Foreign Assistance: USAID Has Begun Tsunami Reconstruction in
Indonesia and Sri Lanka, but Key Projects May Exceed Initial Cost
and Schedule Estimates (14-APR-06, GAO-06-488).
In December 2004, an earthquake off the coast of Indonesia caused
a tsunami that left more than 230,000 people killed or missing
and presumed dead and an estimated $10 billion in damage in 12
countries. In May 2005, Congress appropriated $908 million for
relief and reconstruction. U.S. emergency relief efforts budgeted
at $327 million were nearly completed in December 2005. The U.S.
Agency for International Development (USAID) plans to spend $496
million on longer-term reconstruction, focusing on Indonesia and
Sri Lanka, with the remaining $85 million allocated to other U.S.
agencies. GAO has been mandated to monitor USAID's reconstruction
efforts. In this report, GAO describes USAID's (1) progress in
Indonesia and Sri Lanka, (2) financial and technical oversight
measures, and (3) implementation challenges.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-488
ACCNO: A51618
TITLE: Foreign Assistance: USAID Has Begun Tsunami
Reconstruction in Indonesia and Sri Lanka, but Key Projects May
Exceed Initial Cost and Schedule Estimates
DATE: 04/14/2006
SUBJECT: Appropriated funds
Budget obligations
Disaster recovery
Disaster relief aid
Federal aid to foreign countries
Foreign economic assistance
Funds management
Natural disasters
Tsunamis
Program implementation
Indonesia
Sri Lanka
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GAO-06-488
* Report to Congressional Committees
* April 2006
* FOREIGN ASSISTANCE
* USAID Has Begun Tsunami Reconstruction in Indonesia and Sri
Lanka, but Key Projects May Exceed Initial Cost and Schedule
Estimates
* Contents
* Results in Brief
* Background
* International Funding and Implementing Entities for Tsunami
Relief and Reconstruction
* USAID and Military Agencies' Emergency Relief Efforts
* U.S. Supplemental Funding Budgeted for Reconstruction in
Tsunami-Affected Countries
* USAID Reconstruction Programs in Indonesia and Sri Lanka
* USAID Reconstruction Programs in Indonesia and Sri Lanka Have
Begun, but Some Project Costs and Schedules May Exceed Initial
Projections
* USAID Has Begun Reconstruction Efforts in Indonesia, but
Several Factors May Increase Costs and Delay Schedules
* USAID Has Obligated about One-third and Expended a
Small Percentage of Reconstruction Funds in Indonesia
* USAID Has Started Indonesian Signature Road Project but
May Encounter Cost and Time Overruns
* Other USAID Reconstruction Activities in Indonesia May
Also Exceed Cost and Schedule Projections
* USAID's Sri Lankan Construction Activities May Face
Cost and Time Overruns, but Other Programs Are on
Schedule
* USAID Has Obligated All and Expended a Small Percentage
of Reconstruction Funds in Sri Lanka
* USAID Has Started Sri Lankan Signature Project but
Faces Rising Costs and Labor Shortages
* Other USAID Tsunami Reconstruction Projects in Sri
Lanka Are Under Way and Most Are Currently on Schedule
* USAID Established Financial and Technical Oversight Measures but
Has Not Filled Some Needed Technical Oversight Positions
* USAID Has Established Financial Oversight Mechanisms in
Indonesia and Sri Lanka
* USAID Plans Internal and External Audits
* USAID Intends to Strengthen Indonesian and Sri Lankan
Audit Capacities
* USAID Has Taken Steps to Establish Technical Oversight but
Has Not Filled Some Needed Positions
* Several Challenges Confront Indonesian and Sri Lankan
Reconstruction Programs
* Civil Conflicts Threaten Reconstruction Efforts
* Indonesian Factions Have Signed Peace Accord, and Some
USAID Projects Are Supporting Reconciliation
* Deteriorating Sri Lankan Security May Affect Some
Programs, but USAID Is Working to Promote
Reconciliation
* Coordination with Governments and Nongovernmental
Organizations Has Been Difficult, but USAID Is Taking Steps
to Improve Coordination
* Indonesian Government's Coordination Difficulties Have
Challenged USAID
* Sri Lanka's Organizational Problems and Policy Changes
Have Created Challenges for USAID
* Poor Coordination with Nongovernmental Organizations
Has Caused Problems
* USAID's Tsunami Response Has Created Challenges for
Non-Tsunami-Related Programs
* Conclusions
* Recommendation for Executive Action
* Agency Comments and Our Evaluation
* Objectives, Scope, and Methodology
* Debt Relief to Indonesia and Sri Lanka
* Debt Relief Provided by the United States
* Debt Relief Provided by International Creditors
* USAID's Three-Phase Signature Road Project in Aceh Province, Indonesia
* Comments from the Department of State
* Comments from the U.S. Agency for International Development
* GAO Comments
* GAO Contact and Staff Acknowledgments
Report to Congressional Committees
April 2006
FOREIGN ASSISTANCE
USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key
Projects May Exceed Initial Cost and Schedule Estimates
Contents
Tables
Figures
April 14, 2006Letter
The Honorable Mitch McConnell Chairman The Honorable Patrick J. Leahy
Ranking Minority Member Subcommittee on State, Foreign Operations, and
Related Programs Committee on Appropriations United States Senate
The Honorable Jim Kolbe Chairman The Honorable Nita M. Lowey Ranking
Minority Member Subcommittee on Foreign Operations, Export Financing, and
Related Programs Committee on Appropriations House of Representatives
On December 26, 2004, a severe earthquake in the Indian Ocean off the
coast of Indonesia created a major tsunami that struck 12 countries in
Asia and East Africa.1 As a result of the tsunami, more than 230,000
people were either killed or are missing and presumed dead, more than 1.7
million people were displaced, and an estimated $10 billion in damage was
caused to infrastructure, houses, and other property. Following initial
emergency response efforts by the United States and other donors,
individuals, national governments, and others around the world pledged
more than $13 billion to assist in rebuilding tsunami-affected areas
throughout the region.2 In May 2005, Congress appropriated approximately
$908 million in assistance for tsunami relief, reconstruction, and related
programs. Beyond $327 million that was budgeted for survivors' immediate
needs for medicine, food, and shelter, approximately $496 million is
budgeted for longer-term reconstruction and related programs to be
administered by the U.S. Agency for International Development (USAID).
This amount includes $349 million for Indonesia and $85 million for Sri
Lanka, the two countries with the greatest estimated needs, and $62
million for other countries and regional programs. The remaining $85
million was budgeted to other U.S. agencies. USAID began most of its
activities by September 2005, including "signature" projects intended to
generate greater visibility for overall U.S. assistance. Initial USAID
plans call for completing its nonsignature activities in both countries by
September 2007 and its signature projects in Indonesia and Sri Lanka by
September 2009 and March 2008, respectively.
We were directed to monitor the delivery of U.S. assistance to the
tsunami-affected countries.3 For this report, we examined (1) USAID's
progress in providing longer-term reconstruction assistance in Indonesia
and Sri Lanka; (2) the extent to which USAID has established financial and
technical oversight; and (3) any challenges USAID faces and any steps the
agency has taken to address these challenges.
To address these matters, we reviewed USAID's expenditures through January
2006, and analyzed USAID's program objectives and oversight. We also
traveled twice to Indonesia and once to Sri Lanka between July and
December 2005. On our trips, we visited numerous project sites in the
tsunami-affected areas, meeting with survivors and monitoring the progress
of USAID's portfolio of projects. We determined that USAID's funding and
expenditure data were sufficiently reliable for our analysis. In addition,
we considered previous GAO work on U.S. disaster assistance efforts. We
conducted our work from May 2005 through March 2006 in accordance with
generally accepted government auditing standards. (For details of our
scope and methodology, see app. I.)
Results in Brief
USAID has recently initiated reconstruction programs in Indonesia and Sri
Lanka, but, primarily because of rising costs and scarcity of materials
and labor, it appears that some projects may exceed USAID's initial cost
and schedule estimates.
o USAID has started many of its planned reconstruction activities in
Indonesia.4 As of January 31, 2006, the agency had obligated $111 million
(32 percent) and expended $9 million (3 percent) of the $349 million
budgeted for reconstruction.5 USAID has awarded contracts for preliminary
work on a 150-mile signature road construction project in Aceh Province,
which, at a projected cost of $245 million, represents roughly two-thirds
of U.S. reconstruction funding in Indonesia. However, completing the road
within projected cost estimates and time frames may be difficult for the
following reasons:
o USAID's initial cost estimate was based on building the new road over
large portions of undamaged sections of the existing road and over the
temporary road built by the Indonesian army. Since the initial estimate,
however, plans for routing the road have changed. According to the U.S.
