Foreign Assistance: USAID Signature Tsunami Reconstruction	 
Efforts in Indonesia and Sri Lanka Exceed Initial Cost and	 
Schedule Estimates, and Face Further Risks (28-FEB-07,		 
GAO-07-357).							 
                                                                 
In December 2004, an earthquake caused a tsunami that devastated 
several countries in the Indian Ocean region. In May 2005,	 
Congress appropriated $908 million in aid, of which the U.S.	 
Agency for International Development (USAID) is implementing $482
million in recovery projects in many affected countries,	 
including Indonesia and Sri Lanka. This report examines (1) the  
progress of USAID's program; (2) USAID's financial and technical 
oversight of its efforts, and risks it faces; and (3) actions	 
taken by the Secretary of State in response to an April 2006 GAO 
recommendation. Specifically, GAO recommended that State, in its 
required reports to Congress, provide updated cost estimates and 
schedules and show the need for additional funding sources, if	 
necessary. GAO examined USAID's signature projects in both	 
countries; reviewed project documents and periodic reports,	 
interviewed USAID officials, and visited project sites in August 
and October 2006.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-357 					        
    ACCNO:   A66346						        
  TITLE:     Foreign Assistance: USAID Signature Tsunami	      
Reconstruction Efforts in Indonesia and Sri Lanka Exceed Initial 
Cost and Schedule Estimates, and Face Further Risks		 
     DATE:   02/28/2007 
  SUBJECT:   Budgeting						 
	     Construction contracts				 
	     Construction costs 				 
	     Cost analysis					 
	     Disaster recovery					 
	     Disaster relief aid				 
	     Federal aid to foreign countries			 
	     Financial management				 
	     Foreign aid programs				 
	     Foreign governments				 
	     Fund audits					 
	     International relations				 
	     Program evaluation 				 
	     Reporting requirements				 
	     Risk assessment					 
	     Road construction					 
	     Schedule slippages 				 
	     Tsunamis						 
	     Cost estimates					 
	     Indonesia						 
	     Sri Lanka						 

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GAO-07-357

   

     * [1]Results in Brief
     * [2]Background
     * [3]Signature Project Cost Estimates Have Risen, Schedules May B

          * [4]Indonesia Signature Project Cost Estimates Have Increased, S

               * [5]Indonesia Signature Project Is Under Way, but Contract
                 for M
               * [6]Indonesia Signature Project's Estimated Costs and Budget
                 All
               * [7]Several Factors, Including Postdisaster Environment, Led
                 to
               * [8]USAID May Extend Completion Date for Indonesia Signature
                 Pro

          * [9]USAID Raised Cost Estimates, and May Extend Completion Date

               * [10]Sri Lanka Signature Project Is Largely Under Way
               * [11]Rising Construction Costs, Deteriorating Security, and
                 Other
               * [12]USAID May Extend the Sri Lanka Signature Project
                 Completion

     * [13]USAID Acquired Financial and Technical Oversight, but Lacked

          * [14]USAID Provided for Financial Audits and Is Helping Indonesia

               * [15]USAID's Financial Controls Include External and Internal
                 Aud

          * [16]USAID Is Supporting Efforts to Strengthen Indonesian and Sri
          * [17]USAID Has Acquired Needed Technical Oversight for Tsunami Re
          * [18]USAID Lacked Guidance and Faces Risks in Completing Signatur

     * [19]Required Reports to Congress Do Not Clearly Show USAID's Pro
     * [20]Conclusions
     * [21]Recommendations for Executive Action
     * [22]Agency Comments and Our Evaluation
     * [23]GAO Comment
     * [24]GAO Contact
     * [25]Staff Acknowledgments
     * [26]GAO's Mission
     * [27]Obtaining Copies of GAO Reports and Testimony

          * [28]Order by Mail or Phone

     * [29]To Report Fraud, Waste, and Abuse in Federal Programs
     * [30]Congressional Relations
     * [31]Public Affairs

Report to Congressional Committees

United States Government Accountability Office

GAO

February 2007

FOREIGN ASSISTANCE

USAID Signature Tsunami Reconstruction Efforts in Indonesia and Sri Lanka
Exceed Initial Cost and Schedule Estimates, and Face Further Risks

GAO-07-357

Contents

Letter 1

Results in Brief 3
Background 7
Signature Project Cost Estimates Have Risen, Schedules May Be Extended,
and Further Risks May Affect Current Plans 11
USAID Acquired Financial and Technical Oversight, but Lacked Guidance for
Disaster Recovery and Reconstruction and Faces Further Risks 24
Required Reports to Congress Do Not Clearly Show USAID's Progress or
Address Risks to Signature Project Schedules and Cost Estimates 29
Conclusions 31
Recommendations for Executive Action 31
Agency Comments and Our Evaluation 32
Appendix I Objectives, Scope, and Methodology 34
Appendix II USAID's Signature Projects in Indonesia and Sri Lanka 36
Appendix III USAID's Nonsignature Activities in Indonesia and Sri Lanka 39
Appendix IV Comments from the Department of State 41
Appendix V Comments from the U.S. Agency for International Development 43
GAO Comment 46
Appendix VI GAO Contact and Staff Acknowledgments 47

Tables

Table 1: Funds Allocated to Tsunami Emergency Relief and Postemergency
Reconstruction and Other Activities, as of December 31, 2006 8
Table 2: Scope and Status of Indonesia Signature Road Construction Project
36
Table 3: Description and Status of USAID's Signature Project in Sri Lanka
38
Table 4: Project Sectors, Amounts of Funds Budgeted, and Descriptions of
Selected Activities for USAID's Nonsignature Projects in Indonesia 39
Table 5: Project Sectors, Amounts of Funds Budgeted, and Descriptions of
Selected Activities for USAID's Nonsignature Projects in Sri Lanka 40

Figures

Figure 1: Financial Information on USAID Tsunami Reconstruction Funds, as
of December 31, 2006 9
Figure 2: Initial and Revised Estimated Costs Per Mile and Length of Road
for USAID Indonesia Signature Project 14
Figure 3: Initial and Revised Plans for Indonesia Signature Road
Construction Project 15
Figure 4: Initial and Revised Timelines for USAID's Signature Project
Activities in Indonesia, as of February 2007 18
Figure 5: Temporary Bridge Currently Spanning Arugam Bay near Site of
Planned USAID-Funded Bridge in Sri Lanka 20
Figure 6: Locations of Selected Signature Project Components and Recent
Terrorist Incidents 22
Figure 7: Initial and Revised Plans for USAID's Signature Project
Activities in Sri Lanka 23
Figure 8: USAID Signature Project Funding Information Included and Not
Included in Department of State Reports 30

Abbreviations

A-TARP Aceh Technical Assistance Recovery Project DCAA Defense Contract
Audit Agency IG USAID Office of the Inspector General LTTE Liberation
Tigers of Tamil Eelam NGO nongovernmental organization USACE U.S. Army
Corps of Engineers USAID U.S. Agency for International Development

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United States Government Accountability Office

Washington, DC 20548

February 28, 2007

The Honorable Patrick J. Leahy
Chairman
The Honorable Judd Gregg
Ranking Minority Member
Subcommittee on State, Foreign Operations, and Related
Programs
Committee on Appropriations
United States Senate

The Honorable Nita M. Lowey
Chairwoman
The Honorable Frank R. Wolf
Ranking Minority Member
Subcommittee on State, Foreign Operations, and Related
Programs
Committee on Appropriations
House of Representatives

The tsunami of December 2004, caused by an earthquake in the Indian Ocean
near Indonesia, widely devastated 12 Asian and East African countries,
leaving more than 200,000 dead and 40,000 reported missing. In May 2005,
Congress appropriated approximately $908 million in assistance for tsunami
relief, reconstruction, and related programs.^1 The U.S. Agency for
International Development (USAID) tsunami reconstruction programs in
Indonesia and Sri Lanka--the two affected countries with the greatest
estimated needs--began later in 2005. USAID's programs in the two
countries include signature projects, intended to generate greater
visibility for overall U.S. assistance. In Indonesia, USAID initially
planned to construct a 150-mile coastal road, budgeted at $245 million
(about 70 percent of its funds) and scheduled for completion in September
2009; in Sri Lanka, USAID planned to construct a bridge and other
infrastructure, among other project components, budgeted at $35 million
(over 40 percent of its funds) and scheduled for completion in March
2008.^2

1Emergency Supplemental Appropriations Act for Defense, the Global War on
Terror, and Tsunami Relief, 2005, Pub. L. 109-13. In addition to $327
million budgeted for survivors' immediate needs for medicine, food, and
shelter, approximately $482 million is currently budgeted for longer-term
reconstruction and related programs to be directed by the U.S. Agency for
International Development (USAID). This amount includes $351 million for
Indonesia, $83 million for Sri Lanka, and $48 million for other countries
and regional programs. The remaining $99 million is budgeted to other U.S.
agencies.

We began monitoring the delivery of U.S. assistance to the
tsunami-affected countries in May 2005.^3 In April 2006, we reported that
USAID had begun its reconstruction programs in Indonesia and Sri Lanka but
that costs and schedules for some projects might exceed initial estimates;
that the agency had established financial and technical oversight of the
assistance but had not filled some technical oversight positions; and that
several significant challenges, including civil conflict, confronted its
reconstruction efforts in both countries.^4 To help ensure the public
availability of current information on the assistance costs and schedules,
our April 2006 report recommended that the Secretary of State provide
updated cost and schedule estimates in the Department of State's
semiannual report to Congress, required by Section 4102 of the act
authorizing the assistance (Section 4102 report).^5

Updating our April 2006 findings, this report examines (1) the status of
USAID's signature projects in Indonesia and Sri Lanka, including its
obligations^6 and expenditures of funds for reconstruction assistance in
Indonesia and Sri Lanka; (2) USAID's financial and technical oversight of
the programs, and the extent to which it had guidance for operating in
postdisaster situations, including lessons learned from prior disasters;
and (3) actions taken by the Secretary of State in response to our April
2006 recommendation. Appendix III presents information about USAID's
nonsignature tsunami reconstruction projects in Indonesia and Sri Lanka.

