    Military Construction: Kaiserslautern Military Community Center
    Project Continues to Experience Problems (25-JUN-08,
    GAO-08-923T).

    The Kaiserslautern Military Community Center (KMCC) is one of
    many projects initiated at Ramstein Air Base to upgrade
    capabilities of the base as a result of the consolidation of
    military bases in Europe. The KMCC is intended to provide
    lodging, dining, shopping, and entertainment for thousands of
    U.S. military and civilian personnel and their families in the
    area. Construction on the project, which began in late 2003, was
    originally scheduled to be completed in early 2006. On June 28,
    2007, GAO testified that construction deficiencies and
    mismanagement had drawn into question when the project would be
    completed and at what cost. This testimony discusses updated
    findings related to the KMCC project. The testimony describes (1)
    the current status of the KMCC construction project, (2) whether
    oversight and internal control improvements have been made by the
    Air Force since GAO's last testimony, and (3) if other projects
    recently completed in the KMCC area have experienced problems
    similar to those affecting the KMCC. To address the objectives,
    GAO interviewed officials from the U.S. Air Force, Army and Air
    Force Exchange Service (AAFES), Air Force Services Agency, U.S.
    Army Corps of Engineers, Department of State, and German
    government. GAO also conducted site visits and reviewed project
    plans, cost estimates, completion analyses, and other relevant
    KMCC documents.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-923T
        ACCNO:   A82530
      TITLE:     Military Construction: Kaiserslautern Military Community
    Center Project Continues to Experience Problems
         DATE:   06/25/2008
      SUBJECT:   Air Force bases
    	     Air Force facilities
    	     Air Force personnel
    	     Air Force procurement
    	     Construction contracts
    	     Construction costs
    	     Contract modifications
    	     Cost analysis
    	     Erroneous payments
    	     Expense claims
    	     Facility construction
    	     Facility management
    	     Federal property management
    	     Financial management
    	     Foreign governments
    	     Funds management
    	     Internal controls
    	     Military cost control
    	     Military facilities
    	     Military facility construction
    	     Military forces
    	     Policy evaluation
    	     Schedule slippages
    	     Cost estimates
    	     Policies and procedures
    	     Kaiserslautern Military Community Center
    	     (KMCC)

    	     Ramstein Air Base

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    GAO-08-923T

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    Testimony:

    Before the Committee on Oversight and Government Reform, House of
    Representatives:

    United States Government Accountability Office:
    GAO:

    For Release on Delivery:
    Expected at 10:00 a.m. EDT:
    Wednesday, June 25, 2008:

    Military Construction:

    Kaiserslautern Military Community Center Project Continues to
    Experience Problems:

    Statement of Gregory D. Kutz, Managing Director:
    Forensic Audits and Special Investigations:

    Bruce A. Causseaux, Senior Level Specialist:
    Forensic Audits and Special Investigations:

    Terrell G. Dorn, Director:
    Physical Infrastructure:

    GAO-08-923T:

    GAO Highlights:

    Highlights of GAO-08-923T, a testimony before the Committee on
    Oversight and Government Reform, House of Representatives.

    Why GAO Did This Study:

    The Kaiserslautern Military Community Center (KMCC) is one of many
    projects initiated at Ramstein Air Base to upgrade capabilities of the
    base as a result of the consolidation of military bases in Europe. The
    KMCC is intended to provide lodging, dining, shopping, and
    entertainment for thousands of U.S. military and civilian personnel and
    their families in the area. Construction on the project, which began in
    late 2003, was originally scheduled to be completed in early 2006. On
    June 28, 2007, GAO testified that construction deficiencies and
    mismanagement had drawn into question when the project would be
    completed and at what cost.

    This testimony discusses updated findings related to the KMCC project.
    The testimony describes (1) the current status of the KMCC construction
    project, (2) whether oversight and internal control improvements have
    been made by the Air Force since GAO�s last testimony, and (3) if other
    projects recently completed in the KMCC area have experienced problems
    similar to those affecting the KMCC.

    To address the objectives, GAO interviewed officials from the U.S. Air
    Force, Army and Air Force Exchange Service (AAFES), Air Force Services
    Agency, U.S. Army Corps of Engineers, Department of State, and German
    government. GAO also conducted site visits and reviewed project plans,
    cost estimates, completion analyses, and other relevant KMCC documents.

    What GAO Found:

    Approximately 1 year after GAO�s June 2007 testimony and over 2 years
    after the KMCC�s originally scheduled construction completion date, the
    project continues to experience significant cost and schedule
    uncertainty along with construction quality problems and ongoing
    criminal investigations. Limited progress has been made on KMCC
    construction, and there are still no accurate estimates of how much the
    total project will cost or when it will be completed. Major
    construction deficiencies GAO reported in 2007 are just now beginning
    to be corrected. The photos below show that other than floor tiles
    being installed, the food court area remains essentially the same as in
    2007 and still requires finishing work and the installation of
    restaurants.

    Figure: Photographs of the food court area, May 2007 and May 2008:

    [See PDF for image]

    Source: GAO.

    [End of figure]

    In addition, the Air Force does not track the total cost of the KMCC.
    Specifically, tens of millions of dollars related to design, foreign
    currency fluctuation, rework, personnel, and furniture and equipment
    costs are not included in the Air Force�s cost estimates. Contingencies
    to fund items such as repairs to cracking concrete are also not
    included in the Air Force�s estimates. After including all estimated
    costs, the total cost of the project will likely exceed $200 million.
    Project delays have also resulted in additional costs to the U.S.
    government and lost profit for project funding partners. For example,
    AAFES estimates that it is losing $500,000 of profit for each month
    that the exchange facility is not open.

    Although these problems exist, the Air Force has made significant
    improvements in its oversight and control over the project. For
    example, the Air Force established standardized policies and procedures
    for reviewing change orders and invoices. Improvements in controls over
    payments and change orders have minimized future risks of paying for
    unapproved work or fraudulent billings for work not performed.

    Cost, schedule, and construction deficiencies affected other projects
    built by German government construction agents in the KMCC area. For
    example, underground electrical ducts at Ramstein Air Base flood with
    water causing runway lights to malfunction. A freight terminal on the
    air base was also built with structural deficiencies that resulted in
    its temporary evacuation.

    To view the full product, including the scope and methodology, click on
    [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-923T]. For more
    information, contact Gregory Kutz at (202) 512-6722 or kutzg@gao.gov or
    Terrell Dorn at (202) 512-6923 or dornt@gao.gov.

