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WHERE IS THE PEACE DIVIDEND? EXAMINING THE

FINAL REPORT TO CONGRESS OF THE COMMISSION ON WARTIME CONTRACTING

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

OCTOBER 4, 2011

Serial No. 112–85

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

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director
(III)

C O N T E N T S

Page

Hearing held on October 4, 2011 ............................................................................ 1

Statement of:

Henke, Commissioner Robert J., Commission on Wartime Contracting,

accompanied by Commissioner Clark Ervin, Commission on Wartime

Contracting; Commissioner Katherine Schinasi, Commission on Wartime Contracting; Commissioner Christopher Shays, co-chair, Commission on Wartime Contracting; Commissioner Charles Tiefer, Commission on Wartime Contracting; and Commissioner Dov S. Zakheim, Commission on Wartime Contracting ................................................................. 9

Letters, statements, etc., submitted for the record by:

Henke, Commissioner Robert J., Commission on Wartime Contracting,

prepared statement of ................................................................................... 13

(1)

WHERE IS THE PEACE DIVIDEND? EXAMINING

THE FINAL REPORT TO CONGRESS OF THE

COMMISSION ON WARTIME CONTRACTING

TUESDAY, OCTOBER 4, 2011

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10:06 a.m., in room

2154, Rayburn House Office Building, Hon. Darrell E. Issa (chairman of the committee) presiding.

Present: Representatives Issa, Burton, Chaffetz, Walberg,

Lankford, Amash, Labrador, Meehan, DesJarlais, Guinta,

Farenthold, Cummings, Towns, Maloney, Kucinich, Tierney, Clay,

Cooper, Connolly, Quigley, Davis, Welch, Yarmuth, Murphy, and

Speier.

Staff present: Thomas A. Alexander, senior counsel; Michael R.

Bebeau, assistant clerk; Richard A. Beutel, senior counsel; Robert

Borden, general counsel; Molly Boyl, parliamentarian; Lawrence J.

Brady, staff director; John Cuaderes, deputy staff director; Adam

P. Fromm, director of Member liaison and floor operations; Linda

Good, chief clerk; Frederick Hill, director of communications; Justin

LoFranco, press assistant; Mark D. Marin, senior professional staff

member; Beverly Britton Fraser, Scott Lindsay, and Carlos

Uriarte, minority counsels; Kevin Corbin, minority deputy clerk;

Ashley Etienne, minority director of communications; Carla

Hultberg, minority chief clerk; Lucinda Lessley, minority policy director; Dave Rapallo, minority staff director; and Suzanne

Sachsman Grooms, minority chief counsel.

Chairman ISSA. The committee will come to order, please.

The Oversight Committee exists to secure two fundamental principles: first, Americans have a right to know the money Washington takes from them is well spent and, second, Americans deserve an efficient, I repeat, efficient, effective government that

works for them. Our duty on the Oversight and Government Reform Committee is to protect these rights. Our solemn obligation

is to hold government accountable to taxpayers, because taxpayers

have the right to know what they get from their government. We

will work tirelessly in partnership with citizen watchdog groups to

deliver the facts to the American people and bring genuine reform

to the Federal bureaucracy.

Today, more than ever, our opening statement that we do at the

beginning rings true with the panel of witnesses we have here, and

I will say led from the middle by Congressman Chris Shays, former
2

member of this committee, and, I guess I will include, who would

be sitting in my chair had he not gone on to these other pursuits.

Welcome, Chris.

And the other members of the Commission on Wartime Contracting, who, in August, released a final report with alarming

findings about waste and abuse that has occurred in Afghanistan

and Iraq. Over the course of 2 years, the Commission has conducted 25 hearings, which for Chris Shays is only about average,

issued five special reports and two interim reports. Its final report

presents a sobering view of waste and fraud in the war on terror.

An estimated $1.25 trillion has been spent on operations in Iraq

and Afghanistan. The report estimates that since 2002, important,

since 2002, early on in the Bush administration, the Defense Department has spent $206 billion of their contract obligations in support of the wars in Iraq and Afghanistan. At least $31 billion, and

possibly as much as $60 billion, has been lost to contract waste and

fraud in America’s contingency operations in Iraq and Afghanistan.

It is appropriate for the Commission and Congress to assess

these costs and the reasons so much taxpayer money has been

squandered to waste and fraud. The waste and fraud associated

with these expenditures is mind-numbing.

With the coming transition of operations from DOD to State Department in Iraq, as well as the continued surge in Afghanistan

that includes civilian and Federal work force, costs associated with

contractors are likely to increase. For example, the State Department will increase its manpower from 8,000 to 17,000. The great

majority of those will be contractors for security, medical maintenance, aviation, and other functions.

The State Department is building a virtual private army of private security contractors in Iraq. Some have estimated that as

many as 5,500 new contractors will be necessary to protect and operate the U.S. embassy and its facilities and functions throughout

Iraq.

In Afghanistan, the number of civilian employees drawn from

Departments such as State, Treasury, Justice, and Agriculture, has

tripled since 2009. That is the number of civilian employees has

tripled since 2009, rising from just over 300 to over 1,000 as of

June 2011. Supporting and protecting this growth in additional

staff will require continued use of private contractors under the

current plan.

We have reached a point where we are now forced to treat contractors as the default option. This is because Federal agencies

can’t complete mission-critical functions, nor can they manage an

overseas large contractor force of unprecedented size that at times

has outnumbered troops in the field.

When President Obama took office, he pledged to eliminate

waste, fraud, and abuse in these areas. And I might comment so

has virtually every president. Instead, we are growing more and

more reliant on contractors. New and increasing problems have

come at a time when President Obama has failed to fill key leadership positions that ensure effective oversight is unbroken. He has

failed to implement essential measures to combat the waste and

fraud. The record of waste and fraud will continue unless the ad-
3

ministration takes concrete actions to protect precious taxpayer

dollars.

The United States has not achieved peace, and will not get a

peace dividend unless we, in fact, are able to stem waste, both created within our Government and by our partners in Iraq and Afghanistan.

Today we will examine these difficult challenges and explore the

conclusions and recommendations offered by the Commission on

Wartime Contracting. But before we do, I want to make one thing

very clear: operations in Afghanistan and Iraq have levied a heavy

human toll: 7,520 Americans and coalition soldiers have been lost.

Our brave men and women serving on the front lines continue to

do an outstanding job fighting our enemies and securing freedom

for those who terrorized or would terrorize us and oppress other

nations.

Nothing in this hearing, nor the recommendations the Wartime

Contracting Commission, is intended to question their efforts or

their commitment. Congress must recognize we are not there in

harm’s way, and those who are there in harm’s way are doing the

best they can. Rather, it is for this committee to evaluate the systems and the recommendations of this Commission to recognize

this is not a problem that began on this President’s watch; this is

not a problem that will end, no matter what we do. But we do have

an obligation to do everything we can to assist the administration

by systems and support to reduce waste and fraud, to reduce inefficiency, and to provide our best advice, both through this Commission and through our own efforts to an administration who has in

fact countless thousands of men and women in harm’s way.

With that, I will recognize the distinguished ranking member for

his opening statement.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

First, let me say that I understand Mr. Mike Thibault will not

be able to be with us this morning. I understand that you will be

putting his full statement in the record, which we would appreciate

and would join you in. Mr. Thibault worked with our committee

closely in the past and we sincerely appreciate his career of public

service and his expertise.

Chairman Shays, it is great to have you back again before the

committee which you served on so many years.

And thank you to all the Commissioners for being with us today.

Over the past decade, the United States has grown increasingly

reliant on contractors to provide support services to the military,

the State Department and USAID. In Iraq and in Afghanistan, contractors outnumber service members and they perform essential

tasks such as shipping supplies through hostile territory and providing security to bases and personnel. Since 2001, we have spent

more than $200 billion on these contracts.

After an extensive bipartisan investigation, the Commission on

Wartime Contracting estimated that as much as $60 billion may

have been lost to waste and fraud due to a lack of effective competition, oversight and enforcement in contingency contracting. Although the scope of this contracting problem is daunting, it is not

new to this committee. Under Chairman Henry Waxman’s leadership, the committee examined problems with the military’s
4

LOGCAP contract for logistical support, the Government’s multiple

contracts with Blackwater USA for security services, and the State

Department’s bloated billion dollar contract to build the U.S. embassy in Baghdad.

Chairman Towns continued this work by examining the systems

used by the executive branch to track contractors waste in USAID’s

reconstruction contracts. And under Representative Tierney’s leadership, the National Security’s Subcommittee uncovered evidence

that the U.S. trucking contractors and their private security providers were involved in a massive protection racket that sent U.S.

taxpayer dollars into the hands of warlords, power brokers, and the

Taliban.

Our committee’s oversight efforts have resulted in significant

changes. In Iraq, the State Department has dramatically increased

its management of private security contractors and the number of

use of force incidents has plummeted. In Afghanistan, General

Petraeus responded to Chairman Tierney’s investigation by issuing

new contracting guidelines and charging two task forces with

tracking U.S. contracting dollars to reduce corruption.

But despite these worthy investigations to root out waste, fraud,

and abuse after it happens, more must be done to prevent waste

from occurring in the first place. In its final report, the Commission

has given us a roadmap, and a very good one at that, for reform

that includes 32 recommendations for both Congress and the executive branch. These reforms require increasing competition, oversight, and enforcement. If we cannot put in place the personnel to

oversee contractors in war zones, then we need to rethink the mission, rather than blindly pressing forward with poorly designed

contracts.

Finally, to the Commissioners, let me thank you for 3 years of

dedication and hard work. You pursued your mandate in a very

vigorous, fair, and bipartisan manner in the best tradition of the

Truman committee. You have accomplished your mission by providing us with a historical account of the mistakes that were made

and a guidebook to the reforms necessary to prevent them in the

future. Now it is up to us, the Congress, to implement your recommendations.

Mr. Tierney has taken the lead in introducing a bill to implement

one of the Commission’s principle recommendations, establishing a

permanent inspector general for the contingency operations. I urge

my colleagues to support that legislation and I hope that the chairman will work with me and Representative Tierney and others on

the outside to focus more of our committee’s resources on this

issue. I agree with the chairman, this is indeed a bipartisan effort.

We must address this in a bipartisan way, just as the Commission

has set a wonderful example for us. And we do appreciate you.

So I am looking forward to hearing the testimony and with that,

Mr. Chairman, I yield back.

Chairman ISSA. I thank the gentleman.

We will now recognize the chairman of the Subcommittee on National Security, Mr. Chaffetz, for his opening statement.

Mr. CHAFFETZ. Thank you, Mr. Chairman.

And thank you to all of you who have poured years of talent and

expertise and effort into producing such a quality document. Thank
5

you for your time and effort. I only hope that we look toward it and

we implement it and we make positive changes. So, again, thank

you.

The American people are faced with the prospect that their Gov- ernment has wasted somewhere between $31 and $60 billion on

contracting since 2002. From your report, in Chapter 3, I will read,

‘‘The Commission estimates that at mid-range, waste and fraud

during contingency operations in Iraq and Afghanistan averaged

about $12 million every day for the past 10 years.’’

According to the Commission, this is due to ill-conceived projects,

poor planning and oversight, poor performance by contractors,

criminal behavior, and just good old fashioned, blatant corruption.

This is unforgivable. While some may agree or disagree with our

engagements in Iraq and Afghanistan, it is universally unacceptable to waste taxpayer money. According to the Commission, ‘‘Unless changes are made, continued waste and fraud will undercut

the effectiveness of money spent in future operations.’’

These observations aren’t new, however. Many, including this

committee, have highlighted the waste, fraud, and abuse since the

wars began, and I compliment Mr. Tierney and others who have

spent a lot of time highlighting this.

Unfortunately, oversight has not improved, necessarily, during

this administration. As it doubles down on foreign policy agenda,

this administration intends to dramatically increase the use of contractors before first addressing the lack of oversight.

I would like to read from the Executive Summary, page 2 here.