Army Corps of Engineers (USACE), large segments of the road are now
planned along new undeveloped routes that require more extensive
construction activities than originally anticipated and, as a result,
higher costs. Because of uncertainty about site conditions, USACE included
a 20 percent contingency in its initial cost estimate. USAID expects to
have updated cost estimates in June 2006.
o Demand for, and costs of, construction materials and labor have
increased substantially. For example, according to USAID officials, the
price of fuel oil in Indonesia had risen by more than 250 percent between
February and December 2005. In addition, as regional reconstruction
continues over the next several years, construction spending is expected
to increase fortyfold from pretsunami levels, rising from $50 million to
$2 billion annually, and 200,000 additional workers will be needed to meet
construction demands.
o The Indonesian government faces difficulties in acquiring the land and
establishing the right-of-way needed for the road.
USAID has also initiated several other reconstruction and related projects
in Indonesia, including
o constructing schools, clinics, and water distribution and port
facilities;
o providing technical assistance for good governance and supporting the
Indonesian government's coordination and audit organizations; and
o providing housing and small loans.
However, some of these projects also face increasing costs and potential
delays. For example, soon after agreeing to build 1,000 houses for $4,500
per house, a USAID implementing partner informed the agency that
escalating prices had increased the unit cost to $7,000. According to
USAID officials, the nongovernmental organization implementing the program
will reduce its budget for other USAID-funded projects and will attempt to
solicit private donations to meet its commitment.
USAID has initiated many of the reconstruction activities planned for Sri
Lanka.6 As of January 31, 2006, the agency had obligated all $85 million
(100 percent) and expended $2 million (2 percent) of the amount budgeted
for reconstruction. USAID has begun its signature project, which comprises
o building infrastructure, including a bridge and water treatment
facility, and repairing damaged fishing facilities;
o providing construction and tourism-related training; and
o constructing new and repairing tsunami-damaged vocational education
facilities.
However, as in Indonesia, several factors may limit USAID's ability to
complete its signature project activities in Sri Lanka within projected
costs and schedules.
o Limited availability and rising costs of materials and labor may
increase the costs and time required to complete some projects. For
example, one of USAID's implementing partners reported that, during 2005,
the cost of brick had doubled and that similar increases had occurred for
cement and lumber. USAID has acknowledged that, to address increases in
costs or difficulty in obtaining materials or expertise, the USAID mission
in Sri Lanka is considering moving funds from other tsunami reconstruction
activities to complete some construction projects.
o Although currently projected by USAID to be completed in January 2008,
an extended design and planning phase for the signature bridge
construction project may make it difficult for USAID to finish the project
by March 2008, the initial projected completion date.
USAID has begun other projects in Sri Lanka, most of which it expects to
complete by September 2007, including
o construction of playgrounds and rehabilitation of community markets,
o promoting transparent local governance, and
o providing loans to small businesses and vocational training.
Although USAID has established financial and technical oversight measures
for its tsunami reconstruction programs in Indonesia and Sri Lanka and
hired some staff, it has not staffed several positions that it considers
critical to essential technical oversight. For financial oversight, USAID
has implemented its standard financial controls, such as conducting
preaward surveys of prospective award recipients and establishing a
schedule of independent financial audits. USAID also plans to establish
measures that augment these controls, including contracting for an
additional concurrent audit of the Indonesia signature road project by the
Defense Contract Audit Agency. USAID's Office of the Inspector General
(IG) is currently conducting audits to address concerns about potential
corruption and misuse of funds and plans to conduct additional audits. For
technical oversight, USAID added staff in both Indonesia and Sri Lanka
with expertise to oversee large-scale projects such as roads and bridges
and it entered into successive interagency agreements with USACE for
technical services.7 As of March 2006, USAID transferred three persons
with engineering and management experience and hired an engineer to
oversee the signature road construction project in Indonesia, but the
engineer is not expected to begin working until May 2006. In Sri Lanka,
USAID added two engineers to its staff in late 2005 to oversee
infrastructure construction activities, but as of March 2006, one
engineering-related position has not been filled.
USAID faces three broad challenges in implementing its tsunami recovery
program in Indonesia and Sri Lanka, but it has taken some steps to address
them.
o Working in regions with long-standing civil conflicts. Civil conflict in
both Indonesia and Sri Lanka could affect USAID's ability to complete
reconstruction projects within projected time frames. Conflict has
subsided in Indonesia following the August 2005 signing of a peace accord
between the Indonesian government and an Indonesian separatist group, but
in Sri Lanka, USAID's ability to provide assistance in some regions has
been limited by recent increases in violent incidents. To strengthen the
peace process in both countries, USAID designed and is implementing some
projects, such as building infrastructure in Indonesian communities, to
facilitate former combatants' participation.
o Coordinating with host governments and nongovernmental organizations
(NGO). USAID has encountered difficulties in coordinating its
reconstruction efforts with the governments of Indonesia and Sri Lanka and
with NGOs operating in those countries. Although both governments
established entities to coordinate donor support following the tsunami,
neither entity has been able to fully ensure that projects do not overlap.
In addition, the Sri Lankan government has inconsistently enforced a ban
on rebuilding in coastal areas since the tsunami, making it difficult for
USAID to proceed with some nonconstruction projects. Also, USAID has
encountered challenges in coordinating with NGOs operating in the two
countries, which in some instances has led to duplication of efforts. To
avert potential future overlap with NGO programs in Sri Lanka, USAID has
participated in weekly meetings with the Sri Lankan government
coordinating entity and NGOs, among others, to designate responsibility
for different geographic areas.
o Ensuring that the tsunami focus does not hamper nontsunami development
assistance. Recognizing that the urgency to respond to the tsunami could
hamper the management of some ongoing development projects in Indonesia
and Sri Lanka, USAID has taken several steps. In Indonesia, three key
positions were created to provide needed oversight in Aceh, and USAID
plans to add positions for oversight of both regular and tsunami project
activities. In Sri Lanka, after temporarily suspending some
non-tsunami-related community development projects, USAID plans to add an
additional specialist during fiscal year 2006 to ensure coverage of
tsunami assistance projects.
Based on our review of USAID's planning and design efforts for its
reconstruction program, especially with regard to the signature road
project in Indonesia and bridge project in Sri Lanka, we are recommending
that the Secretary of State, in the department's required semiannual
report to Congress due in June 2006, provide updated cost estimates and
schedules obtained from USAID. If the updated information differs
substantially from initial projections, the report should also include
alternative cost estimates, schedules, project scopes and, if necessary,
the need for additional funding sources. In commenting on a draft of this
report, the Department of State agreed to fully implement our
recommendation and USAID stated that the report's findings accurately
describe the tsunami program situation and the potential broad challenges
for achieving its reconstruction goals. USAID also provided information on
additional steps the agency intends to take to mitigate the potential for
increased costs and schedule delays, as well as an explanation of how it
obligates funds.
Background
Although the tsunami's effects were concentrated in the countries closest
to the earthquake's epicenter in the Indian Ocean, about 100 miles off the
coast of Sumatra, it also destroyed communities along some coastlines
thousands of miles away. A year later, in December 2005, more than 40,000
persons were still listed as missing and tens of thousands remained in
temporary housing. Figure 1 shows the most-affected countries, the numbers
of people dead, missing, and displaced, and the estimated damage as a
result of the tsunami.
Figure 1: Tsunami-Affected Countries; Numbers of Dead, Missing, and
Displaced Persons; and Estimated Damage, as of November 2005
International Funding and Implementing Entities for Tsunami Relief and
Reconstruction
Responding to the magnitude of the disaster, the international donor
community, including the United States, pledged approximately $13.6
billion to assist with tsunami relief and reconstruction efforts in all of
the affected countries. National governments and the European Union
pledged $6.2 billion of this amount (45 percent), private individuals and
companies pledged $5.1 billion (38 percent), and international financial
institutions pledged $2.3 billion (17 percent). These funds are being
provided to a wide range of entities involved in implementing relief and
reconstruction efforts (see fig. 2).