    [End of section]

    Mr. Chairman and Members of the Committee:

    Thank you for the opportunity to discuss our findings on the current
    status of the Kaiserslautern Military Community Center (KMCC)
    construction project. This testimony is a 1-year update to our
    testimony before this committee in June 2007,[Footnote 1] which
    detailed the problems facing the project. In June 2007, we testified
    that the KMCC was experiencing cost, schedule, and construction quality
    problems that raised questions about when the project would be
    completed and at what cost. At the time of our testimony, there were
    few workers on-site, the building's roof was leaking, and German police
    and Air Force Office of Special Investigations (AFOSI) agents were
    seizing documents as part of ongoing criminal investigations. In
    addition, the projected total cost of the project had increased
    substantially because of delays, rework, and the appreciation of the
    euro versus the U.S. dollar. Our 2007 testimony also detailed
    construction management failures by the Landesbetrieb Liegenschafts-
    und Baubetreuung's office in Kaiserslautern (LBB-Kaiserslautern), the
    German construction agent charged with managing the project for the
    U.S. forces. In addition, our testimony detailed control weaknesses
    within the Air Force that contributed to the problems for the project.
    This testimony provides an update on the status of the KMCC project and
    its problems, and makes an assessment of whether other construction
    projects in the area have experienced similar problems.

    As we previously reported, the KMCC, an 844,000 square foot facility,
    is one of many projects that were initiated at Ramstein Air Base to
    upgrade capabilities of the base as a result of the consolidation of
    military bases in Europe. It is intended to provide lodging, dining,
    shopping, and entertainment for over 50,000 U.S. military and civilian
    personnel and their families in the Kaiserslautern, Germany, area.
    Project highlights include a 350-room visiting quarters, sports bar,
    name-brand restaurant, food court, and numerous retail businesses.
    Funding for the KMCC was provided from a variety of sources including
    nonappropriated funds from the Army and Air Force Exchange Service
    (AAFES) and the Air Force Services Agency (AFSVA), [Footnote 2]
    military construction appropriations, and the Rhein Main Transition
    Program (RMTP) funds.[Footnote 3] Construction on the KMCC began in
    November 2003 and was planned to be completed in early 2006.

    In addition, we previously reported that the activities of U.S. forces
    personnel in Germany are to be carried out in accordance with the
    provisions of the North Atlantic Treaty Organization's Status of Forces
    Agreement and various implementing agreements. The KMCC, like other
    military construction projects in Germany, is governed by one such
    agreement, the Auftragsbaugrundsaetze 1975 (ABG-75) Administrative
    Agreement. ABG-75 provides that U.S. forces are to coordinate
    construction planning with the German government to ensure the optimum
    use of German design and construction capacities. For the KMCC, the
    responsibility for construction resided with LBB-Kaiserslautern, a
    German government construction agency.

    As requested, this testimony updates our findings on the status of the
    project and problems affecting the KMCC. Specifically, the testimony
    will describe (1) the current status of the KMCC construction project,
    including projected costs, projected construction completion dates, and
    status of ongoing investigations; (2) whether oversight and internal
    control improvements have been made by the Air Force since our last
    testimony; and (3) whether other projects recently completed in the
    KMCC area have experienced problems similar to those affecting the
    KMCC.

    To address our objectives, we conducted interviews with Air Force
    personnel responsible for the KMCC project. In addition, we interviewed
    officials from LBB-Kaiserslautern, AAFES, AFSVA, and the U.S. Army
    Corps of Engineers. We also interviewed officials from the Department
    of State and officials from the Federal Republic of Germany's
    construction division. We obtained and reviewed project plans, cost
    completion analyses, and other relevant documents related to the design
    and construction of the KMCC. We also compiled Air Force and LBB-
    Kaiserslautern cost estimates for the various cost elements associated
    with the KMCC. We physically inspected the KMCC and other recently
    completed facilities on Ramstein Air Base. See appendix I for more
    details on our scope and methodology.

    Because of ongoing investigations, we were not able to fully explore
    and discuss the details of fraud investigations with AFOSI and the
    German police, which limited the scope of our audit work.

    We conducted this performance audit from November 2007 through June
    2008 in accordance with generally accepted government auditing
    standards. Those standards require that we plan and perform the audit
    to obtain sufficient, appropriate evidence to provide a reasonable
    basis for our findings and conclusions based on our audit objectives.
    We believe that the evidence obtained provides a reasonable basis for
    our findings and conclusions based on our audit objectives.

    Summary:

    Approximately 1 year after our initial testimony and over 2 years after
    the KMCC's originally scheduled construction completion date, the
    project continues to experience significant cost and schedule
    uncertainty along with construction quality problems and ongoing
    criminal investigations. Since our testimony in June 2007, limited
    progress has been made on KMCC construction, and there are still no
    accurate estimates of how much the total project will cost or when it
    will be completed. Delays in reaching completion agreements with major
    contractors have contributed to the lack of progress over the last
    year. In addition, major construction deficiencies, such as the leaking
    roof and improperly installed kitchen exhaust ducts, which we discussed
    during our initial testimony, are just now beginning to be corrected.
    For example, in February 2008, a $2.7 million[Footnote 4] contract was
    awarded for the first of four phases of repair work on the leaking
    roof, and in May 2008, a $1.2 million contract was awarded for the
    second phase of roof repairs. However, long cracks in concrete floors
    have been identified since our June 2007 testimony, which raise new
    concerns about construction quality and could result in additional time
    and cost to repair. While the number of workers on-site has increased
    in recent months, it is unclear whether the number and type of workers
    are sufficient to complete construction by LBB-Kaiserslautern's current
    projected date of January 2009. This projected date only represents
    construction completion; however, the facility will not be open to the
    public for about 4 months following construction completion. Finally,
    criminal and civil investigations continue to surround the project and
    indictments are expected, according to AFOSI agents.

    There are no accurate estimates of how much the total KMCC project will
    cost because the Air Force does not track all project costs. While the
    Air Force actively tracks what it considers to be core construction-
    related costs, tens of millions of dollars of other project costs are
    not included in Air Force cost estimates. Specifically, costs that are
    not included in the estimates are design costs, foreign currency
    fluctuation costs, costs for roof repair and other rework, personnel
    costs, and costs for furniture and equipment. Foreign currency
    fluctuation costs are of particular concern because of the significant
    appreciation of the euro versus the U.S. dollar since inception of the
    project. In total, the euro has appreciated 35 percent against the U.S.
    dollar since construction began on the KMCC in November 2003. In
    addition, contingencies to fund items such as potential hindrance
    claims[Footnote 5] and repairs to floor cracks are not included in the
    estimated construction costs for completion. When taking into account
    all estimated costs, the total cost of the project will likely exceed
    $200 million. This figure was derived by consolidating numerous Air
    Force cost estimates captured in different accounts, such as military
    construction funds, non-appropriated funds, and operations and
    maintenance funds. Project delays have also resulted in additional
    costs to the U.S. government and lost profit for AAFES and AFSVA. For
    example, AAFES, responsible for management of the new exchange,
    estimates that it is losing $500,000 of profit for each month that the
    exchange facility is not open. In addition, the Air Force also
    estimates that the U.S. government is paying an additional $90,000 each
    month when personnel traveling at the government's expense must stay
    off base because the hotel portion of the KMCC remains unfinished.

