition personnel receive before deployment and when they 
arrive in theater.
    Most of the contracts issued by the CENTCOM Contracting 
Command are awarded competitively ensuring the best possible 
price for the U.S. Government. We accomplish this by 
transitioning from cost contracts to fixed-price contracts. In 
a fixed-price contract, the contractor is paid only the amount 
that was agreed upon at the time of award.
    Contracting officers must ensure the U.S. Government 
obtains the best value. An important element is the use of past 
performance information. The availability of data has been 
especially problematic with host nation companies as we strive 
to give preference and make awards to Afghan firms under the 
terms of the Afghan First program.
    The Contractor Performance Assessment Reporting System 
(CPARS) is effective with U.S. vendors, but we have learned it 
has limitations in theater. In Afghanistan, we also use the 
Joint Contingency Contracting System (JCCS) to alleviate a 
number of problems in resident and theater contracting from 
solicitation postings to currency conversions and tracking 
performance. It has proven to be an invaluable tool for 
contracting in Iraq and Afghanistan.
    Oversight of subcontractors has been a significant concern 
of Congress, the audit agencies and the contracting community. 
The Federal Funding Accountability and Transparency Act of 
2006, requires prime contractors to provide extensive insight 
into subcontractor information. The CENTCOM Contracting Command 
has implemented 11 clauses dealing with subcontractor 
information to capture not just the data required by law, but 
additional information that will aid in vetting of contractors 
and subcontractors prior to award.
    Vetting host nation contractors is a key element in 
ensuring the security of the workplace for U.S. Warfighters, 
civilians, and contractors, as well as the security of our 
reconstruction efforts in Afghanistan.
    In August 2010, a vetting cell was established at CENTCOM 
headquarters in Tampa, Florida, to vet prospective non-U.S. 
contractor firms in Afghanistan. Non-U.S. vendor information on 
contract awards and options is tracked in the Joint Contingency 
Contracting System, along with past performance.
    After a contract award, the key to our contract oversight 
resides with the contracting officer's representatives who are 
the front lines as responsible stewards of American taxpayers' 
dollars. The Army strengthened our COR management and training 
in December 2009 with the issuance of an Army Executive Order 
mandating that deploying brigades have as many as 80 soldiers 
designated as trained CORs.
    As a result, in the past 2 years, the Army Logistics 
University trained more than 8,500 CORs, and 2,317 soldiers 
since October 2010, the Expeditionary Contracting Command 
provided augmentation training to more than 2,300 soldiers as 
CORs.
    The Army recognizes that success in contingency contracting 
results when deployed CORs are trained and technically 
qualified for their assignments. To ensure that technically 
qualified personnel are involved in the oversight of 
construction contracts in Afghanistan, the Senior Contracting 
Official in Afghanistan (SCO-A) recently provided guidance on 
the appointment of Construction Inspectors (CIs) to assist the 
technical expertise for our construction CORs.
    Endemic corruption in Afghanistan remains a challenge to 
our contracting personnel. The U.S. Government has stood up 
several anti-corruption task forces in Afghanistan which have 
played a significant role in improving the contracting 
environment by reducing the impact of corruption on government 
contracting.
    Madam Chairman, Army Contracting continues to identify more 
effective ways to ensure excellence in all contracting 
activities, to provide the most value of our contracting 
dollars, and the most effective support to our war fighters. 
Thank you for your continued support and I look forward to 
answering your questions.
    Senator McCaskill. Thank you, Mr. Denver. Mr. Thier.

     TESTIMONY OF J. ALEXANDER THIER,\1\ ASSISTANT TO THE 
ADMINISTRATOR AND DIRECTOR, OFFICE OF AFGHANISTAN AND PAKISTAN 
       AFFAIRS, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

    Mr. Thier. Chairman McCaskill and Ranking Member Portman, 
my name is Alex Thier. I am the Assistant Administrator for 
Afghanistan and Pakistan at USAID. I began working in 
Afghanistan in 1993 and since the fall of the Taliban, I have 
been intensively engaged in implementing and assessing the U.S. 
effort to stabilize Afghanistan.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Thier appears in the appendix on 
page 103.
---------------------------------------------------------------------------
    I have repeatedly raised concerns about the corrosive 
effects of corruption and waste in Afghanistan post-2001. 
Indeed, these are not only issues of fiscal importance, but of 
national security itself. One of the reasons I took this job, 
in fact, was to improve our performance and our accountability. 
We owe this both to the American and to the Afghan people.
    If the stable transition in Afghanistan will be achieved, 
we must ensure that our efforts are sustainable, durable, and 
realistic. With the support of the American people and strong 
bipartisan support in Congress, we have made some dramatic 
development achievements in Afghanistan over the last decade.
    For example, we have worked with the health ministry to 
significantly expand access to health services from 9 to 64 
percent of the population, literally saving tens of thousands 
of lives. Our efforts to build schools and train teachers have 
allowed more than 7 million children to enroll in school, 35 
percent of whom are girls, up from no girls in 2001 and fewer 
than 1 million boys under the Taliban.
    Economic growth has exceeded 10 percent growth per year on 
average, and GDP per capita has doubled since 2002, with 5 
million people lifted from a state of dire poverty. Together, 
we are proud of our contribution to helping reverse Taliban 
momentum and achieving development progress under the toughest 
conditions.
    As we embark on the path of transition, the process by 
which our Afghan partners will truly stand on their own feet, 
sustainability is of paramount concern to us. We have worked 
with Afghan and international partners to identify a set of 
core foundational investments that will develop Afghan 
capacity, promote economic growth, and increase government 
revenue generation to support a sustainable and durable 
transition in Afghanistan.
    Those investments include things such as agriculture, 
extractive industries, human capacity development, and energy. 
For example, in energy, analyses shows that power availability 
and consumption are directly correlated with economic 
viability. Because sustainability of our investments is 
essential, a key component of our work is building Afghan 
capacity in the power sector and supporting power sector 
reform.
    In 2009, the United States helped to launch a Da 
Afghanistan Breshna Sherkat (DABS), a new commercialized Afghan 
electric utility. Collections have increased 30 percent in the 
last year alone, boosting revenues of that utility to $175 
million. Kabul has gone from averaging 2 hours of electricity 
in 2002 to 24-hour availability today paid for by a 
commercially viable system.
    Yet, I cannot overemphasize the challenges involved in 
undertaking these efforts as the Afghans, the U.S., and other 
international partners combat a vicious insurgency and 
terrorist threat. Security concerns on our projects are 
paramount. In 2010, attacks on civilian efforts rose sevenfold.
    To succeed in this environment, we have made oversight and 
accountability a top priority in Afghanistan. Just weeks into 
this job, Administrator Shah and I concluded that we needed to 
do more to safeguard our investments. To ensure that proper 
procedures are in place, to help protect assistance dollars 
from waste, fraud, or otherwise being diverted from their 
development purpose, we developed the Accountable Assistance 
for Afghanistan Initiative, or A Cubed.
    As a result, we are enhancing the safeguards on our 
development assistance by improving our award mechanisms, 
increasing vetting, increasing financial controls, and project 
oversight, and these efforts are already yielding concrete 
results.
    In addition, over the last 2 years, we have tripled our 
staffing in Afghanistan, 60 percent of whom are located outside 
of Kabul, allowing us more USAID eyes on the ground. I am also 
proud to say that we have gone from three oversight staff in 
country in 2009 to 71 today. Many of them are staying now for 
multiple year tours.
    We are under no illusions about the challenges we face in 
Afghanistan. Every day our staff and partners are under threat. 
Insecurity increases our costs and other threats require us to 
expend significant effort to safeguard taxpayer funds. When I 
left Kabul in 1996 after 4 years working during the civil war 
there, watching the country enveloped in chaos, the capital was 
a heavily mined rubble heap, the Taliban were taking over, and 
Bin Laden was moving in.
    Despite the turmoil today, our efforts have resulted in 
critical gains. These results will enable the President to 
carefully draw down U.S. resources in Afghanistan. USAID's 
entire budget in Afghanistan since 2002 is equivalent to the 
cost of just 6 weeks of our war effort. This progress that we 
helped to contribute to the effort in Afghanistan will help 
bring American troops home more quickly and ensure that they do 
not have to return.
    Civilian assistance has been central to these gains and 
will only increase in importance as Afghans take the lead in 
forging their own future. Thank you.
    Senator McCaskill. Thank you all very much for being here.
    Let us start, Mr. Sedney, with you. I was confused by your 
opening statement because it did not have anything to do with 
contracting and we are here on contracting. Obviously, you came 
to discuss contracting as it related to the Afghan National 
Police. And so, I guess my first question to you is, who is in 
charge at the Defense Department in terms of making the 
contracting decisions as it relates to infrastructure that is 
being built under the authority of the Defense Department and 
money coming from the Defense Department?
    Mr. Sedney. In terms of contracting, I would defer to----
    Senator McCaskill. I need you to turn your microphone on. 
We cannot hear you.
    Mr. Sedney. I am sorry. In terms of actual responsibility 
for contracting processes within the Department of Defense, I 
may have to call on Mr. Denver who is more expert in the 
contracting area than I am. In terms of our contracting in 
Afghanistan, that contracting is done by C-STCA, which is the 
U.S. element that is in Afghanistan that does contracting for 
U.S. forces. They report to CENTCOM, which is then overseen 
eventually by the Under Secretary of Defense for Acquisition 
Technology and Logistics.
    Senator McCaskill. I am looking for who is in charge of 
planning. Is that the Commander of CENTCOM? So when you all 
decide that we are going to spend $500 million on $400 
million--I guess that is a related question. How much of the 
$17 billion in the fiscal year request, how much of that is 
going to come through Defense and how much of it is going to 
come through State?
    Mr. Thier. I can speak for USAID. We will get you the exact 
number, but I believe the request for USAID civilian assistance 
is around the $3 billion level.
    Senator McCaskill. Well, the President has asked for $17 
billion in fiscal year for reconstruction projects and 
infrastructure projects in Afghanistan. Does anybody here know 
how much of that is going to be under the control of the 
Defense Department, how much is going to be under the control 
of the State Department?
    Mr. Thier. Again, I can say that about $3 billion of that--
--
    Senator McCaskill. $3 billion.
    Mr. Thier [continuing]. For USAID and possibly an 
additional billion under the State Department for operations, 
civilian operations that are not under USAID, but I cannot 
speak to the rest.
    Senator McCaskill. So is the rest of that Defense 
Department, Mr. Sedney?
    Mr. Sedney. I am not familiar with the $17 billion figure 
that you mentioned, Senator, in terms of reconstruction 
projects. The Department of Defense budget, as I am familiar 
with it, has funding for operations in Afghanistan which 
include funding for the Afghan Security Forces fund which we 
are asking for about, I believe, $12.4 billion--I can get you 
the exact figure--for Afghan Security Forces funding.