^2USAID also initiated "nonsignature" projects that it initially planned
to complete by September 2007.

^3In March 2005, the House Appropriations Committee requested that we
review U.S. assistance for reconstruction efforts in response to the
December 2004 earthquake and tsunami (H.Rept. 109-16, p. 49).

^4GAO, Foreign Assistance: USAID Has Begun Tsunami Reconstruction in
Indonesia and Sri Lanka, but Key Projects May Exceed Initial Cost and
Schedule Estimates, [32]GAO-06-488 (Washington, D.C.: Apr. 14, 2006).

^5Section 4102 of the Emergency Supplemental Appropriations Act for
Defense, the Global War on Terror, and Tsunami Relief, 2005, Pub. L.
109-13, required that the Secretary of State report to Congress in June
2005, on a project-by-project basis, on the proposed uses of all
appropriated funds for which State anticipated obligating funds and every
6 months thereafter on the expenditure of the funds, on a project-by
project basis, until all funds are fully expended.

To address these issues, we reviewed USAID data, including funding
obligations and expenditures, through December 2006, the agency's progress
in achieving program objectives for its signature projects, and its
oversight of the programs. These data included monthly progress reports on
project activities, monthly and quarterly expenditures, and interviews
with USAID officials. In Washington, D.C., Sri Lanka, and Indonesia, we
met with representatives from State, USAID, the U.S. Army Corps of
Engineers (USACE), nongovernmental organizations, private firms, and
governments of tsunami-affected countries. During our visits to Indonesia
and Sri Lanka, we visited numerous signature project sites in the
tsunami-affected areas and monitored the progress of USAID's projects. We
determined that USAID's funding and expenditure data were sufficiently
reliable for our analysis. We also considered previous GAO work on U.S.
disaster assistance efforts. We conducted our work from June 2006 through
February 2007 in accordance with generally accepted government auditing
standards. (App. I contains a more detailed description of our scope and
methodology.)

Results in Brief

Although USAID's signature projects and other activities in Indonesia and
Sri Lanka are under way, various difficulties have led the agency to
increase initial cost estimates; reduce or cancel some activities in
Indonesia; and consider extending project completion dates of signature
projects in both countries. In addition, as of February 2007, USAID had
not awarded the contract for major signature road construction work in
Indonesia. USAID has taken steps to address some of these difficulties,
such as revising the length of road to be built in Indonesia and assisting
the government in acquiring land and property needed to implement project
activities. However, USAID continues to face risks that it may not
complete the signature projects within cost and schedule estimates and
without further reducing the scope of the work, as currently planned.

^6Generally, 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 ( [33]GAO-06-382SP , vol. II, 7-3). Consistent with 31
U.S.C. 1501, which defines when an agency can record an obligation, USAID
treats as an obligation the bilateral agreements it makes with other
countries to deliver assistance. However, except where denoted by
quotation marks ("obligations"), this report defines obligations 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. Expenditures are defined as the issuance of checks,
disbursement of cash, or electronic transfer of funds to liquidate a
federal obligation.

           o Indonesia. As of December 2006, USAID had obligated $186 million
           (53 percent) and expended $58 million (17 percent) of its $351
           million budget for tsunami reconstruction in Indonesia. USAID had
           obligated $105 million (41 percent) and expended $15 million (6
           percent) of its $254 million budget for the signature road
           construction project. USAID contractors completed the design work
           for the signature road construction project in Aceh Province and
           began construction work on some badly damaged road sections.
           However, in June 2006, because of significant increases in
           estimated construction costs per mile, USAID reduced the project's
           scope by over one third--from 150 miles to 91 miles of road
           construction--and reallocated approximately $9 million from other
           USAID and State tsunami supplemental appropriations to the road,
           resulting in a budget that has risen from the original $245
           million to $254 million.^7 Based on GAO's analysis, the estimated
           per-mile costs as of June 2006 had risen to approximately $2.7
           million--a 68 percent increase from USAID's March 2005 projection
           of $1.6 million per mile--reflecting both higher-than-expected
           labor and material costs and the availability of more accurate
           information than in March 2005.^8 For example, the June 2006
           estimate indicates that 2.2 million cubic meters of excavation
           would be required, compared with the March 2005 estimate of 1.5
           million cubic meters. Moreover, despite reducing the length of
           road to be constructed, USAID may extend the project's completion
           date from September 2009 to February 2010, in part because it did
           not award a contract for the major road construction work in
           September 2006, as planned; USAID expects to award the
           construction contract in May 2007.^9 Further, although USAID is
           currently assisting the Indonesian government in its land
           acquisition efforts, the project's completion date may be extended
           and estimated costs may increase because of ongoing delays by the
           Indonesian government in acquiring land for the road.^10 For
           example, as of December 31, 2006, the Indonesian government had
           acquired only 899 of the needed 3,679 parcels along the road's
           planned route.^11 In addition, several challenges increase the
           risk that USAID may not successfully complete the project at
           planned cost and on schedule. Specifically, delays by the
           government of Indonesia in acquiring land in a timely manner and
           community unrest increase USAID's risk of not meeting its
           schedule, and increasing costs for materials and labor, as well as
           slippages in the schedule, increase USAID's risk of not meeting
           its projected costs because longer projects generally cost more.

           o Sri Lanka. As of December 2006, USAID had obligated $70 million
           (84 percent) and expended $15 million (18 percent) of its $83
           million budget for tsunami reconstruction. USAID had obligated $35
           million (73 percent) and expended $5 million (11 percent) of its
           $48 million budget for the signature project components. The
           contract completion date for the Sri Lanka signature project,
           which includes building a bridge and other infrastructure,
           constructing vocational education facilities, and addressing
           coastal management issues, is March 2008. However, USAID may
           extend the signature project completion date. In addition, the
           projected cost has increased from $35 million to $48
           million--about 37 percent--due to increases in the costs of labor
           and materials. To make up for this shortfall, USAID reallocated
           approximately $13 million from nonsignature project activities. As
           in Indonesia, several challenges increase the risk that USAID may
           not successfully complete all the project components at planned
           cost and on schedule. Specifically, other factors such as delays
           in selecting the sites, determining what would be taught, and
           designing the vocational educational facilities and water
           treatment facilities, as well as increasing incidents of
           terrorist-related violence increase USAID's risk of additional
           costs and slippages in the schedule.

           USAID is carrying out measures that it previously established for
           financial oversight of its reconstruction programs in Indonesia
           and Sri Lanka, and it has taken steps to enhance its technical
           oversight capacity. In addition to USAID's standard requiring
           financial oversight mechanisms, USAID has contracted with the
           Defense Contract Audit Agency (DCAA) for concurrent audits of its
           signature road construction project in Aceh Province, Indonesia.
           Also, USAID's Office of the Inspector General (IG), using funding
           that was included in the supplemental appropriation, has completed
           audits showing, among other things, that USAID had not met certain
           interim milestone dates and was not adequately accounting for
           funding; other IG audits are ongoing. To ensure technical
           oversight of its reconstruction projects in both countries, USAID
           has added experienced staff, including engineers in both Sri Lanka
           and Indonesia, and enhanced its engineering services through
           agreements with USACE. However, when USAID began its tsunami
           reconstruction program in early 2005, the agency did not have
           disaster reconstruction program guidance, including lessons
           learned from its prior programs, such as the importance of setting
           appropriate time frames, conducting thorough cost assessments, and
           understanding local land tenure systems. In our July 2002 report
           focusing on USAID's reconstruction efforts in Central America,
           several USAID missions reported learning numerous lessons, such as
           the importance of establishing longer implementation periods to
           complete projects.^12 In response to our May 2006 report, USAID
           issued guidance, including lessons learned, on implementing
           disaster recovery activities following hurricanes and tropical
           storms that struck several Caribbean countries in 2004.^13
           Further, as USAID moves forward, the agency faces risks that may
           affect its ability to complete its signature project activities as
           planned.

           In response to our April 2006 recommendation, the Secretary of
           State, with information obtained from USAID, has provided some
           updated cost estimates and schedules in its required reports to
           Congress. Data in both the June and December 2006 reports included
           amounts of funds obligated to the affected countries but did not
           include the amounts of funds signed in agreements with
           implementing organizations (in USAID's terminology,
           "subobligated"). Also, the reports do not include USAID's risk
           information and mitigation strategy for addressing the risks. As a
           result, Congress lacks funding information that would more clearly
           reflect the agency's progress; currently, State's required
           semiannual reports to Congress do not include this information.

           Therefore, to ensure that Congress has access to information that
           clearly reflects both USAID's progress in its tsunami
           reconstruction programs in Indonesia and Sri Lanka and factors
           that may slow its progress, we make the following two
           recommendations regarding the Secretary of State's required
           semiannual reports to Congress:

           o To clearly show USAID's progress in using the appropriated funds
           for tsunami reconstruction, the reports should include the amounts
           that USAID obligated to recipient countries for tsunami
           reconstruction and the amounts that it "subobligated" in
           transactions with implementing organizations, such as contracts,
           grants, and cooperative agreements, for specific reconstruction
           projects.
           o To indicate risk of potential changes to the costs, schedules,
           and scopes of work of USAID's signature projects in Indonesia and
           Sri Lanka, the reports should identify factors that may impact the
           agency's implementation of the projects and provide strategies for
           mitigating any impact.