    Although problems exist with the project, the Air Force has made
    significant improvements in its oversight and internal controls. In
    June 2007, we reported that Air Force officials did not have adequate
    or appropriately qualified personnel assigned to the project and did
    not have effective oversight policies and controls in place. In the
    last year, the Air Force created the Resident Director's Office (RDO),
    which centralized management of the KMCC project and established
    standardized policies and procedures for reviewing invoices and change
    orders. According to the Air Force, the RDO has 29 personnel, which is
    a significant increase over the 8 oversight personnel initially
    assigned to the KMCC project. To minimize future risks of paying for
    unapproved work or fraudulent billings, the Air Force has also
    standardized its invoice and change order review processes. Finally, at
    various times in 2007 and 2008, senior Air Force officials engaged
    officials from the Department of State and the Federal Republic of
    Germany in an effort to identify options for generating progress on the
    project.

    Other projects recently completed in the KMCC area have also
    experienced problems similar to those affecting the KMCC. According to
    the Air Force, several recent projects built by LBB-Kaiserslautern
    associated with the RMTP on Ramstein Air Base have experienced
    significant cost and schedule growth as well as construction
    deficiencies. For example, the lights on the new south runway built on
    Ramstein Air Base are affected by a construction defect that allows
    groundwater to collect in the underground ducts and manholes that
    contain electrical components used to control the lights. The Air Force
    has repeatedly lost the capability to operate certain lights as a
    result of power outages caused by water intrusion to the lighting
    system and, when power outages occur, has been forced to divert
    aircraft to other air bases during periods of low visibility. The south
    runway also suffers from poor water drainage, in general, which at
    times causes large ponds to form between the south runway and adjacent
    taxiways. These ponds attract large waterfowl, which pose a safety risk
    to aircraft using the runway. Another reported example of construction
    deficiencies is illustrated by the newly constructed freight terminal,
    which must rely on additional support columns as a precaution to
    prevent the building's roofs from collapsing. Because of structural
    integrity issues, 41 additional columns were installed in the freight
    terminal to provide additional support to the roof.

    Progress on the KMCC Has Been Slow, Quality Problems Persist, and
    Project Costs Are Unknown:

    Approximately 1 year after our initial testimony and over 2 years after
    the KMCC's originally scheduled construction completion date, the
    project continues to experience significant cost and schedule
    uncertainty along with construction quality problems and ongoing
    criminal investigations. Since our testimony in June of 2007, limited
    progress has been made on KMCC construction, and estimates of how much
    the total project will cost or when it will be completed are uncertain.
    Total project costs are uncertain because the Air Force does not track
    all costs associated with the project. Specifically, tens of millions
    of dollars related to design, foreign currency fluctuation, rework,
    personnel, and furniture and equipment costs are not included in the
    Air Force's cost to date or estimate for construction completion of the
    project. Contingencies to fund items such as potential hindrance claims
    are also not included in the estimated costs for construction
    completion.[Footnote 6] When including all estimated costs, the total
    cost of the project will likely exceed $200 million.

    Limited Progress Has Been Made:

    Over the past year, limited progress has been made on constructing the
    KMCC, and the project's construction completion date is uncertain.
    Figures 1 and 2 show comparisons of the project when we visited in 2007
    and during our last visit in May 2008. The comparison of the KMCC food
    court area shows that other than some wall finishes and floor tiles
    being installed, the area remains essentially the same and still
    requires finishing work and the installation of the food court
    restaurants. Overall, relatively few contractor employees were on-site
    from the time of our initial site visit in May 2007 through early 2008,
    as LBB-Kaiserslautern experienced repeated delays in reaching
    agreements with major contractors to return to work. While LBB-
    Kaiserslautern reached completion agreements with its major contractors
    in March 2008, and the number of workers on-site has increased since
    that time, it is not clear if the number and type of workers are
    sufficient to sustain production and meet LBB-Kaiserslautern's new
    estimated construction completion date of January 2009. This projected
    date represents construction completion; however, the facility will not
    be open to the public for about 4 months following construction
    completion. Moreover, because LBB-Kaiserslautern has not met earlier
    construction schedules and the estimated construction completion date
    has continued to slip, we are concerned about LBB-Kaiserslautern's
    ability to manage actions needed to achieve the January 2009 estimated
    construction completion date.

    Figure 1: Comparison of the KMCC Food Court Area:

    Photographs of the food court area, May 2007 and May 2008:

    [See PDF for image]

    Source: GAO.

    [End of figure]

    The comparison of the KMCC name-brand restaurant shows that the
    restaurant still requires painting, wiring, and other finishing work
    similar to that needed in 2007.

    Figure 2: Comparison of the KMCC Name-Brand Restaurant:

    Photographs of the KMCC Name-Brand Restaurant, May 2007 and May 2008:

    [See PDF for image]

    Source: GAO.

    [End of figure]

    In addition, major construction deficiency problems, such as the
    leaking roof and improperly installed kitchen exhaust ducts, which we
    discussed in our 2007 testimony, are just now being repaired. For
    example, contracts were recently awarded for the first two of four
    phases of repair work on the leaking roof, and most of the deficient
    ductwork has been removed. However, additional problems, such as
    several long cracks in the concrete floor of the AAFES store, have been
    identified by the Air Force since our last testimony. LBB-
    Kaiserslautern has retained an expert consultant to investigate the
    floor cracks, and the consultant's report recommends that joints be cut
    into the floor to control further cracking. The actual scope of the
    floor repair work and associated cost and schedule impacts are not
    known at this time. Figure 3 shows an example of these cracks. The pen
    in the photograph is provided for scale.

    Figure 3: Example of Floor Cracks in the KMCC:

    Photograph of floor cracks.

    [See PDF for image]

    Source: GAO.