Figure 2: Entities Implementing International Tsunami Relief and
Reconstruction Assistance
USAID and Military Agencies' Emergency Relief Efforts
USAID and the U.S. Department of Defense (DOD) and its component services
provided immediate assistance to tsunami survivors and to the governments
of many of the affected countries, largely completing these
efforts by the end of 2005.8 USAID's Office of U.S. Foreign Disaster
Assistance (OFDA), Office of Transition Initiatives (OTI), and other USAID
offices assisted survivors by providing food, water, temporary shelter,
and other critical needs. Soon afterward, USAID initiated economic
reactivation projects, such as paying people to remove debris in many
affected areas. USAID's emergency relief budget totaled approximately $101
million, including $32 million in Indonesia and $47 million in Sri Lanka.
In addition, several DOD component services, including the U.S. Air Force
and Navy, provided important emergency relief. For example, the Air Force
rescued survivors and airlifted supplies, and a Navy hospital ship
provided medical support. The supplemental tsunami appropriations law
provided up to $226 million to reimburse DOD for its emergency relief
activities. As of January 2006, DOD expended approximately $125 million
(55 percent), including nearly $79 million for airlift and other flying
costs and slightly more than $7 million for health- and medical-related
services. Of the remaining $101 million, DOD had not completed a final
reconciliation of $47 million, $40 million had been reprogrammed to help
cover DOD's costs in other disaster assistance efforts, and $14 million
had lapsed. Table 1 shows U.S. tsunami emergency relief funds budgeted and
expended.
Table 1: U.S. Tsunami Emergency Relief Funds Budgeted and Expended, as of
January 2006
Dollars in
millions
Purpose Funds Funds expended Comments
budgeted
(percentage of
funds budgeted)
DOD emergency $226 $125 (55) Of the unexpended $101 million,
relief effortsa
o $47 million was obligated, but
because some cost data are not
yet available, DOD has not
determined the amount expended;
o $40 million was reprogrammed
for disaster assistance efforts
in Guatemala and Pakistan; and
o $14 million lapsed.
USAID emergency 101 70 (69) Of the unexpended $31 million,
relief effortsa the entire amount was obligated
but not expended because some
projects were intended to
purposely transition into the
reconstruction phase.
Total $327 $195 (60)
Sources: DOD and USAID.
aDOD data are through January 26, 2006, and USAID data are through January
2006.
U.S. Supplemental Funding Budgeted for Reconstruction in Tsunami-Affected
Countries
Of the $908 million appropriated for tsunami relief and reconstruction
assistance, $581 million, or 64 percent, was budgeted for reconstruction
and other postemergency relief activities. Of this amount, USAID was
budgeted $496 million for reconstruction, and other U.S. agencies were
budgeted $85 million for various other activities. (See table 2.)
Table 2: Funding Budgeted to USAID and Other U.S. Departments and Agencies
for Reconstruction and Other Postemergency Activities, as of January 31,
2006
Dollars in millions
Department or agency Funding budgeted
USAID reconstruction
Indonesia $349
Sri Lanka 85
Other countries, regional programs, operating costs, and 62
other expenses
Subtotal $496
Other U.S. departments and agencies
Centers for Disease Control and Prevention: 15
Avian flu prevention and control
U.S. Departments of Commerce and the Interior: 25
Regional early warning systems and disaster preparation
U.S. Department of the Treasury:a 20
Debt relief to the government of Indonesia 3
Debt relief to the government of Sri Lanka
State Department: 11
Reconstruction efforts in the Maldives 5
Assisting U.S. families in searching for persons, and
monitoring
human trafficking
U.S. Trade and Development Agency 6
Technical assistance and project planning for
reconstruction
Subtotal $85
Total $581
Sources: USAID and P.L. 109-13, May 11, 2005, Title IV, Chap. 1-5.
aFunds were initially budgeted to USAID; Treasury is involved in
oversight.
USAID Reconstruction Programs in Indonesia and Sri Lanka
USAID's planned reconstruction efforts in Indonesia and Sri Lanka include
its signature projects, such as road and bridge construction; small-scale
infrastructure projects, such as rebuilding schools and clinics; technical
assistance for good governance; and transition assistance to improve
survivors' livelihoods and, in Indonesia, to build houses. In addition,
USAID, through a transfer of funds to the Department of the Treasury, is
funding debt relief to the governments of Indonesia and Sri Lanka; in
exchange for deferral of a portion of their debt, both governments agreed
to use the resources freed by debt deferral for relief and
reconstruction-related programs (see app. II for a more detailed
description of this aspect of the program). Table 3 shows the funds
budgeted for ongoing and planned U.S. reconstruction assistance in
Indonesia and Sri Lanka.
Table 3: USAID Funds Budgeted for Tsunami Reconstruction Projects in
Indonesia and Sri Lanka
Dollars in millions
Project description Indonesia Sri Lanka
Signature infrastructure $245 $35
Transition assistance 59 17
Small-scale infrastructure 29 15
Technical assistance for good governance 10 8
Other projects and operating expenses 6 10
Total $349 $85
Source: USAID.
Initial USAID plans call for completing its nonsignature activities in
both countries by September 2007 and its signature projects in Indonesia
and Sri Lanka by September 2009 and March 2008, respectively. Section 4102
of the supplemental appropriations act requires that, beginning in
December 2005, the Secretary of State report to Congress every 6 months on
tsunami-related progress, expenditures, and schedules. The report due in
December 2005 was provided to Congress on March 22, 2006. Figure 3 shows
USAID's projected timeline for completing its tsunami reconstruction
programs in Indonesia and Sri Lanka.
Figure 3: Projected Timeline for USAID Tsunami Reconstruction Programs in
Indonesia and Sri Lanka
USAID Reconstruction Programs in Indonesia and Sri Lanka Have Begun, but
Some Project Costs and Schedules May Exceed Initial Projections
USAID has obligated some, and expended small percentages, of its
reconstruction funding in both countries and has initiated some of its
planned activities. However, USAID may have difficulty completing its
reconstruction projects-particularly its large-scale signature
projects-within initial cost estimates and schedules because of, among
other factors, increased demand and higher costs for construction
materials and labor in both Indonesia and Sri Lanka.
USAID Has Begun Reconstruction Efforts in Indonesia, but Several Factors
May Increase Costs and Delay Schedules
In Indonesia, USAID has begun many of the reconstruction projects that it
plans to complete by September 2007. USAID has obligated about one-third,
and expended a small percentage, of the funding budgeted for
reconstruction in that country. In addition, USAID has begun to design,
and performed preliminary site work on, a 3-mile segment of its
large-scale signature infrastructure project, a 150-mile paved road;
however, because of a variety of factors, the overall road construction
project may overrun cost and time estimates. Similarly, USAID is currently
planning and designing its small-scale infrastructure projects and has
begun its transition assistance projects, both of which may also exceed
cost and schedule projections.
USAID Has Obligated about One-third and Expended a Small Percentage of
Reconstruction Funds in Indonesia
As of January 31, 2006, USAID had obligated $111 million (32 percent) and
expended $9 million (3 percent) of the $349 million budgeted for its
reconstruction projects in Indonesia (see table 4).9 These activities
include the signature road construction, small-scale infrastructure
construction, technical assistance for good governance, and transition
assistance.
Table 4: USAID's Indonesian Reconstruction Activities and Funding, as of
January 31, 2006
Dollars in
millions
Project Funds Funds obligated Funds expended Projected
description budgeted (percentage of (percentage of completion
funds budgeted)a funds date
budgeted)b
Signature road $245 $35 (14) $1c (0) September
construction 2009
Transition 59 49 (83) 6 (10) September
assistance 2007
Small-scale 29 15 (52) 0 (0) September
infrastructure 2007
construction
Technical 10 10 (100) 1 (10) September
assistance for 2007
good governance
Other projects and 6 2 (33) 1 (17) September
operating expenses 2007
Total $349 $111 (32) $9 (3)
Source: GAO analysis of USAID data.
aGenerally, an obligation is a definite commitment that creates a legal
liability of the U.S. government for the payment of goods and services
ordered or received ( GAO-05-734SP , p. 70). Consistent with 31 U.S.C.