           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.) In commenting on a draft of this
           report, the Department of State and USAID fully agreed with our
           recommendation to include cost data on "subobligated" funds in
           State's required reports to Congress. USAID also agreed to
           separately identify risk and mitigation strategies in State's
           reports. We have also incorporated technical suggestions and
           clarifications from State and USAID, as appropriate.
			  
			  Background

           Of the $908 million that the United States appropriated for
           tsunami relief and reconstruction, $327 million (36 percent) was
           allocated to the Department of Defense and USAID for emergency
           relief activities that have largely been completed. The remaining
           $581 million (64 percent) was budgeted for reconstruction and
           other postemergency activities. Of this amount, $482 million
           (about 83 percent) is currently allocated to USAID.^14 Table 1
           shows the amounts of funds allocated to emergency relief and
           reconstruction and other postemergency activities.

           Table 1: Funds Allocated to Tsunami Emergency Relief and
           Postemergency Reconstruction and Other Activities, as of December
           31, 2006
			  
			  Dollars in millions                                               
Type of tsunami assistance activity               Funds allocated 
Emergency relief activities                                  $327 
Postemergency reconstruction and other activities                 
USAID                                                         482 
Other U.S. departments and agencies                            99 
Subtotal                                                     $581 
Total                                                        $908 

           Sources: USAID and Department of State.

           As of December 31, 2006, USAID had signed bilateral agreements
           with many tsunami-affected countries for the entire $482 million
           (100 percent); USAID considers these funds obligated. USAID had
           expended $96 million (20 percent) of the funds (see fig. 1).

           Figure 1: Financial Information on USAID Tsunami Reconstruction
           Funds, as of December 31, 2006

           Note: Generally, 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 ( [34]GAO-05-734SP ,
           70). Consistent with 31 U.S.C. 1501, which defines when an agency
           can record an obligation, USAID treats as an obligation the
           bilateral agreements it makes with other countries to deliver
           assistance. However, except where denoted by quotation marks
           ("obligations"), this report defines obligations 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." Expenditures are defined as the issuance of
           checks, disbursement of cash, or electronic transfer of funds to
           liquidate a federal obligation.

           As we reported in April 2006, USAID's signature project in
           Indonesia initially consisted of 150 miles of coastal road
           construction in western Aceh Province at an estimated cost of $245
           million. The road--parts of which were badly damaged or destroyed
           by the tsunami--was considered vital to restoring the economic
           strength of the area and promoting redevelopment of the affected
           communities. USAID planned to implement the project under three
           separate contracts:

           o a priority contract, awarded in August 2005, to temporarily
           maintain an existing coastal road and to design and construct
           priority sections of the new road;
           o a design and construction management contract, awarded in
           November 2005, to design the signature road and supervise its
           construction; and
           o a large-scale construction contract, to be awarded in September
           2006, to construct major segments of the new road.

           The contract for USAID's Sri Lanka signature project, awarded in
           September 2005, and initially estimated to cost $35 million, has
           five components:^15

           o construction of a bridge,
           o construction of water treatment facilities,
           o rehabilitation of three commercial harbors,
           o construction or rehabilitation of vocational education
           facilities, and
           o provision of training in coastal management.^16

           We reported in April 2006 that USAID might be unable to complete
           its Indonesia signature project and some components of its Sri
           Lanka signature project within initial cost estimates and time
           frames, owing in part to factors such as limited site information,
           rising material and labor costs, and delays in the acquisition of
           land. We also found that although the agency had taken steps to
           ensure financial and technical oversight for the Indonesia and Sri
           Lanka reconstruction programs, it had not filled some needed
           technical oversight positions. Finally, we noted that several
           challenges confronted USAID's tsunami reconstruction programs,
           including long-standing conflicts between the countries'
           governments and separatist groups in Aceh, Indonesia, and in
           several areas of Sri Lanka. Our April 2006 report recommended that
           State's semiannual Section 4102 report to Congress, due in June
           2006, provide updated cost estimates and schedules for the
           programs. We also recommended that if the updated estimates
           differed substantially from the initial estimates, State's report
           should include alternative cost estimates, schedules, and project
           scopes and identify the need for additional sources of funding, if
           necessary. State agreed with both of the recommendations.
			  
			  Signature Project Cost Estimates Have Risen, Schedules May Be
			  Extended, and Further Risks May Affect Current Plans

           USAID's signature projects in Indonesia and Sri Lanka are under
           way, but respective projects' estimated costs have risen and the
           completion dates may be extended. In addition, the scope has been
           reduced for the signature road project in Indonesia. To cover the
           higher costs in both countries, USAID revised its budget
           allocations for the signature projects. Also, as of February 2007,
           USAID had not awarded the contract for major road construction
           work in Indonesia. Factors typically related to the difficulty of
           operating in postdisaster environments, such as increased
           construction costs and delays in land acquisition, have
           contributed to the higher cost estimates, reductions in project
           scope, and the possible extension of completion dates. In both
           countries, ongoing uncertainties have led to risks, such as
           increase in costs that may further affect whether the signature
           projects will be completed as planned.
			  
			  Indonesia Signature Project Cost Estimates Have Increased,
			  Scope of Work Has Been Reduced, and Completion Date May Be Extended

           USAID's plans for its signature road construction include awarding
           and implementing three separate contracts. Although the agency has
           made some progress under two of the contracts, based on GAO's
           analysis, the road's estimated cost per mile has increased, the
           scope of work has been reduced, and the completion date may be
           extended. In addition, as of February 2007, USAID has not awarded
           a contract for large-scale road construction. (See app. II for
           more details on the status of the contracts.) However, USAID took
           some actions in response to the difficulties that arose. In
           addition, while cost increases have reduced the length of road
           that USAID can build, it entered into an agreement with the
           Japanese and Indonesian governments under which a coastal road
           from Banda Aceh to Meulaboh will be jointly built by USAID and the
           government of Japan. A number of factors, including several
           relating to operating in a postdisaster environment--such as
           limited initial site information, rising construction costs, and
           delayed land acquisition--have contributed to the project's higher
           estimated costs and slower-than-expected progress. As a result,
           USAID may extend the project's completion date from September 2009
           to February 2010.
			  
			  Indonesia Signature Project Is Under Way, but Contract for Major
			  Road Construction Work Has Not Been Awarded

           As of February 2007, the agency had not yet awarded its
           large-scale construction contract, as planned. The status of the
           contacts by which USAID is planning to complete its signature road
           project in Indonesia are as follows:

           o Priority contract. Construction work on certain priority
           sections of the road began in October 2006, and as of December
           2006, bridge construction and related work at one location had
           begun.^17 Priority construction work was initially expected to
           take place between August 2005 and August 2006, but sufficient
           land was not available for construction to begin. USAID modified
           the priority contract to increase the length of road to be built,
           from 3 miles to 26 miles, and extend the completion date to
           December 2007.
           o Design and construction management contract. In June 2006, the
           contractor completed a detailed design and cost estimate for the
           coastal road, replacing USAID's initial cost estimate completed in
           March 2005.^18 The new design reflects more detailed knowledge of
           the project site and contains more technical details than were
           available in the initial estimate. According to USAID officials,
           although the initial estimate provided by the U.S. Army Corps of
           Engineers (USACE) was based on the best information available at
           the time, it was lacking in specificity because the route of the
           planned road had not been determined and on-the-ground access to
           most areas was limited.
           o Large-scale construction contract. Although USAID had expected
           to award the contract for major segments of the coastal road in
           September 2006, it did not receive a qualifying proposal in August
           2006. The June 2006 solicitation, restricted to U.S. firms,
           resulted in a single proposal, which the agency was unable to
           negotiate to an acceptable price. In October 2006, USAID began a
           new solicitation process, open to international firms, that agency
           officials say has attracted interest from prospective offerors.
           The agency now expects to award the contract in May 2007 and,
           according to USAID officials, estimates that the road may not be
           completed until February 2010, 5 months later than originally
           planned.
			  
			  Indonesia Signature Projectï¿½s Estimated Costs and Budget
			  Allocation Have Increased and the Projectï¿½s Scope Has Been
			  Reduced

           Based on GAO's analysis, the road's estimated cost per mile as of
           June 2006 is $2.7 million, a 68 percent increase over the cost
           estimated by USAID in March 2005--$1.6 million per mile. As we
           reported in April 2006, the initial estimate was based on limited
           site information because the route of the planned road had not yet
           been determined and most areas were not accessible for ground
           surveys to be performed. Also, according to construction industry
           studies, in projects that are not well defined, such as this one,
           actual costs are likely to vary by a range of 50 percent less to
           100 percent more than estimated costs. Based on GAO's analysis,
           estimated costs as of June 2006 are currently 68 percent more than
           initial projections.

           To account for future contingencies, USAID increased its budget
           allocation for the signature project by $9 million (4 percent),
           from $245 million to $254 million.^19 At the same time, through an
           agreement between USAID and the governments of Indonesia and
           Japan, the Japanese government assumed responsibility for building
           about 69 miles of the southern section of the road, from Calang to
           Meulaboh, reducing USAID's responsibility from building 150 miles
           to building approximately 91 miles of the road.^20 As a result,
           despite potential estimated cost increases, USAID was able to meet
           its commitment for the road while staying within budget
           constraints. (See fig. 2.)

           Figure 2: Initial and Revised Estimated Costs Per Mile and Length
           of Road for USAID Indonesia Signature Project

           USAID also has tentative plans to construct two bypasses, totaling
           approximately 12 miles, at points along the Japanese-funded
           portion of the road. In October 2006, the U.S. Ambassador to
           Indonesia asked State to request additional funds from the Office
           of Management and Budget to cover the costs of building the
           bypasses; USAID officials stated that a decision on funding the
           construction of the bypasses will be made after the large-scale
           construction contract is awarded and the project's budget is
           reassessed. Figure 3 shows the initial and revised road
           construction plan; appendix II provides further details of USAID's
           revised project scope.