    [End of figure]

    Final Costs of the KMCC Project Are Still Unknown:

    Because the Air Force does not track the total cost of the KMCC
    project, there are no accurate estimates of how much the total KMCC
    project will cost. Cost estimates provided by the Air Force primarily
    include core construction-related costs and do not account for millions
    of dollars in other costs related to the KMCC project. When all project-
    related costs are taken into account, the total cost for the project
    will likely exceed $200 million.[Footnote 7] This figure was derived by
    consolidating numerous Air Force cost estimates captured in different
    accounts, such as military construction funds (MILCON), non-
    appropriated funds, and operations and maintenance funds. According to
    Air Force officials, approximately $121 million has been spent on core
    construction-related costs for the KMCC as of March 31, 2008. In
    addition, Air Force officials estimate that an additional $41 million
    in construction-related costs are required to complete the project.
    However, this estimate only relates to those costs that the Air Force
    tracks for reporting purposes. Not included in the Air Force's estimate
    are design costs, costs of rework to repair known construction
    deficiencies, foreign currency fluctuation costs, costs for furniture
    and equipment, some costs for secondary services[Footnote 8], and costs
    for the numerous Air Force personnel reassigned from other projects in
    order to help manage the KMCC construction project. For example, the
    Air Force cost estimate does not fully reflect the effect of the
    weakening dollar compared to the euro because payments from MILCON
    funded project components to cover losses due to foreign currency
    fluctuation are drawn from a separate account that the Air Force does
    not track as part of this project. Table 1 shows the Air Force cost
    estimate for core construction-related expenses along with additional
    costs associated with the project. As the table shows, an accurate
    estimate on the total cost of the project is not possible because of a
    number of unknown expenses, such as the Air Force's liability for
    contractor hindrance claims.

    Table 1: KMCC Estimated Project Costs:

    Cost Component (dollars in millions): Air Force estimated construction
    costs; Construction costs paid[A,B];
    Air Force/LBB-Kaiserslautern cost estimate: $121.7.

    Cost Component (dollars in millions): Air Force estimated construction
    costs; Construction costs to complete the project [A,B];
    Air Force/LBB-Kaiserslautern: cost estimate: $41.2.

    Cost Component (dollars in millions): Project costs not included in Air
    Force construction cost estimates; Additional roof repair costs;
    Air Force/LBB-Kaiserslautern cost estimate: $10.8.

    Cost Component (dollars in millions): Project costs not included in Air
    Force construction cost estimates; Additional kitchen duct repair
    costs;
    Air Force/LBB-Kaiserslautern cost estimate: $1.2.

    Cost Component (dollars in millions): Project costs not included in Air
    Force construction cost estimates; Secondary services;
    Air Force/LBB-Kaiserslautern cost estimate: $5.7.

    Cost Component (dollars in millions): Project costs not included in Air
    Force construction cost estimates; MILCON foreign currency fluctuation
    costs;
    Air Force/LBB-Kaiserslautern cost estimate: $8.6.

    Cost Component (dollars in millions): Project costs not included in Air
    Force construction cost estimates; Design costs[B];
    Air Force/LBB-Kaiserslautern cost estimate: $8.4.

    Cost Component (dollars in millions): Project costs not included in Air
    Force construction cost estimates; Furniture and equipment[B];
    Air Force/LBB-Kaiserslautern cost estimate: $16.3.

    Cost Component (dollars in millions): Total quantifiable costs;
    Air Force/LBB-Kaiserslautern cost estimate: $213.9.

    Cost Component (dollars in millions): Unquantifiable costs; Contractor
    hindrance claims;
    Air Force/LBB-Kaiserslautern: cost estimate: Unknown.

    Cost Component (dollars in millions): Unquantifiable costs; Repairs to
    cracking concrete;
    Air Force/LBB-Kaiserslautern cost estimate: Unknown.

    Cost Component (dollars in millions): Unquantifiable costs; Air Force
    staffing to manage the KMCC;
    Air Force/LBB-Kaiserslautern: cost estimate: Unknown.

    Cost Component (dollars in millions):
    Total project cost:
    Air Force/LBB-Kaiserslautern: cost estimate: Unknown.

    Source: Air Force (for all quantifiable project costs).

    [A] Construction costs include costs for construction contracts;
    certain secondary services; contingency costs; and supervision,
    inspection, and overhead provided by LBB-Kaiserslautern.

    [B] Cost component was included in original project documents submitted
    to Congress disclosing appropriated and nonappropriated funds
    estimates.

    [End of table]

    Additional clarification on selected project costs not included in the
    Air Force's construction cost estimate is provided below.

    * Construction deficiency repairs. Deficient construction has been
    identified on major building components, including the roof and kitchen
    exhaust ducts. LBB-Kaiserslautern is taking steps to contract for
    repairs to correct these deficiencies.

    - Roof damage. Significant sections of the roof require repair or
    replacement. The current plan is to complete repairs to the roof in
    four phases. The first phase of repairs is expected to cost $2.7
    million and is included in the Air Force's construction cost estimate,
    which according to the Air Force is being paid for primarily with funds
    withheld from the original roof contractor. Costs for repair phases two
    through four are estimated by the Air Force to cost about $10.8 million
    and are not included in its construction cost estimate. U.S. government
    funds remaining from the original roof contract are being used to fund
    the majority of phase one repairs; therefore, the phase one repair cost
    is reflected in the Air Force's construction cost estimate. Funds for
    repair phases two through four are initially being funded by the German
    government, and the Air Force excludes these costs in its construction
    costs to complete the project.

    - Kitchen exhaust ducts. The kitchen exhaust ducts installed in the
    KMCC do not comply with U.S. National Fire Protection Association
    standards specified by the Air Force. LBB-Kaiserslautern has completed
    the design for repairs to the exhaust ducts and is negotiating with its
    contractor a final price for their installation. The estimated
    installation cost is approximately $1.8 million. In early 2007, the Air
    Force agreed to pay for $600,000 of the rework and has included that
    amount in its construction cost estimate, but has not included the rest
    of the repair cost as part its construction cost estimate.

    * Secondary services. As the project has progressed, the Air Force has
    retained several contractor personnel to provide construction
    inspection, engineering, consulting, and other secondary services. For
    example, since January 2005 the Air Force has contracted for
    construction inspectors who are responsible for, among other things,
    ensuring that installed work meets the terms of the contract and
    checking that invoices correctly reflect the work performed. The cost
    for most of these secondary services is not included in the Air Force's
    construction cost estimate. Air Force officials indicated that some of
    the Air Force's technical consultants were also supporting other
    projects, but that the majority of their work involved support on the
    KMCC. Since the majority of work performed under these secondary
    services contracts relates to the KMCC project, we have included the
    cost of these contracts in the Air Force's estimate.