1501 defining when an agency can record an obligation, USAID policy is to
treat as an obligation the bilateral agreements it makes with other
countries to deliver assistance. However, for purposes of this report,
obligations are defined as amounts of orders placed, contracts awarded,
services received, and similar transactions during a given period that
will require payments during the same or future period. USAID labels these
actions subobligations.
bExpenditures are defined as the issuance of checks, disbursement of cash,
or electronic transfer of funds to liquidate a federal obligation.
cUSAID plans to award the signature road construction contract by
September 2006 and expects construction to take 3 years. As is normal
practice in administering construction contracts, funds will be expended
incrementally over this period as segments of work are completed.
USAID Has Started Indonesian Signature Road Project but May Encounter Cost
and Time Overruns
USAID awarded an initial contract and began work on a segment of its
signature road construction project in Indonesia in August 2005, but,
owing to various factors, the project may overrun initial cost estimates
and schedules. The proposed project, budgeted at $245 million, consists of
building a 150-mile paved two-lane road and more than 100 bridges and
culverts along the western coast of Aceh Province on the island of
Sumatra, from the provincial capital of Banda Aceh to the city of
Meulaboh. The tsunami's impact destroyed or badly damaged much of the
original road, a vital transportation route for the region. USAID agreed
to reconstruct the road to support the Indonesian government's overall
reconstruction strategy, with the goal of helping to restore the economic
strength of the area and promoting the redevelopment of the affected
communities. According to an Indonesian government report, the road is key
to revitalizing the economy of Aceh Province and to successfully
initiating other reconstruction efforts. Figure 4 shows the approximate
route of the planned road and photos of damage caused by the tsunami.
Figure 4: Approximate Route of Planned USAID Signature Road Project in
Aceh Province, Indonesia
USAID plans to design and construct the signature road in three distinct
phases, with separate contracts for each phase. USAID also entered into
interagency agreements with USACE for technical support. In early 2005,
USACE and USAID conducted a preliminary assessment of site conditions and
prepared the cost estimate that USAID submitted to Congress. The three
phases for the signature road project are as follows (see app. III for
more details):
1.Maintain a rehabilitated 50-mile temporary segment and construct a short
segment. In August 2005, an Indonesian firm began maintaining a temporary
50-mile road segment, from Banda Aceh to Lamno, and designing and
constructing a new 3-mile segment. This maintenance work is intended to
ensure that the temporary segment, recently rehabilitated by the
Indonesian army, remains passable until permanent construction is
completed.
2.Design the signature road and supervise its construction. The second
contract, for designing most of the 150-mile road and supervising
construction work, was awarded to a U.S. firm in November 2005. The firm
will supervise construction of the 3-mile segment, develop plans and
specifications for the remaining 147 miles, and assist USAID in awarding
and supervising construction of the signature road.
3.Construct the signature road. USAID plans to award a third contract by
September 2006 to construct the 147-mile segment of the signature road.
However, several factors-limited site information, rising materials and
labor costs, and land acquisition issues-may increase the signature road
project's total costs and the difficulties of completing it within the
intended time frame.
o Limited site information. A joint USAID-USACE team initially assessed
conditions and developed a cost estimate for building the road.10 The
estimate was based on using undamaged sections of the existing road and
large segments of the temporary road placed by the Indonesian Army. A 20
percent contingency was included in the cost estimate because much of the
road's planned route was inaccessible, resulting in the team approximating
site conditions and developing plans based on their assumptions.11
However, actual costs may still exceed the estimate because plans for
routing the road have changed. According to USACE, current plans show that
large segments of the road are now planned to be placed along new
undeveloped routes-not along existing routes as initially planned. This
change is expected to result in the need for more earthwork and related
construction activities than originally anticipated.
o Rising costs. Increasing costs for materials and labor will also likely
affect the road construction project's overall cost. Demand for
construction labor and materials has risen dramatically in Aceh Province
and, according to USAID officials, will likely continue to rise. For
example, a USAID official reported that the price of fuel oil used for
construction equipment had risen more than 250 percent, from $0.17 per
liter in February 2005 to $0.60 per liter in December 2005. According to
the United Nations Development Program, posttsunami construction spending
in and around Aceh is expected to increase fortyfold from pretsunami
levels, from $50 million to $2 billion per year, and 200,000 additional
workers will be needed to meet construction demands.12 Because the demand
for skilled workers is greater than the number available, labor costs for
reconstruction projects requiring skilled workers may rise.
o Land acquisition. Awarding the signature road construction contract by
September 2006 may be difficult because of uncertainties regarding the
road alignment and acquiring the needed right-of-way. The alignment of the
new road will differ from the former road because, in some locations, the
former roadbed is either submerged or was rendered otherwise inaccessible
by the tsunami's impact. According to a USAID official, the design
contractor intends to propose a final road alignment to Indonesian
authorities by mid-May 2006. Once the alignment is approved, the
Indonesian government must coordinate with multiple jurisdictions to
obtain land. USAID helped establish a technical steering committee with
Indonesian government entities to facilitate land acquisition issues.
However, progress depends on the Indonesian government's timeliness in
acquiring the land and establishing right-of-way.
USAID expects to have more comprehensive cost estimates and schedule
projections for the signature road project in June 2006.
Other USAID Reconstruction Activities in Indonesia May Also Exceed Cost
and Schedule Projections
USAID has initiated other projects in Indonesia, some of which may exceed
initial cost and time estimates. These projects encompass small-scale
infrastructure, technical assistance for good governance, and transitional
assistance aimed at restoring livelihoods.
o Small-scale infrastructure. USAID has begun reconstructing schools,
clinics, water distribution systems, and small port facilities. Other
projects will assist communities in preparing solid waste management
plans, helping rebuild business districts, and constructing markets. Two
planned projects include helping to build a teacher-training facility in
Banda Aceh and rehabilitate the fishing industry by constructing port
facilities, fishing vessels, and ice-making facilities. According to the
USAID official responsible for overseeing the project, the
teacher-training facility project is unlikely to begin as initially
scheduled because of the time it has taken to plan and assess site
conditions. He added that, even if the project does begin on time, the
schedule is unlikely to be achieved, and because of rapidly escalating
costs for materials and labor, the project is at risk of exceeding its
budget.
o Technical assistance for good governance. USAID technical assistance and
good governance projects in Indonesia are aimed at enhancing
reconstruction efforts by facilitating the peace process. The projects
include paying consultants to work with the Indonesian government's
Rehabilitation and Reconstruction Agency (BRR), the Audit Board of the
Republic of Indonesia (BPK), the supreme audit institution, and local
communities.
o Transition assistance. USAID has begun its transition assistance,
including rebuilding shelters and helping restore livelihoods through
microenterprise support. However, USAID may face difficulties meeting its
shelter construction cost and schedule estimates. For example, 2 months
after agreeing to build 1,000 houses for $4,500 each, the NGO implementing
the project informed USAID that, because of escalating prices for fuel,
building materials, and labor, the unit cost had risen more than 60
percent, to $7,000. The NGO has tentatively agreed to reduce its budget
for other USAID-funded activities, such as upgrading an ice-making
facility to assist the fishing industry, and will attempt to solicit
private donations to meet its housing commitment.
USAID's Sri Lankan Construction Activities May Face Cost and Time
Overruns, but Other Programs Are on Schedule
USAID has begun many of its longer term reconstruction efforts in Sri
Lanka. By the end of 2005, the agency had obligated 100 percent of its
funds and expended approximately 2 percent of reconstruction funding.
USAID has started its signature project, which includes building a bridge
and other infrastructure, addressing coastal management issues, and
constructing vocational education facilities. However, primarily because
of shortages of labor and materials, the project faces potential cost and
schedule overruns even though it is currently slightly ahead of schedule.
USAID has also begun its small-scale infrastructure, governance, and
transition assistance projects.
USAID Has Obligated All and Expended a Small Percentage of Reconstruction
Funds in Sri Lanka
As of January 31, 2006, USAID had obligated all $85 million (100 percent)
and expended about $2 million (2 percent) of the funds budgeted for
longer-term reconstruction efforts in Sri Lanka (see table 5).