                       information for the record


    The President's budget request for fiscal year 2012 for the 
Afghanistan Security Forces Fund is $12.8B.

    But in terms of funding for reconstruction, I am not 
familiar with the $17 billion figure you mentioned.
    Senator McCaskill. What do you think it is? What do you 
think we are going to spend next year on building projects for 
the Afghan people?
    Mr. Sedney. In terms of building projects for the Afghan 
people, that would the realm of the AID and the Department of 
State.
    Senator McCaskill. What about CERP? How much is CERP going 
to spend building projects for the Afghan people?
    Mr. Sedney. CERP funding for this year will be--CERP 
funding for this year will be somewhere in the neighborhood of 
$300 to $400 million. The appropriations for the last several 
years have not been fully spent. CERP, however, is not 
reconstruction money.
    CERP funding is Commander Emergency Response Programs. 
These are programs designed to assist commanders in the field 
to build the foundations for stability. It is not meant to 
replace--to be in the place of the long-term reconstruction 
funding, which is done by the State Department and USAID.
    Senator McCaskill. But it is true that CERP has morphed 
into a program where we are now doing projects like building 
roads and building buildings and doing things other than small-
scale projects which was the original use of CERP funds, 
especially in Iraq, were for small-scale projects and now in 
Afghanistan, we have the Defense Department actually managing 
projects that are construction projects with CERP fund, 
correct?
    Mr. Sedney. We do have, over a number of years, 
particularly in the area of roads, CERP began to be used for 
roads. In the most recent appropriations bill, the Congress 
gave us authority to establish the Afghan Infrastructure Fund 
(AIF). The purpose for that is to divide out those projects 
which would be looked at as infrastructure projects and then 
enable CERP to maintain its original focus on those small-scale 
projects.
    We are in the process of putting together guidance for the 
implementation of the Afghan Infrastructure Fund and the 
division of the CERP funds and oversight for that. I 
participated yesterday in a first meeting of a Department of 
Defense oversight panel which will be giving guidance in those 
areas.
    Senator McCaskill. Does the Defense Department have a 
certification process for sustainability before we spend any 
American money in Afghanistan?
    Mr. Sedney. Senator, I am not familiar with the details of 
contracting processes or certifications, but I will pass that 
question on to my colleagues who do that responsibility in that 
area.
    Senator McCaskill. Who would you pass it to?
    Mr. Sedney. I would first send it to the Under Secretary of 
Defense for Acquisition Technology and Logistics (AT&L), which 
supervises policy regarding contracting----
    Senator McCaskill. Is this Ash Carter?
    Mr. Sedney. That would be his office I would be passing 
your request to.


                       information for the record


    Sustainability is critical to the success of the 
Commander's Emergency Response Program and Afghan 
Infrastructure Fund infrastructure projects. Recognizing this, 
the Department of Defense continues to develop and implement a 
number of processes to ensure that the infrastructure it builds 
will be sustained by the Afghan Government. For example, a 
variety of stakeholders--including the Government of 
Afghanistan, the U.S. Department of State, the U.S. Agency for 
International Development, international donors, and regional 
and local government officials and citizens--review electrical, 
water, and other AIF projects for sustainability. All AIF 
projects must have sustainability plans that identify Afghan 
responsibilities, any non-U.S. funding sources, and maintenance 
and operation requirements.
    The infrastructure projects funded by CERP also address 
sustainability. For those projects requiring sustainment--such 
as irrigation canals and wells--the Department of Defense 
coordinates with the host government and interagency partners 
to develop sustainment agreements and plans, as well as to 
identify sustainment funding. Specifically, for CERP projects 
costing more than $50,000 that require sustainment--like the 
Hezar Joft Beltway project in Helmand Province--a responsible 
Afghan Government official must sign a Memorandum of Agreement 
(MOA) with U.S. forces to acknowledge sustainment 
responsibility to budget and execute project operations and 
maintenance. In addition, U.S. and international stakeholders 
review CERP infrastructure projects, with the additional 
requirements that all projects costing more than $1M are 
reviewed by the Office of the Secretary of Defense (OSD) CERP 
Management Cell; projects costing more than $1M up to $5M 
require Commander, U.S. Central Command approval; and all 
projects costing $5M up to $20M require Commander, U.S. Central 
Command endorsement and Deputy Secretary of Defense approval. 
In addition, the congressional defense committees are notified 
of any CERP project with a total anticipated cost of $5M or 
more at least 15 days before funds are obligated.