    Foreign currency fluctuation. Since the start of the project in 2003,
    the euro has appreciated 35 percent relative to the U.S. dollar.
    Because KMCC contractors are paid in euros but KMCC project funds are
    budgeted in dollars, the Air Force is susceptible to paying more when
    the dollar loses value. In addition, this risk has been magnified by
    the 2-year delay in completion of the project. Since the June 2007
    testimony alone, the euro has appreciated by 15 percent, from $1.35 to
    $1.55. As a result of the devaluation of the dollar, nonappropriated
    fund payers (AAFES and AFSVA) have paid about $31.9 million in foreign
    currency fluctuation expenses, and appropriated MILCON funds have paid
    $8.6 million since the project's inception. The Air Force includes
    nonappropriated fund foreign currency fluctuation costs in its
    construction cost estimates. However, because MILCON foreign currency
    fluctuation costs are paid from a separate account, the effect of
    foreign currency fluctuation is not reflected in the Air Force's
    construction cost estimate.[Footnote 9] Therefore we have included in
    the estimate based on the Air Force's reported numbers the actual
    foreign currency fluctuation costs paid to date associated with MILCON
    funds. In addition, the Air Force also did not include an allowance for
    future foreign currency fluctuation costs associated with MILCON
    funding. Based on the trend of the strengthening euro, these foreign
    currency fluctuation costs will only increase as MILCON expenses
    increase. Figure 4 shows the trend in the strengthening of the euro
    against the U.S. dollar over the past several years.

    Figure 4: Currency Exchange Rates for Euros since 2003:

    [See PDF for image]

    This figure is a line graph depicting the following data:

    Year: 2003, Q1;
    U.S. dollars to one euro: 1.0.

    Year: 2003, Q2;
    U.S. dollars to one euro: 1.2.

    Year: 2003, Q3;
    U.S. dollars to one euro: 1.2.

    Year: 2004, Q4;
    U.S. dollars to one euro: 1.2.

    Year: 2004, Q1;
    U.S. dollars to one euro: 1.25.

    Year: 2004, Q2;
    U.S. dollars to one euro: 1.2.

    Year: 2004, Q3;
    U.S. dollars to one euro: 1.2.

    Year: 2004, Q4;
    U.S. dollars to one euro: 1.3.

    Year: 2005, Q1;
    U.S. dollars to one euro: 1.35.

    Year: 2005, Q2;
    U.S. dollars to one euro: 1.3.

    Year: 2005, Q3;
    U.S. dollars to one euro: 1.25.

    Year: 2005, Q4;
    U.S. dollars to one euro: 1.2.

    Year: 2006; Q1;
    U.S. dollars to one euro: 1.2.

    Year: 2006; Q2;
    U.S. dollars to one euro: 1.3.

    Year: 2006; Q3;
    U.S. dollars to one euro: 1.3.

    Year: 2006; Q4;
    U.S. dollars to one euro: 1.3

    Year: 2007, Q1;
    U.S. dollars to one euro: 1.3.

    Year: 2007, Q2;
    U.S. dollars to one euro: 1.35.

    Year: 2007, Q31;
    U.S. dollars to one euro: 1.36.

    Year: 2007, Q4;
    U.S. dollars to one euro: 1.5.

    Year: 2008, Q1;
    U.S. dollars to one euro: 1.5.

    Year: 2008, Q2;
    U.S. dollars to one euro: 1.55.

    Source: Federal Reserve.

    [End of figure]

    In addition to the estimated expenses listed above, there are still a
    number of significant costs associated with project completion that
    have not been estimated. These items include potential hindrance
    claims, repair of cracking concrete, and Air Force personnel costs for
    staff needed to manage the KMCC's construction. Depending on the
    resolution of these unknown costs, the total cost of the KMCC project
    could increase substantially before completion.

    * Hindrance claims. As a result of delays to the project, the Air Force
    expects that contractors will submit claims for additional costs
    incurred from being hindered in their performance. As of June 1, 2008,
    LBB-Kaiserslautern had forwarded change order requests for contractor
    hindrances totaling $8.2 million (5.4 million euros) to the Air Force.
    However, the Air Force has denied the requests because it contends that
    they are not substantiated. In anticipation of contractors making
    formal hindrance claims--that must meet a prescribed legal standard and
    would be adjudicated through the German courts--the Air Force has
    retained a consultant[Footnote 10] to evaluate the history of the
    project and prepare the Air Force's claims defense strategy.[Footnote
    11] At this time, the Air Force's potential exposure to claims is
    unknown.

    * Concrete cracking. Long cracks have been identified by the Air Force
    at various locations on concrete floors of the KMCC subsequent to our
    2007 site visit. A German court appointed an expert consultant to
    determine the severity of the cracks and identify their causes. The
    consultant's report, issued in March 2008, indicates that joints will
    need to be cut into the floor to keep additional cracks from occurring.
    LBB-Kaiserslautern subsequently initiated design work to detail the
    scope of the repairs. The Air Force expects that LBB-Kaiserslautern
    will award a contract for the repairs in July 2008. At this time, the
    cost of repairs is unknown. (See fig. 3 for an example of these
    cracks).

    * Air Force personnel costs for staff managing the KMCC. According to
    the Air Force, a team of 29 military, civilian, and contractor
    personnel manage the KMCC construction project. They are responsible
    for financial management, claims management, design and construction
    management, and stakeholder operations. This team comprises 6 military
    officers and enlisted personnel, 10 civil service employees, and 13
    contracted employees. The cost of the salaries and benefits for
    military and civil service employees who have been reassigned from
    other projects to assist in managing the KMCC project since its
    inception in 2003 is a real cost of the project but is not included in
    the Air Force's overall cost estimate. This cost is difficult to
    quantify because the military and civilian personnel occasionally work
    on other projects, and it is not clear how their time is apportioned
    among projects.