^7The government of Japan has agreed to build a 69-mile road that will
connect to the U.S. road (91 miles). The total length of the road, 160
miles, differs from the 150-mile road initially planned by USAID because
the Japanese road follows a different alignment than the U.S. road would
have followed.

^8Based on GAO's analysis, the current $2.7 million cost per-mile estimate
does not account for certain administrative and support costs and certain
activities performed previously that are not directly related to the costs
for constructing 91 miles of road. As such, the $2.7 million per-mile
estimate does not directly correlate with the $254 million currently
budgeted to the signature road.

^9Also, in October 2006, the U.S. Ambassador to Indonesia requested that
the Department of State ask for additional funds from the Office of
Management and Budget to cover anticipated excess costs of constructing
two bypasses not included in the revised 86-mile project. The bypasses,
totaling approximately 12 miles, are along the section of road being
constructed by the government of Japan.

^10According to the National Research Council, a private, nonprofit
institution chartered by Congress that provides science, technology, and
health policy advice, extending the completion date for construction
projects is likely to increase costs.

^11The 3,679 parcels account for privately owned land along approximately
65 miles of the 91-mile route between Banda Aceh and Calang. The 899
parcels of privately owned land that have been acquired by the Indonesian
government are noncontiguous and account for approximately 16 miles of the
road's route. Twenty-six miles along the 91-mile route are owned by the
Indonesian government, and 22 miles of this land had been released to
USAID as of December 31, 2006.

^12GAO, Foreign Assistance: Disaster Recovery Program Addressed Intended
Purposes, but USAID Needs Greater Flexibility to Improve Its Response
Capability, [35]GAO-02-787 (Washington, D.C.: July 24, 2002).

^13GAO, Foreign Assistance: USAID Completed Many Caribbean Disaster
Recovery Activities, but Several Challenges Hampered Efforts,
[36]GAO-06-645 (Washington, D.C.: May 26, 2006).

^14Other U.S. departments and agencies are currently allocated $99 million
for other posttsunami-related activities. For example, components of the
Departments of Commerce and the Interior are supporting development of
regional early warning systems and disaster preparation plans and the
Department of the Treasury was involved in providing debt relief to some
affected countries. USAID's current allocation of $482 million is $14
million less than we reported in April 2006 due to transfers of funds to
other agencies.

^15In April 2006, we reported that the signature project had three
components (construction of a bridge and other infrastructure, provision
of coastal management training, and construction of vocational educational
facilities). (See [37]GAO-06-488 ). The project has since been redefined
as having five components.

16See appendix II for specific information on USAID's signature project in
Sri Lanka.

17In August 2005, USAID signed a contract with PT Wijaya Karya, an
Indonesian firm, to perform this work.

18In November 2005, USAID signed a contract with Parsons Global Services,
Inc., a U.S. firm, to perform this work.

19At the revised estimated cost of $2.7 million per mile, approximately
$405 million would be required to construct the 150-mile road that was
initially planned. The current $2.7 million cost per-mile estimate does
not account for certain administrative and support costs and certain
activities performed previously that are not directly related to the costs
for constructing 91 miles of road. As such, the total cost of building 91
miles based on a $2.7 million per-mile estimate (approximately $246
million) differs from the $254 million currently budgeted.

20Before the cooperative agreement was reached, the government of Japan
had intended to rebuild the road between Calang and Meulaboh that was
roughly parallel to the road planned by USAID between these two locations.
According to USAID officials, Indonesian government officials indicated
that, in April 2006, the Indonesian government decided that one
Japanese-built road, rather than two parallel roads, could be built, to
reduce the costs of maintenance. The USAID officials said that the
Indonesian government's agreement formed the basis for the revised road
construction plan. The Japanese road (69 miles) follows a different
alignment than the U.S. road would have followed. So the combined length
of the de-scoped U.S. road (91 miles) and the Japanese road, 160 miles,
differs from the 150 mile road initially planned by USAID.

Figure 3: Initial and Revised Plans for Indonesia Signature Road
Construction Project

  Several Factors, Including Postdisaster Environment, Led to Higher Cost
  Estimates and Delayed Progress of the Indonesia Signature Project

Based on GAO's analysis, a number of factors contributed to the signature
road's increased estimated cost per mile for the signature road and may
lead USAID to extend the Indonesia signature project's completion date.
These factors include the delay in USAID's awarding of the large-scale
construction contract; inclusion of elements in the June 2006 project
design that were absent from the original estimate; and several factors
related to Indonesia's postdisaster environment--namely, limited initial
site information, rising construction costs, and delays in land
acquisition.

           o Delayed award of contract. Because USAID did not award the
           large-scale construction contract in September 2006 as it
           intended, it was not able to begin construction under the contract
           as planned. Although specific costs associated with this delay
           have not yet been quantified, construction industry research shows
           that longer projects are almost always associated with higher
           costs.^21 
           o Additional design elements. The June 2006 project design for the
           road comprised several technical elements not included in the
           March 2005 cost estimate, raising the project's estimated cost per
           mile. For example, the June 2006 design included new
           specifications for building eight cofferdams--watertight
           enclosures that permit underwater construction of bridge supports
           that were not factored into the March 2005 estimate.

           o Postdisaster environment. Limited initial site information,
           rising construction costs, and delays in acquiring land--factors
           commonly encountered by reconstruction efforts in a postdisaster
           environment^22 contributed to the project's increased estimated
           costs per mile and to its potentially late completion date. Our
           April 2006 report noted these factors as likely to raise costs and
           make it difficult to complete the road within the intended time
           frame.

                        o Limited initial information. As our April 2006
                        report noted, USAID's March 2005 cost estimate was
                        based on limited knowledge of site conditions, owing
                        to difficulty in accessing sections of the road's
                        planned coastal route.^23 The revised estimate
                        provides a more detailed assessment of the project's
                        requirements. For example, USAID's initial estimate
                        showed that 1.5 million cubic meters of excavation
                        would be required to build 150 miles of road, while
                        the revised estimate shows that 2.2 million cubic
                        meters of excavation will be required to build 91
                        miles of road.

           o Rising construction costs. Our April 2006 report noted rapid
           growth in the number of construction projects after the disaster
           and cost inflation resulting from the greater demands for
           construction materials and labor.^24 Posttsunami construction
           spending was expected to increase fortyfold from pretsunami
           levels, from $50 million to $2 billion per year. World Bank data
           provided by USAID show that construction costs increased as a
           result. For example, between October 2004 and October 2005, the
           average wage for bricklayers, plumbers, and construction
           supervisors in Aceh increased 55 percent, 72 percent, and 81
           percent, respectively. USAID expects that ongoing demands for
           materials and labor will continue to create inflationary
           pressures.
           o Delays in land acquisition. As our April 2006 report further
           noted, USAID's ability to complete its project within the intended
           time frame depended in part on the Indonesian government's
           progress in acquiring privately owned land along the road's
           planned route.^25 Subsequent delays in the land acquisition
           process contributed to USAID's changing the expected completion
           date of the signature project's priority contract from August 2006
           to December 2007. As of January 1, 2007, the Indonesian government
           had obtained 899 of the estimated 3,679 needed parcels. According
           to USAID officials, the Indonesian government expects to complete
           the land acquisition in March 2007.
			  
			  USAID May Extend Completion Date for Indonesia Signature Project

           Owing to the delays affecting its signature road project, USAID
           may extend the project's completion date by 5 months, from
           September 2009 to February 2010. Figure 4 shows USAID's initial
           and, as of February 2007, revised timelines for its Indonesia
           signature project.

21National Research Council of the National Academies, "The Owner's Role
in Project Risk Management" (Washington, D.C.; 2005).

22 [38]GAO-06-645 , appendix II.

23 [39]GAO-06-488 , 19.

24 [40]GAO-06-488 , 20.

25 [41]GAO-06-488 , 21.

Figure 4: Initial and Revised Timelines for USAID's Signature Project
Activities in Indonesia, as of February 2007

USAID Raised Cost Estimates, and May Extend Completion Date for Sri Lanka
Signature Project

USAID has made progress in several components of its Sri Lanka signature
project. However, the agency raised its cost estimates and increased its
budget by approximately 37 percent since 2005 to meet rising costs for
materials, labor, and additional security protection. USAID may extend its
estimated completion date for the signature project because of other
factors and increasing violence in some areas of the country.

  Sri Lanka Signature Project Is Largely Under Way

USAID has made progress on several of the signature project's five
components:

           o Construction of a bridge. In August 2006, USAID awarded the
           contract for construction of a bridge over Arugam Bay, in eastern
           Sri Lanka. As of December 2006, the work was on schedule to be
           completed by February 2008 as initially planned. Figure 5 shows a
           temporary bridge spanning Arugam Bay in Sri Lanka, near the site
           of the planned USAID-funded bridge.
           o Construction of a water treatment facility. USAID has not
           awarded a contract for the water treatment facility; however, it
           expects to do so in May 2007. USAID had planned to use surface
           water from a nearby lake for the water source but opted to use
           groundwater because it is less costly to operate, build, and
           maintain.
           o Rehabilitation of three commercial harbors. USAID has largely
           completed the first of two planned phases in rehabilitating three
           commercial harbors in southern Sri Lanka. The first phase included
           smaller project activities, such as removing debris, repairing
           damaged plumbing, and replacing damaged roofs. USAID awarded a
           contract for the second phase in December 2006; these larger
           activities will include dredging the harbors and rebuilding quay
           walls.^26 
           o Construction of vocational education facilities. USAID initially
           planned to rehabilitate 10 vocational educational facilities but
           later reduced the number to 9, four of which are in eastern Sri
           Lanka and five in southern Sri Lanka.^27 Plans for two of the nine
           facilities call for the use of renewable energy and materials^28
           As of January 2007, USAID had not awarded a contract for the
           facilities; however, it plans to do so in April 2007.
           o Provision of coastal management training. A management
           organization is providing USAID-funded training in coastal
           construction and tourism-related skills that USAID considers
           essential to rebuilding and reactivating the economy in the Arugam
           Bay area. The training is expected to be completed in June 2007.