    Senator McCaskill. OK.
    Mr. Sedney. But any request that you have regarding 
contracting, I will pass to them.
    Senator McCaskill. OK. I am trying to figure out who is 
charge. I am trying to figure out how much money we are 
spending and who is in charge. It is ironically difficult to 
figure out how much we are spending and who is in charge. I 
particularly need to figure out who is in charge in terms of 
who is making the decision to go forward with projects when 
they turn out not to be sustainable. And that has been more 
difficult than it should be.
    Let us get to where the money is going, and I will try to 
do this very briefly, and then turn it over to Senator Portman. 
The Special Inspector General for Afghan Reconstruction, the 
previous Special Inspector General--I want to caution that this 
is not the current Special Inspector General.
    The previous issued a report that indicated that four 
contractors, Contrack, Kabuljan, United Infrastructure 
Projects, and Red Sea Construction Company received over $1.8 
billion in contracts in a 2-year period between 2007 and 2009. 
That report, which SIGAR stated was based on a review of 
information provided by the Defense Department, has since been 
identified by both SIGAR and the Defense Department as 
containing inaccurate information.
    In fact, that report was so inaccurate it was off by 
hundreds of millions of dollars. OK? Then USA Spending, another 
database that reports information from Federal Procurement Data 
Systems (FPDS), the government's main database for tracking 
contract information, lists $454 million in spending over the 
same period of time.
    So one report says we have spent $1.8 million on just 
contractors in 2 years. Another report says we spent $454 
million over the same period for just two of these companies. 
Does not even have information on the other companies. I know, 
Mr. Denver, that your office--and I know that you are new and I 
am sorry that you are the one that has to sit there today.
    Your office is the executive agent for contracting in 
Afghanistan, which gives you oversight and authority for 
contracting which is now called Triple C, CENTCOM Triple C, 
which is the contracting command.
    That office provided the inaccurate information to SIGAR 
and in preparation for this hearing, your office provided the 
Subcommittee with information that shows that one of those 
contractors listed by SIGAR as having $691 million in contracts 
actually only had $5 million in contracts.
    CCC was provided an original copy of the SIGAR report, but 
yet said nothing about these wild inaccuracies that were 
contained. I think you all can see where I am going. I do not 
think the public can have any confidence that we are accurately 
reporting what we are spending where on contracting in 
Afghanistan. And I would like to know how you can explain this 
wildly inaccurate information that was provided to the Special 
Inspector General for Afghanistan.
    Mr. Denver. Thank you, Madam Chairman. We are currently 
coordinating with SIGAR to determine where those issues arose. 
It is true that inaccurate information was provided. What we 
are working with them on is a process in the future where this 
information that is gathered directly from the CENTCOM 
Contracting Command would be forwarded to my office so that we 
can also, in addition, pull reports to validate the 
information.
    What we are seeing is that we do not want to impact their 
ability to connect directly with the CENTCOM Contracting 
Command, but we want to make sure that what we do in the 
future, that we are able to double-check the information that 
is being provided. But right now, even SIGAR has indicated that 
they may need to audit to determine why and what was the source 
of the inaccurate information.
    Senator McCaskill. Senator Portman.
    Senator Portman. Thank you, Madam Chairman. I think it 
might be helpful just to put what we are talking about in 
perspective.
    If you could correct me if I am wrong, Mr. Sedney, but 
current troop levels in Afghanistan is just over 100,000?
    Mr. Sedney. Yes, Senator.
    Senator Portman. And number of contractors, DOD, State, 
USAID contractors in Afghanistan about 154,000?
    Mr. Sedney. I am not--I cannot certify the total, but I 
would say for the Department of Defense, the average figure is 
about .85 contractors for each deployed troop. I think that is 
the ratio that we are operating under. So with 100,000 troops, 
we would expect about 85,000.
    Senator Portman. Earlier in testimony someone said it is 
more than one contractor per troop. Mr. Solis, what are your 
numbers?
    Mr. Solis. I do not have the exact number, but it is about 
one to one or a little over one to one.
    Senator Portman. So let us say roughly 100,000 troops, 
150,000 contractors. So this hearing is about the contractors. 
As I said earlier, the experience in Bosnia and Iraq is that as 
we begin a drawdown of troops, we do not begin a drawdown of 
contractors initially. Is that accurate, Mr. Solis?
    Mr. Solis. That is what we saw in some of our prior 
reviews, I think.
    Senator Portman. So this is incredibly important that we 
get this contracting right, and one of the big concerns, 
obviously, that has been raised today is about sustainability. 
So as we continue to spend more and more taxpayer money, even 
relative to the military commitment, going forward on 
contracting, we are really creating something of value that is 
going to last and be able to be successful in moving 
Afghanistan to a stable government that meets the objectives 
that Mr. Sedney laid out earlier.
    So unsustainability. Let us talk about it for a second. 
There is a June report by the Commission on Wartime Contracting 
that was pretty pessimistic. It said, There is no indication 
that DOD, the Department of State, or AID are making adequate 
plans to ensure that host nations would be able to operate and 
maintain U.S.-funded projects on their own, nor are they 
effectively taking sustainability risks into account when 
devising new projects or programs.
    That is particularly concerning if that is accurate because 
having learned the lessons, you would think that we, on the new 
projects, would be looking at sustainability. The report goes 
on to say, In Afghanistan, the United States has contracted for 
schools and clinics that lack adequate personnel, supplies, and 
security; a large power plant that the host country cannot 
maintain or operate; roads that will need substantial 
continuing maintenance; security force training and support 
whose costs exceed Afghan funding capabilities.
    So I guess I would ask first, and maybe, Mr. Thier, you are 
the right person to talk about this from an AID perspective, 
but I would also like to hear from Mr. Sedney and Mr. Denver 
from a DOD perspective. What are your agencies' approaches to 
evaluating at least these ongoing development and 
reconstruction projects to ensure that they are sustainable?
    Are you redesigning or terminating programs that are not 
viewed as sustainable? Are you ensuring that any new commitment 
of U.S. taxpayer dollars is for an undertaking that the Afghans 
can carry on after we are gone? And how has that process been 
formalized?
    Mr. Thier. Thank you, Senator. USAID is intensively focused 
on this question of sustainability and it really goes in two 
different directions. One is, are the actual investments that 
we are making sustainable? In other words, will power projects 
that are being built, will they be maintained? Will schools be 
used? That is one aspect of sustainability.
    The second aspect of sustainability is the broader question 
of how does Afghanistan itself manage to sustain these 