Table 5: USAID's Sri Lankan Reconstruction Activities and Funding, as of
January 31, 2006
Dollars in
millions
Project Funds Funds obligated Funds expended Projected
description budgeted (percentage of (percentage of completion
funds budgeted)a funds date
budgeted)b
Signature project $35 $35 (100) $1 (3) March 2008
Small-scale 15 15 (100) 1 (7) September
infrastructure 2007
Technical 8 8 (100) 0 (0) September
assistance for 2007
good governance
Transition 17 17 (100) 0 (0) September
assistance 2007
Other projects and 10 10 (100) 0 (0) September
operating expenses 2007
Total $85 $85 (100) $2 (2)
Source: GAO analysis of USAID data.
aGenerally, an obligation is a definite commitment that creates a legal
liability of the U.S. government for the payment of goods and services
ordered or received ( GAO-05-734SP , p. 70). Consistent with 31 U.S.C.
1501 defining when an agency can record an obligation, USAID policy is to
treat as an obligation the bilateral agreements it makes with other
countries to deliver assistance. However, for purposes of this report,
obligations are defined as amounts of orders placed, contracts awarded,
services received, and similar transactions during a given period that
will require payments during the same or future period. USAID labels these
actions subobligations.
bExpenditures are defined as the issuance of checks, disbursement of cash,
or electronic transfer of funds to liquidate a federal obligation.
USAID Has Started Sri Lankan Signature Project but Faces Rising Costs and
Labor Shortages
USAID's signature project in Sri Lanka began in September 2005, when the
agency signed a contract with a major U.S. design and construction
management firm. All components of the project-particularly the
construction of a bridge at Arugam Bay in eastern Sri Lanka, where tourism
is a vital component of the local economy-are consistent with the
government of Sri Lanka's strategic reconstruction plan.13 The signature
project has three components (see fig. 5 for the planned locations).
1.Construction of a bridge and other infrastructure. These activities,
largely focused on the Arugam Bay area of eastern Sri Lanka, include
rebuilding a bridge spanning the bay and constructing a water treatment
facility for nearby towns. Three ports in southern Sri Lanka will also be
rehabilitated.
2.Provision of coastal management training. A management organization will
provide training in construction and tourism-related skills that USAID
considers essential to rebuilding and reactivating the economy in the
Arugam Bay area. As of December 31, 2005, the contractor had completed
some assessments and plans, but construction work had not yet begun.
3.Construction of vocational education facilities. This component of the
project includes constructing two schools and reconstructing approximately
eight others.
Figure 5: Planned Locations of USAID's Sri Lankan Signature Project
As in Indonesia, several factors may hamper the completion of USAID's
signature project in Sri Lanka.
o Limited availability and rising costs of materials and skilled labor.
During our visit to Sri Lanka in July 2005, we learned that, as in
Indonesia, the increase in construction had led to limited availability of
materials and labor and resulted in higher costs. For example, one USAID
report noted that the cost of a brick had doubled and similar increases
had occurred for cement and lumber. USAID included $2.2 million in the
project budget to cover possible materials and labor increases, but USAID
officials acknowledged this extra funding may be insufficient to cover
costs.
o Lengthy planning and design of Arugam Bay bridge and other
infrastructure. Although USAID signed the contract for the planning and
design of the bridge in September 2005, construction of the bridge is not
expected to begin until August 2006. Although USAID is slightly ahead of
schedule, the length of time required to correctly plan and design the
signature bridge project at Arugam Bay may challenge the agency's efforts
to complete the bridge by March 2008, the projected deadline. Also,
construction of a water treatment facility experienced delays due to
technical issues that arose during the preliminary assessment.
Other USAID Tsunami Reconstruction Projects in Sri Lanka Are Under Way and
Most Are Currently on Schedule
USAID has made some progress in its other projects in Sri Lanka and
expects to complete them by September 2007. These projects include
small-scale infrastructure, technical assistance and good governance, and
transition assistance aimed at encouraging economic activity.
o Small-scale infrastructure. USAID has leveraged other donors' funds to
increase the scope of some small-scale infrastructure projects, which
include the following:
o USAID entered into a public-private alliance to build playgrounds, some
of which include accessibility for the disabled. USAID contributed $0.5
million and attracted $1.5 million from two private organizations,
increasing the number of playgrounds planned from 20 to 85.
o Another project involves rehabilitating community markets and restoring
access to potable water. These activities are projected to be completed by
mid-2006.
o Technical assistance and good governance. USAID will provide technical
assistance and promote good governance in Sri Lanka. USAID has also
budgeted funds to strengthen the Sri Lankan government's audit capacity.
In addition, USAID is providing funds to promote accountable local
governance in tsunami-affected regions.
o Transition assistance. USAID is providing assistance to help tsunami
survivors transition from camps to permanent communities. Activities
under way include providing businesses with credit and vocational
training. We visited a vocational school that USAID was rehabilitating and
equipping with computers and found many students who were learning new
skills; the principal reported that enrollment had also increased
dramatically.
USAID Established Financial and Technical Oversight Measures but Has Not
Filled Some Needed Technical Oversight Positions
To establish financial oversight of its reconstruction programs in
Indonesia and Sri Lanka, USAID has augmented its standard financial
controls with external and internal audits and efforts to strengthen local
accountability. To establish technical oversight, USAID has reassigned and
hired experienced staff, such as engineers, and acquired additional
technical expertise through interagency agreements. However, USAID has not
filled some positions that it considers critical to technical oversight.
USAID Has Established Financial Oversight Mechanisms in Indonesia and Sri
Lanka
For its reconstruction programs in Indonesia and Sri Lanka, USAID plans to
augment its standard financial controls for development assistance
programs through additional internal and external audits. USAID also plans
to strengthen Indonesia's and Sri Lanka's auditing capacities.
USAID Plans Internal and External Audits
In addition to its required financial controls, which include preaward
surveys of prospective award recipients and financial audits, USAID plans
to arrange for additional audits.14 According to agency officials, USAID
intends to sign an agreement with the Defense Contract Audit Agency to
concurrently audit funding for USAID's signature road construction project
in Aceh, Indonesia. USAID officials told us the agency is undertaking this
work because of the additional risk inherent in large construction
projects.
USAID's IG is also providing oversight of reconstruction programs. The IG
is currently auditing the signature road construction project in Indonesia
and plans to conduct three additional audits, two in Indonesia and one in
Sri Lanka.15 The IG is undertaking this work with funding included in the
May 2005 emergency supplemental legislation.
USAID Intends to Strengthen Indonesian and Sri Lankan Audit Capacities
USAID plans to strengthen the capacities of the BPK, the Indonesian
government's supreme audit institution. USAID will provide funding for
technical assistance and training to the BPK to enhance its ability to
audit donor funds administered by Indonesian government ministries.
In Sri Lanka, USAID plans to strengthen the capacities of Sri Lankan
government organizations. USAID has hired a consulting firm to work with
the Sri Lankan Office of the Auditor General. USAID will also support Sri
Lanka's Commission to Investigate Allegations of Bribery and Corruption.
This work will focus on training and capacity development and is intended
to reduce corruption and ensure the proper use of reconstruction funds.
Also, in April 2005, USAID participated in an international conference in
Jakarta on the importance of managing tsunami assistance funds. The
conference, funded by the Asian Development Bank and hosted by the BPK,
was intended to highlight the importance of accounting for the large
amounts of tsunami reconstruction funds. The conference was attended by
representatives of donor countries' supreme audit institutions, including
GAO, and representatives of recipient countries, including Indonesia and
Sri Lanka.
USAID Has Taken Steps to Establish Technical Oversight but Has Not Filled
Some Needed Positions
To establish technical oversight for its reconstruction programs in
Indonesia and Sri Lanka, USAID has relocated experienced staff, plans to
hire other staff locally, and has acquired additional expertise through
agreements with other U.S. agencies. However, it has not filled all needed
technical oversight positions.
In Indonesia, USAID reassigned two experienced engineers to share
responsibilities as the cognizant technical officers and an experienced
project manager to assist with the signature road project. A USAID
engineer was reassigned and another hired to work in Sri Lanka to oversee
the signature infrastructure projects. USAID also plans to hire an
additional engineer locally when construction in Sri Lanka commences.
In addition, USAID has acquired expertise through three interagency
agreements with USACE, totaling $2.9 million, to provide technical
assistance for its signature projects, develop scopes of work and cost
estimates, and conduct environmental reviews in Indonesia and Sri Lanka.
USACE efforts to date include assembling a team that assessed the existing
conditions, developed cost estimates, prepared acquisition plans, and
performed short-term on-site project management in planning the signature
projects. Under the most recent interagency agreement, USACE is to provide
technical assistance to USAID in Indonesia through the award of the road
construction contract, expected in September 2006.