           Figure 5: Temporary Bridge Currently Spanning Arugam Bay near Site
           of Planned USAID-Funded Bridge in Sri Lanka
			  
			  Rising Construction Costs, Deteriorating Security, and Other
			  Factors Led to Increased Cost Estimate and Project Delays

           Since its 2005 budget allocation, USAID raised its cost estimate
           and increased the budget allocation for its signature project by
           more than 37 percent. The budget allocation increased from $35
           million to $48 million, based largely on a revised cost estimate
           that showed rising costs for construction labor and materials. In
           addition, other factors such as delays in design of two signature
           project components have delayed the progress of the signature
           project.

           o Rising construction costs. As in Indonesia, labor and material
           costs in Sri Lanka have increased since the tsunami. For example,
           salaries for certain types of skilled laborers, such as masons,
           have risen substantially since early 2005. These costs increased
           primarily because of shortages of skilled labor and increased
           demand for construction materials owing to the large number of
           reconstruction efforts in tsunami-affected areas.

           Worsening security. Conflict between the government of Sri Lanka
           and a separatist group, which began in 1983, has intensified in
           the 2 years since the tsunami.^29 The violence, previously
           confined largely to northern and northeastern areas controlled by
           the separatists, has spread to other areas of the country,
           including some areas where USAID's reconstruction activities are
           planned or ongoing. For the 15-month period ending December 2006,
           CH2MHill officials told us that USAID's additional security costs
           were approximately $104,000, and total additional security through
           2008 is projected to cost about $237,000 unless the security
           situation changes significantly. Although the projected additional
           security costs are small--less than 1 percent of the overall
           program budget--terrorist-related violence could enhance the risk
           that USAID may not be able to complete its efforts as planned.
           Figure 6 shows the locations of recent terrorist incidents
           relative to USAID's Sri Lanka signature project areas.

26A quay is a structure built parallel to the bank of a waterway for use
as a landing place.

27USAID plans to provide an additional school in the east with educational
supplies as needed.

28Use of renewable energy and materials will qualify the facilities for
certification by Leadership in Energy and Environmental Design, an
internationally recognized organization.

29Since the 1980s, some areas of Northern and Northeastern Sri Lanka have
been under the control of the Liberation Tigers of Tamil Eelam (LTTE).
According to the U.S. Department of State, the LTTE is a terrorist
organization that has advocated secession of these areas to form a
separate ethnic Tamil state.

Figure 6: Locations of Selected Signature Project Components and Recent
Terrorist Incidents

Other factors. Specifically, delays in selecting the sites, determining
what would be taught, and designing the vocational educational facilities
and water treatment facility have led to slippages in the schedule for the
signature project.

  USAID May Extend the Sri Lanka Signature Project Completion Date

The completion date for the Sri Lanka signature project is March 2008.
However this date may be extended.^30 The possible extension of the
completion date resulted from other factors such as design related delays
and the upsurge of violent incidents. Figure 7 shows USAID's initial and
revised plans for signature project activities in Sri Lanka.

Figure 7: Initial and Revised Plans for USAID's Signature Project
Activities in Sri Lanka

30Several signature project components have experienced delays of longer
than one month. For example, the minor works at three harbors, expected to
be completed by September 2006 and formally extended to November 2006, was
substantially completed by January 31, 2007.

USAID Acquired Financial and Technical Oversight, but Lacked Guidance for
Disaster Recovery and Reconstruction and Faces Further Risks

To ensure financial oversight of its reconstruction programs in Indonesia
and Sri Lanka, USAID augmented its standard financial controls with
external and internal audits. USAID is also implementing project
activities to strengthen the audit capabilities of government entities in
tsunami-affected countries. To strengthen its technical oversight, USAID
reassigned and hired needed staff and extended its interagency agreement
with the U.S. Army Corps of Engineers (USACE) for engineering services.
However, when beginning its tsunami reconstruction program in early 2005,
USAID did not have comprehensive guidance and did not consider some
lessons learned from prior disaster reconstruction efforts. Further, USAID
faces additional risks that may affect its ability to complete its
signature projects as planned.

USAID Provided for Financial Audits and Is Helping Indonesia and Sri Lanka to
Strengthen Audit Capabilities

USAID has augmented its standard financial controls through external and
internal audits of its tsunami reconstruction activities in Indonesia and
Sri Lanka. USAID has also strengthened the audit capability of the
Indonesian and Sri Lankan governments through funding for technical
assistance.

  USAID's Financial Controls Include External and Internal Audits

In addition to providing for required financial controls, such as preaward
surveys of prospective award recipients and financial audits,^31 USAID has
provided for external and internal audits of its reconstruction program
activities.

           o External audits. USAID signed an agreement with the Defense
           Contract Audit Agency (DCAA) to concurrently audit material and
           labor controls for its signature road construction project in
           Aceh, Indonesia. According to USAID officials, the audits are
           being undertaken because of the additional risk inherent in large
           construction projects. The initial DCAA audit began in December
           2006 and, according to USAID officials, is expected to be
           completed by April 2007.
           o Internal audits. USAID's Office of the Inspector General (IG)
           completed three audits of USAID's tsunami reconstruction projects
           in Indonesia and Sri Lanka) in fiscal year 2006. The completed
           audit reports identified some deficiencies in USAID's
           reconstruction programs in the two countries.
			  
			  USAID Is Supporting Efforts to Strengthen Indonesian and
			  Sri Lankan Audit Capabilities

           USAID is funding several efforts to provide technical assistance
           and training in fraud awareness, financial planning, and other
           activities, aimed at increasing the audit capacities of the local
           Indonesian government and Sri Lankan government audit
           organization.

                        o Indonesia. The IG completed two of the three audits
                        it had planned for Indonesia, finding that USAID
                        could not account separately for some project
                        expenditures, as required. To correct this weakness,
                        the IG recommended that USAID (1) include clear and
                        specific language requiring separate tracking,
                        recording, and reporting of expenditures in its
                        implementing agreements; and (2) develop and
                        implement procedures to ensure that funds are charged
                        to the correct tsunami appropriations. USAID
                        generally agreed with both recommendations.
                        o Sri Lanka. The IG found that USAID was generally on
                        schedule in its Sri Lanka signature project, having
                        met 25 of 46 interim milestones dates. However,
                        because of some uncertainties, the IG recommended
                        that USAID develop procedures, with time frames, for
                        achieving specific tasks. USAID generally agreed with
                        the recommendations.^32

           o Indonesia. USAID is providing technical assistance to help local
           government entities increase their capacity to plan and manage
           public services and finances; be transparent and accountable in
           legislative and administrative processes; respond to citizen
           priorities; include opportunities for citizens to participate in
           local government decision making; and work with local service
           providers to deliver services. For example, the USAID-funded Aceh
           Technical Assistance Recovery Project (A-TARP) is providing
           technical support to the Indonesian Rehabilitation and
           Reconstruction Agency and the Office of the Governor of Aceh
           Province. One of the aims of A-TARP is to assist Indonesian
           officials in better planning, coordinating, managing, and
           overseeing tsunami reconstruction efforts.

           o Sri Lanka. USAID is providing support to the Sri Lanka
           Anti-Corruption Program, to assist key government agencies and
           selected civil society organizations in strengthening measures to
           combat corruption and monitor the disbursement of tsunami-related
           assistance. Some of the program's core government partners include
           the Auditor General's Department, the Commission to Investigate
           Allegations of Bribery or Corruption, and various civil society
           organizations. The program goals include improving the delivery of
           technical services in multiethnic communities, especially those
           affected by the long-standing conflict and tsunami.
			  
			  USAID Has Acquired Needed Technical Oversight for Tsunami
			  Reconstruction Programs

           In April 2006, we reported that USAID had not filled some needed
           technical positions in both Indonesia and Sri Lanka. To establish
           technical oversight, USAID has filled the positions with
           experienced staff, such as engineers, and acquired additional
           technical expertise through interagency agreements.

           o Indonesia. As of October 2006, USAID had filled needed technical
           positions with qualified and experienced staff, including a senior
           engineer who is currently the team leader for the signature road
           project. In addition to filling these internal technical
           positions, USAID extended its interagency agreement with USACE to
           March 2007. Under the agreement, USACE will assist in reviewing
           the technical design to provide environmental protections
           involving the signature road construction project.
           o Sri Lanka. Our prior report noted that USAID had hired two of
           the three engineers needed to oversee infrastructure construction
           activities in Sri Lanka. In June 2006, USAID filled the third
           engineering position needed for technical engineering services on
           the Sri Lanka signature project.
			  
			  USAID Lacked Guidance and Faces Risks in Completing Signature
			  Projects as Planned

           Since beginning its tsunami reconstruction program in 2005, USAID
           has taken actions to address various problems, such as rising
           costs and delays in acquiring land. However, when it began the
           tsunami reconstruction program in early 2005, USAID missions in
           Indonesia and Sri Lanka did not have disaster reconstruction
           program guidance--including lessons learned from its prior
           programs, such as the importance of setting appropriate time
           frames, conducting thorough cost assessments, and understanding
           local land tenure systems. As USAID moves forward in its efforts
           to implement the signature projects in both countries, a variety
           of risks will continue to present challenges that USAID must be
           prepared to address.