It says, ‘‘The number of Defense Department, Department of State,

and U.S. Agency for International Development, USAID, contractor

employees in Iraq and Afghanistan has varied, but exceeded

260,000 in 2010. The contractor employee count has at times surpassed the number of U.S. military personnel in the two countries.

Most contractor employees are third-country nationals and local

nationals. U.S. nationals totaled more than 46,000, a minority of

those employed,’’ something that we obviously need to look at.

In Iraq, for example, the State Department’s footprint will increase to nearly 17,000 after the Department of Defense withdraws

on December 31, 2011. Many of these will be private contractors.

To that end, the President and the Secretary of State will hire an

additional 5,500 private security contractors to compensate for the

troop withdrawal. This private army will fill the gap left by our

troops. In other words, the President will remove the troops, but

increase the level of private security contractors.

At the same time, the President is doing little to strengthen the

oversight. According to the Commission’s report, the State Department ‘‘is struggling to resolve budget issues and prepare requirements for awarding large number of contracts, along with mobilizing the many U.S. Government civilians needed to effectively

manage these contracts.’’

Thousands of contractors operating without proper oversight is

an unacceptable scenario. It will lead to the same type of waste,

fraud, and abuse that is at issue here today.

There are solutions, however. As a first step, President Obama

and the Senate should fill critical vacancies within the Federal

Government. Currently, the State Department and the SIGIR are
6

leaderless. USAID IG is retiring at the end of this month. These

are basic steps in very critical components and personnel that we

need in place in order to make sure that the proper oversight is

in place.

I again look forward to hearing from the panel. I appreciate the

work of the Members that have done here before, but thank you

again for your good work, and I look forward to a candid discussion

today.

Yield back.

Chairman ISSA. Thank you.

We now recognize the subcommittee ranking member, the gentleman from Massachusetts, Mr. Tierney, for his opening statement.

Mr. TIERNEY. Thank you, Mr. Chairman, and thank you for calling this hearing today. I want to thank all the commissioners for

their great work over the past 3 years. I think it is a great example

of public service. Your previous public service meant that none of

us were surprised by the effort and the expertise that you brought

to it, but I certainly want you to know that we can’t express our

gratitude probably loud enough and clear enough, and I hope the

American people understand the sacrifice that you put into doing

this job. You had many other things you could have been doing

with your time and effort, so your citizenship is greatly appreciated.

And I was pleased to have Jim Leach, my Republican counterpart, cosponsor the legislation that became the Commission on

Wartime Contracting, so I take special pride in the success that

you have had and the fact that you did a good job. And with the

leadership of Mike Thibault and my friend, Chris Shays, who just

left one hat and put on the other hat and went about doing the

same thing he had always been doing, which was good, thorough

oversight work, and we appreciate that.

And if it hadn’t been for Senators Webb and McCaskill and others in the Senate who picked up the cudgel there and moved forward, it may never have become legislation. So we think it is a

great bicameral, bipartisan effort on that which was important.

We fashioned this after the so-called Truman Commission, and

we did that on the notion that people would know that it was not

going to be partisan and the idea was not to be attacking any executive or administration in particular, but the notion that whenever

we get into a contingency operation, there will be those who try to

take advantage of the situation in some circumstances and, without

any purposeful bad acts, lend themselves to mismanagement or

abuse on that. So the Commission was authorized and charged

with identifying the scope of the wasteful contingency contracting

and recommending reforms, and you did just that.

But the results of your work are sobering, as many have already

mentioned. Billions of dollars wasted by agencies that had little capacity to manage the contractors or to even hold them accountable,

and billions of dollars more have been dedicated to projects that

were poorly conceived and probably unsustainable by the host government. So these findings are consistent with the committee’s own

oversight of private security contractors in Iraq and Afghanistan.
7

I think we have already mentioned here that last year I led a 6-month subcommittee investigation of the $2 billion Department

of Defense trucking contract in Afghanistan. Our investigation

found that the trucking contract had spawned a vast protection

racket in which warlords, criminals, and insurgents extorted contractors for protection payments to obtain safe passage. Our investigation further showed that senior officials within the U.S. military contracting chain of command had been aware of that problem

but had done little to address it. Two weeks ago, the National Security Subcommittee had a followup hearing with three Defense

Department witnesses to address those issues.

I asked General Townsend, the Director of the Pakistan-Afghanistan Coordination Cell of the Joint Staff whether contractor protection payments to warlords, power brokers, and insurgents were

necessary for safe passage in Afghanistan. He said they were, and

in many cases they don’t have a choice, in his exact words. I then

asked Gary Motsek, the head of the Contingency Contracting at the

Department of Defense, whether such payments are legal under

U.S. law. He stated that they absolutely were not legal.

So, in other words, the Department of Defense designed a critical

contract to which it was necessary, in their terms, for the contractors to make illegal protection payments that in many cases were

used against the very forces to attack our troops. It is just unheard

of, I think, in other situations.

So my fear is that the committee’s and your investigations, the

Commission’s investigations are only the tip of the iceberg, and I

think your work has shown that as well.

Much of the Afghan economy now centers around the United

States and international military presence. Many of the Afghan

elite have their own logistics contracts with the United States, and

a significant portion of these funds seem to end up supporting the

Dubai real estate market, rather than jobs in Afghanistan.

Today, the business of Afghanistan is war. How can we ever hope

to extricate ourselves from that war when so many Afghans benefit

from the insecurity that is used to justify our continued presence?

To my mind, we have crossed the tipping point in which the size

of our military footprint inadvertently fosters further instability.

Every additional soldier and every additional supply convoy that

we send to Afghanistan further fuels the cycle of dependence, corruption, and endless war.

Simply stated, we cannot afford to fail at getting a handle on

contingency contracting waste, fraud, and abuse in Iraq and Afghanistan. Not only does this squander precious taxpayer resources; it can seriously undermine the mission and even fund

those who attack our brave men and women in uniform. In that

vein, I have introduced legislation to establish a special inspector

general for overseas contingency operations.

The efforts of the Commission, along with the special inspector

general for Iraq and the special inspector general for Afghanistan

have shown the critical importance of realtime oversight in our

overseas operations. We need to preserve the unique capabilities of

these three entities in a single, permanent inspector general with

a flexible deployable cadre of oversight specialists. I urge my colleagues to join me in this legislation.
8

Finally, I am also working to tackle many of the Commission’s

other legislative reform recommendations, which were excellent

and on point. It is a challenging task, but with your great work

that will serve as a blueprint for our efforts that go forward. I want

to thank you again for your service and your testimony here today.

I look forward to our discussion.

And I want to thank you again, Mr. Chairman, and Mr. Chaffetz

as well, for keeping this a nonpartisan, bipartisan effort that is all

about oversight and making sure that this institution of Congress

does its job with respect to any administration that might be in at

any particular time. Thank you.

Chairman ISSA. I thank the gentleman.

All Members will have 7 days to submit opening statements and

extraneous material for the record. Additionally, the Commissioners here who will not be giving opening statements, there will

be just one, I believe, your opening statements or other prepared

remarks or extraneous material will be placed in the record, including Mr. Thibault, who unfortunately was diverted, his plane was

literally diverted or he would be with you. Without objection, that

is so ordered.

We now recognize the panel. The previously mentioned Honorable Chris Shays is the Republican co-chair of the Commission on

Wartime Contracting. Congressman Shays represented Connecticut’s 4th Congressional District from 1987 until 2009, and he is

sorely missed. Commissioner Clark Kent Ervin was Inspector General of the Department of Homeland Security from 2003 to 2005;

Commissioner Robert J. Henke was the Assistant Secretary for

Management at the Department of Veterans Affairs from 2005 to

2009; Commissioner Katherine Schinasi was the Managing Director for Acquisition and Sourcing Management at the Government

Accountability Office, our wing that we trust so much for the work

that we must do; Commissioner Charles Tiefer is a Professor of

Law at the University of Baltimore Law School; Commissioner Dov

S. Zakheim was the Controller for the Department of Defense from

2001 to 2004.

Lady and gentlemen, pursuant to the committee rules, I would

ask you all to rise to take a sworn oath. Please raise your right

hands.

[Witnesses sworn.]

Chairman ISSA. Let the record indicate that all witnesses answered in the affirmative. Please be seated.

My prepared statement says in order to allow sufficient time,

look at the light. It is going to be different this time. I understand

only one Commissioner will be speaking, within any amount of reasonable time you may have time to deliver your entire prepared

statement and such remarks as you may want to have represent

all of the Commissioners.

With that, Mr. Henke, you are recognized.
9

STATEMENT OF COMMISSIONER ROBERT J. HENKE, COMMISSION ON WARTIME CONTRACTING, ACCOMPANIED BY COMMISSIONER CLARK ERVIN, COMMISSION ON WARTIME CONTRACTING; COMMISSIONER KATHERINE SCHINASI, COMMISSION ON WARTIME CONTRACTING; COMMISSIONER CHRISTOPHER SHAYS, CO-CHAIR, COMMISSION ON WARTIME CONTRACTING; COMMISSIONER CHARLES TIEFER, COMMISSION

ON WARTIME CONTRACTING; AND COMMISSIONER DOV S.

ZAKHEIM, COMMISSION ON WARTIME CONTRACTING

Mr. HENKE. Thank you, Mr. Chairman. Chairman Issa, Ranking

Member Cummings, members of the committee, good morning and

thank you for inviting us here today.

I am Robert Henke, a member of the Commission on Wartime

Contracting in Iraq and Afghanistan, which completed its official

work last Friday. Previously, I served as the Assistant Secretary

for Management at the Department of Veterans Affairs and as

Principal Deputy Comptroller at DOD.

I am presenting this statement on behalf of Commission cochairs Christopher Shays and Mike Thibault, and my fellow Commissioners Clark Kent Ervin, Katherine Schinasi, Charles Tiefer,

and Dov Zakheim, who are here, and Grant Green, who could not

be with us today.

I respectfully request that our full written statement be a part

of the record, as well as a copy of our report, Transforming Wartime Contracting.

Chairman ISSA. Without objection, so ordered.

Mr. HENKE. We very much appreciate the opportunity to appear

before this committee, the Committee on Oversight and Government Reform. Our eight reports to Congress are a direct match

with this committee’s central mandate: the need for vigorous oversight and fundamental reforms.

The Commissioners would emphasize that we have operated not

only as a bipartisan body, but truly as a non-partisan body. Our

reports have no dissenting views. We are unanimous both in our

findings and in our recommendations.

We unanimously conclude that the need for change, whether

through laws, policies, practices, and, ultimately, organizational

culture, is urgent, is urgent for five reasons.

First, reforms can still save money in Iraq and Afghanistan,

avoid unintended consequences, and improve our foreign policy outcomes there.

Second, the dollars wasted and the dollars still at risk are significant. The Commission estimates that at least $31 billion, and possibly as much as $60 billion, of the $206 billion spent on contracts

and grants in Iraq and Afghanistan has been lost to waste and

fraud. We have also warned that many billions more, possibly even

exceeding the billions already lost, may turn into waste if the host

governments cannot or will not sustain U.S.-funded programs and

projects.

Third, although U.S. policy has for more than 20 years considered contractors to be part of the ‘‘total force’’, we went into Afghanistan and Iraq unprepared to manage and oversee the thousands of contracts and contractors used there. Think about that for

a minute. We went into Iraq and Afghanistan, we went into war
10

unprepared. Some improvements have been made, yes, but after a

decade of war, the Government remains unable to ensure that taxpayers and warfighters and diplomats are getting good value for

contract dollars spent.

Fourth, new contingencies, whatever form they take, will occur.

And, strikingly, Federal agencies have acknowledged that they cannot perform large operations without contractor support. They are

very candid in that regard.

Fifth, and finally, reform is urgent because failure to enact powerful reforms will guarantee that new cycles of waste and fraud

will accompany the response to that next contingency.