As of March 2006, USAID had not filled several positions critical to
implementing its construction activities in Indonesia and Sri Lanka.
Although USAID hired an engineer to oversee the signature road
construction project in Indonesia, the engineer was not expected to begin
work until May 2006. In addition, USAID had added two of the three
engineers needed to oversee infrastructure construction activities in Sri
Lanka.16
Several Challenges Confront Indonesian and Sri Lankan Reconstruction
Programs
In implementing its tsunami reconstruction programs in Indonesia and Sri
Lanka, USAID faces several key challenges, some of which it has taken
steps to address. These include working in regions with long-standing
civil conflicts, coordinating with host governments and NGOs, and ensuring
adequate management of regular programs.
Civil Conflicts Threaten Reconstruction Efforts
Long-standing civil conflicts could affect USAID's ability to complete
reconstruction projects within projected time frames in Indonesia, despite
recent advances in a peace process, and have limited USAID's ability to
provide assistance in some tsunami-affected regions in Sri Lanka.
Indonesian Factions Have Signed Peace Accord, and Some USAID Projects Are
Supporting Reconciliation
Owing to a 30-year conflict between a separatist group and the Indonesian
government, the entire province of Aceh, Indonesia, was under a state of
emergency prior to the tsunami and access by outsiders was limited.
However, within days of the disaster, the Indonesian government lifted the
state of emergency to allow access by donors and relief organizations. In
August 2005, the separatists signed a peace accord, which both sides
appear committed to honoring. However, an NGO monitoring the accord has
cautioned that the difficulties of ending the 30-year-old conflict should
not be underestimated.17
To address this challenge, USAID is implementing peace-building
initiatives in Aceh Province. For example, according to USAID officials,
former combatants are working on construction crews rebuilding community
water systems.18 USAID's aim is to provide income-generating opportunities
to former rebel soldiers, thereby strengthening the peace accord.
Deteriorating Sri Lankan Security May Affect Some Programs, but USAID Is
Working to Promote Reconciliation
A conflict between the Sri Lankan government and a separatist group, which
began in 1983, has increased since the tsunami and could impact
implementation of some USAID reconstruction programs. Since the tsunami,
the number of violent incidents has risen dramatically, primarily in
northern and northeastern Sri Lanka, which are largely under separatist
control. USAID was not directly implementing development activities in
these areas prior to the tsunami, and it is not planning any
tsunami-related projects in these areas at present.19 USAID officials
stated that they expect little disruption to most of its reconstruction
efforts in other parts of the country. However, in the eastern Sri Lankan
region near the separatist-controlled area, several USAID activities
involving construction of small-scale infrastructure have been delayed
because of increased violence. USAID officials stated that the signature
construction project could also experience delays due to the conflict.
As in Indonesia, USAID has incorporated peace-building initiatives into
some of its Sri Lankan tsunami reconstruction efforts. One such project,
implemented by USAID's Office of Transition Initiatives (OTI), promotes
participation by people of different ethnicities and religions by
requiring that they work together toward a shared goal, such as
rehabilitating a school. USAID has also dedicated $2.5 million for a
reconciliation program in which community members will be trained in
mediation skills.
Coordination with Governments and Nongovernmental Organizations Has Been
Difficult, but USAID Is Taking Steps to Improve Coordination
USAID has encountered challenges in coordinating its reconstruction
efforts with the governments of both countries. In addition, USAID has
faced coordination problems with NGOs. To address these challenges, USAID
has taken steps to improve coordination, avoid duplication of efforts, and
minimize gaps in providing assistance to survivors.
Indonesian Government's Coordination Difficulties Have Challenged USAID
USAID has faced challenges coordinating its reconstruction activities with
the Indonesian government. In April 2005, the Indonesian government
established the BRR to coordinate the international response to the
tsunami. Since its creation, BRR has used the Indonesian government's
master plan for reconstruction to attempt to control and track
organizations involved in reconstruction and has created a publicly
accessible database that, according to USAID, is expected to be fully
operational by mid-2006. However, according to USAID officials, BRR lacks
the capacity for effectively registering donors and coordinating projects.
The lack of coordination has resulted in the overlapping of USAID projects
with other donors' projects and in gaps in aid to survivors. A USAID
official told us that, in one instance, BRR approved similar water and
sanitation project proposals submitted by USAID and an international NGO.
USAID negotiated directly with the NGO over which agency would carry out
the project and eventually resolved the differences without BRR
involvement. In addition, a United Nations official told us that many
donor organizations are providing assistance to communities along the
coastal road near the capital city of Banda Aceh but that survivors in
numerous harder-to-reach areas down the coast and on nearby islands have
received little or no aid.
To strengthen BRR's capacity to coordinate and oversee reconstruction
efforts, USAID is providing technical assistance and training. However,
according to USAID officials, until BRR is able to fully develop its
capacities, USAID and other donor organizations will face difficulty in
coordinating projects and outreach.
Sri Lanka's Organizational Problems and Policy Changes Have Created
Challenges for USAID
Organizational inefficiency and policy shifts in Sri Lanka have led to
coordination problems for USAID. In January 2005, the Sri Lankan
government created a Task Force for Rebuilding the Nation (TAFREN),
charging it with assessing needs and donor coordination. The organization
was expected to operate for 3 to 5 years. In its first months of
operation, TAFREN developed a needs assessment that drew on World Bank,
Asian Development Bank, and other organizations' information and analyses.
TAFREN used the assessment to attempt to avoid duplication but lacked the
capacity to ensure that donors registered and coordinated with TAFREN. In
addition, with donor support, TAFREN began work on a publicly accessible
database to track reconstruction projects that is expected to be
functional by mid-2006. In November 2005, the newly elected Sri Lankan
president disbanded TAFREN and announced the creation of a new
coordination mechanism, further increasing potential coordination
challenges; however, development of the database is continuing.
When we visited Sri Lanka in July 2005, USAID officials told us that
TAFREN had taken little action to coordinate donor efforts. They added
that TAFREN had been slow to react and lacked decision-making authority.
Nonetheless, USAID moved forward with some projects and kept TAFREN aware
of its activities. In addition, the Sri Lankan government's inconsistent
policies on rebuilding in coastal areas have affected the progress of some
USAID reconstruction programs. Soon after the tsunami, the President of
Sri Lanka announced that the Sri Lankan government would begin to enforce
a valid, but previously unenforced, law that banned construction within a
100- to 200-meter coastal "buffer zone." This policy has affected the
progress of some USAID projects, such as rehabilitating community markets
and building schools. In late 2005, the Sri Lankan government began
allowing construction in certain coastal areas, but as of late 2005, many
survivors were still awaiting approval to rebuild their homes.
Poor Coordination with Nongovernmental Organizations Has Caused Problems
In both Indonesia and Sri Lanka, USAID has encountered challenges in
coordinating with some of the scores of NGOs operating in the countries
since the tsunami. After the disaster, many NGOs received large amounts of
private donations, enabling them to conduct their work without funding
from bilateral and multilateral organizations. As a result, some NGOs
began implementing reconstruction projects with minimal coordination with
such organizations or with the host governments.
In Indonesia, coordination with NGOs was particularly difficult during the
emergency relief phase but has generally improved since the establishment
of BRR, which currently permits only approved NGOs to participate in
reconstruction projects. However, with limited resources, BRR cannot be
sure it is aware of all NGOs activities. For example, according to UN
officials, an international NGO constructed new houses and water and
sanitation systems near the Indonesian coastline without coordinating with
the Indonesian government or other donors to ensure that the housing could
be connected to local water and sanitation infrastructure. Because of
tsunami-altered water tables and topography in some areas, those
communities' sanitation systems overflowed during certain tidal
conditions, inundating the area with untreated sewage.
Coordination with NGOs in Sri Lanka has also been problematic, despite
TAFREN's efforts. For example, several NGOs and private donor
organizations provided new fishing boats to fishermen. However, according
to a bilateral donor official, several communities received too many
fishing boats, and as a result, some coastal areas were depleted of large
numbers of fish. On the other hand, coordination in southern Sri Lanka has
been more effective than in other parts of the country. There, USAID,
NGOs, and other donors agreed that certain organizations would have
responsibility for different districts or for different types of
assistance, such as housing. Coordination meetings are normally held
weekly and TAFREN officials periodically attended.