           When faced with cost, schedule, and external difficulties in both
           countries, USAID took some actions. For example, in Indonesia,
           when USAID found that costs for building the signature road had
           escalated, the agency (in cooperation with the Indonesian and
           Japanese governments) reduced the length of road it planned to
           build, while still preserving the original concept of building the
           entire 150-mile road. Also, to facilitate progress in land
           acquisition in Indonesia, the U.S. Ambassador and USAID Mission
           Director have engaged senior Indonesian government officials and
           stressed the importance of acquiring land more quickly. Further,
           in both Indonesia and Sri Lanka, USAID reallocated funds from
           other sources to cover estimated cost increases to its signature
           projects.

           Although USAID took actions to address difficulties in its
           signature projects, the agency did not have guidance, including
           lessons learned from its prior disaster reconstruction efforts, in
           its planning process. During recent years in which USAID has been
           involved in postdisaster recovery situations, such as responding
           to hurricanes and earthquakes, the agency has faced similar or
           nearly identical circumstances that have shown the likelihood of
           cost increases, schedule extensions, land acquisition delays, and
           other potential problems. However, USAID's lack of guidance and
           lessons learned created challenges that sometimes resulted in an
           ad-hoc approach to planning its activities. For example, we
           reported in May 2006 that, if USAID had had access to lessons
           learned regarding likely increases in demand for construction
           materials and labor, it might have helped USAID establish more
           realistic expectations for what could be achieved within a 1-year
           time frame.^33

           As the reconstruction progresses, USAID signature construction
           projects continue to face risks that may further increase costs,
           extend schedules, and threaten successful completion. As we
           reported in May 2006, numerous risk factors are commonly
           experienced when carrying out postdisaster activities.^34 Also,
           during our current review, we identified at least three of these
           risk factors that are particularly relevant to USAID's ongoing
           tsunami reconstruction program:

           o Schedule factors. The Indonesia signature road project schedule
           may continue to slip, depending on the governments' pace in
           acquiring land and property, and the current pace of acquisition
           may not be sufficient to enable timely completion of construction.
           In addition, if USAID experiences further delays in awarding its
           large-scale construction contract, the project completion date may
           be later than February 2010, as currently projected. In Sri Lanka,
           other factors, such as delays for designs of the signature project
           components have affected the schedule.
           o Cost factors. As discussed earlier, uncertainties regarding the
           projects' schedules increase cost risks, because longer projects
           generally cost more. Additionally, continued price inflation
           increases the risk that the project may cost more than USAID's
           budgets. As we reported in April 2006, posttsunami construction
           spending in Aceh Province, Indonesia, was expected to increase
           fortyfold from pretsunami levels, from $50 million to $2 billion
           per year, creating inflationary pressure. However, in its March
           2005 cost estimate, USAID included a 20 percent contingency--less
           than the 41 percent annual inflation rate that was later reported
           by the government of Indonesia's Reconstruction and Rehabilitation
           Agency.^35 Although the annual rate had declined considerably to 6
           percent, as of September 2006, USAID expects that continuing cost
           increases in Indonesia are likely to affect reconstruction
           efforts. In Sri Lanka, although USAID has already increased its
           cost estimate for the signature project by over 37 percent because
           of rising costs for materials and labor, price uncertainties may
           continue to affect overall costs.
           o External factors. Community unrest related to the road in
           Indonesia and the increasing threat of violence in Sri Lanka may
           limit USAID's ability to continue the signature projects and
           complete them as planned. In Indonesia, work under the priority
           construction contract was hindered in late 2006 by Acehnese
           protesters demonstrating against the Indonesian army's
           unreimbursed seizure of property to build a temporary road
           immediately after the tsunami. The demonstrations were not aimed
           directly at USAID. In January 2007, USAID reported that no
           demonstrations had occurred since December 2006 and that, even if
           they were to reoccur, they were not likely to cause delays in
           construction of the new road. In Sri Lanka, the rising number of
           violent incidents related to the long-running secessionist
           movement has had some impact on USAID's progress to date. However,
           USAID officials acknowledged that additional
           incidents, particularly in or near project sites, could increase
           the uncertainty of whether USAID's efforts continue at the planned
           pace.
			  
			  Required Reports to Congress Do Not Clearly Show USAIDï¿½s Progress
			  or Address Risks to Signature Project Schedules and Cost Estimates

           In response to our April 2006 recommendation,^36 the Secretary of
           State provided updated cost estimates and schedules in its
           required semiannual report. However, the reports that State has
           submitted to Congress since April 2006 have not clearly depicted
           the agency's progress in its tsunami reconstruction program.
           Further, the reports do not address the ongoing risks to its cost
           estimates and schedules for the Indonesia and Sri Lanka signature
           projects or provide plans for mitigating the effects of these
           risks.

           State's two most recent semi-annual reports to Congress (June and
           December 2006) show USAID's obligations to recipient governments
           rather than amounts it committed to organizations implementing
           project activities. The reports show as "obligations" the overall
           funding that USAID agreed to provide to recipient countries for
           tsunami reconstruction. The obligations shown also include funds
           that have not yet been committed to specific USAID transactions,
           such as contracts, grants, and cooperative agreements with
           implementing organizations. USAID treats funds included in these
           agreements as "subobligations"; however, the Department of State
           does not include subobligations in the reports. As a result, the
           data as reported to Congress do not clearly reflect USAID's actual
           progress in funding of its tsunami reconstruction programs. For
           example, State's December 2006 report to Congress states that all
           of the $254 million budgeted for the signature road construction
           project in Indonesia had been "obligated." However, this figure
           does not reflect that USAID had signed agreements with
           implementing organizations for only $105 million--slightly more
           than 40 percent of the amount budgeted for the work. (See fig. 8.)
           Moreover, the reported obligations for the Indonesia signature
           road project do not reflect that USAID has not yet awarded the
           major contract for large-scale construction.

31USAID requires an annual audit of foreign nonprofit organizations
expending $300,000 or more of USAID funds and a preaward survey or audit
before negotiating a contract of $500,000 or more.

32USAID Inspector General, Audit of USAID/Indonesia's Tsunami Recovery and
Reconstruction Program Activities Implemented by Development Alternatives,
Inc., Audit Report No. 5-497-06-009P (Manila, Philippines; Sept. 15,
2006); and Audit of USAID/Sri Lanka's Large-Scale Infrastructure
Rebuilding Activities Under Its Sri Lanka Tsunami Reconstruction Program,
No. 5-383-07-001P (Manila, Philippines; Nov. 30, 2006).

33 [44]GAO-06-645 , 20-21.

34A May 2006 GAO report ( [45]GAO-06-645 ) summarized common lessons and
examples of USAID's efforts to address disaster recovery challenges. Prior
to the issuance of this report, USAID's planning efforts for posttsunami
reconstruction did not provide adequate contingencies and allowances for
cost, schedule, and scope changes. In response to our recommendation in
the report, USAID issued guidance that is now available for staff involved
in disaster recovery activities.

35Overall annual inflation rate in Aceh Province, as of December 2005.

36Our April 2006 report recommended that the Secretary of State, in the
department's required semiannual report to Congress in June 2006, provide
updated cost estimates and schedules obtained from USAID. We also
recommended that if the updated information differed substantially from
initial projections, the report should include alternative cost estimates,
schedules, and project scopes and the need for additional sources of
funding, if necessary.

           Figure 8: USAID Signature Project Funding Information Included and
           Not Included in Department of State Reports

           Note: The amounts are as of December 31, 2006.

           Generally, 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 ( [42]GAO-05-734SP , 70).
           Consistent with 31 U.S.C. 1501, which defines when an agency can
           record an obligation, USAID treats as an obligation the bilateral
           agreements it makes with other countries to deliver assistance.
           However, except where denoted by quotation marks ("obligations"),
           this report defines obligations 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.
           Expenditures are defined as the issuance of checks, disbursement
           of cash, or electronic transfer of funds to liquidate a federal
           obligation.

           USAID's required semiannual reports to Congress do not include
           information on cost and schedule risks to the Indonesia and Sri
           Lanka signature projects or provide mitigation strategies for
           addressing the risks. For example, the reports omit information on
           the government of Indonesia's slow progress in acquiring land
           parcels and how this challenge may affect the successful
           completion of the Indonesia signature road project. Similarly, the
           report does not present USAID's strategy for completing the Sri
           Lanka signature project in the face of rising conflict and an
           upsurge in violence.
			  
			  Conclusions

           USAID has assisted numerous countries, including Indonesia and Sri
           Lanka, in recovering from the December 2004 tsunami. A variety of
           USAID tsunami reconstruction projects have made progress toward
           restoring the lives of the survivors. However, some key project
           activities in Indonesia and Sri Lanka--particularly its signature
           projects intended to generate increased visibility for U.S.
           assistance--have experienced increased estimated costs, are behind
           initial schedules, and in the case of Indonesia have been reduced
           in scope. In both countries, USAID has taken some measures to
           adjust the scope, budget, and schedule of the projects in an
           attempt to account for conditions that have affected the projects'
           progress, while preserving the initial project goals.

           Although the Department of State has included updated information
           in its reports to Congress on the progress of the tsunami
           reconstruction program, the reports do not clearly reflect USAID's
           progress in the programs or risks that could affect its progress.
           The reports show as obligations the amounts that USAID intends to
           use for specific activities rather than
           amounts--"subobligations"--that it has agreed to in transactions
           with implementing agreements, such as contracts for specific
           projects. In addition, the reports do not indicate ongoing risks
           in both countries that may impact signature projects' costs,
           schedules, and scopes of work. As a result, Congress lacks some
           information that it needs to oversee USAID.
			  