Our work in Iraq and Afghanistan found problems similar, or

even identical, to those in peacetime contracting, including poor

planning, limited or no competition, weak management of performance, and insufficient recovery of over-billings and unsupported

costs.

Of course, the wartime environment brings tremendous additional complications. The dollar volumes swell dramatically and the

urgency of dynamic operations and hostile threats directly impact

contracting decisions, execution, and oversight.

Now, despite those tremendous challenges, we are clear, as a

Commission, that contracting and contractors have provided vital

and, for the most part, highly effective support for U.S. contingency

operations.

However, the bottom line is this: we rely on contractors too heavily, we manage them too loosely, and we pay them too much for

what we get. The wasteful contract outcomes in Iraq and Afghanistan demonstrate that Federal agencies’ dependence on contractors,

while acknowledged, is not thought to be important enough to warrant the thorough planning and superb execution that a contingency, that wartime, demands. The Commission has concluded that

the problems need to be attacked on several levels.

The first is holding contractors accountable. Federal statutes and

regulations provide ways to protect the Government against bad

contractors and to impose accountability on them. Unfortunately,

we found that these mechanisms are often not vigorously applied

and enforced. And incentives to constrain waste are often not in

place.

The Commission’s research has shown, for example, that some

contractors have been billing the Government for years using inadequate accounting systems that don’t pass muster. Recommendations for suspension and debarment go unimplemented with no documentation for the decision. Past performance data on how a contractor performs is very often unrecorded and even less likely to be

used for the next contract award. Staffing shortages have led to a

Defense Contract Audit Agency backlog of nearly $600 billion in

unaudited work, delaying recovery of possible overpayments.

The Government has also been remiss in promoting one of the

most effective of all disciplines: competition.

We recommend better application of existing tools to ensure accountability, and strengthening those tools. Our report contains

recommendations to bolster competition, improve the recording and

use of past-performance data, expanding U.S. civil jurisdiction as
11

part of contract awards, and requiring official approval of significant subcontracting overseas.

The second level is holding the Government itself more accountable for the decision to use contractors and the subsequent results.

Taking a harder look at what projects and programs to undertake

with contractors must also include thinking more carefully about

whether to use contractors in foreign policy situations. Our report

recommends careful consideration of the risks created by contracting, and phasing out the use of private security contractors for

some functions.

Another part of the Government’s problem is resources. As this

committee knows well, both the military force structure and the

Federal acquisition work force were downsized during the 1990’s.

This ensured that if a large and prolonged contingency should develop, the military would greatly increase its reliance on contractors while, at the very same time, its ability to manage and oversee

those contractors had been significantly reduced.

Now, even when the Government has good policies in place, effective practices, which are often different, ranging from planning and

requirements definition to providing adequate oversight of performance and coordinating interagency activities, are lacking.

We have recommended steps that would improve the Government’s handling of contingency contracting. They include developing deployable acquisition cadres and professionals, elevating the

positions and the importance of agencies’ senior acquisition officers

and the importance of acquisition as a core competency, and creating a ‘‘J10’’ contingency-contracting directorate at the Pentagon’s

Joint Staff, where the broad range of contracting activities is still

treated as a minor subset of logistics.

Considering this committee’s broad and cross-agency mandate, I

would also call special attention to two recommendations with a

whole-of-government approach.

The first is to establish a dual-hatted position for an official who

would serve both at the Office of Management and Budget and simultaneously on the National Security Council. Such a dual-hatted

person would promote better visibility, coordination, budget guidance, and strategic direction. They would link foreign policy goals

with budget resources.

The second is to create a permanent IG organization for use during contingencies. The special IGs for Iraq and Afghanistan reconstruction have performed valuable service, but they will go away,

leaving the need to reinvent them and suffer delays in deploying

IG staff when the next contingency does emerge. The work of

SIGIR and SIGAR have shown the drawbacks of creating organizations that that are limited in functional authority, geographic location, and time. A permanent contingency IG with a small but

deployable and expandable staff, trained in the unique circumstances of a contingency operation, can provide cross-agency

oversight from day one of a contingency.

More details on these recommendations appear in our final report, 240 page, Transforming Wartime Contracting.

Now, in compliance with its authorizing statute, our Commission

has closed its doors. But the problems we have diagnosed remain

very much alive. Corrective action, in some cases requiring limited
12

financial investments, are essential on both the Government and

the contractor side of the equation to reform contingency contracting.

Your sustained attention during and after the reform process will

be essential to ensure that reforms are institutionalized and that

ultimately cultures are changed.

In summary, Mr. Chairman, Ranking Member Cummings, wartime contracting reform is an essential, not a luxury good. Whatever form it takes, there will be a next contingency, and the responses to that contingency will all but certainly require contractor

support. The Government would be foolish to ignore the lessons of

the past decade and refuse to prepare and refuse to prepare for better use of contracting resources. Once the wars in Afghanistan and

Iraq fade into the past, it will be all too easy to put off taking action. Your committee is in a superb position to prevent exactly that

from happening.

Mr. Chairman and members of the committee, this concludes our

formal statement. We very much appreciate this opportunity to be

here with you today in a dialog, and we would be happy to answer

any questions you may have.

[The prepared statement of Mr. Henke follows:]
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Chairman ISSA. Thank you. With that, I will recognize myself for

a first round of questions.

Commissioner Schinasi, there have been a number of suggestions

coming out of the Commission, obviously your colleague just mentioned a permanent IG to oversee contingencies. If we do not have

the IGs that are already authorized in place on a consistent basis,

are we fairly, in your opinion, seeing how much would be done, how

much waste would be reduced, or are we asking for yet another IG,

while in fact, if that position remains unfilled, we would be at least

in as much trouble as far as if we have a new IG and that one has

no leader? So I would like your thoughts on that.

Ms. SCHINASI. Mr. Chairman, as you might expect, I am a supporter of the IG community, coming out of the accountability community after many years.

Chairman ISSA. It wasn’t an accident I called on you.

Ms. SCHINASI. But this also was a unanimous recommendation.

Chairman ISSA. And I understand the recommendation for yet

another IG. But, I would like and with your experience, when you

have a vacancy and you have a series of Actings, or even sometimes the Acting is gone for a while, what does that do to the effectiveness of an IG organization?

Ms. SCHINASI. I think what you see in the example of the Special

Inspector General for Afghani Reconstruction is a perfect example

of that. It took a long, long time to set that organization up; it took

longer to staff it. It was difficult to find a leader. That leader, as

you know, left the organization and it is now without a leader. It

is clearly not as effective an organization as it needs to be.

That said, what we are trying to do with this recommendation

is to avoid that from happening in the future.

Chairman ISSA. But that begs the same question. If there is no

contingency going on at a given time, isn’t it likely—and, by the

way, I am supportive of the basic recommendation, but I still have

to ask if we don’t think we have a contingency at some time, isn’t

it likely that that position will stay open so that instead of being

shovel-ready, they will be scrambling to regrow a hollowed-out position at the very moment that the fit hits the shan?

Ms. SCHINASI. And I appreciate that question. I think one of the

things that surprised me was just how involved we have been in

contingencies. You can define that in different ways.

Chairman ISSA. I would make the point that we are always in

contingencies and that once we have this position it will always

have something to do.

Let me go on to a couple more questions. Commissioner Shays,

for you I have the question isn’t it true from history that the Truman Commission was actually put together, to a great extent, because they wanted to have a friendly person looking after FDR’s

spending in the war and they hoped that he would be kinder and

gentler, but, in fact, because he was early in a war, and ongoing,

and held hundreds of hearings, traveled extensively along with the

other Members of what was effectively a wartime-standing committee, not really a commission, but really a committee of a senator, that you had vigorous oversight? Isn’t the history of that that

committees like ours, or some committee of Congress, needs to be
23

charged from the beginning of the war with an ongoing oversight

of the conduct and expenditure of that war, similar to Truman?

Mr. SHAYS. The answer is yes, and this committee is a great example, because you don’t just look at DOD, you look at State, you

look at USAID. You aren’t stove-piped. And I will tell you what

happens when you start looking at waste, fraud, and abuse is you

get really angry, because what is happening is treasonous action is

taking place. The people who commit fraud are basically committing, in my judgment, treason. So I imagine that Senator Truman

at the time just got pissed off.

Chairman ISSA. Commissioner Henke, because you haven’t

served on this side of the dais, this may be more appropriate to ask

you. One of the problems that your Commission report has seen is

that we are about to go to a large standing army of contractors

very similar to Blackwater. How would you view that we should intercede in a policy decision that has been made, that will in fact

cause a large amount of contractors to be there under State Department, who are doing what I think on both sides of the dais we

would call an inherently governmental task of being effectively

quasi-military supporters of the State Department’s agenda in

Iraq?

Mr. HENKE. Mr. Chairman, a couple of weeks ago OMB published a new guidance letter on defining what inherently governmental is, and, long story short, on that list for the first time they

included security in a combat zone. Those aren’t the precise words,

but that is the meaning. We strongly think that is the right answer; that OMB took a risk-based approach to that.

Now, the challenge with doing anything different in the short

term for the State Department is it takes years to grow diplomatic

security agents or security specialists. It would be difficult, if not

impossible, for the State Department to grow 5,500 or 7,000. So

right now they are in that situation that we described and that you

used in your opening statement: they have no choice; they got there

by default. They don’t have the organic capacity to be expeditionary, to be in a combat zone for very long, and State is facing

a very dynamic situation in Iraq and they have no choice but to

go out and contract for the security that they need.

Mr. ZAKHEIM. Mr. Chairman, if I could add.

Chairman ISSA. Yes, please.

Mr. ZAKHEIM. First of all, it is my understanding, and it is worth

this committee to explore, whether State actually considers that it

is limited by the OMB circular. My understanding is that it doesn’t

think so; it thinks it is only applying to DOD, and that is a major

issue right there.

Second, one possibility, one possible way around the dilemma

that Bob Henke just laid out before you, which is a very real dilemma, is to have better oversight. If you are stuck with contractors, at least have people that oversee them. And if you cannot get

people from within the State Department, get them from other

Federal agencies.

I don’t know that there is a law that prevents that; people are

secunded to other agencies all the time. So there are ways of dealing with it if the Government wanted to. The problem all along has

been implementation and will.
24

Chairman ISSA. Thank you.

With that, I recognize the ranking member for his questions.

Mr. CUMMINGS. Just to follow up on what you just said, Commissioner. We are better than this, aren’t we? In other words, we, as

a country, are better than what we are doing right now. It sounds

like if there was a will, we would find a way. And there has to be

a will. I can’t hear you. I want this on the record. You can respond.

Mr. ZAKHEIM. No, I couldn’t agree more, sir. I have served in the

executive branch twice, at pretty senior levels, and that is exactly

the case. When there is no will, there are millions of reasons why

you can’t do anything. And when you want to do something, it is

amazing how quickly it can get done. So I fully agree with what

you are saying, it comes down to the will of the executive branch

to implement what this committee and the Congress are concerned

about.

Mr. CUMMINGS. Commissioner Shays, the final report estimated

up to $60 billion may have been lost to contracting waste and fraud

in Afghanistan and Iraq. In other words, up to 30 cents of every

dollar may have gone down the drain. I was watching you, Commissioner Shays, when you were talking about treason just a few

moments ago, and I could see it really upsets you, as it would upset

all of us, particularly when we are scrapping for dollars and we got

this Super Committee meeting about trying to figure out where we

save money. And then for people to see money going down the

tubes like this, its got to be aggravating.

But it does something else: it causes citizens, if they are watching this, to say, you know what? They don’t get it. So they lose confidence in government. And that is something that we have been

tackling here, trying to address.

So, Commissioner Shays, what is the single-most important thing

we can do to tackle this waste, fraud, and abuse in contingency

contracting? I was just telling staff it sounds like this stuff is so

big that we need to take it chunk by chunk, and I am trying to figure out what is the first chunk we take.

Mr. SHAYS. Could you ask other Members as well?

Mr. CUMMINGS. Sure.