investments over the longer term in terms of developing their 
economic growth?
    On the first part, we certify that any program that we are 
doing that has a capital investment must have a sustainability 
plan. In fact, we have intensified this just in the last few 
months by creating what we call a sustainability guidance, 
where we are assessing every single program that USAID is 
implementing to determine if it is going to be sustainable in 
both of these senses.
    Will the actual physical investment be maintained? And more 
broadly, is this contributing to the Afghans' ability to 
sustain these investments in the long term? So it is something 
that we take very seriously.
    Senator Portman. Let us focus in for a second on AID and 
projects. Let us talk about the Kabul power plant. I know you 
are familiar with it. The American taxpayers have paid $300 
million for this power plant. It is a dual fuel plant. It is 
now rarely used, is my understanding, and the cost to operate 
it is prohibitively expensive for the Afghan government.
    There is an audit by your Inspector General recently at AID 
who found that the project is not sustainable because the 
Afghans cannot afford to purchase the diesel fuel necessary to 
power the plant and they cannot sustain the complex maintenance 
and technical expertise required to operate it. Instead, 
actually, the Afghans are negotiating with neighbors, including 
Uzbekistan, to get their power for a fraction of the cost that 
they would from your dual source, dual fuel source plant that 
cost 300 million bucks.
    So how did AID get that wrong, is one question that I want 
to hear from you on, but then let us talk about the next one. 
There is a 2011 AID contract to build a diesel-fueled power 
plant in Kandahar. And so, you say that you now certify that 
any program we are doing has a sustainability plan.
    The Commission has stated there, and you may disagree with 
the Commission, but this plant faces similar sustainability 
challenges. The financing plans have not been made for the 
transmission or distribution grid that would make this plant a 
useful source of energy. Are we doing it again? One, how did 
AID get the first one wrong, and second, are we once again 
stepping into a situation where we are putting hard-earned 
taxpayer dollars against a project that is simply not 
sustainable?
    Mr. Thier. Let me address the second one first. The 
decision to invest in power in Kandahar was a decision that the 
U.S. Government, the military, the State Department, USAID made 
collectively in the summer given the critical nature of our 
campaign in Kandahar and our desire to shift the momentum away 
from the Taliban.
    So we made two decisions with regard to the investment into 
Kandahar power. The first decision was that a long-term source 
of power for Kandahar was not going to come online quickly 
enough in order to achieve that objective. So there was a joint 
decision with the International Security Assistance Force 
(ISAF) and USAID to invest in some short-term power generation, 
diesel fuel, which you are absolutely right is not a long-term 
sustainable effort, to turn the lights on in Kandahar.
    And we are adding 50,000 connections in Kandahar so that 
the people of Kandahar, as well as the people of Helmand, are 
going to see the positive results of this effort.
    There is, however, important sustainability components in 
that program. The first is that we are working to increase the 
power supply to that region in a sustainable fashion, both by 
building line down from the north of Afghanistan that will 
provide long-term sustainable power, as well as increasing the 
power supply from the Kajaki Dam into that area.
    So those two things together are a longer-term 
sustainability plan, together with the fact that the Afghan 
utility, DABS, that I mentioned before, is collecting money for 
the power it distributes now, and that means that over the long 
term, they will be responsible for actually sustaining the 
investment.
    That is also related to the question about Tarakhil. Today 
that plant is being run as a peaking power plant. Kabul, the 
capital of Afghanistan, was known until recently as the dark 
capital of Asia. It had the least amount of power of any 
capital in the world.
    Twenty percent of the Afghan population lives in Kabul. 
When the decision to build that plant was made, there was no 
assurance that this line coming down from Uzbekistan would, in 
fact, be available. And even once the plant was built, a 
landslide, for example, cut out that power line allowing the 
only reliable source of power, which is the Tarakhil plant, to 
function and to----
    Senator Portman. So was that plant constructed as a back-up 
power plant? That is what you are saying it is?
    Mr. Thier. It was constructed as a peaking power plant.
    Senator Portman. It was originally intended for 300 million 
bucks to be a peaking back-up power plant?
    Mr. Thier. It was with the caveat that people were 
uncertain of whether the alternative plan, which is to bring a 
line down from Uzbekistan which has its own reliability 
problems as well as the terrain that was to traverse----
    Senator Portman. So that was the design here? Because that 
is not my understanding.
    Mr. Thier. That was, in fact, the design, but we made sure 
that the sustainability of that plant is a very high priority 
in three ways. One, that we are intensively engaged with DABS 
to make sure that they are, in fact, able to maintain the 
plant.
    Senator Portman. Could you provide us, the Committee, some 
data to back up the assertion that this was built as a back-up 
power plant for peaking only? And with regard to the 
sustainability, we would love to see more information on that.
    Mr. Thier. Sure.
    Senator Portman. I am over my time. I guess just quickly, 
not to leave DOD out of this, with regard to the Afghan 
National Security Forces in terms of sustainability, again, the 
studies we have seen, including from the Commission, and you 
may disagree with the Commission. I would like to hear if you 
do disagree. They think that the investment in training and 
preparing the Afghan National Security Forces risk being wasted 
in the long run due to the same sorts of sustainability 
problems.
    In 2002 until now, we have appropriated almost $35 billion 
of taxpayer money to establish the security forces, and another 
$13 billion, as was talked about earlier, is being added to the 
2012 budget. The Commission concluded, The prospects for the 
Afghan government's ability to sustain these forces are meager, 
particularly considering that the national government's entire 
domestic revenues are about $2 billion a year.
    So I would ask DOD, have we evaluated the sustainability of 
the support here, and if so, what has our evaluation shown? And 
if not, how can we do that? How can we improve its long-term 
effectiveness? Just as background again, we have committed 
$11.5 billion since 2005 to construct facilities, facilities 
alone, including bases, police stations, outposts and so on. 
What are the long-term maintenance costs of these facilities, 
and do you believe that the Afghan government has the financial 
resources ever to be able to maintain those facilities?
    Mr. Sedney. Senator, those are important questions and let 
me take them in two parts. First, however, I would like to 
correct the record. In fact, I do have the numbers. The exact 
numbers of Department of Defense contractors in Afghanistan is 
90,800. The Department of Defense is required to submit a 
report, which it does, to the Armed Services Committee and to 
the Appropriations Committee. This report was dated June 21 and 
we will make sure you get copies of that report.