USAID's Tsunami Response Has Created Challenges for Non-Tsunami-Related
Programs
The urgency to quickly plan and implement USAID's tsunami-related program
activities in Indonesia and Sri Lanka may affect the management of some of
non-tsunami-related projects. In Indonesia, USAID officials are concerned
that the focus on tsunami reconstruction activities in Aceh could limit
oversight of regular programs, leading them to rely more heavily on
information provided by implementing partners. To mitigate this potential
challenge, USAID added two direct-hire U.S. staff to fill two key
positions in Aceh.
In Sri Lanka, USAID is experiencing similar challenges. For example, a
USAID activity to reconstruct small-scale infrastructure was suspended so
that staff could focus on the tsunami relief. Later, the program was
reactivated, although USAID did not add staff. As a result, USAID's
monitoring of some of regular program activities diminished. USAID
reported that it reduced its efforts to involve the community in the
program, resulting in repeated additional visits to ensure the program's
successful completion. To address this issue, USAID hired additional staff
to ensure that ongoing programs are not neglected.
Conclusions
The U.S. government has played an important role in helping Indonesia and
Sri Lanka recover from the devastating 2004 tsunami. USAID and other
agencies provided immediate assistance to survivors and work has begun on
several high-profile infrastructure projects. However, since USAID made
its initial projections in the spring of 2005, materials, labor, and fuel
costs have increased substantially in both countries. In addition, changes
to project scope and ongoing design work for key construction efforts may
reveal actual conditions that differ from initial assessments, potentially
leading to higher than planned costs. This information suggests that the
cost contingencies included in the initial estimates may be insufficient.
Congress needs current information on projected costs and schedules to
provide appropriate oversight.
Recommendation for Executive Action
On the basis of our initial review of USAID's design and implementation of
its tsunami reconstruction programs in Indonesia and Sri Lanka, especially
regarding its signature road project in Indonesia and bridge project in
Sri Lanka, we recommend that the Secretary of State, in the department's
required semiannual report to Congress due in June 2006, provide updated
cost estimates and schedules obtained from USAID. If the updated
information differs substantially from initial projections, the report
should also include alternative cost estimates, schedules, and project
scopes and the need for additional sources of funding, if necessary.
Agency Comments and Our Evaluation
At our request, USAID and the Department of State provided written
comments and technical suggestions and clarifications on a draft of this
report. (See app. IV for State's written comments and app. V for USAID's
written comments.) USAID stated that the report findings accurately
describe the tsunami program situation and the potential broad challenges
for achieving its reconstruction goals. USAID also provided information on
additional steps the agency intends to take to mitigate the potential for
increased costs and schedule delays, as well as an explanation of how it
obligates funds, which we incorporated into the report. The Department of
State agreed to fully implement our recommendation. We have also
incorporated technical suggestions and clarifications from USAID and
State, as appropriate.
We also requested comments from the U.S. Army Corps of Engineers and the
Department of the Treasury. Although neither provided written comments,
both provided technical suggestions and clarifications that we have
incorporated, as appropriate.
We are sending copies of this report to interested congressional
committees as well as the Administrator, USAID; Commander, U.S. Army Corps
of Engineers; and the Secretaries of State and the Treasury. We will also
make copies available to others upon request. In addition, this report
will be available at no charge on the GAO Web site at http://www.gao.gov .
If you or your staff have any questions about this report, please contact
me at (202) 512-4128 or [email protected] . Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix VI.
David Gootnick, Director International Affairs and Trade
Objectives, Scope, and Methodology Appendix I
We were directed to monitor the delivery of U.S. reconstruction assistance
to the tsunami-affected countries through periodic visits. In this report,
we review (1) USAID's progress in providing longer-term reconstruction
assistance in Indonesia and Sri Lanka, (2) the extent to which the U.S.
Agency for International Development (USAID) has established financial and
technical oversight for its tsunami reconstruction programs in those
countries, and (3) any challenges that USAID faces in implementing the
Indonesian and Sri Lankan programs and any steps the agency has taken to
address these challenges.
To determine the progress of USAID's reconstruction programs in Indonesia
and Sri Lanka, we met with officials of USAID's Bureau for Asia and the
Near East and Office of Foreign Disaster Assistance and with the U.S. Army
Corps of Engineers (USACE). In addition, to examine issues involving the
U.S. debt relief component of the assistance to Indonesia and Sri Lanka,
we conducted work at the headquarters offices of U.S. Departments of State
and the Treasury. We traveled to Indonesia in August and December 2005 and
Sri Lanka in July 2005. In Jakarta and Banda Aceh, Indonesia, and in
Colombo, Sri Lanka, we reviewed USAID's strategies, work plans, and
applicable contracts, grants, and cooperative agreements and discussed
with USAID and other U.S. officials how their respective programs
addressed reconstruction needs. During our visits to Indonesia, we
reviewed USAID's activities in tsunami-affected areas, including the $245
million, 150-mile signature road construction project in Banda Aceh. In
many instances, we visited and photographed sites before the projects
began, at locations where USAID-funded maintenance work was ongoing, or
where USAID-funded construction had begun. During these trips, we
interviewed representatives of contractors, nongovernmental organizations
(NGO), government ministries, and other entities responsible for
day-to-day project implementation. We also interviewed many of the
intended recipients of U.S. assistance, asking about the tsunami's impact
on their homes, livelihoods, and communities and about the effectiveness
of U.S.-funded projects in helping them rebuild infrastructure, restore
their livelihoods, and obtain basic services. Finally, we reviewed prior
GAO reports on USAID disaster assistance efforts.
To assess USAID's financial and technical oversight, we reviewed USAID's
financial procedures and discussed the procedures with cognizant USAID
officials. In Indonesia, a licensed GAO professional engineer met with
USAID and USACE engineers and other technical staff to discuss the level
of technical oversight and planning. We also coordinated with USAID's
Office of the Inspector General in Washington, D.C., and the Philippines
to minimize duplication of efforts and to share information.
To determine the challenges that USAID faces in implementing its program,
we discussed oversight procedures and financial systems with officials of
host governments, multilateral and bilateral donors, and NGOs involved in
reconstruction efforts. We also met with host government officials,
including national and local officials, to discuss their procedures for
ensuring that donor activities did not conflict or overlap and their views
on donor coordination.
We assessed the reliability of funding and expenditure data compiled and
generated by USAID's Office of the Controller in Washington, D.C., and by
the USAID missions in Indonesia and Sri Lanka. We met with USAID officials
to review the internal controls for the collection and review of data,
comparing the consolidated reports with mission-specific reports, and
discussed relevant data reliability issues with cognizant agency
officials. In addition, we interviewed knowledgeable USAID officials about
the systems and methodology they use to verify the completeness and
accuracy of the data. Finally, we reviewed relevant reports from the USAID
Office of the Inspector General and several GAO reports of USAID disaster
reconstruction program funding since 1999. None of these sources noted any
significant discrepancies or concerns about the reliability of USAID's
data. Based on our comparison of data generated from different USAID
sources at USAID headquarters and mission, we found that the sources
generally corroborated each other, increasing our confidence that the data
were reliable. We determined that USAID's funding and expenditure data
were sufficiently reliable for our analysis.
Debt Relief to Indonesia and Sri Lanka Appendix II
To make resources available for the Indonesian and Sri Lanka governments
to address humanitarian and reconstruction needs after the tsunami, and at
the request of these governments, the United States and other
international donors agreed to defer the payment of some eligible debt the
Indonesian and Sri Lankan governments were due to pay in 2005.1 Both
countries agreed to use the debt relief to help recover from the tsunami's
extensive damage, estimated at $4.5 billion in Indonesia and $1.5 billion
in Sri Lanka.2
Debt Relief Provided by the United States
With funding appropriated in the emergency supplemental legislation
enacted in May 2005, the United States provided $20.1 million and $3.2
million to cover the U.S. budget costs of debt deferral for Indonesia and
Sri Lanka, respectively. Using these funds, the United States rescheduled
about $190 million in 2005 debt payments from Indonesia and about $40
million in 2005 debt payments from Sri Lanka.