Mr. SHAYS. I would say, if I am only given one, we are trying to

do too much. We are just trying to do too much and, as a result,

we are not thinking the projects out well, we are not overseeing

them well, and we are not even really evaluating do we really need

it. Do we really need to do as much as we are doing? If you are

only giving me one choice, that is my choice.

Mr. CUMMINGS. Commissioner Tiefer, if you don’t mind, since you

are from my neighborhood. The University of Baltimore is literally

within 5 minutes of my house.

Mr. SHAYS. Sir, don’t talk about the University of Baltimore; he

will keep you here all day talking about it. [Laughter.]

Mr. CUMMINGS. Welcome.

Mr. TIEFER. It is a fine neighborhood, Baltimore.

Mr. CUMMINGS. Yes. Thank you.

Mr. TIEFER. My particular interest in the Commission was in

chapter 3, which was about lack of competition and serious waste

and so forth, and I would say the number one thing that I personally think we could do better and we are not doing well enough is
25

compete these contracts. It would be so easy to set a level of competition and say that the Defense Department must meet it for its

contingency contracts.

Mr. CUMMINGS. But Professor, you hear all the time, when you

see these 60 Minutes shows and shows like that and they say there

are only a few companies, and I am talking about sometimes they

say two or three, that can do certain things, that can provide certain types of security. Have you all found that to be true? And how

does that affect competition?

Mr. TIEFER. The answer is no. And I will take a precise point.

In Afghanistan, we have a contractor that handles north Afghanistan for logistics and a contractor that handles south Afghanistan

for logistics, and when new work comes in, as in connection with

the big surge that we had, it automatically, without competition,

goes to one or the other. We don’t compete it at all, even though

there are obviously two contractors in place, at least, who could do

the work.

Mr. CUMMINGS. And I would imagine that if people see that early

on, we keep hearing that when companies cannot see the future,

that they don’t hire and whatever. I guess if they know that the

game is already rigged before they even get in the game, they are

definitely not going to be hiring people because they figure they are

not going to get the job.

Mr. ERVIN. May I add to that, Mr. Cummings?

Mr. CUMMINGS. Yes.

Mr. ERVIN. I completely agree with what Professor Tiefer said

about the importance of competition among contractors, but I think

the missing piece that we haven’t talked about a lot today in the

hearing is the importance of having an alternative to contractors.

The reason there is no option, largely, but to use contractors, whatever the state of competition is among contractors, is that there is

not sufficient organic capacity within Government itself to perform

these core missions, to do logistics, to do reconstruction, to do security.

So at the same time that we promote more vigorous oversight,

at the same time we promote more competition among contractors,

we have to, even in these tight budgetary times—and I would

argue especially because of these tight budgetary times—regrow organic capacity within Government so that we have an alternative

to contracting.

Mr. CUMMINGS. You know, you make a good point. When I was

chairman of the Coast Guard Subcommittee, one of the things that

we discovered when we were doing Deepwater was that we didn’t

have in the Coast Guard the acquisitions people. So when they put

together a contract, they put a contractor together that was controlled by the contractors. They decided when performance was

done, when bonuses were done, everything.

So now we had to go backward because we were buying boats

that didn’t float, so we had to go backward and then get the Coast

Guard to grow in-house the things that they needed, and now they

are doing pretty good; very good, as a matter of fact. So you make

a good point.

Again, I want to thank all of you for being here. I have to be over

in another hearing with Fed Chair Bernanke, but thank you all for
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what you are doing, and we are going to do everything in our

power to bring life to what you all have done. We really do appreciate it. Thank you.

Mr. CHAFFETZ [presiding]. Thank you.

I will now recognize myself for 5 minutes.

And, again, I can’t thank you enough for the great work that you

have done. I want to explore a little bit this recommendation number 9, creating a permanent office of Inspector General for contingency operations, which, as I read and I look at it, seems to me to

be really a very negative consequence of what is happening at

State, Department of Defense, and USAID, primarily, in that they

are failing.

As you point out on page 17 of your report, the United States has

engaged in 56 ventures abroad for other than normal peacetime

purposes since 1962. In other words, this isn’t brand new. These

contingencies, as you point out also on this, for the past 12 years,

the United States has always and simultaneously been engaged in

two or more overseas.

So the question that really begs to me is that you are recommending that we create another IG, and yet I look at the IGs and

they are failing. Three of the five IGs that we are supposed to have

in place have not been either recommended by the President or

confirmed by the U.S. Senate. So we have three openings out of the

five, and yet you want to have a sixth.

Mr. ERVIN. May I start there, Mr. Chaffetz?

Mr. CHAFFETZ. Yes.

Mr. ERVIN. As you know, I as the Inspector General, the first Inspector General, in fact, of the Department of Homeland Security,

and before that I was the Inspector General of the State Department, so I am very focused on the inspector general community. I

really agree, largely, with the premise of your question, and the

chairman raised this issue as well.

It troubles me that we have the vacancies in the inspector general community that we have, and I am especially troubled by the

longstanding, I think it has been 3 years or so, vacancy at the

State Department. There is an impending retirement that you are

referencing at AID IG and there has been this vacancy in SIGAR.

Having said all that, and I urge the administration to fill those

vacancies very, very quickly, and the Senate to confirm whomever

is selected by the administration, but at the same time I think it

is important that our recommendation also be implemented, and

let me explain the distinction.

Even if there were, and there should be, as I say, even if there

were confirmed inspectors general in those three agencies, DOD,

State, AID, it is still important to have a special inspector general

for the following reasons. First of all, each of those statutory inspectors general is limited jurisdictionalized only to that particular

agency, point one. The special inspector general would have jurisdiction over the range of agencies that relate to contingencies, all

three of them. And, further, there would be the opportunity, because of that interagency oversight, to ensure that the whole range

of issues is fully vetted.

Mr. CHAFFETZ. One of the questions that I hope the committee

continues to explore is what in the world is wrong over at the De-
27

partment of Defense. I want to read here from page 162, and this

has to do with the Defense Contracting Audit Agency, which seems

aptly named. It says, and you mentioned this in your opening

statement, The current unaudited backlog stands at $558 billion,

having risen sharply from $406 billion in only 9 months. At current

staffing levels, DCAA has reported that the backlog will continue

to go virtually unchecked and will exceed $1 trillion by 2016.

Mr. ZAKHEIM. Can I try to deal with that?

Mr. CHAFFETZ. Yes, please. Try to tackle that one. That would

be great.

Mr. ZAKHEIM. Absolutely. When I was Undersecretary of Defense

Comptroller, DCAA was under me. DCAA simply doesn’t have

enough people.

Mr. CHAFFETZ. How many people are there?

Mr. ZAKHEIM. When I was there, it was about 4,000. They have

added, I think, about another 1,000. It is nothing compared to the

level of contracting that is going on, and to the number of contracts

that are going on. These are very, very professional folks. Most of

them now have CPAs. Many of them come from the outside and

then come into government, much as lawyers do nowadays. But we

just don’t have enough of them.

And this goes to the point that was made earlier by Commissioner Henke and some of my other colleagues, and we all believe

this very strongly, that even in this time of cutting budgets and

deficits, there has to be some spending to save money, and it is a

matter of being penny wise and pound foolish. If we don’t get these

people in, we are going to wind up hurting both the Government

and industry; the Government because there might be money that

could be recovered, and industry because they are not getting paid

when they should get paid. If the audit isn’t completed, they have

a problem too.

Mr. SHAYS. I am going to change the word might to will, because

it is just a proven fact that if you had these audits, you are going

to discover bills that were submitted that were either fraudulently

submitted or, frankly, just mistakes, and they were paid more than

they should be paid.

The outrage is that all these companies have to keep these

records on file for 2, 3, 4, 5, 6, 7 years. And guess who pays for

their having to do that? The Government pays for their keeping the

records.

So this $500 billion that we are talking about is going to just accelerate if you don’t reverse it.

Mr. CHAFFETZ. Well, I guess, to my colleagues, what I would

highlight here is also that the GAO just recently released a report

in September 2011 documenting that there are at least 58,000 contracts awarded between fiscal year 2003 and 2010 that must still

be reviewed and closed out. But I agree with you, the numbers are

absolutely staggering. I would call upon the White House, please

prioritize these IGs, get them nominated and get the Senate over

there to do their jobs. We have three of the five that are unfilled,

and that is just inexcusable in my opinion.

I yield back.

We now recognize Mr. Towns, I believe, for 5 minutes.
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Mr. TOWNS. Thank you very much, Mr. Chairman. Let me begin

by saying it is very good to see my former colleague back and see

that he is doing well, and also to thank members of the Commission for the outstanding work that you are doing.

You know, there are people that will say that even though the

recommendation of the IG is made, the problem in terms of getting

it funded, which will probably be around $21 million, that would

just not happen. But when I look and I read the extent of fraud

and abuse, and one stunning example, an inspector general found

that the U.S. Government paid $900 for a control switch that was

worth only $7. In other cases, contractors were found over-billing

the Government with markups ranging from 2,300 percent to

12,000 percent for goods and services.

This is a course of action that cannot and must not continue. And

I hope that this Congress, led by this committee, can accept the

Commission’s recommendations and put measures in place that are

necessary to show Americans that the Government can be better

stewards of taxpayers.

How do we make the case with those folks that are saying now

here you go again, you want to spend additional resources, you

want to spend additional money? What do we say to them?

Mr. ZAKHEIM. Well, we say to them you will save a lot more than

you will spend. You just mentioned it yourself, sir. We are talking

about not just $900 items, we are talking about fraud with payments to protection payments and protection rackets in Afghanistan that some estimates put over $350 million. Our report documents case after case of projects that are in the millions, sometimes in the billions. If you weigh on the one hand the small

amounts of money you are talking about, say the $21 million you

mentioned, against these huge amounts, it is kind of a no-brainer.

Mr. SHAYS. Congressman Towns, Commissioner Tiefer spent a lot

of time on chapter 3. Chapter 3 deals with the inattention to contingency contracting leads to massive waste, fraud, and abuse. Our

problem with Mr. Tiefer was that this book would have been three

times as thick if we let him put in everything he wanted to put in.

So we limited him to 40 cases, but it could have been many more.

You read that and you don’t go through the argument that you

are presenting.

Mr. TOWNS. Yes, Commissioner.

Ms. SCHINASI. Yes. If I could just add to that too. This is a perfect time to be making these sorts of investments because as we

are looking at, particularly in the Department of Defense, but also

the State Department and USAID, how they can best position

themselves for the future with fewer resources, this is the perfect

time to say we can make investments, we can reallocate some of

our resources to try and prevent this waste, to try and get a better

return on the investment we make and the taxpayer dollars we

spend. So I would argue this is the time to be making these sorts

of resource allocation decisions.

Mr. TIEFER. Congressman Towns, I thank the chairman for his

kind remarks and I assure him that his editing improved the product, that the good stuff is in our report. But let me give you an example of where, if we had the personnel, if we had a limited

amount of money for more personnel, we could save a lot of money.
29

We have giant contracts that come to an end and we should compete them right then. We had a food service contract that came to

an end, and because we didn’t have the personnel to move fast

enough to compete now, that got extended on a sole-source basis,

a $4 billion extension on a sole-source basis because the agency

just wasn’t ready to compete it at that point.

Mr. TOWNS. Thank you very much, Mr. Chairman. I see my time

has expired.

Mr. CHAFFETZ. The gentleman yields back.

We will now recognize the gentleman from Oklahoma, Mr.

Lankford, for 5 minutes.

Mr. LANKFORD. Thank you, all of you, for the long work and the

tedious work that I am sure you have done through a lot of wonderful conversations. There is a section you have in chapter 7 that

is very interesting to me dealing with the complexity of suspensions and debarment. I don’t know who was the one that focused

in on that information, but I would like to get a chance to talk

about that and how we can resolve that.

A couple questions I had initially on it is when you are dealing

with the complexity of suspension and debarment, are you dealing

specifically with foreign contractors, U.S. contractors, or both on it?