                       information for the record


    A copy of the report\1\ to Congress on contractors, 
pursuant to Section 9013 of the Department of Defense and Full-
Year Continuing Appropriations Act, 2011 (P.L. 112-10), dated 
June 21, 2011 is attached.
---------------------------------------------------------------------------
    \1\ A copy of the report appears in the appendix on page 234.

    Senator Portman. Great.
    Mr. Sedney. On the issues of sustainability, as I said, I 
will divide them in two. The first is a question of financial 
sustainability, the ability of the Afghan government to fund 
the security forces that it currently has and that it may need 
in the future. Currently, Afghanistan does not have the ability 
to fund the security forces and the U.S. Government and, to a 
certain extent, our international partners are funding those 
forces.
    Currently, the cost of those forces, we are asking for 
fiscal year 12--not fiscal year 12-FY11, we have $12.4 billion, 
I believe, for that. A certain percentage of that is for 
infrastructure; another is for training; and for the 
sustainment of the forces themselves. As you point out, this is 
well beyond the capacity of the Afghan government to provide 
for.
    However, let me go back to our national interests in 
Afghanistan, which is to ensure that Afghanistan is no longer 
able to be a base from which terrorists can mount attacks 
against the United States.
    Our solution for that is to drive down the insurgency 
through our military efforts and to buildup the Afghan security 
force to be able to do that. Since Afghanistan does not have 
the resources to do that, we, you, the American taxpayer, the 
American Congress are funding those security forces, again with 
some help from our allies.
    The size of the security forces that will be needed in the 
future to contain the Taliban is yet to be determined because 
we do not know the level to which we will be able to drive down 
the insurgency. We are currently building the Afghan security 
forces to a level of 352,000 for October 2012. That is based 
upon the level of insurgency that we see now and the level of 
forces that the United States and our allies will have there at 
that time.
    What we are aiming for is to continue to drive down the 
insurgency enabling us to continue to withdraw our forces and 
have the Afghans continuing to improve that. What that 
equilibrium level will be we do not know yet.
    Senator Portman. Mr. Sedney, I am well over my time.
    Mr. Sedney. I am sorry.
    Senator Portman. I apologize. I need to yield back to the 
Chair. Let me just conclude by saying, I understand the mission 
and, in many respects, what AID is doing on the ground and what 
DOD is doing on the ground, even outside of the military 
involvement with contractors, is carrying out policies that you 
are asked to do.
    It is under very difficult circumstances. I have been 
there, had an opportunity to visit with some of your AID 
colleagues, and it is tough work. The question is whether this 
policy makes sense, whether it is a sustainable policy, because 
so much of what we are doing and building may not be able to be 
maintained subsequent to our departure.
    These numbers are indicating that there is a huge risk. And 
so, what we are asking here is for a realistic assessment of 
what those risks are and the very important reassessment of how 
we look at these projects. If they are not going to be 
sustainable, why are we doing them? If we are building a back-
up power plant for 300 million bucks that the Afghans are not 
using except for peak periods, because they cannot afford the 
fuel, how does that make sense?
    So that is what we are asking here today and whatever 
information you can provide the Committee going forward would 
be helpful. With that, again, I thank you for your service and 
I give it back to the Chair. Sorry for taking so much time.
    Senator McCaskill. Not a problem. Thank you, Senator 
Portman.
    I am trying to figure out where the decisions are being 
made as to the Afghan Infrastructure program at the Department 
of Defense and the Afghan Infrastructure Fund. Now, it is my 
understanding in fiscal year 2011, the Afghan Infrastructure 
Fund, which is all DOD money, is $400 million. Is that correct, 
Mr. Sedney?
    Mr. Sedney. I believe that is correct.
    Senator McCaskill. OK. And I am looking at a document here 
and this is projects that are going to be built with that 
money. This is DOD money. Now, the first one is the power 
generation in Kandahar City, Kandahar Province. Fuel operations 
maintenance for all DOD and USAID procured generators in 
Kandahar. That is $40 million. And the implementing agency is 
DOD, not USAID.
    The next one is power transmission, Kandahar to Lashkar and 
then power transmission, Chimtala to Ghazni and that is $231 
million and that says--Department of State, USAID, one of them 
says DOD on it also, and the next one just says Department of 
State USAID.
    The next one says power transmission Chimtala to Gardez. 
That is $86 million. And that is just DOD. The next one is a 
road in Helmand Province. That is $23 million, which does not 
sound like CERP to me, and that is DOD. The last one is 
Government Infrastructure Provincial Justice Centers. That is 
$20 million and that is DOD.
    OK. So who is deciding what Department of Defense builds 
and what USAID is building? Who is making that decision? Is 
that CENTCOM Command that is making that decision? Is that the 
Secretary of State? Where is that decision being made and on 
what basis is it being made?
    Mr. Sedney. First of all, on the--for the purpose of the 
Afghan Infrastructure Fund and the reason it is funded out of 
Department of Defense funds, as my colleague, Mr. Thier said, 
the commander on the ground has made the determination that our 
success on the battlefield requires both the reality and 
prospect for certain economic inputs. The largest of those is 
electricity.
    Helmand Province and Kandahar Province, particularly, were 
the center of gravity for our ongoing campaign. That is where 
the majority of our surge forces have--were put into place. 
First General McChrystal and then, after he took over, General 
Petraeus made very clear that increasing and making sustainable 
an electricity supply for the city of Kandahar was an essential 
part of our campaign plan, and in order to defeat the Taliban, 
we needed to do it both militarily and with the population 
itself.
    So the first step, as Mr. Thier said, was the provision of 
these temporary power plants that will be fueled by diesel 
fuel. As Senator Portman pointed out, that is very expensive, 
and as Mr. Thier said, that is not sustainable.
    Senator McCaskill. Mr. Sedney, I hate to interrupt you. I 
understand that all of these projects someone thinks are 
important to the success of our mission. I think what I am 
trying to do is pull some thread here on accountability.
    I cannot figure out why in the world is Department of 
Defense building provincial justice centers. Why is that not 
USAID? Why is DOD in the construction of provincial justice 
centers right now? I do not understand that. And how is that 
decision being made and where is it being made?
    Mr. Sedney. The recommendations, Senator, come from the 
field through the chain of command. On the provincial justice 
centers, there are some areas where the provision of provincial 
justice centers, we believe, are so important to the success of 
the campaign that if it is not possible for AID to be funding 
those at this time, they are included in the Afghan 
Infrastructure Fund.
    Senator McCaskill. Well, who is it that is in the room that 
is deciding which pot of money you are taking this out of? It 
makes it very difficult to hold anybody accountable because 
what happens, I feel like I am boxing ghosts. I cannot decide 
is it USAID that is responsible for the sustainability 
assessment, which clearly in some instances, I think, has been 
lacking?
    I look at the sustainability language for these projects. 
It does not appear to me that it has been taken seriously in 
terms of the sustainability. It looks like to me that somebody 
in the field has said, We need to do this, and so we are just 
trying to find the money somewhere in the budget to do it and 
DOD is going with it and that is not the way that you carefully 
craft this expenditure of Federal tax dollars.
    I mean, do you see where my frustration is about--I cannot 
figure out who to call.
    Mr. Sedney. Well, I apologize for any confusion that has 
been caused, but I would say that the process has been much 
more rigorous and ordered than has been described so far.
    In terms of the Afghan Infrastructure Fund projects, those 
projects were vetted first out in the field. They were based on 
requirements that the commanders in the field outlined and 
discussed intensively. This is a combined civil/military 
effort. Discussed extensively with our colleagues at the U.S. 
embassy and USAID.
    There are some areas where USAID was already working where 
a number of--a large amount of the funds, almost, I think, 80 
percent of the funds that USAID spends are now in the south and 
the west. But there were some projects which USAID did not have 
the money and which the commander in the field identified as an 
urgent requirement.
    After discussion out in the field over which agency would 
be the most appropriate implementing partner, then those 
requests were sent back for approval of projects under the 
Afghan Infrastructure Fund. Those projects are recommended to 
the Department and then the decisions, the final approval 
decisions, are made in the Department of Defense.
    Each one of those projects, which I understand were briefed 
by some of my colleagues last week, do have a sustainability 
assessment in them.
    Senator McCaskill. Have you looked at the sustainability 
assessments?
    Mr. Sedney. I have not reviewed the sustainability 
assessments myself.
    Senator McCaskill. I would recommend them to you and I 
would love your input after you have looked at them, because I 
will tell you, I have looked at them and I do not think that 
this is what we are looking for. It looks to me like somebody 
says, We need to do this, and then people are checking boxes, 
and it looks like to me that the military is deciding what 
projects need to be done, and if AID does not have the money, 
we just find the money in our budget. How long has the Afghan 
Infrastructure Fund been around?
    Mr. Sedney. This is the first year, ma'am.
    Senator McCaskill. OK. And would you say this is an 
outgrowth of CERP? This is CERP on steroids?
    Mr. Sedney. I would not say that this is CERP on steroids. 
I would say that over the last several years, as we encountered 
this complex civil/military environment, there were a number of 
areas where commanders in the field saw a need for projects 
that would have immediate impact. A number of those projects 
under CERP were put forward as CERP projects.
    Senator McCaskill. We have never before--honestly, sir, 
this is really historic in some ways, because what we have done 
here for the first time that I am aware of, we have decided 
that in a military operation, we are going to do things like 
build justice centers in the Department of Defense.
    Now, we did some of this. There was obviously some cross-
pollination in Iraq, some that happened in a way that was 
helpful and, frankly, a lot of money was wasted. Tens upon 
billions of dollars went up in smoke in Iraq because what the 
military commanders thought they needed that moment turned out 
we were not going to be able to sustain it. Health care centers 
that were never built, power plants that were blown up, roads 
and bridges that were destroyed.
    And so, I am trying to--do you believe that this is the new 
normal, that in contingency operations in the United States, 
the Department of Defense will have its own construction fund 
that will be commanded by the military leaders to determine 
what roads should be built, what power lines should be built, 
and what justice centers should be built?
    Mr. Sedney. First of all, Senator, I would say it is not 
the Department of Defense that determines which ones will be 
built. The commanders in the field do make recommendations, 
they do consult intensively with----
    Senator McCaskill. But it is your money. What do you mean 
you are not deciding it is going to be built? This is money we 
appropriated to the Department of Defense.
    Mr. Sedney. Right.
    Senator McCaskill. Surely you are not telling me somebody 
else is deciding how to spend your money.
    Mr. Sedney. No. What I am saying is, we are not deciding on 
the whole complex of things that need to be done in 
Afghanistan. We are deciding which ones are of urgent military 
necessity, and yes, this is a new area. The Afghan 
Infrastructure Fund is a brand new concept.
    It does come out of the issues that we saw with CERP where 
CERP was tending toward things that were more than just the 
quick impact projects that it was originally designed for. 
There was intensive consultation with Congress on putting the 
Afghan Infrastructure Fund in place. We created a new office in 
the Office of the Secretary of Defense to work on overseeing 
this, and the----
    Senator McCaskill. And who is that person?
    Mr. Sedney. Pardon?
    Senator McCaskill. Who is in charge of that office?
    Mr. Sedney. One of my colleagues in our Office of Stability 
Operations. I can get you his name.