The U.S. debt relief agreements with Indonesia and Sri Lanka require
independent outside evaluations to ensure that the countries comply with
the terms of the agreements that the resources freed by the Paris Club
debt consolidation and deferral will benefit directly the people affected
by the tsunami. According to the Department of the Treasury, the benefit
from the international debt rescheduling is $236 million for Indonesia and
$34 million for Sri Lanka.3 According to our analysis, the net benefit of
the debt rescheduling for Indonesia and Sri Lanka is about 9 percent and
11 percent, respectively, of the amount of the debts rescheduled. The
United States will rely on periodic reports from each country's regular
consultations with the International Monetary Fund, the World Bank, and
the Asian Development Bank to measure compliance with the agreements,
according to Department of State officials. The officials stated that both
countries are likely to meet their commitments to use the resources freed
by the Paris Club debt consolidation and deferral to benefit directly the
people affected by the tsunami.
Debt Relief Provided by International Creditors
The total amounts of bilateral international debt rescheduled in 2005 for
Indonesia and Sri Lanka were approximately $2.703 billion and $323
million, respectively.4 Indonesia did not seek or receive any debt
deferral from multilateral creditors. Sri Lanka sought a debt deferral
from the International Monetary Fund, which granted a 1-year extension for
debt repayments of about $106 million for its repayment expectations due
in 2005. Multilateral debt service in 2005 was $4.3 billion and $294
million, accounting for 55 percent and 48 percent of total debt service,
before the debt reschedulings for Indonesia and Sri Lanka, respectively.
Rescheduling international debt provided immediate budgetary savings for
both countries in 2005, but both countries' debt burden will increase when
payments restart in 2006. Both countries agreed to repay the rescheduled
debt in seven equal semiannual installments, starting December 1, 2006,
and ending December 1, 2009. Table 6 shows the impacts of rescheduling all
bilateral debt on the budgets of the governments of Indonesia and Sri
Lanka for fiscal years 2005 through 2009.
USAID's Three-Phase Signature Road Project in Aceh Province,
Indonesia Appendix III
USAID developed plans to implement its signature project in three phases
(see table 7).
Table 7: Scope and Status of Indonesian Signature Road Project, as of
December 31, 2005
Contract Scope Status
Phase 1: o Repair and maintain existing o Contract was awarded to
50-mile segment from Banda an Indonesian firm (PT
Repair, Aceh to Lamno. Wijaya Karya) on August
maintenance, and 23, 2005.
priority o Design and construct a short
construction priority (3-mile) segment o Contract cost is $12.8
between Banda Aceh and Lamno. million.
o Perform the design work on a o Maintenance and repair
cost-plus-fixed-fee basis. work is ongoing; route is
passable.
o Perform the maintenance and
construction work on a o Design of the new 3-mile
fixed-price basis. road segment is under way.
o Construction of new
3-mile road segment is
expected to be completed
by August 2006.
Phase 2: o Design the new road (except o Contract was awarded to
for the 3-mile priority a U.S. firm (Parsons
Design and segment). Global Services Inc.) on
construction November 10, 2005.
supervision o Supervise construction.
o Estimated contract cost
o Perform services on a is up to $34.9 million;
cost-plus-fixed-fee basis. current obligation is $20
million.
o Design work is ongoing
and scheduled to be
completed in June 2006.
o Contractor is required
to prepare an updated
estimate of construction
costs.
o Construction management
services are being
provided on the priority
road segment and will
continue in September
2006, when the contract
for construction of Banda
Aceh to Meulaboh road is
awarded.
Phase 3: o Placement of new road along o Construction contract is
a 150-mile route from Banda expected to be awarded in
Construction Aceh to Meulaboh (except for September 2006, and
the portion covered under the construction is to be
priority segment). completed by September
2009.
o Construction will be done on
a fixed-price basis according
to the plans and
specifications of the design
prepared under separate
contract.
Source: GAO synthesis of USAID information.
Comments from the Department of State Appendix IV
Comments from the U.S. Agency for International Development Appendix V
The following are GAO's comments on the U.S. Agency for International
Development's letter dated March 30, 2006.
GAO Comments
1.USAID states that it intends to use fixed-price contracts because the
contracts provide the maximum incentive for the contractor to control
costs and perform effectively in order to complete the work on time. We
agree that fixed-price contracts can be effective in controlling costs by
shifting performance risk to the contractor. However, as USAID also notes
and we point out in the report, costs may increase due to other
circumstances, such as site conditions being different than expected and
the potentially lengthy process of acquiring land. As our recommendation
indicates, it is important that Congress be kept informed of cost and
expenditure information in order to effectively oversee expenditures of
U.S. funds.
2.We modified the text of footnote 5 and added explanatory notes to tables
4 and 5 to reflect USAID's comments regarding obligations and expenditures
of funds.
GAO Contact and Staff Acknowledgments Appendix VI
David Gootnick, (202) 512-4128 or g [email protected].
In additional to the contact named above, Phillip Herr, George Taylor,
Michael Armes, Ming Chen, Reid Lowe, Michael Maslowski, and Thomas Zingale
made key contributions to this report.
(320359)
www.gao.gov/cgi-bin/getrpt? GAO-06-488 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact David Gootnick at (202) 512-3149 or
[email protected].
Highlights of GAO-06-488 , a report to congressional committees
April 2006
FOREIGN ASSISTANCE
USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key
Projects May Exceed Initial Cost and Schedule Estimates
In December 2004, an earthquake off the coast of Indonesia caused a
tsunami that left more than 230,000 people killed or missing and presumed
dead and an estimated $10 billion in damage in 12 countries. In May 2005,
Congress appropriated $908 million for relief and reconstruction. U.S.
emergency relief efforts budgeted at $327 million were nearly completed in
December 2005. The U.S. Agency for International Development (USAID) plans
to spend $496 million on longer-term reconstruction, focusing on Indonesia
and Sri Lanka, with the remaining $85 million allocated to other U.S.
agencies. GAO has been mandated to monitor USAID's reconstruction efforts.
In this report, GAO describes USAID's (1) progress in Indonesia and Sri
Lanka, (2) financial and technical oversight measures, and (3)
implementation challenges.
What GAO Recommends
GAO recommends that the Secretary of State, in the department's semiannual
report due to Congress in June 2006, provide updated cost estimates and
schedules. If the updated information differs substantially from initial
projections, the report should also include alternative project scopes and
the need for additional sources of funding, if necessary. The Department
of State agreed to fully implement this recommendation.
USAID has beguna number of reconstruction activities in Indonesia and Sri
Lanka. As of January 31, 2006, approximately 8 months after Congress
appropriated funding, USAID had obligated $111 million (32 percent) and
expended $9 million (3 percent) of the $349 million budgeted for
reconstruction in Indonesia, and it had obligated all and expended $2
million (2 percent) of the $85 million budgeted for reconstruction in Sri
Lanka. However, rising prices of materials and labor in both countries may
increase costs for many construction efforts, including USAID's
"signature" projects, which are intended to generate greater visibility
for U.S. assistance. In addition, revisions to initial assessments of site
conditions may challenge USAID's ability to finish its signature project
in Indonesia-a 150-mile road in Aceh Province-by September 2009, the
estimated completion date. In Sri Lanka, the time needed to complete
designs and plans may make it difficult to finish one part of USAID's
signature project-a bridge at Arugam Bay-by March 2008, although this
project is currently slightly ahead of schedule. USAID plans to complete
most of its other reconstruction projects, such as building schools and
restoring livelihoods, by September 2007.
USAID has established financial and technical oversight for its tsunami
recovery programs in Indonesia and Sri Lanka. For financial oversight,
USAID plans to arrange a concurrent audit of the signature road project in
Indonesia and strengthen Indonesian and Sri Lankan audit capacities. For
technical oversight, USAID has begun to add staff to oversee its signature
construction projects and has acquired additional construction engineering
expertise from another U.S. agency. An additional engineer will start work
in Indonesia in May 2006. In Sri Lanka, USAID has added two engineers to
its staff and plans to hire an additional construction oversight engineer
in April 2006, prior to beginning construction.
In implementing its Indonesian and Sri Lankan reconstruction programs,
USAID faces several broad challenges. These include working in regions
with long-standing conflicts, coordinating with host governments and
nongovernmental organizations, and ensuring that non-tsunami-related
development assistance activities are not neglected. To address these
challenges, USAID has taken actions such as engaging in peace-building
initiatives, participating in regularly scheduled coordination meetings,
and hiring and reassigning staff to assist with increased workloads.
Tsunami-Damaged Road (left) and USAID-Funded Maintenance Work in Indonesia
*** End of document. ***