Mr. TIEFER. We are dealing with both, but we did not deal with

domestic non-war contractors. We wanted strong reforms, but for

overseas contracting. Techniques that reduce the amount of procedure, but we were not trying to impose them on domestic, non-wartime contractors.

Mr. LANKFORD. Did you come up with recommendations out of

this? Obviously, reading through this brief report that goes through

that section on suspension and debarment, recommendations on

how to be able to resolve that, because obviously that is not just

an issue we deal with in contingency operations; that is something

we deal with governmentwide, is the suspension and debarment

issues that we have, on how often they are used, the complexity,

the process. Are there recommendations that are coming out of this

as well?

Mr. TIEFER. There are. There are several. I will name one, which

was that in appropriate cases it should be possible to suspend and

debar on a documentary record without holding sort of a mini trial,

as is required domestically. We have seen instances where it is almost impossible to pull together witnesses from Afghanistan to do

a suspension trial.

Mr. SHAYS. If I could just elaborate a speck on that. With your

permission, sir?

Mr. TIEFER. Yes. Absolutely.

Mr. SHAYS. When I served on this committee, I was stunned by

the rights that we give contractors when they work with the Government, and even when we overpay, it may take us a year to adjust it to pay them what they should be paid. If a private business

wants to engage a contractor, they are limited by the contract, but

they don’t have any privileges before then. We give privileges before a contract, we give privileges during a contract, we give privileges after a contract.

This committee needs to examine, in times of war, should we be

giving contractors so many rights and privileges that can drag out
30

the decision for a year? So what the Government agencies decide

to do is say it is not worth waiting a year to resolve it, we will just

keep them.

Mr. LANKFORD. Did you run into situations where it was a solesource and you would see a need for a suspension or debarment,

but instead of actually debarring them, they would say they are essential, we can’t function without them, so we know they are a bad

actor, but we don’t have any other folks that can help us?

Mr. SHAYS. Countless times.

Mr. LANKFORD. Okay. How do we get around that? It that a matter of we don’t have enough competition in those areas, we are not

raising up, or is that something inherently governmental that we

are trying to outsource into contracting and now running into problems?

Mr. ERVIN. Can I start there?

Mr. LANKFORD. Absolutely.

Mr. ERVIN. I think it is all those things. It is, as I said earlier,

the lack of organic capacity so that we don’t have any alternative

but to use contractors; two, there is limited competition among contractors; three, there is very limited oversight capacity on the part

of the Government, DCAA, GAO, the inspectors general, etc. So

that is why these recommendations in our report are all of a piece;

it is a package. It is important to put all these things together in

order to solve the problem, it seems to us.

Mr. LANKFORD. Other comments on that, because I have one

other issue? Go ahead.

Mr. HENKE. One comment, Mr. Lankford. You remember, perhaps, the September 2009 incident at the Kabul Embassy, with the

contractors partying, drinking, having a great time and embarrassing the Nation. They were providing security at the embassy.

That contractor, because State didn’t have the option of saying go

home tomorrow, we are bringing in our own people to provide security, that contractor stayed there for, I think, more than 18 months

after that incident, still in place, still billing the Government, still

operating; and that is unacceptable.

Mr. LANKFORD. But have they been disbarred since then? That

becomes a different issue. They are fulfilling the rest of that contract, which has a whole different set of issues. But was there a

process in place to say, yes, we are debarring them and there is no

future contract?

Mr. HENKE. I do not believe State pursued that and, in fact, I

believe the contractor—this was a low-bid contract because State is

required, strangely enough, by law, to have low-bid contracts for

security at embassies. That doesn’t make any sense.

Mr. LANKFORD. Let me make one other quick comment. You have

an extensive section here on foreign contractors using human trafficking. Obviously, that is a very stark comment, that some of the

work that is happening in Iraq and Afghanistan is basically done

with slave labor or people compelled to be able to work in this for

whatever amount that is done. How extensive do you think that is?

Mr. ZAKHEIM. What we understand is that it is really quite extensive, because what they do is they bring people in, hold on to

their passports and essentially lock them up as prisoners. It is virtually slave labor.
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Mr. LANKFORD. And we are aware of that. You are saying the

U.S. Government, the people on the ground are aware of that either after the fact, after it is over, or during the process.

Mr. ZAKHEIM. At a minimum, everybody is aware of it now after

our report, and, of course, a lot of people were aware of it before

our report. And, again, to get to the point about suspension and debarment, what are we going to do, bring witnesses in from these

companies? What we have to do is use the rules that are available

to us, modify them slightly, and suspend these people. They are not

even Americans, for God’s sake.

Mr. LANKFORD. Thank you.

With that, I yield back.

Mr. SHAYS. I would just say that if we had had more time, I

think we would have gotten into the trafficking issue, because I

think there is a lot more to this story than any of us have confronted.

Mr. CHAFFETZ. Now recognize the gentleman from Massachusetts, Mr. Tierney, for 5 minutes.

Mr. TIERNEY. Thank you, Mr. Chairman.

We could be here the rest of the day or the week on this. You

did a great job, and that is what we asked you to do. I want to

make a number of points here and then ask some questions as

well.

But first and foremost, Mr. Ervin, thank you for continuing the

argument on the special inspector general for contingency operations, because I am trying to convince my friend, the chairman

here, that his name would be of value as a sponsor on that bill, and

I wanted to add to the point. Besides the matter that this person

would be able to cross different agencies, and they do overlap, and

that is essential, the other thing, I think, is lessons learned. We

failed to learn the lessons of Iraq. When we set up a whole different body over in Afghanistan, they had to start from scratch.

They took nothing of the lessons learned from Iraq over. A contingency inspector general would be able, at the outset, to go in there

with that knowledge of those lessons learned, would have, in fact,

a whole repository of them maintained and be able to go in from

the outset, and I think that is important, don’t you?

Mr. ERVIN. I completely agree with that. I completely agree with

that, sir. That person would be in place right at the outset, needless to say.

Mr. TIERNEY. And I think if somebody that was going in there

were smart, they would use them for the advice on how to set up,

not just wait for them to start overseeing immediately on that.

Second point, Mr. Henke, you make a great point about the organizational restructuring that needs to happen within the Department of Defense, State, and all those, and I think part of that

means giving value to those positions. People go into those departments thinking, geez, it is bookkeeping, it is accounting, it is overseeing. We have to find a way for those agencies to give it value

to be in that position, because if they are going to save us the kind

of money they are, it has value in more sense than just the dollar,

it is an important position to have. So we are going to be looking

to your work on that to try to see how we can work with the departments and change that factor.
32

Overriding on that is if we try to do too much, as Congressman

Shays said, and if we can’t man enough people there to man it, and

we don’t have enough resources even to manage or oversee it,

maybe we ought to rethink the mission. And I think that is a lot

of what is going on here, whether we should be there or not, or be

there in the way that we are ought to somehow be dictated on what

our capacity is, and to do it well and to do it right.

The accountability aspect on it, we ran into this, Mr. Lankford,

on the Waton Risk Management that Mr. Chaffetz and I were dealing with just the other day. We recommended debarment as a result of our investigation; the Department of Defense told us they

were going to do that and off they went. Then we find out only at

the second hearing Mr. Chaffetz had, well, not to much. They basically let Waton off with a slap of the wrist by saying they couldn’t

do trucking contracts. Well, they weren’t doing them anymore anyway. And Rohullah, who is the warlord, he just got off on some

flimsy notion that he didn’t understand what people were talking

about when the investigation went on. But the Department never

went in and held its own investigation.

So we have a lot of work to do in that area to make sure that

there is accountability and competition, the whole notion of the

food and oil and lack of competition there; and the problem with

contracting itself, the idea that we haven’t done a good job legally

of getting contracts that are meaningful. When you can have a situation as we did in the trucking matter, where there was no insight, no vision into the subcontracting, they basically contracted to

a bunch of middlemen who didn’t even own trucks or security

agents, and left it up to them to subcontract the contractors and

security, and we didn’t retain the right to look at those subcontractors and to get any information with respect to them. That is a notion that you were very helpful in pointing out and going on that.

So thank you and kudos for all of those different areas.

My question to you is on sustainability. What does Congress

have to do to make sure that we don’t invest in projects in contingency areas that can’t be sustained by the host government?

Ms. SCHINASI. I will start on that, Congressman, because it relates to your point on the mission; if we can’t do it, maybe we

shouldn’t be doing it. And sustainability was important enough to

us, it is a chapter in this report, but we also have an entirely separate special report on that. In that, we make a recommendation

that you should be canceling projects that are not going to be sustainable.

That is something that can happen right now. We have recommended that you go in and you evaluate the projects that we are

putting money into now, and that you cancel those that you cannot

guaranty sustainability for. That is a short-term, immediate dollar

value task, I think, that the agencies can take on.

Mr. ZAKHEIM. We also recommended, and this is, I think, very

essential to your concerns, annual reports about the whole contingency contracting area, and that would give you a vehicle for double-checking on sustainability. In other words, if, for some reason,

a project got started and it slipped passed, you could catch them;

you have an opportunity every single year to catch them.

Mr. TIERNEY. Thank you.
33

Mr. SHAYS. Congressman Tierney, what is stunning to us is that the number of wastes that we have determined, $30 to $60 billion,

and many think it is closer to $60 billion, we do think the non-sustainability question will clearly equal the $30 billion-plus. And it

is just a whole other amount that you would need to add to our

waste figure, and it is a very real figure.

Could I just respond to the special IG effort that you are making?

Mr. TIERNEY. Sure.

Mr. SHAYS. In support of the Chaffetz Special IG Act of 2011, Mr.

Chairman, you are in the best position to see this because you

know sometimes the Armed Services Committee, because of the relationship they have with the military, isn’t looking at things they

need to look at. You know sometimes the Foreign Affairs Committee of Congress sometimes isn’t going to get at something you

know you need to look at because of the relation they have.

The IGs that work in the departments develop relationships.

There are certain things they are willing to do and there are certain things they are not willing to do, unless you are someone like

Mr. Ervin, who didn’t care what they thought. But a lot of them

it is a club. A lot of them don’t want to offend the department they

are in. And that is why you sometimes need the competition.

And I will just end by making this point. I remember when I was

chairing this committee we didn’t look at something I wanted to

look at. My staff didn’t want to look at it and then the Armed Services looked at it and it was a huge issue, and thank goodness they

looked at it. And sometimes we looked at issues they didn’t look at.

So I just think that the chairman is in the best position to see the

value of this.

Mr. TIERNEY. And they are all pretty busy, let’s face it. The Department of Defense Inspector General, the State Inspector General, USAID Inspector General, they have a full plate without even

contingency operations. They just have a full plate all the time

with the amount of money that they are in charge of. You put in

contingency operations, it is like a whole different ball game.

Mr. SHAYS. It is an add-on.

Mr. HENKE. Mr. Tierney, can I chime in on that?

Mr. TIERNEY. Sure.

Mr. HENKE. One of the things we learned in our work, State Department set up, I think in 2005 or 2006, a Middle East Regional

Office, MERO they called it, to do audit work overseas. They had

such a demand for it. So they set it up late and 2 or 3 years later

they did a review to see how their audit quality was, and it wasn’t

good and they had to stand it down. So they don’t flex well to new,

unique circumstances.

Mr. TIERNEY. Mr. Chairman, your indulgence has been great. I

have just one last comment to make on that issue, besides my undying gratitude for the work that the Commissioners have done.

This committee perhaps ought to consider, and our subcommittee

in particular, using our Members well. Each one will want to tackle

some of the recommendations, one or more of the recommendations,

to see if we need to translate that into legislation and how we do

that, and if we need to just do follow-up with the agencies and how

we do that, so that this is not one product that just sits on the

shelf. I think it is too valuable and I think the work was too good
34

for us, and fits so squarely in the overarching part of this and it

gives us all something as a non-partisan that we can work on together, that I think it would be a great notion and a great example

for Congress. So I just ask that you entertain that thought and,

again, thank you all.