                       information for the record


    The CERP Management Cell (CMC) is led by an executive level 
director, Mr. Robert Doheny, a member of the Senior Executive 
Services (SES). He leads the activities of the CMC and chairs 
the CERP Working Group, with responsibilities for review and 
oversight of assigned programs, including the review, 
assignment, tracking, and reporting of OSD/Joint Staff/Military 
Department/Combatant Command-level and interagency CERP 
activities, as well as Afghan Infrastructure Fund issues and 
tasks. In addition, the Department has recently established the 
Afghanistan Resources Oversight Council (AROC) that is co-
chaired by three Under Secretaries of Defense: Comptroller; 
Acquisition, Technology, and Logistics; and Policy. The AROC is 
charged with providing senior management review and oversight 
of DOD programs and funds related to Afghanistan, including the 
Afghanistan Security Forces Fund (ASFF), AIF, and CERP in 
Afghanistan.

    Senator McCaskill. I think this is the kind of stuff that 
we would have liked to see covered in your opening statement, 
Mr. Sedney. We have a lot of projects that are being built, and 
I know that this is really a difficult environment. There are 
all kinds of challenges, and our men and women have performed 
heroically, and our military leaders are doing an amazing job.
    But I do think that we have played fast and loose, and 
sometimes sloppy, with the way we have spent this money, and if 
this is the priority for the military command, then why is that 
not transferring to make it the priority of the State 
Department? Why are we not using the funds that have 
traditionally been always appropriated in this country for 
reconstruction projects.
    The expertise has always been at the State Department. And 
after the military pulls out of there, guess where it is going 
to be back to? It is all going to be back to the State 
Department.
    And what has happened is, with this morphing of CERP into 
something even bigger, I understand it allows you to short-
circuit some of the processes that traditionally are in place, 
and it allows you to jump the line in terms of budget 
priorities, but in the long run, it makes accountability and 
oversight very, very difficult, because you are going to go 
out--how many power projects do you have in USAID right now in 
Afghanistan?
    Mr. Thier. I would have to get you the exact number of 
individual projects.
    Senator McCaskill. But more than a couple?
    Mr. Thier. Not too many at the moment, but we have several.
    Senator McCaskill. Let me change the subject now and go to 
the Kabul Bank. I know this is difficult and, in some ways, 
delicate. But while we are pouring billions of dollars into the 
infrastructure of Afghanistan, because they have a GDP that is, 
I do not know, I think it is higher than $2 billion. What do 
you think it is, Mr. Thier? Without us, what is their GDP?
    Mr. Thier. I think overall GDP is about $18 billion. I do 
want to say that I think that this 97 percent figure has been 
somewhat mis-cited.
    Senator McCaskill. That is the highest I have ever heard 
their GDP. When I was in Afghanistan, I was told by the people 
on the ground in Afghanistan, including, I believe, the 
Ambassador, that the GDP was somewhere around $10 to $12 
billion in Afghanistan.
    Mr. Thier. I think it has gone up steadily. I may be 
slightly overstating----
    Senator McCaskill. Optimistic.
    Mr. Thier [continuing]. But that was my understanding----
    Senator McCaskill. Right.
    Mr. Thier [continuing]. It has been growing every year.
    Senator McCaskill. I guess what I am trying to figure out 
here is, we have a $900 million fraud that has occurred at the 
Kabul Bank and that is where we put international assistance 
for Afghanistan. And clearly, we have technical assistance on 
the ground that is supposed to be overseeing the financial 
sector through USAID.
    Can you explain how they were able to do insider lending to 
the tune of hundreds of millions of dollars that is now gone, 
and why we are not being more aggressive in terms of requiring 
the kinds of audits that the other bank that now is in 
question, that may have the same kinds of problems, the Azizi 
Bank, why we are not requiring independent forensic audits and 
results of those audits before we put any more money in either 
one of those banks that has any connection to the U.S. 
taxpayers?
    Mr. Thier. So let me clarify two things. No U.S. taxpayer 
dollars have ever gone to Kabul Bank.
    Senator McCaskill. It is just IMF money?
    Mr. Thier. I am not familiar with any IMF funds ever having 
gone, but I cannot, obviously, speak to that.
    Senator McCaskill. Well, you say no U.S. funds have gone to 
the bank, but if we are paying Afghan contractors and if we 
have blown their GDP up way above what it will ever, ever be 
after we are gone, that money is going into some bank. So you 
say it is not United States' money, but I would hasten to add 
that a lot of the money that has gone in every Afghanistan bank 
for the last 3 years has been American money. Would that not be 
a fair assessment?
    Mr. Thier. Well, there is no program that has existed in 
the past that provides any type of support to Kabul Bank. The 
only way--what we have done as a government is to support the 
Afghan government's ability to develop its financial system. 
That has primarily been involved in, for instance, building the 
Afghan Central Bank from nothing into an entity.
    Part of that assistance has been to build their capacity. 
But I hasten to add that at no point has the U.S. Government or 
U.S. Government officials or contractors been responsible for 
the oversight of Afghanistan's banking system. That is a 
sovereign function of the government of Afghanistan. We have 
attempted to build their capacity.
    I think critically on the other point about Azizi Bank and 
the forensic audit, not only do we support that idea, but we 
have been demanding it.
    Part of the IMF conditions for a new IMF program that have 
been designed around the Afghans rectifying the problems in 
Kabul Bank has been precisely that a forensic audit of the 
Azizi Bank needs to be conducted, and that the IMF program, 
which these conditions we support strongly, require that audit 
to be conducted prior to a new IMF program being put into 
place.
    So I do want to emphasize that we agree with you strongly, 
that an audit needs to be done, as well as a number of other 
steps, conditions that have been endorsed by the U.S. 
Government, before any IMF program goes forward.
    Senator McCaskill. OK. Thank you for that and we will have 
some followup questions on that.
    Finally, a couple of things I want to do. One is CERP. I 
have had many conversations in the Armed Services Committee 
with General Petraeus and others about CERP, Ash Carter and 
others about CERP. Do you all have, in the Department of 
Defense, an analysis of where CERP money has been spent in 
relationship to where there have been challenges in terms of 
our military mission and what kind of success the CERP funds 
have, in fact, brought about? Is there data?
    Mr. Sedney. Senator McCaskill, I do not know of any study 
yet that has been done on the connection of CERP funding to 
military success. While we have repeated statements and 
validation from commanders in the field, as far as I know, and 
I will check and see to make sure, there has been no study 
trying to validate any statistically valid correlation between 
CERP spending and military success.
    In Afghanistan, since we are still in the process of 
developing or achieving that success, my own view would be that 
it would be too soon to be able to make such an evaluation 
because we are still in the process of carrying out the war.
    Senator McCaskill. Well, we have done CERP now for as long 
as I have been in the Senate, and so we have lots of CERP money 
that has been spent in Iraq and Afghanistan. And this is my 
specific question and I would ask you to take it for the 
record, because I want you to be sure before you answer this 
question.
    Does the Department of Defense, does the American military 
have data that would lay over where CERP money has been spent 
versus hot spots to determine whether or not the CERP money is 
actually being spent in areas where there are hot spots as it 
relates to our military mission? And if so, is there any data 
available about the success of that CERP money in terms of 
helping directly with the military mission other than 
anecdotal?
    Mr. Sedney. In terms of the first part of your question, 
yes, we do have data which shows where CERP money is being 
spent and where there is insurgent activity, and that is 
something that we can provide to you.
    On the second part, as I said, on the evaluation of the 
success in Afghanistan, which is the area that I am responsible 
for, I do not think we yet have the data to be able to evaluate 
the success because we are still in the process of carrying out 
the fight.
    But certainly on the first part of the data that you 
requested, we will be able to provide that to you. On the 
second part, I will consult with my colleagues and see if doing 
a study on success of CERP in Afghanistan is something that 
would be something we would want to try and do now or do it 
more retrospectively as we are further along in the campaign.