    Federal Republic of Germany funds. The extent to which project cost
    increases will be borne by the Air Force and its funding partners is
    unknown because of uncertainties regarding the $37.9 million (25
    million euros) committed by the German government for the project. The
    German government allocated $15.2 million (10 million euros) to pay
    contractors' invoices against change orders that had not yet been
    approved by the Air Force. According to the Air Force, only $8.6
    million (5.7 million euros) were actually expended by LBB-
    Kaiserslautern prior to the funds expiring at the end of calendar year
    2007. According to the German officials, this initial $8.6 million
    amounts to a loan, and the Air Force stated that it will reimburse this
    amount when it approves the change orders and makes payment against the
    associated invoices. The additional $22.7 million (15 million euros)
    are planned to be used by LBB-Kaiserslautern to fund contracts for
    rework items, such as roof repairs and kitchen exhaust duct
    replacement, and may also be used to settle contractor hindrance
    claims. In discussions with us, German officials characterized the
    $22.7 million (15 million euros) as a loan as well and said that they
    expected full repayment of funds. However, Air Force officials
    contended that they will only pay for valid work under the original
    KMCC contract and will not pay for rework. In light of these opposing
    views, for transparency purposes, all expenses paid from the German
    funds are incorporated into the total project cost regardless of which
    party is ultimately responsible for financing them.

    Delayed Completion Has Caused Opportunity Costs to Grow:

    As a result of the delayed KMCC project completion, AFSVA and AAFES,
    two major funding sources for the project, have experienced negative
    financial effects. Both AFSVA and AAFES invested in the project with
    the expectation of returns being generated in early 2006, the project's
    original construction completion date. However, the delayed completion
    has resulted in lost profits and in turn reduced the amount of funds
    AAFES and AFSVA can provide to military communities for morale,
    welfare, and recreation. For example, AAFES estimates that every month
    the KMCC's opening is delayed, AAFES loses approximately $500,000 in
    net profits from stores such as the base exchange and food court
    restaurants. In total, AAFES estimates it will have lost more than $14
    million in net profits by the time construction is estimated to be
    completed in January 2009. Also, the unavailability of the 350 hotel
    rooms to be completed in the KMCC Visitors Quarters results in the U.S.
    government paying more for lodging on the local economy. According to
    an Air Force estimate, on average each month that the opening of the
    hotel is delayed results in the U.S. government paying an additional
    $90,000 for off-base lodging of displaced personnel[Footnote 12]
    traveling at the government's expense. Estimated increases in off-base
    housing costs will total $2.9 million dollars if construction is
    completed in January 2009.

    Criminal and Civil Investigations Continue to Surround the KMCC and
    Other Projects:

    In our June 2007 testimony, we reported that several Air Force and LBB-
    Kaiserslautern personnel involved in management of the KMCC and other
    RMTP projects were under investigation by AFOSI and German police for a
    variety of issues, both criminal and civil. AFOSI officials stated that
    the cases have matured significantly since that time; however, formal
    indictments have not yet been made. Because the investigations are
    still active, AFOSI is limited as to the information it can disclose.
    However officials did state that investigations involve U.S. military
    and civilian employees, employees of LBB-Kaiserslautern, and KMCC trade
    contractors. These individuals are being investigated for offenses such
    as dereliction of duty and bribery.

    The Air Force Has Improved Controls over the KMCC Project:

    The Air Force has made significant improvements in its oversight and
    internal controls over the KMCC project. As stated in the June 2007
    testimony, the Air Force had failed to institute effective management
    oversight and internal controls in order to mitigate the high risk of
    the project. Specifically, the Air Force lacked standardized policies,
    did not have sufficient staffing to oversee the project, was not
    thoroughly reviewing invoices, and was approving change orders and
    payments on the project without proper documentation. In the last year,
    the Air Force created the RDO, which centralized management oversight
    of the KMCC project and brought together appropriate personnel
    specializing in financial management, claims management, design and
    construction management, and stakeholder operations. The Air Force has
    also standardized its invoice and change order review processes to
    minimize future risks of paying for unapproved work. The Air Force
    trained and appointed certifying officers and accountable officials for
    the KMCC project to ensure that personnel authorizing payments are
    aware of their fiduciary responsibilities. Finally, during 2007, senior
    officials within the Air Force engaged officials from the Department of
    State and the Federal Republic of Germany in an effort to encourage
    progress on the project.

    Establishment of the RDO and Improvements in Invoice and Change Order
    Reviews:

    In August 2007, the Air Force established the RDO to centralize control
    over all aspects of the KMCC project. According to the Air Force, the
    RDO has 29 personnel, which is a significant increase from the 8
    oversight personnel initially assigned to the KMCC project. These 29
    personnel are 6 military officers and enlisted personnel, 10 civil
    service employees,[Footnote 13] and 13 contracted employees. The RDO is
    divided into four branches: financial controls, ABG-75 administration,
    engineering, and operations/quality assurance. The Air Force also
    standardized policies and procedures for the four RDO branches, which
    are documented in an official operating instruction manual for the KMCC
    project. The documented policies were a measurable improvement from the
    one-page flowchart used during our last visit in 2007. As part of the
    establishment of the RDO, the Air Force also appointed and trained 9
    certifying officers and accountable officials. Certifying officers are
    responsible for certifying vouchers for payment. Accountable officials
    provide source information to a certifying officer to support a
    decision to certify a voucher for payment or to disburse funds.
    Appointment and training of these types of officials are key to
    ensuring that appropriate controls are in place over payments made by
    the Air Force. The RDO also includes 6 quality assurance engineers and
    technicians responsible for performing technical reviews of designs and
    conducting daily surveillance of the work site.

    Since creating the RDO, the Air Force has also improved its review
    process for invoices. During our initial visit last year, we reported
    how Air Force management instructed its staff to certify for payment
    invoices with items included in unapproved change orders and items that
    exceeded quantity limitations specified in contracts. The Air Force has
    since revised its policy and now rejects invoices for quantities in
    excess of contracted amounts and also rejects invoices with items
    included in unapproved change orders. For example, if the Air Force
    receives an invoice that contains charges for items contained in
    unapproved project change orders, the Air Force will reject the invoice
    and refuse payment until LBB-Kaiserslautern submits an invoice that
    only lists items that have been approved by the Air Force. In addition,
    the Air Force has gone back on prior invoices and recouped amounts
    previously paid in excess of contracted quantities.

    Involvement of Senior Air Force Officials:

    Beyond improvements over internal controls and the establishment of the
    RDO, senior Air Force, Department of State, and German government
    officials have also increased oversight of the project. Beginning in
    August 2007, the U.S. Air Forces in Europe Vice Commander, the U.S.
    Ambassador to Germany, and the heads of the German Ministry of
    Construction and the German Ministry of Finance started meeting
    regularly to discuss problems facing the KMCC. These repeated meetings
    between U.S. and German officials prompted the German government to
    provide $37.9 million (25 million euros) to the project for backlogged
    change orders and repair work. According to the Air Force, German
    support is essential for a successful completion of the KMCC project.
    The Air Force's expectation is that by maintaining strong relationships
    among senior officials, it will ensure that those running the KMCC
    project are able to better organize, prioritize, and execute the
    project. Unfortunately, this joint effort has not yet expedited KMCC
    construction to an acceptable pace according to Air Force officials.