Mr. CHAFFETZ. Very good. Thank you.

We will now recognize the gentleman from Michigan, Mr.

Walberg, for 5 minutes.

Mr. WALBERG. Thank you, Mr. Chairman, and thanks as well to

the Commission for the grim work you were asked to do and that

you did do. We trust that it will indeed have beneficial outcomes

as we tackle it.

Along with the costs and the problems with the contracts while

they are in operation, the GAO just released a report in September

documenting that at least 58,000 contracts awarded between fiscal

year 2003 and 2010 still need to be reviewed and closed out. Delays

in the contract closeouts potentially waste, in fact, not potentially,

but they do waste millions of dollars as improper payments, waste,

fraud, etc., become difficult or almost impossible to detect and recoup. This is because files are lost, memories fade, and contractors

disappear in the contingency zone.

Let me ask this question, Commissioner Zakheim. How important are timely contract closeouts to prevent waste, fraud, and

abuse?

Mr. ZAKHEIM. Well, obviously, they are extremely important. If

you don’t close out a contract, for a start, you can still, in theory

at least, and in practice for most of the time, spend money, and

that money probably should not be spent. It is taxpayer money and

it is probably going in the wrong way to the wrong people. And we

have seen cases, for example, where contractors are using their

people maybe one-fifth of the time and being paid full-time, again,

because it takes so long to close out. So when you look at thousands upon thousands of contracts that have not been closed out,

which means they haven’t been properly audited, by the way——

Mr. WALBERG. So no oversight or anything is going on.

Mr. ZAKHEIM. Well, that is exactly right, and that is what Commissioner Shays said a little bit earlier. If you are not auditing a

contract for years and the Government is actually paying for the

time in between the audit actually having to take place, the taxpayer is being hit with a double whammy: in the first place, they

may have been overcharged and, in the second place, they are then

paying for the time that is not being covered because the audit

hasn’t been done. That is just ridiculous.

Mr. WALBERG. Congressman Shays, based on that—and good to

see you again.

Mr. SHAYS. Nice to see you. Thank you.

Mr. WALBERG [continuing]. What steps should DCAA and DOD

be taking to accelerate this process?

Mr. SHAYS. I may not be the best one on the Commission to answer that question, but let me just say, first, honesty. Just look at

the numbers. And also I need to say that Congress needs to share

in this burden. This isn’t just the administration; Congress needs

to be advocating that these positions be filled.
35

Mr. WALBERG. Who would you suggest would be the best one to

answer this?

Mr. ZAKHEIM. I will take that one on, again, because DCAA was

under me, sir. I would just emphasize the need to hire more DCAA

people, more auditors. If you don’t have auditors, you don’t do audits. It is as simple as that.

Mr. HENKE. Sir, if I may contribute to that as well.

Mr. WALBERG. Yes.

Mr. HENKE. We are not talking about thousands of people. DCAA

is scrapping to get 100 auditors added next year and then 100

auditors added in 2013 to attack this backlog of work. Maybe one

of the things the committee could look at is making that entity

funded on a fee basis, instead of discretionary appropriations, so

that they are able to scale up and perform the work that they are

being asked to do.

Mr. TIEFER. Congressman Walberg, let me add, and it is Commissioner Thibault, who was deputy at DCAA, worked very hard

on the specifics of the personnel and the shortfall of the personnel

and the scale of the unaudited contracts. What we found was that

DCAA was responding to necessary priorities. They are short on

personnel and they had a choice between auditing the backlog or

handling their real-time responsibilities, such as when a new billion dollar or multi-billion dollar contract is awarded, they are supposed to audit the proposals to see that the contract that is issued

is right. So they, in effect, sacrificed letting the backlog grow and

grow, and that is how it grew and grew; they met their current,

but not their old needs.

Mr. WALBERG. Thank you. Let me ask one final question.

Representative Shays, is the Obama administration aware of this

problem?

Mr. SHAYS. Oh, I think so. And I hope Congress is as well.

Mr. WALBERG. Thank you.

Mr. CHAFFETZ. Thank you.

We are now going to recognize the gentleman from Virginia, Mr.

Connolly, for 5 minutes.

Mr. CONNOLLY. Thank you, Mr. Chairman.

One of the things I find interesting in this whole discussion is

that Congress almost never takes responsibility for our contribution to the problem.

Mr. Shays, when you were in Congress, we had leadership, especially in the Armed Services Committee at the time, that actually

pooh-poohed the idea of the need for more expertise in hiring of

contract managers, procurement and acquisition expertise. And, as

a result, we quadrupled outside contracting, but increased contracting personnel by only 3 percent at the Federal Government.

And now we are surprised that we can’t account for all of the dollars we have appropriated.

Anyone disagree? But I think I heard unanimity that one of the

answers was we need more capability at DCAA and in auditing

functions to be able to account for those dollars we are appropriating. Anyone disagree with that?

Mr. SHAYS. No. But I think one reason why this Commission was

able to be so bipartisan is we realized the fault lay with both parties and all the branches.
36

Mr. CONNOLLY. Because we have had a rather mindless dialog

sometimes here in this Congress about the need to shrink the size

of Federal Government, and we never talk about the need to invest,

actually, for a substantial payoff down the road. Obviously, if we

could have saved the $31 billion to $60 billion you estimate has

been wasted, either due to fraud or loss, somehow, whatever we invested in additional personnel would have been more than returned

back. And I assume that is in part your testimony as well, that

those relatively modest investments up front would have big payoff

in helping to deter what your report so ably documents, sadly, in

both Iraq and Afghanistan.

Mr. Zakheim.

Mr. ZAKHEIM. Well, I can’t disagree with you. Part of the problem

is that we are going to have to play catch-up ball. As Commissioner

Shays, the blame lies everywhere. It started in the 1990’s, when we

were having a so-called peace dividend, and it turned out that a

chunk of that dividend was to cut the very people you are just talking about. So there is some blame there. There is blame later on,

in the early part of this decade, when large contracts were let and

were not definitized properly. And one could go on and on.

I think the point of our Commission report, and I think where

we all agree, regardless of our politics, is that there is something

that needs to be done; it needs to be done now; it needs to be done

in the interest of this country and its taxpayers; and politics don’t

enter into it.

Mr. CONNOLLY. Well, of course, politics actually do enter into it

when you decide on a budget and what investments you will or will

not make. I wish politics didn’t enter into it, but they very much

do. I would be glad to bring you to the floor of the House and you

could watch some of our debates, where often we seem to know the

cost of everything and the value of nothing around here. Let me ask. The estimate of loss is $31 billion to $60 billion.

That is a pretty wide array. Why such a wide array in your report?

And second point, and then I will shut up, how much would you

attribute that to lost money indigenously, where you are hiring

local trucking companies and convoys, and they just off with the

cargo or lose the fuel, or whatever it may be?

Mr. ZAKHEIM. I think that one might fall to me. First of all, we

applied a very broad definition of waste, really to look at opportunity cost; how much money you could have spent on other things.

And we include in our definition excessive requirements that

weren’t adjusted afterwards; we include rework that was required

on poorly done jobs; we include poor projects that didn’t fit the local

cultures or the local politics; we include unanticipated security

costs.

In other words, you have a contract and all of a sudden you discover you have to hire security because it is a dangerous area. We

include questionable payments to contractors and we include poor

oversight. And as was mentioned earlier, we don’t include

sustainment costs.

Now, why such a wide range? Well, you can’t really do a bottomup study of this because we simply don’t have enough information

on all these contracts. Look, you heard 58,000 of them haven’t even

been finalized yet. So we just don’t have enough information to
37

build a bottom-up number, although, as was mentioned and Commissioner Tiefer led on this, we sure found an awful lot of examples that are in chapter 3.

A top-down estimate is insufficient. If you really want to do a

proper parametric estimate—and our number really is kind of; we

say 10 to 20 percent of that $206 billion—but if you really wanted

to have all the parameters, you simply couldn’t do it, again, because that would not capture the individual projects. So top-down

doesn’t do it, bottom-up doesn’t do it.

And fraud, that part, which is based on another estimate by the

certified fraud examiners, which is for the civilian side, that is 7

percent, we assume 5 to 9 percent, that one doesn’t work either

precisely because of the point you made: we don’t know how much

has been siphoned off by all these crooks. It is just hard to get to.

And it goes to something that the Commission is very concerned

about: visibility over subcontracts. Those are the guys who are actually paying these crooks off. And you probably saw on page, I

think it is, 73 of our report we actually show a bill that Commissioner Shays and I were given a copy of when we were in Afghanistan, and these are a bunch of crooks, insurgents, saying, well, if

you want protection, here is the number to call. I mean, it is something like out of HBO.

Mr. TIEFER. If I can add briefly. One of the things that extended

the array of waste was the change from Iraq to Afghanistan. In

2008, when you set us up and sent us out, Iraq was the big contracting problem. Now Afghanistan. Well, the problems are quite

different. You have payoffs protection to insurgents in Afghanistan.

Mr. Tierney and Mr. Chaffetz have been looking at that; they led

the way. That wasn’t a problem back there in Iraq. You have a

country that is so poor in Afghanistan that it has very little absorption capability, which means they can’t sustain what we are building when we are gone. Iraq wasn’t poor in the way Afghanistan is

poor. So we have a whole new set of problems.

Mr. CHAFFETZ. Thank you.

We now recognize the gentleman from Idaho, Mr. Labrador, for

5 minutes.

Mr. LABRADOR. Thank you, Mr. Chairman.

Congressman Shays, I found your comment to be fascinating and

I want to explore it a little bit, that we are doing too much. You

said that the one recommendation you have is that we are doing

too much. Could you elaborate on that a little bit?

Mr. SHAYS. Well, the genesis is really a dialog that took place

among the Members. At first we thought we just have to manage

these contractors better, and if we manage them better we won’t

have waste. And then we realized that it was more than that, that

if we couldn’t manage them better, maybe we shouldn’t do as much

because we can’t manage them. And then we began to realize, my

gosh, even if you can manage them, we began to just see so many

things happening.

I mean, when you have a wonderful contract in Afghanistan that costs $18 million fitting their culture, doing agricultural work, and

all of a sudden the Federal Government decides they are going to

increase the program to $350 million, instead of $18 or whatever

it was, but much less than the $350, and then they have to finish
38

it by the fiscal year to start to spend, that is crazy; and we just

saw it time and time again.

We simply think we just got beyond our capability to manage

and, frankly, we even went farther than that.

Mr. LABRADOR. Because I agree with you. I had the opportunity

to be in Iraq and Afghanistan earlier this year, I am a freshman

Member, and it was eye-opening to see what we are doing, what

we are trying to accomplish there, and just all the money we are

wasting. It was sad.

And I can see why you are angry, and I assume every member

of this panel is angry, because this is not just we are mismanaging;

this is that we are wasting the money of the American people. And

I am frustrated and I get frustrated when I hear, especially from

some Members on my side of the aisle, that we can’t do anything

about fraud, waste, and abuse in the military. We should look at

all of the other areas, but we can’t do it in the military. It just

blows my mind.

So any of the recommendations that you gave in this report, do

they address this particular issue? Because I think that is what I

am more concerned about, because I read these 25 recommendations and what I see is better management. And I don’t think we

can manage because, I agree with you, we are doing too much.

Which of the specific recommendations do you think hits at the

heart of your concern?

Mr. SHAYS. Well, I will answer it this way. One of the answers—

in a sense, everybody takes the blame. The problem is if everybody

takes the blame, nobody is responsible. We have tried, in our report, to start to have people accountable, so the dual-hatted person

that would actually have to be approved by the Senate but would

have a right to make decisions in the NSC and also at OMB, that

person, right at the top, would have to answer about the waste and

all the money being spent.