                       information for the record


    Yes. The Department of Defense does have a map overlaying 
CERP expenditures with areas of Afghanistan that are a priority 
in the military campaign. Attached is the ``For Official Use 
Only'' chart that overlays CERP project locations relative to 
the map of Afghanistan.

    Senator McCaskill. Mr. Solis, do you have any----
    Mr. Solis. Senator, if I could, and I did not do this 
particular study on CERP, but I do know that we did make a 
recommendation along the lines that you mentioned about trying 
to measure success against some set of standards and metrics, 
and that was in a recent report. The Department did concur with 
that.
    So there is a recommendation out there to do that and the 
Department has concurred.
    Senator McCaskill. To do that kind of study----
    Mr. Solis. Yes.
    Senator McCaskill [continuing]. So we could get some kind 
of sense of the efficacy, because essentially, we have now 
moved beyond CERP into much bigger projects based on AIF, and 
it worries me that we have done that without really checking to 
see if CERP was a success in terms of the mission and whether 
or not the Afghan people need power, I understand that it would 
be nice to have the lights on, but I need to make sure that 
spending hundreds and hundreds of millions of dollars on the 
power grid and the power system in Afghanistan is, in fact, 
going to translate into defeating the Taliban.
    It is nice that we turn on the lights for them, but it 
would also be nice if we got more broadband in Missouri. And 
those are the kinds of decisions we have to make, and I worry 
that the blinders get on and we lose perspective about whether 
or not these projects are essential to the mission of defeating 
the Taliban and providing stability.
    I am not quarreling that we have to train the army. I am 
not quarreling we have to train the police. But I just think it 
is time for us to really button down whether or not building 
the roads, the schools, and building the justice centers that 
we are building, and sometimes USAID is building them, 
sometimes the Department of Defense is building them. Is the 
Army Corps taking the lead on all these projects, the AIF 
projects?
    Mr. Sedney. I know they are taking the lead in at least one 
of them, but I can get back to you with who is on the lead.


                       information for the record


    The U.S. Army Corps of Engineers is the lead for four of 
the FY 2011 Afghan Infrastructure Fund projects--three power 
projects and one transportation project. Other components 
within the Department of Defense will implement the Provincial 
Justice Centers project, and the Rule of the Law Field Force-
Afghanistan--a subordinate command of U.S. Forces-Afghanistan--
will oversee them. USAID will implement one of the power 
transmission projects that will be executed in concert with the 
Afghanistan power company--Da Afghanistan Breshna Skerkat 
(DABS).

    Senator McCaskill. And I assume all of these are being 
contracted out?
    Mr. Sedney. We are in the process of doing that, but yes, 
they will be--they will be contracted, although I think--I will 
have to take that question, ma'am.


                       information for the record


    Yes, all six fiscal year 2011 Afghanistan Infrastructure 
Fund projects will be contracted out, in accordance with the 
``Afghan First'' policy. As delineated in DOD's AIF 
notification to Congress, the Department of State/USAID will 
implement one of the projects, and the Department of Defense 
will implement the other five projects.

    Senator McCaskill. OK. I have a number of other questions 
in here. You all have stayed long and this hearing was supposed 
to be over at noon. Sorry. I have to ask about counter-
narcotics before we go.
    The Committee released a report, Mr. Denver, on the 
counter-narcotics contracts in Afghanistan. Frankly, it dealt 
with all the counter-narcotics moneys that we have spent and 
the problems there. First, for Mr. Denver, what have you done 
to improve the management of the counter-narcotics contracts in 
Afghanistan, and if this is something you are not prepared to 
answer today, we are happy to take it for the record.
    Mr. Denver. Thank you, Madam Chairman. I will need to take 
this for the record. I do know that the Space and Missile 
Defense Command is the Army organization that oversees the 
counter-narcotics contracts so I will need to take it for the 
record and coordinate with them and get back to you.


                       information for the record


    The Army appreciates the opportunity to share the progress 
made in the management of counternarcotics contracts in 
Afghanistan. The U.S. Army Space and Missile Defense Command/
Army Forces Strategic Command (USASMDC/ARSTRAT) Contracting and 
Acquisition Management Office (CAMO) is the primary Army 
contracting office awarding and managing contracts in support 
of counternarcoterrorism and the Department of Defense Counter 
Narcoterrorism Technology Program Office (CNTPO). USASMDC/
ARSTRAT CAMO has implemented many improvements since the 2009 
Department of Defense Inspector General Report was published 
(D-2009-109, Contracts Supporting the DOD Counter 
Narcoterrorism Technology Program Office).
    Personnel improvements include growing the contracting team 
from two to nine and the project management team has grown from 
8 to 21 government personnel. Recruiting actions have targeted 
particular skills that closely match the functional expertise 
of the missions supported, training has been tailored to 
reflect the unique aspects of the types of missions supported, 
and continuous learning is embraced as a mandate to ensure 
training is sufficiently robust to meet missions support 
requirements.
    Process improvements have been made to ensure the 
comprehensiveness of files. Templates and desk guides have been 
developed to aid in the training of new personnel and ensure 
consistency and continuity of work products.
    A quality assurance hierarchy had been implemented that 
provides a team approach to quality assurance. Of importance is 
the location and approach to QA. Given the complexity and 
nature of the acquisitions supported in Afghanistan, CNTPO has 
stationed a forward deployed QA cell, from which skilled QA 
evaluators deploy to specific performance locations throughout 
the theater of operations and local geographic area.
    Although substantial progress has been made to remedy 
concerns voiced in the 2009 Defense Inspector General Report 
(D-2009-109, Contracts Supporting the DOD Counter 
Narcoterrorism Technology Program Office), USASMDC/ARSTRAT CAMO 
still faces many challenges. A program of this nature requires 
uniquely skilled professionals, dedicated to keeping pace with 
evolving requirements. Like many organizations, staffing 
authorized must appreciate not only the level of resource 
required, but must also understand that it takes a complement 
of skills to ensure all aspects of the acquisition are properly 
and effectively executed. These actions are directly improving 
the execution and oversight of these critical activities; 
however, the challenges of the operational environment, changes 
in requirements, funding priorities and the experience level of 
new personnel remain.