    Other Recent U.S. Projects on Ramstein Air Base Have Experienced
    Similar Problems:

    Other projects recently completed in the KMCC area managed by LBB-
    Kaiserslautern have experienced problems similar to those affecting the
    KMCC. Air Force officials report that several recent projects on
    Ramstein Air Base experienced cost and schedule growth, including
    projects that were delivered by LBB-Kaiserslautern months after the
    planned delivery dates. In addition, several projects were delivered
    with construction flaws that have caused flights to be diverted and
    have affected the processing of freight shipments. According to the Air
    Force, it has experienced fewer problems with less sophisticated
    projects, such as the construction of more than 1,000 new military
    family housing units in the KMCC area and the construction of an indoor
    pool on Ramstein Air Base, that were managed by LBB-Kaiserslautern.
    However, construction of these projects is not comparable to the scope
    and complexity of constructing the KMCC building, runways, and other
    operational facilities.

    Cost and Schedule Growth of Other Projects:

    Numerous recent projects associated with the RMTP built on Ramstein Air
    Base by LBB-Kaiserslautern have experienced significant cost growth,
    according to the Air Force. Several of these projects have also not
    received final bills from LBB-Kaiserslautern despite being turned over
    to the United States more than a year ago. Therefore, the final costs
    of the projects are still unknown. In addition, many of the same group
    of projects managed by LBB-Kaiserslautern also experienced significant
    schedule growth according to the Air Force, including projects that
    were delivered months after their scheduled completion dates.

    Construction Deficiencies of Other Recently Completed Projects:

    Construction deficiencies experienced on several of the RMTP projects
    built by LBB-Kaiserslautern add to the concerns associated with cost
    and schedule growth. Specifically, there have been several projects
    where faulty construction has resulted in safety concerns, building
    evacuations, and potentially reduced useful lives of facilities. Below
    are examples of such problems.

    * South runway. This runway was recently built on Ramstein Air Base in
    order to upgrade the base's capabilities in support of overseas
    missions, including those in Iraq and Afghanistan. However, the runway
    lights are adversely affected by a construction defect that allows
    groundwater to collect in the underground ducts and manholes that
    contain electrical components used to control the lights. The intrusion
    of water has damaged electrical components resulting in power outages
    to the lights. These lights are crucial for operations because they
    allow aircraft to land during times of extremely limited visibility.
    According to the Air Force, because of the lighting failures, aircraft
    could not land during periods of limited visibility from November
    through December 2007 and flights were diverted to other bases in
    Europe. Portable lights have been used to temporarily resolve the
    problem. Additionally, water is pumped from the manholes as an ongoing
    maintenance activity that according to Air Force officials, has cost
    about $65,000 to date. Finally, during rainy periods, several large
    ponds developed between the south runway and adjacent runways and
    taxiways because of poor water drainage. These ponds, which were
    several acres in total area during our visit in March 2008, have
    attracted large waterfowl, which pose a safety hazard to aircraft using
    the runway. Figure 5 shows one of these large ponds. Studies and court
    actions are currently under way to resolve these issues.

    Figure 5: Example of Large Pond Next to Ramstein's South Runway:

    {See PDF for image]

    Photograph of large pond next to Ramstein's South Runway.

    Source: GAO.

    [End of figure]

    * Freight terminal. This large 100,000 square foot material handling
    facility was constructed to assist in processing freight shipments to
    and from overseas locations. However, deficiencies with the structural
    steel that frames the freight terminal required evacuation of the
    building until additional support columns could be installed. According
    to the Air Force, because of material fabrication issues, insufficient
    welds, and undersized connections, the steel structure that supports
    the freight terminal building was determined to be at risk of
    collapsing. As an interim safety measure, 41 additional support columns
    were installed to bolster the structural integrity of the facility.
    According to the Air Force, these additional supports effectively
    reduce the open area in the center of the facility and affect freight
    processing operations. For example, forklifts are restricted in
    maneuvering and cannot access certain areas. Figure 6 shows an example
    of the additional support columns installed within the freight terminal
    building. A permanent resolution will be determined by legal
    proceedings that are currently ongoing in the German courts. In
    addition, officials were concerned that a building attached to the
    freight terminal was also structurally deficient as a result of
    potentially insufficient welds on the structural steel. Because of
    these concerns, the building was evacuated from July through September
    2007 while additional support columns were installed. An inspection
    completed in March 2008 confirmed that the structural steel was, in
    fact, installed correctly and that the building is not at risk of
    collapsing. The attached building is currently being used as intended.

    Figure 6: Example of Additional Support Column Installed in the Freight
    Terminal:

    [See PDF for image]

    Photograph of additional support column installed in the Freight
    Terminal.

    Source: GAO.

    [End of figure]

    * Hot cargo pad. A large concrete area intended to be used for loading
    live munitions onto aircraft destined for overseas locations such as
    Iraq and Afghanistan was recently built near the Ramstein Air Base
    runway. However, when building the concrete pad, contractors did not
    install dowels between adjacent concrete slabs as is typically done in
    this type of construction. Because the dowels were not installed, Air
    Force officials stated that differential settling of the concrete slabs
    could result in damage to the cargo pad and reduce its useful life. The
    Air Force is currently negotiating with LBB-Kaiserslautern to determine
    what, if any, actions will be taken to address this issue. While this
    does not represent a safety risk, the reduced life span of the cargo
    pad could result in the Air Force spending money for repair or
    replacement earlier than would normally be expected.

    Concluding Comments:

    Although the Air Force has made measurable improvements in its
    oversight and control of the KMCC since our last testimony, the project
    remains at risk because of schedule and cost uncertainties. With few
    visible changes, no reliable construction completion date, rising
    repair costs, and continuing construction quality problems, the KMCC
    will continue to be a high-risk project. Even after the KMCC is
    completed and open, it will likely take years before all issues related
    to this project, including litigation and potential construction
    quality problems, are resolved.

    Mr. Chairman and Members of the Committee, this concludes our
    statement. We would be pleased to answer any questions that you or
    other members of the committee may have at this time.

    GAO Contacts:

    For further information about this testimony, please contact Gregory
    Kutz at (202) 512-6722 or kutzg@gao.gov or Terrell Dorn at (202) 512-
    6293 or dornt@gao.gov. Contact points for our Offices of Congressional
    Relations and Public Affairs may be found on the last page of this
    testimony.