			  Recommendations for Executive Action

           To ensure that Congress has access to information that clearly
           reflects both USAID's progress in its tsunami reconstruction
           programs in Indonesia and Sri Lanka and factors that may slow its
           progress, we are making the following two recommendations
           regarding the Secretary of State's required semiannual reports to
           Congress:

           o To clearly show USAID's progress in using the appropriated funds
           for tsunami reconstruction, the reports should include the amounts
           that USAID obligated to recipient countries for tsunami
           reconstruction and the amounts that it "subobligated" in
           transactions with implementing organizations, such as contracts,
           grants, and cooperative agreements, for specific reconstruction
           projects.
           o To indicate risk of potential changes to the costs, schedules,
           and scopes of work of USAID's signature projects in Indonesia and
           Sri Lanka, the reports should identify factors that may impact the
           agency's implementation of the projects and provide strategies for
           mitigating any impact.
			  
			  Agency Comments and Our Evaluation

           At our request, the Department of State and USAID 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.) The Department of State and USAID
           agreed to fully implement our recommendation to include
           "subobligation" cost data in State's required reports to Congress.
           USAID also stated that it has regularly provided risk information
           and mitigation strategies in various sections of State's required
           reports to Congress, but agreed to separately identify such data
           in future reports. We have incorporated technical suggestions and
           clarifications from USAID and State, as appropriate.

           The U.S. Army Corps of Engineers declined our request to provide
           written comments on a draft of this report.

           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 Secretary of State. We will also
           make copies available to others upon request. In addition, the
           report will be available at no charge on GAO's Web site at
           http://www.gao.gov .

           If you or your staff have any questions about this report, please
           contact me at (202) 512-3149, or [email protected]. Contact points
           for our Offices of Congressional Relations and Public Affairs may
           be found on the last page of this report. Individuals making key
           contributions to this report are listed in appendix VI.

           David Gootnick, Director
			  International Affairs and Trade
			  
			  Appendix I: Objectives, Scope, and Methodology

           We were directed^1 by Congress to monitor the delivery of U.S.
           reconstruction assistance to the tsunami-affected countries
           through periodic visits. In this report, we review (1) the status
           of the U.S. Agency for International Development's (USAID)
           signature projects in Indonesia and Sri Lanka, including its
           obligations and expenditures of funds for reconstruction
           assistance in Indonesia and Sri Lanka; (2) USAID's financial and
           technical oversight of the programs, and the extent to which the
           agency had issued guidance that includes lessons learned from
           prior disasters in order to identify and address project
           uncertainties; and (3) actions taken by the Secretary of State in
           response to our April 2006 recommendation regarding its provision
           of updated costs estimates and schedules to Congress.

           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 with the U.S. Army Corps of
           Engineers (USACE). We traveled to Sri Lanka in July 2006 and to
           Indonesia in October 2006. In Jakarta and Banda Aceh, Indonesia,
           and in Colombo, Sri Lanka, we reviewed USAID's status reports,
           applicable contracts, and cooperative agreements and discussed
           with USAID and other U.S. officials how their respective programs
           addressed reconstruction needs.

           During our visit to Indonesia, we reviewed USAID's activities in
           tsunami-affected areas, including the signature road construction
           project in Aceh Province. During 2 days in Aceh, we visited and
           photographed 2 locations consisting of several building
           construction projects which were in various stages of completion.
           We also visited a 36-mile section of road where USAID-funded road
           maintenance work was ongoing or where USAID-funded construction
           had begun. During our visit to Sri Lanka, we reviewed and
           photographed USAID's activities in tsunami-affected areas,
           including the signature project components in the eastern and
           southern part of Sri Lanka. 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.
			  
1H. Rept. 109-16, p. 49.			  

           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. 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 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.

Appendix II: USAID's Signature Projects in Indonesia and Sri Lanka

Table 2: Scope and Status of Indonesia Signature Road Construction Project

                                        Status (December     Status (February 
Contract     Scope (December 2005)   2005)                2007)            
Priority     Repair and maintain     Contract awarded to  Contract         
segment      existing 50-mile        an Indonesian firm   modified to      
                segment from Banda Aceh (PT Wijaya Karya) on construct        
                to Lamno.               August 23, 2005.     segments         
                                                             totaling 26      
                Design and construct a  Contract cost is     miles between    
                short priority (3-mile) $12.8 million.       Banda Aceh and   
                segment between Banda                        Calang.^a        
                Aceh and Lamno.         Maintenance and                       
                                        repair work is       Contract cost    
                Perform the design work ongoing; route is    increased to     
                on a                    passable.            $81.4 million.   
                cost-plus-fixed-fee                                           
                basis.                  Design of the new    Construction     
                                        3-mile road segment  work began       
                Perform the maintenance is under way.        October 2006 and 
                and construction work                        is expected to   
                on a fixed-price basis. Construction of new  be complete in   
                                        3-mile road segment  December 2007.   
                                        is expected to be                     
                                        completed by August                   
                                        2006.                                 
Design and   Design the new road     Contract awarded to  Design of new    
construction (except for the 3-mile  U.S. firm (Parsons   91-mile road     
management   priority segment).      Global Services      between Banda    
                                        Inc.) on November    Aceh and Calang  
                Supervise construction. 10, 2005.            is complete.^b   
                                                                              
                Perform services on a   Estimated contract   Management of    
                cost-plus-fixed-fee     cost up to $34.9     priority         
                basis.                  million; amount      construction     
                                        obligated is $20     work is ongoing. 
                                        million.                              
                                                             Management of    
                                        Design work ongoing  large-scale      
                                        and planned to be    construction     
                                        completed in June    expected to      
                                        2006.                begin when       
                                                             contract is      
                                        Contractor required  awarded in May   
                                        to prepare an        2007.            
                                        updated estimate of                   
                                        construction costs.  Estimated        
                                                             contract cost up 
                                        Construction         to $35.1         
                                        management services  million.         
                                        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.                              
Large-scale  Placement of new road   Construction         Scope reduced to 
construction along a 150-mile route  contract is expected construct 65     
                from Banda Aceh to      to be awarded in     miles of road    
                Meulaboh (except for    September 2006, and  between Banda    
                the portion covered     construction is to   Aceh and Calang; 
                under the priority      be completed by      26 additional    
                segment).               September 2009.      miles of road    
                                                             between these 2  
                Construction will be                         cities to be     
                done on a fixed-price                        built under the  
                basis according to the                       priority         
                plans and                                    contract.        
                specifications of the                                         
                design prepared under                        Contract was not 
                separate contract.                           awarded in       
                                                             September 2006,  
                                                             as planned, due  
                                                             to inability to  
                                                             reach agreement  
                                                             on price with    
                                                             prospective      
                                                             contractor.      
                                                                              
                                                             New contract     
                                                             solicitation     
                                                             process is       
                                                             ongoing with     
                                                             planned award in 
                                                             May 2007 and     
                                                             estimated        
                                                             completion in    
                                                             February 2010.   

Source: GAO analysis of USAID data.

^aDesign for approximately 23 of the 26 miles of road to be constructed
will be provided by the design and construction management contractor. The
priority contractor will complete the design for the remaining 3 miles.

^bThe contractor is also completing design for two separate bypasses,
totaling 12 miles, along the segment of road between Calang and Meulaboh.
According to USAID officials, construction of the bypasses is contingent
on availability of funds.

Table 3: Description and Status of USAID's Signature Project in Sri Lanka

Project component description                Status                        
Construct a bridge over Arugam Bay in        USAID through CH2M HILL       
eastern Sri Lanka.                           awarded the contract in       
                                                August 2006 to a private      
                                                contractor based in India.    
                                                Construction began in         
                                                September 2006.               
Drill wells for a water treatment facility   USAID funds are being used    
to provide water for the town of Pottuvil    for drilling wells for a      
and nearby communities near Arugam Bay.      water treatment facility.     
                                                Cost estimates for            
                                                construction and maintenance  
                                                were reduced after USAID      
                                                decided not to use surface    
                                                water from a nearby lake.     
Rehabilitate three commercial harbors in     The minor works, scheduled to 
southern Sri Lanka, including                be completed in December      
                                                2006, were substantially      
      o Minor works: construct/repair toilets,  completed on January 31,      
      repair roofs, clean up debris, etc.       2007. Work to complete punch  
      o Major works: dredge harbors, repair     list items is ongoing.        
      quay walls, etc.                                                        
                                                The contract for major works  
                                                was awarded and construction  
                                                began in December 2006.       
Construct nine vocational education          As of February 2007,          
facilities (four are located in eastern Sri  construction is expected to   
Lanka and five in southern Sri Lanka). USAID begin by April 2007.          
plans to make two of the facilities "green"                                
(i.e., they will be built using renewable                                  
energy and materials whenever possible), and                               
USAID also plans to obtain Leadership in                                   
Energy and Environmental Design                                            
certification for these two.                                               
Provide coastal management training. A       Coastal management training   
USAID-funded firm is providing training in   is continuing and projected   
construction and tourism-related skills,     to be completed by June 2007. 
which USAID considers essential to                                         
rebuilding and reactivating the economy in                                 
the Arugam Bay area.                                                       

Source: USAID.

Appendix III: USAID's Nonsignature Activities in Indonesia and Sri Lanka

As of December 31, 2006, USAID's tsunami reconstruction programs in
Indonesia and Sri Lanka include nonsignature projects budgeted at $97
million and $35 million, respectively. Tables 4 and 5 show the project
sectors, amounts of funds budgeted, and descriptions of selected
activities in each country.