Having a J10, somebody within the Joint Chiefs that is focused

on all the contracting; and when contracting doesn’t turn out right,

they are going to go right to that J10. Having the key management

positions that we advocate in State and in Defense and USAID,

that person in charge of this, then they are going to feel a little

responsible for saying, you know what, I think we are doing too

much, I think we are wasting money, and it is going to fall on my

desk and I am going to have to take the hit. I think they are going

to start to force some accountability.

Mr. LABRADOR. So your hope is that these people say we are

doing too much. But it seems like we are doing nothing, at least

on our side, and I mean both Republicans and Democrats. We are

doing nothing to tell maybe the military or other agencies that we

are doing too much in these areas. Do you have any specific recommendations?

Mr. SHAYS. Well, one of the values of this committee, again, is

that I think this committee is a little more willing to look at DOD

in a fresh way and say, you know, you are also part of the mix.

So not quite addressing the answer, but I see that my colleague,

Mr. Ervin——

Mr. ERVIN. If I could just add one thing to this that I think

might be helpful, sir. I think our present fiscal situation is actually,
39

as dire as it is, helpful in this regard. The fiscal situation the country finds itself in today is, needless to say, very different from the

way it was 10 years ago. We simply cannot afford to undertake the

range of missions now that we could 10 years ago. So I think this

kind of question, whether we should engage in it at all, whether

it is contractors or organically, oversight or not, will be preceded

necessarily so by a question of whether we should undertake it at

all given the state of our finances now.

Mr. LABRADOR. You know, and I agree with you, and thank you

for your answers. Thank you for your work; thank you for being

here. I just wish I would see that more in Members of this Congress. I still see too many Members of this Congress saying that

we need to give the military a pass, when we get reports like yours

and I can see how we can actually make a huge difference by making very small changes. Thank you very much.

Mr. CHAFFETZ. Thank you. The gentleman yields back.

We will now recognize the gentleman from Vermont, Mr. Welch,

for 5 minutes.

Mr. WELCH. Thank you very much, Mr. Chairman. Thanks for

your good work on this, and I really appreciate the cooperation that

you and Mr. Tierney, your predecessor, have shown on this and the

remarks of my colleagues.

And, of course, Mr. Shays, welcome to you and to all the contractors. Two things. You have done a great job, and it is so refreshing

to have content that we can put our arms around and find common

ground to hopefully get something done, because most of us would

prefer to get something constructive done, and you have really established a platform.

I just want to make one general comment and then ask a few

specific questions. The general comment, I think, is that if we assign this huge job, like the war in Iraq or war in Afghanistan, to

the military and they have limited resources, contracting allows

the illusion that there is a capacity that doesn’t exist, because all

we have to do is throw money at the problem; and, obviously, it

doesn’t work.

So the real discipline has to be on what it is we expect—what

assignment we impose on the military. And if we are unwilling to

address the capacity question that you have identified, then it is

going to result in failure no matter how much oversight we have.

In the Tierney work that he did, on getting that bottle of water

from here up through Pakistan, through Afghanistan, journeys that

you have taken many times, Mr. Shays, to that forward operating

base or that bullet, whatever has to be done by the military to get

that bullet, to get that bottle of water to our soldier on that forward operating base, they are going to do, and they will deal with

all the chaos and all of the mismanagement and all the wasted

money afterwards. Understandable, but that is our problem. So

thank you so much for focusing on that.

But on a couple of specific questions coming up, as you know, we

are going to be transitioning, we are transitioning in Iraq, and

among the tasks that we are going to be asking the State Department now to do are activities traditionally done by the military,

and certainly seen, I think, by most of us traditionally as govern-
40

mental functions. They will be serving as a quick reaction force to

rescue hostages or to respond to attacks on the road.

I will ask you, Mr. Henke. Does the OMB guidance apply to the

State Department and its contractors?

Mr. HENKE. Yes, sir, it does. The devil, of course, is in the details

of how they interpret the words in the OMB guidance. The short

answer is the question now becomes what do agencies do with that

guidance. They have now put security in a combat zone on the list.

Now, State will perhaps argue to you, A, we don’t do combat and,

B, we don’t support DOD, who does combat; we are a separate

agency. That is all well and good, but I think that leads to the conclusion that State would offer, that the embassy in Kabul is like

any other embassy anywhere and can be guarded by contractors.

Yes, it is more high-risk, but it is still appropriate. OMB guidance

would disagree with them.

Mr. WELCH. What about like a hostage rescue team? Would that

be an activity that is inherently a governmental function?

Mr. HENKE. If you are going to rescue people who are engaged

in combat, yes, sir, that is correct.

Mr. WELCH. And then what about convoy security through insurgent controlled territory in Afghanistan, would that be appropriate

for contractors under the new OMB guidance?

Mr. HENKE. Well, the words in the guidance are this: security operations—this is on the list of inherently governmental—security

operations performed in direct support of combat as part of a larger

integrated armed force. So those convoys that are providing military articles and military goods, it seems to me they are in direct

support of combat operations.

Mr. WELCH. Well, I want to thank each and every one of you——

Mr. SHAYS. Could I just——

Mr. WELCH. Sure, Mr. Shays. Yes, go ahead.

Mr. SHAYS. Because one thing is getting lost that we don’t want

to get lost. Inherently governmental means the government should

do it. If it is not inherently governmental, it doesn’t mean the government shouldn’t do it. And our whole point in our chapter is that

we look at risk, and if the risk is high, even if it is not ‘‘inherently

governmental’’ but the risk is high, we would be leaning toward

suggesting that the government do it.

What is very disconcerting about Ambassador Kennedy’s response, basically, DOD is leaving Iraq. They are transferring their

responsibilities to State and State is now saying we are doing it,

but it is not inherently governmental. They are literally saying

that. We fear that they are saying it because they don’t want to

appear like they are not abiding by the law.

Mr. WELCH. Thank you very much. Thank all of you.

Mr. Chairman, I look forward to being a lieutenant for you and

the ranking member. I think we have a good issue here, good committee to work on it. Thank you.

Mr. CHAFFETZ. Thank you, Mr. Welch. Appreciate it.

We will now recognize the former chairman of this committee,

the gentleman from Indiana, Mr. Burton, for 5 minutes.

Mr. BURTON. Chris, good seeing you again, buddy.

Mr. SHAYS. Great to see you.

Mr. BURTON. Wish you were back.
41

I just have one question, and any one of you can answer it. And

I don’t want to be redundant; you may have answered this before,

and I was in a Foreign Affairs Committee meeting, so I apologize.

You said that there ought to be some kind of a commissioner to

oversee these issues, and it seems to me, and I know Mr. Tierney

has a bill dealing with that, it seems to me that just seems like

another layer of bureaucracy that we would have to deal with.

If the people who are supposed to review these contracts and

watch over waste, fraud, and abuse, if there is a buddy-buddy relationship, as you say there is, it seems to me that we ought to get

rid of them and replace them with somebody that is not biased in

any way. But to come up with another layer of bureaucracy to oversee the ones who may be buddy-buddy with the contractors just

doesn’t make sense, especially at a time when we have these fiscal

problems. I know we are not talking about a lot of money, but

these things have a way of mushrooming.

So I would just like to get your comment on that. And our committee on Government Reform and Oversight, if we had commissioners like you that talked about specific problems with an agency,

where they are not policing it properly, we could make the request

that that person be replaced so that there wouldn’t be the buddybuddy relationship that you are talking about. But I would just like

to get your comments once more on whether or not we ought to

have this new layer of bureaucracy or new commissioner to oversee

all this.

Ms. SCHINASI. Congressman Burton, I will take a shot at that,

if I may.

Mr. BURTON. Sure.

Ms. SCHINASI. I think what Commissioner Shays was referring to

were the individual IGs in the agencies as getting too close, sometimes, to the management of those agencies.

Mr. BURTON. No, I understand that.

Ms. SCHINASI. What we are talking about, what we saw in the

contingency operations is really their multi-agency flavor. It is not

just one agency that is spending money; all across the Government,

I think there are 17 agencies who are spending money in Afghanistan right now. So what we are looking for in the special inspector

general is not another layer as much as an individual who has the

authority to look across the different agencies. So we would replace

the special inspector general for Iraq, we would replace the special

inspector general for Afghanistan. Those offices have done some

good work that the individual agencies were not able to do——

Mr. BURTON. Okay.

Ms. SCHINASI [continuing]. Because they didn’t have the authority. So it really is meant to be sort of an efficient way to look at

the money that the U.S. Government as a whole is spending in

these contingencies.

Mr. BURTON. Mr. Chairman, that is the only question I had.

Thank you very much.

Mr. CHAFFETZ. Thank you.

We will now recognize the gentleman from Illinois, Mr. Davis, for

5 minutes.

Mr. DAVIS. Thank you very much, Mr. Chairman.
42

Congressman Shays, it is always good to see you, and it is good

to know that you are still involved in public interests and public

service activity. I want to thank you and all of the other members

of the Commission for the tremendous work I think you have done.

Looking at this report sort of affirms for me a lot of things that

I had thought, but didn’t necessarily have the information or the

data to go on. I mean, I thought it, and then when I read it I am

saying, yeah, that is kind of the way it is, that is how difficult it

is. As a matter of fact, I thought of in some societies, in some communities, in some neighborhoods in different places throughout the

world there is a saying that if you find a sucker, bump his head.

That is just sort of the way the culture evolves. And it seems to

me that there are a lot of people in these countries who become involved, in one way or the other, who kind of see this is an opportunity to feed from the trough; and if there is an opportunity, they

just can’t resist, they just can’t not do it.

So my question sort of becomes I guess whether or not this is almost seen as policy, that we hire especially if we are in different

countries and we have war taking place. Do we hire all of these

contractors as a way of kind of mollifying, to some degree, some of

the elements that might be there, that just makes it possible or

more possible that we can function and operate?

Mr. ZAKHEIM. Well, we do have policies as you describe them,

they are called Iraqi First and Afghanistan First, and you want to

hire locals. The problem is twofold. The first is it is one thing to

hire locals, it is another thing to flood a country with money; and

my colleague, Commissioner Tiefer, mentioned that. When you are

putting as much money into Afghanistan, or virtually as much as

its entire gross domestic product, and six times as much as its

budget, then you have a problem. There is money coming off of

trees, as far as the Afghans are concerned. So lesson number one

is maybe you should look much more carefully at how much a country can absorb before you start pouring the money in.

Lesson number two is if you are going to have local contractors

and you are going to have them because you have a policy that you

want to at least have people not alienated by your presence, then,

for God’s sake, supervise them, and that is what we have recommended in our Commission report, that in whatever the circumstances in the United States or elsewhere in peacetime, when

you are involved in a contingency and you are using local subcontractors, the U.S. Government should be able to look at their

books; and if their books aren’t clean, we throw them out.

Mr. TIEFER. Mr. Davis, what Commissioner Zakheim said was

exactly right about the Afghan contractors and the Iraqi contractors. I would say you will find in our report recommendations to

have stronger controls over foreign contractors in part because the

Kuwaiti contractors, we depended upon them for the Iraq war and

they took us to the cleaners. It should have been American businesses.

If someone was going to grow in wartime, at least it could have

been an American business. Relatively small Kuwaiti businesses

grew to large size. Public Warehouse Inc., which currently has an

indictment where the press has estimated to settle that case would

cost them $750 million. First Kuwaiti, which built the Baghdad
43

embassy, which has an unpaid bill, according to the inspector general, of $124 million. The Kuwaitis took us to the cleaners.

Mr. ZAKHEIM. Yes. And our report, to augment that, I would say

we want the ability to look at all foreign subcontracts, not just the

ones in theater, which is what you were referring to, but Kuwaitis

or anybody else. Anybody who is doing business with the United

States ought to be auditable.

Mr. DAVIS. Tough job. I thank you very much.

And thank you, Mr. Chairman. I yield back.

Mr. CHAFFETZ. Thank you.

We will now recognize Mr. Murphy from Connecticut for 5 minutes.

Mr. MURPHY. Thank you very much, Mr. Chairman.