    [End of section]

    Appendix I: Scope and Methodology:

    To determine the current status of the Kaiserslautern Military
    Community Center (KMCC) construction project, including projected
    costs, cost completion analyses, projected construction completion
    dates, and status of ongoing investigations, we interviewed officials
    from the Air Force at Ramstein Air Base in Germany, the Army and Air
    Force Exchange Service (AAFES), the Air Force Services Agency (AFSVA),
    the U.S. Army Corps of Engineers (USACE), the Air Force Audit Agency,
    the Air Force Office of Special Investigations (AFOSI), and the
    Department of State. In addition, we interviewed officials from
    Landesbetrieb Liegenschafts-und Baubetreuung office in Kaiserslautern
    (LBB-Kaiserslautern), the German government construction agency; the
    Federal Republic of Germany's construction division; and the German
    police. We physically inspected the KMCC facility with an Air Force
    project manager and observed construction deficiencies. We also
    reviewed financial records and statements in the form of contracts,
    change orders, and invoices to the extent that they were available. We
    also compiled Air Force and LBB-Kaiserslautern cost estimates for the
    various cost elements associated with the KMCC project.

    To determine whether oversight and internal control improvements have
    been made by the Air Force since our last testimony, we interviewed Air
    Force officials from the KMCC Resident Director's Office. We also
    interviewed officials from LBB-Kaiserslautern, AAFES, AFSVA, AFOSI and
    the Air Force Audit Agency. We obtained and reviewed project management
    plans, standardized policies and procedures, cost estimates, training
    materials for certifying officers and accountable officials, and other
    relevant documents related to project management.

    To determine if other projects recently completed in the KMCC area have
    experienced problems similar to those affecting the KMCC, we
    interviewed Air Force officials regarding their construction projects
    in Germany. We also conducted interviews with other organizations,
    including USACE, AFOSI, LBB-Kaiserslautern, and the Air Force Center
    for Engineering and the Environment to understand the cost, schedule,
    and construction flaws experienced by other military construction
    projects in the KMCC area and how they may affect the viability of
    future construction projects. We also reviewed available technical
    expert reports documenting construction deficiencies associated with
    these projects.

    Because of ongoing investigations, we were not able to fully explore
    and discuss the details of fraud investigations with AFOSI and the
    German police, which limited the scope of our audit.

    We conducted this performance audit from November 2007 through June
    2008 in accordance with generally accepted government auditing
    standards. Those standards require that we plan and perform the audit
    to obtain sufficient, appropriate evidence to provide a reasonable
    basis for our findings and conclusions based on our audit objectives.
    We believe that the evidence obtained provides a reasonable basis for
    our findings and conclusions based on our audit objectives.

    [End of testimony]

    Footnotes:

    [1] GAO, Military Construction: Observations on Mismanagement of the
    Kaiserslautern Military Community Center, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-07-1039T] (Washington, D.C.: June
    28, 2007).

    [2] AAFES is a joint military activity providing merchandise and
    services to active duty, guard and reserve members, military retirees,
    and their families. AAFES uses earnings to improve troops' quality of
    life and to support morale, welfare, and recreation programs. AFSVA
    provides combat support and community service programs that enhance the
    quality of life for Air Force members and their families. AFSVA
    programs include lodging, youth programs, and sports and fitness
    programs.

    [3] The closure of the Rhein Main Air Base is part of the RMTP where
    the United States and Germany agreed to return the base to Germany. In
    return, Germany allowed the relocation of the base's key airlift
    capability to Ramstein and Spangdahlem Air Bases. As part of the
    agreement, the Federal Republic of Germany, federal states of Rheinland-
    Palatinate and Hessen, city of Frankfurt, and Fraport AG Frankfurt
    Airport Services Worldwide agreed to provide funds to upgrade the
    facilities at Ramstein and Spangdahlem Air Bases, including about 14
    million euros for the KMCC.

    [4] For all contract and cost amounts accounted for in euros, we
    converted costs into U.S. dollars at the specific conversion rate
    estimated by Air Force officials for that specific cost element. In
    cases where the Air Force did not have a specific conversion rate set
    for a cost element, we converted the cost at a rate of .66 euros per
    dollar, which was the most recent conversion rate used by the Air Force
    for planning purposes.

    [5] Hindrance claims refer to claims against the United States for
    additional costs contractors incurred because of interruptions of
    contractor work.

    [6] The German government has loaned the project 25 million euros since
    our 2007 testimony to finance rework and repairs, prepay invoices, and
    settle contractor hindrance claims. German officials stated to us that
    complete reimbursement for this loan from the United States is
    expected. However, the Air Force contends that it will not pay for any
    expenses related to rework or repairs to deficient construction. For
    transparency purposes, we consider that all expenses funded by proceeds
    from the loan are part of the total project cost regardless of which
    party is ultimately responsible for financing each specific cost.

    [7] Estimates for each independent cost element were developed by the
    Air Force and German government officials; however, our review of these
    estimates in aggregate resulted in confidence that the overall project
    cost will likely exceed $200 million.

    [8] Secondary services, also called soft costs, include work performed
    by construction inspectors who are responsible for ensuring that
    installed work meets the terms of the contract and checking that
    invoices correctly reflect the work performed. Secondary services also
    include consulting and logistical support services.

    [9] Costs associated with foreign currency fluctuation for appropriated
    MILCON funds are paid from a central MILCON foreign currency
    fluctuation account and are not charged directly to projects.

    [10] The cost of this claims consultant is included in the secondary
    services cost estimate.

    [11] The consultant is also investigating if there are areas where the
    Air Force may be able to recover costs for problems caused by designer
    or contractor errors.

    [12] Displaced personnel include military and civilian personnel in
    temporary duty status from the Air Force and other agencies, as well as
    contractors who are eligible for military lodging.

    [13] As previously discussed, salary and benefit costs for the military
    and civil service employees are not included in the overall project
    costs.

    [End of section]

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    Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
    E-mail: fraudnet@gao.gov:
    Automated answering system: (800) 424-5454 or (202) 512-7470:

    Congressional Relations:

    Ralph Dawn, Managing Director, dawnr@gao.gov:
    (202) 512-4400:
    U.S. Government Accountability Office:
    441 G Street NW, Room 7125:
    Washington, D.C. 20548:

    Public Affairs:

    Chuck Young, Managing Director, youngc1@gao.gov:
    (202) 512-4800:
    U.S. Government Accountability Office:
    441 G Street NW, Room 7149:
    Washington, D.C. 20548:

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