Table 4: Project Sectors, Amounts of Funds Budgeted, and Descriptions of
Selected Activities for USAID's Nonsignature Projects in Indonesia

Dollars in millions                                                        
                            Funds budgeted,                                   
                             as of December Descriptions of selected          
Project sectors                 31, 2006 activities                        
Small-scale                          $23 USAID funds have been used to     
infrastructure                           reconstruct community meeting     
(construction of                         centers and village offices,      
community buildings and                  rehabilitate irrigation canals,   
sewage systems,                          clear agricultural land for       
reconstruction of                        re-planting, and construct and    
schools, etc.)                           repair water systems.             
Technical assistance and             $12 The USAID-funded Aceh Technical   
good governance                          Assistance Recovery Project       
(training and technical                  (A-TARP) activity is providing    
support to various                       technical assistance to national  
Indonesian government                    and sub-national government       
entities)                                ministries in planning,           
                                            coordinating, managing, and       
                                            overseeing reconstruction         
                                            efforts.                          
                                                                              
                                            The USAID-funded Local Governance 
                                            Support Program supports local    
                                            governments' efforts to increase  
                                            their capacity to plan and manage 
                                            public services and finances;     
                                            improve transparency and          
                                            accountability in legislative and 
                                            administrative processes; respond 
                                            to citizen priorities; include    
                                            opportunities for citizens to     
                                            participate in local government   
                                            decisionmaking; and work with     
                                            local service providers to        
                                            deliver services.                 
Transition assistance                $62 The USAID-funded Support for      
(rebuilding shelters and                 Peaceful Democratization program  
helping to restore                       supports projects targeted at     
livelihoods through                      conflict prevention, mitigation,  
microenterprise support)                 and resolution in selected areas  
                                            of Indonesia. Local and           
                                            international NGOs are provided   
                                            with grants for building local    
                                            and national constituencies for   
                                            peace, promoting cooperation      
                                            among diverse groups, increasing  
                                            community-level participation in  
                                            local governance, improving       
                                            livelihoods, and increasing       
                                            economic opportunities.           

Source: USAID.

Note: Dollars are rounded to the nearest number.

Table 5: Project Sectors, Amounts of Funds Budgeted, and Descriptions of
Selected Activities for USAID's Nonsignature Projects in Sri Lanka

Dollars in millions                                                        
                            Funds budgeted,                                   
                             as of December Descriptions of selected          
Project sectors                 31, 2006 activities                        
Small-scale                          $15 USAID funds are being used to     
infrastructure                           evaluate the environmental        
(evaluating                              impacts of building an            
environmental impacts of                 agricultural reservoir, community 
building public                          health centers, and others        
facilities, improving                    facilities.                       
access for disabled                                                        
persons, building                        A USAID-funded NGO is             
playgrounds in areas                     implementing construction         
where many children are                  projects to provide or improve    
tsunami survivors, etc.)                 access for disabled persons in at 
                                            least seven facilities, such as   
                                            hospitals and schools.            
                                                                              
                                            USAID plans to construct          
                                            approximately 85 playgrounds in   
                                            Sri Lanka, with about half to be  
                                            built in eastern Sri Lanka.       
                                            Increasing security issues may    
                                            affect USAID's progress and may   
                                            ultimately impact its ability to  
                                            achieve the goal of building all  
                                            85 playgrounds. As of February    
                                            2007, 18 playgrounds had been     
                                            completed.                        
Technical assistance and             $10 The USAID-funded Sri Lanka        
good governance                          Anti-Corruption Program is        
(providing training and                  intended to assist key government 
technical assistance to                  agencies and selected civil       
Sri Lankan government                    society organizations in          
agencies and civil                       strengthening measures to combat  
society organizations)                   corruption and monitor the uses   
                                            and disbursements of              
                                            tsunami-related assistance. Key   
                                            government agencies include the   
                                            Auditor General's Department, the 
                                            Commission to Investigate         
                                            Allegations of Bribery or         
                                            Corruption (also known as the     
                                            Bribery Commission), and various  
                                            civil society organizations. This 
                                            activity also includes plans to   
                                            improve transparency and          
                                            relationships in multi-ethnic     
                                            communities, especially those     
                                            affected by the long-standing     
                                            conflict and the tsunami.         
Transition assistance                $10 USAID's efforts are focused on    
(helping local                           three main activities: (1)        
organizations promote                    building small scale              
peace and democracy,                     infrastructure projects; (2)      
through short-term                       improving communication between   
assistance targeted at                   local governments and affected    
key political transition                 community members, and; (3)       
and stabilization needs)                 improving and restoring           
                                            livelihoods of those affected by  
                                            the tsunami.                      

Source: USAID.

Note: Dollars are rounded to the nearest number.

Appendix IV: Comments from the Department of State

Appendix V: Comments from the U.S. Agency for International Development

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

See comment.

The following is GAO's comment on the U.S. Agency for International
Development letter dated February 21, 2007.

GAO Comment

Although USAID has provided some information, the required reports have
generally contained limited information that has not fully identified
risks and included mitigation strategies.

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

David Gootnick, (202) 512-3149 or [email protected] .

Staff Acknowledgments

In additional to the contact named above, Michael Armes, Mark Dowling,
Emil Friberg, Phillip Herr, Dorian Herring, Reid Lowe, George Taylor, and
Wilda Wong made key contributions to this report.

(320423)

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Highlights of [54]GAO-07-357 , a report to congressional committees

February 2007

FOREIGN ASSISTANCE

USAID Signature Tsunami Reconstruction Efforts in Indonesia and Sri Lanka
Exceed Initial Cost and Schedule Estimates, and Face Further Risks

In December 2004, an earthquake caused a tsunami that devastated several
countries in the Indian Ocean region. In May 2005, Congress appropriated
$908 million in aid, of which the U.S. Agency for International
Development (USAID) is implementing $482 million in recovery projects in
many affected countries, including Indonesia and Sri Lanka. This report
examines (1) the progress of USAID's program; (2) USAID's financial and
technical oversight of its efforts, and risks it faces; and (3) actions
taken by the Secretary of State in response to an April 2006 GAO
recommendation. Specifically, GAO recommended that State, in its required
reports to Congress, provide updated cost estimates and schedules and show
the need for additional funding sources, if necessary. GAO examined
USAID's signature projects in both countries; reviewed project documents
and periodic reports, interviewed USAID officials, and visited project
sites in August and October 2006.

[55]What GAO Recommends

To show progress, potential future risks, and enhance Congress's
oversight, GAO recommends that the Secretary of State include, in State's
reports to Congress, (1) the amount of funds obligated (in USAID's terms,
"subobligated") in implementing agreements and (2) risk information and
mitigation strategies.

Although both of its signature projects--one in Indonesia and one in Sri
Lanka--are under way, USAID has increased initial cost estimates, reduced
or canceled some project activities, and may extend completion dates. As
of December 31, 2006, USAID had obligated $140 million (46 percent) and
expended $20 million (7 percent) of the $302 million it budgeted for the
two signature projects, which consist of the construction of a major road
in Indonesia and construction of a bridge and other infrastructure in Sri
Lanka. In Indonesia, based on GAO's analysis, estimated construction cost
per mile increased by 75 percent--from $1.6 million to $2.7 million; USAID
reduced the length of road to be built by over one third--from 150 miles
to 91 miles; and the agency may extend the planned completion date to
February 2010--5 months later than initially planned. As of January 2007,
construction had begun to build 26 miles of road, but USAID had not
awarded a contract for construction of the remainder of the road and the
government of Indonesia had acquired less than one-fourth of the nearly
3,700 parcels of land needed. In Sri Lanka, USAID increased the estimated
costs for its signature project by nearly 40 percent--from $35 million to
$48 million. USAID has taken steps to address some difficulties in both
countries but continues to face risks that it may not complete the
signature projects within cost and schedule estimates, and without
reducing the projects' scope, as planned.

USAID is carrying out measures that it previously established for
financial oversight of reconstruction in Indonesia and Sri Lanka and has
taken steps to enhance its technical oversight capacity. For example,
USAID is conducting additional concurrent audits of its signature road
construction project in Aceh Province, Indonesia, to address concerns
about corruption, potential misuse of funds, and completing projects on
schedule. To ensure technical oversight, USAID added experienced staff in
both countries and acquired additional engineering services through the
U.S. Army Corps of Engineers. However, when it began its tsunami
assistance programs in early 2005, USAID lacked disaster recovery
guidance, including lessons learned from prior disaster reconstruction
efforts. These lessons include setting appropriate time frames, conducting
thorough cost assessments, and understanding local land tenure systems.
USAID continues to face several risks, such as rising costs and delays in
land acquisition, that could affect its successful completion of signature
projects in Indonesia and Sri Lanka as planned.

In response to GAO's April 2006 recommendation, the Secretary of State
agreed to provide updated cost estimates and schedules in its required
semiannual report. However, State's two reports submitted since GAO made
its recommendation show USAID obligations to recipient countries rather
than amounts obligated to organizations implementing project activities
(in USAID's terminology, "subobligations"). The current reported
obligations do not clearly reflect USAID's progress and the reports do not
include some risk information and a mitigation strategy for addressing the
risks.

References

Visible links
  32. http://www.gao.gov/cgi-bin/getrpt?GAO-06-488
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-06-382SP
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-05-734SP
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-02-787
  36. http://www.gao.gov/cgi-bin/getrpt?GAO-06-645
  37. http://www.gao.gov/cgi-bin/getrpt?GAO-06-488
  38. http://www.gao.gov/cgi-bin/getrpt?GAO-06-645
  39. http://www.gao.gov/cgi-bin/getrpt?GAO-06-488
  40. http://www.gao.gov/cgi-bin/getrpt?GAO-06-488
  41. http://www.gao.gov/cgi-bin/getrpt?GAO-06-488
  42. http://www.gao.gov/cgi-bin/getrpt?GAO-05-734SP
  44. http://www.gao.gov/cgi-bin/getrpt?GAO-06-645
  45. http://www.gao.gov/cgi-bin/getrpt?GAO-06-645
  54. http://www.gao.gov/cgi-bin/getrpt?GAO-07-357
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