    Senator McCaskill. OK. USAID, Mr. Thier, since 2002, has 
awarded $1.4 billion for agricultural programs as a means to 
encourage farmers to engage in something other than opium 
farming. There is concern that these programs are distorting 
the Afghan economy or creating false economies that are 
unsustainable. Do you have any real measure of the impact of 
these programs, and will any of these impacts be sustainable in 
terms of the alternative agricultural programs?
    Mr. Thier. I would be happy to get you more on the 
measures, but to fundamentally answer your question, yes. I 
think that this investment in agriculture, which has really 
been about finding alternatives for people who are growing 
opium poppy, has been dramatically successful in two regards. 
First of all, a large number of provinces, and I can also get 
you the number, have gone opium-free, and that has been very 
important to our strategy of trying to reduce and eliminate 
opium production in Afghanistan.
    The other is that there really is no silver bullet to 
replace opium in Afghanistan, but what we are trying to do is 
to create an agricultural mix and market for those agricultural 
products that will allow Afghan farmers to be able to make a 
decent living so that the choice to plant opium will be far 
less attractive, vis-a-vis, other efforts.
    And we have reached literally tens of thousands of farmers 
with these programs that have increased crop yields 
dramatically, and I think we are quite proud of that 
investment, and I do think it is a long-term investment because 
they are able to generate seed from those, they have opened up 
new markets, we are increasing trade across the borders as 
well, and it is really a critical part of our ultimate 
sustainability strategy for Afghanistan to increase 
agricultural income.
    Senator McCaskill. I think it is a terrific program. I know 
that we have a Missouri National Guard unit that is over an 
agricultural program and has done great work. In fact, we lost 
one of ours over there that was there on that program.
    Let us talk about now not the agricultural program, but for 
both DOD and for USAID. We have now spent $2 billion in 
counter-narcotics contracts in Afghanistan. Can either of you 
speak to any specific milestones that have been reached in 
terms of having a negative impact on the narcotics trafficking 
in Afghanistan and exporting out of Afghanistan after we have 
spent $2 billion?
    Mr. Thier. Our work again really focuses on the crop 
replacement side. Other aspects of the State Department are 
responsible for the elements of interdiction and law 
enforcement. Our efforts focusing on agriculture have really 
been, as I said, to find replacement crops.
    I think one of the most significant factors that I noted is 
that a large number of provinces that were planting opium just 
a few years ago have gone poppy-free.
    Senator McCaskill. Have we actually measured the amount of 
opium being produced in Afghanistan and do we have milestones 
in each year as to where we are in that metric?
    Mr. Thier. We do not do that, but there are very intensive 
measurements that are done on a year-by-year basis of the opium 
crop, of its price, of the number of hectares. There was a 
dramatic decline last year that was in part due to blight, but 
also, I think, due to other programs as well.
    Senator McCaskill. Maybe we need to figure out that blight, 
work the blight. Maybe it will be less expensive than $2 
billion. I would like to get that information, if I could, from 
your colleagues at either DOD or at State, what milestones we 
can point to that this investment of $2 billion has been a wise 
investment.
    I think the alternative crops, obviously, if we can show--I 
mean, one is going to prove the other. But I guess the question 
is, and you are not the right person. We will try to pose 
questions to the right people if you will help us find them.
    And it may be, Mr. Sedney--I was hard on you today--you may 
not have been the right person to be at this hearing. But we 
struggle when we do these hearings and that is part of our 
problem, and I will close with this. It would be great if I 
could get the right people in front of this hearing that 
actually I can hold accountable on contracting in Afghanistan 
for infrastructure.
    But it is harder than it looks to find the right people 
because it is not clear who really is making the decisions at 
the front end as to where the money is going to go, the 
decisions in the middle as to the contracting process, and the 
decisions at the end as to whether or not we have done an 
adequate job assessing sustainability.
    I certainly will look forward to the input from DOD after 
you look at the sustainability rationale that has been laid out 
for the projects in the AIF, and I think you are going to 
continue to hear more and more questions in this area as we try 
with all of our might to find every taxpayer dollar we can in 
terms of spending less.
    I am not here to say I do not support the mission in 
Afghanistan, I do, but I question whether all of the money we 
have spent on contracting in the effort against 
counterinsurgency, whether or not we have any value for it. And 
this has been a giant experiment, what we have done in Iraq and 
Afghanistan, and so far, from where I sit, in terms of doing 
contracting oversight, I think the grade is not a good grade in 
terms of the amount of money we have spent and what we have for 
it in the long run.
    So, I thank all of you. We will have questions for the 
record and I really appreciate your time this morning.
    Mr. Solis. Senator, if I could add just one thing----
    Senator McCaskill. Yes, Mr. Solis.
    Mr. Solis [continuing]. About sustainability very quickly? 
While our work focused mostly on the oversight of contractors 
at DOD, as we looked at it, some of the outcomes that you could 
have is poor construction. And as we talk about sustainment, 
you cannot assume that what we have out there is already ready 
to go in terms of people just going in and using it and then be 
able to sustain it.
    I think what you have also got to look at is, what is it 
going to take to possibly rebuild or reconstruct----
    Senator McCaskill. Right.
    Mr. Solis [continuing]. Facilities that are already there. 
And some of our work has shown that a lot of these buildings 
that are out there, particularly on some of these bases, are 
not ready to be moved into. And so, I think as you think about 
sustainment, you are going to also have to think about, are we 
ready to move folks in, what is it going to cost to rebuild or 
reconstruct those buildings.
    Senator McCaskill. You are right at the back end. I mean, 
we have the front end deciding where the money is going to go, 
we have the middle portion which is actually letting the 
contracts in a cost-effective way and overseeing the contracts, 
and then at the back end, who do we hold accountable if the 
structures are substandard, if they are not to spec, if they 
are not going to work for the purposes they were intended.
    That is what we saw so frequently in Iraq, frankly, and 
some of it dealt with the safety and security of our troops in 
terms of the construction that had been done. Other was 
construction. The health centers are a famous example of the 
health centers that somebody got paid for and the ones that 
were built were not capable of being used, and the ones that 
were not built, we never got the money back.
    So there is a disconnect between what the commanders in the 
field want to have happen and what actually happens, and the 
money that is spent from that point to that point is where I 
think we can save billions and billions of dollars if we really 
work at getting this right.
    It is better, the CORs are better, they certainly are 
better. The CORs are now being trained. When I first started 
down this path, when the idea for the War Contracting 
Commission was just an idea that I came up with because I am a 
student of history and what Harry Truman did after World War 
II, and I thought it was time that we did that after what I 
learned in Iraq, and Jim Webb and I worked hard to get that 
contracting commission established.
    But we are a long way from where we need to be, and I want 
the Department of Defense to take this really seriously and I 
want AID to take it really seriously because what is going to 
happen is the American people are going to turn off the spigot 
if we do not do this right, and they have a right to turn off 
the spigot if we do not do this right, and there is so much 
work to be done.
    If all of you would just study the work that GAO has done, 
we could make huge progress. But somehow that just does not 
ever happen. It is painful how long it is taking to get the 
accountability we need and to even get the accurate 
information.
    So I will continue to followup with the new Secretary of 
Defense on this. He and I have discussed it. I have had many 
conversations with commanders on this subject matter and 
everyone nods their head and says they get it, but it is not 
getting done right and it needs to improve.
    Thank you all very much for being here today.
    [Whereupon, at 12:40 p.m., the hearing was adjourned.]


                            A P P E N D I X

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