Let me add my thanks to Congressman Shays, one, for your long

service to our State of Connecticut, but also for your great work on

this committee. I know how seriously you took this work, and I

think we are all incredibly pleased, as Mr. Welch said, to see some

real concrete proposals before us. It is not often that this committee

gets to see this kind of volume of good forward-looking work.

I want to build on Representative Tierney’s questions about sustainability, because I think this is key. And I am so glad that you

focused in on this issue. But your suggestion in some ways is a

pretty radical suggestion because your first bullet point says essentially what you have already repeated, that we should examine

completed and current projects for a risk of sustainment failure

and take appropriate action to cancel or redesign these programs.

Now, a couple pages earlier you point out that just in the next

year we are going to spend $13 billion on building up security

forces alone, and the total revenue coming in to the Afghan revenue today is $2 billion, not enough to even cover one-sixth of the

expense of the security investment alone. And though I think there

is a lot of hope for some long-term new revenue sources related to

mineral production, that is a real long-term pie-in-the-sky prognosis.

So I guess my question is what are you really recommending

here? Because a suggestion that you cut off all programs that can’t

sustain themselves is perhaps a recommendation to stop funding

the buildup of the Afghan national security forces. It is a prescription to essentially end support for a lot of the main core missions

that we have been doing here. You note that the other side of this

is to just admit that the American taxpayer is on the hook for a

lot longer than we are, and that is the other side of this, is that

maybe we just have to have a clear understanding that we are

going to be in to paying for particularly the security forces much

longer than the American public may understand.

But I guess I am trying to get my hands wrapped around how

radical a recommendation is the idea that we should end projects

that aren’t sustainable.

Mr. ERVIN. Why don’t I start? I think your analysis is spot on,

sir. There is no question but that a lot of these projects, you talked

about the security forces in particular, cannot be sustained absent

continued American investment, and I think we have to be honest

about that. We have a choice: either the U.S. Government continues to undertake these projects if we ultimately conclude that,
44

notwithstanding our fiscal situation, they are critical to the national security of the United States or we determine that they are

not critical to the U.S. Government’s national security and we can’t

afford it and, therefore, we have to stand down.

Mr. ZAKHEIM. General Caldwell has already said that he is planning to ratchet back the cost of training the Afghan forces. That

tells me, again, when the Government wants to respond, it can respond. Now, as Commissioner Ervin says, it is still going to cost

us money, we might as well be honest about it. But at least if we

focus much more carefully on these projects and we decide that we

do need them, as we need to train the Afghan forces, then we can

cut these projects down to size, and that is exactly what General

Caldwell is doing.

Mr. SHAYS. I want to add my voice. It is a tremendously insightful question and I think really what we are saying is obviously we

can’t just eliminate everything that we think they can’t sustain,

but we have to reduce the amount or the size of projects to fit our

capability to sustain them in the future.

Mr. MURPHY. Let me just drill down, in my remaining time, to

one specific issue you raised, which is with the SURP funds. When

I was in Afghanistan last, it was a particular point made by our

commanders in the field, how important these SURP funds were to

them in terms of building out their support amongst the community. But I think you raise a very important point that there is a

very different analysis in whether it is important for the hear and

now of building local support and whether it can be sustained in

the long run.

Recommendations or ideas on how we better control the usage of

SURP funds? Because this is going to be a major debate here, and

I would be interested to see if there are specific recommendations

to make sure that sustainability is part of the commanders’ decisionmaking process or part of the approval process.

Mr. HENKE. Sir, briefly, I would say I would recognize SURP for

what it is, and I think it is an adaptation, it is DOD’s willingness

to say we can do that, just give us the resources to do it, even if

it is not their core mission. When SURP was originally brought

about, it was on the order of $150, $180 million with seized Iraqi

assets. No one thought that it would grow to be a $2 billion program where we are buying a generator complex in Kandahar for

$240 million.

So, number one, look at the capacity of the agencies who should

be doing those things, diplomacy and development missions. They

have the mission; they don’t have the money. State has the money,

DOD has the money and the ability to send forces to go do that.

So, number one, look at the existing agency who might be doing

that mission if they were more fully staffed, and don’t let things

like SURP get out of control. No one thought that it would be used

to be basically a defacto development program. A long way from

$100 for a door, $300 for a new well to let’s build a quarter billion

dollar power plant in Kandahar.

Ms. SCHINASI. And if I might add to that, we spent a lot of time

during one of our hearings pursuing just this question and we

asked the question of the different agencies, have you all come together to talk about the military time line is today, today, today;
45

the development time line that they are trying to work on is much

longer. The projects are totally out of sync. And we got no answer

back from the agencies are you all working together to bring the

knowledge to the resources, as Mr. Henke just said, that we need

to to get done the mission. But SURP is clearly something that we

found was one of those missions where you just throw more money

at it and it will be fixed, when that is clearly not the case.

Mr. MURPHY. Thank you very much, Mr. Chairman.

Mr. CHAFFETZ. Thank you.

We now recognize the gentlewoman from New York, Mrs.

Maloney, for 5 minutes.

Mrs. MALONEY. Thank you very much, and I want to thank all

of the members of the panel who served on the Commission on

Wartime Contracting, especially my good friend and former colleague, Christopher Shays. Just yesterday the bill we worked on

went into effect for the victims compensation fund for the 9/11

workers. I appreciate your tremendous leadership. Thank you for

your service in so many areas.

And I compliment you on this report, and you make a number

of recommendations which I think are important. So many reports

come back to us and then they never say what you should do, but

you were clear in your recommendations to increase competition.

And in your written testimony you decry the fact that even after

8 years in Iraq there are still multi-billion dollar contracts that

have never been effectively re-competed, and you state that you believe that there is $30 to $60 billion lost in contract waste, fraud,

and abuse.

So it seems like some of these contractors are being treated like

they are too big to fail. Well, in the Financial Services Committee,

on which Chris and I both served, we passed legislation to end too

big to fail. We can’t afford it in this country. We cannot afford bailouts. And in your report it almost sounds like a bailout or a gift

to give a sole-source huge contract for items that are easy to

produce and get to the troops, such as food, fuel, logistical support.

This isn’t high-tech, highly difficult things; these are things that I

think many of my constituents in New York and probably yours,

Christopher, former ones in Connecticut, would like the opportunity to bid on the opportunity to provide these services.

So my question is you have some recommendations. Mr. Chairman, let’s start implementing. Let’s rebid some of these contracts

and see if we can lower the cost for the American taxpayer.

In the city of New York we found in our studies that there were

sole-source contracts, and when we bid them competitively to the

lowest responsible bidder—you had to have a record, you have to

be doing it well—it saved literally hundreds of billions of dollars in

the city of New York. So I think that in the Federal Government,

where it says that you are spending $200 billion in contracts alone

in logistics, that we could save a lot of money; and this is within

the jurisdiction of this committee.

And my question to you, Mr. Shays, is there any understanding

of how much this would save in taxpayers’ money if we were able

to competitively bid them, bid them now and when they expire, for

food, for fuel? How difficult is it? We have people moving food and

fuel all over the country. Why not let the taxpayers, other tax-
46

payers have a chance to bid and see if they can provide it at a

lower price, probably more efficiently and effectively?

And I agree with your report that it is ridiculous to give these

sole-source contracts. Once you get it, you have it for life. That is

not the American way. And particularly in Afghanistan and Iraq

we should be watching every dollar. I agree with Commissioner

Tiefer, who said these contracts should be going to American companies, they should be providing these services and growing American jobs, but let’s put some competition in the system.

So my question, Commissioner Shays, have you done any studies

on what would happen if we competitively bid, oh, say, the delivery

of fuel? It would probably bring down the cost by billions.

Mr. SHAYS. Being the wise man that I am, I am going to ask the

expert on this issue to respond to the question, Mr. Tiefer, who

will, I think, give you a good answer.

Mr. TIEFER. Thank you.

Mr. SHAYS. It better be a good answer.

Mr. TIEFER. I will start by saying there is a great bipartisan tradition about competition on this committee. This is the committee

that wrote the Competition in Contracting Act itself, which is still

the loadstar, the central principle for competition.

Mrs. MALONEY. But they didn’t use it in Iraq and Afghanistan.

Mr. TIEFER. No, they found exceptions and they have gotten

around it.

Mrs. MALONEY. I can see when you are going in in an emergency,

but now, when we are looking to save dollars, there is absolutely

no reason why we can’t rebid all of these contracts and save taxpayers money.

Mr. TIEFER. We used the figure of 11 percent as the amount of

money that would be saved because the Army had used that in its

decision, which, unfortunately, went the wrong way, about whether

to give a sole-source extension to the LOGCAP contract in Iraq for

its last year.

Among the particular things that concerned us, which are loopholes, in effect, in the Competition in Contracting Act is that the

logistics contract in Afghanistan, the one that is held by only two

companies, they have a 5-year-long contract.

Mrs. MALONEY. When you say logistics, does that include fuel

and food when you say logistics? What is logistics?

Mr. TIEFER. It is not bulk commodities, but it is the dining halls,

which is the preparation of the food, the providing of the food to

the troops and the civilians.

Mrs. MALONEY. So that is just providing the food What about importing the food or buying the food, is that part of it?

Mr. TIEFER. That is separate. There have been scandals in the

supplying of the bulk food. That is where the $750 million indictment of Public Warehousing was. There have been scandals in providing the fuel. That is the Kurgistan scandal about how we made

payoffs to the family of the corrupt ruler. But the particular of the

logistics contract, which is the single biggest contract, is that it

won’t be competed for an entire 5 years because the agency says

it doesn’t have the personnel to compete it in 3 years, which is absurd.
47

Mrs. MALONEY. Well, I agree it is absurd. And if they don’t have

the personnel to compete it, then I think this committee could direct that personnel be shifted over there so that we could compete

it. But are there other contracts that we could compete and see if

there are savings? It is ridiculous to give a sole-source in this situation.

Mr. SHAYS. Just to add a perspective, what was most disconcerting for us was when you start the process, you are going to

want to deal with one contractor and you are not going to want to

let out a lot of bids. But after you are into the second and third

year, then we wanted to see a lot more competition. So we have

evolved where there is a lot more competition. The sole-source is

not the rule, it is the exception, but it seems to be the exception

on the bigger dollar items, which then causes us concern. Just to

provide the perspective.

Mrs. MALONEY. But why don’t we change that, Commissioner

Shays? We can change that. This Commission could direct to competitively bid the larger contracts. I believe you would save money

by the billions. I really do believe that. And we are in a financial

crisis now.

Mr. SHAYS. Well, we were concerned that they didn’t go to

LOGCAP IV soon enough, that they allowed it to continue in Iraq.

We voiced our concern. We don’t have the clout that you all have,

and you all can continue this, looking at what we have done, looking at what we recommended, looking at what we argued for, looking at where we have had success, seeing where we haven’t yet.

Mrs. MALONEY. Well, who stops it? Who stops it when you try

to make these changes?

Mr. SHAYS. Well, it is DOD or State that basically says, you

know, they are comfortable with this contract, and that is the bottom line, and we are at war and so be it.

Mr. CHAFFETZ. Thank you.

We are going to start a second round. If you want to come back,

I will recognize you again, but I would like to recognize myself here

for just a couple of follow-ups, and then I think we will be pretty

well close to the end here.

There is something dramatically wrong, particularly, it strikes

me, at the Department of Defense. We have been doing this for a

long time. We talked about don’t want to offend people, and they

get too cozy in the relationships. I just want to go a little bit deeper. And having done this, Commissioner Ervin, maybe you can

start.

What specifically do we need to do to get them to work? And I

don’t buy the answer that it is always just more money. They have

hundreds of billions of dollars at the Department of Defense. Perhaps they are not prioritizing that properly, but the numbers are

absolutely staggering. And I know you have a whole report here,

but for this hearing, what else can we do to get these IGs to actually do what they are already charged to do?

Mr. ERVIN. Right. Well, I guess it is a number of things. First

of all, we need to fill the vacancies that exist with regard to the

statutory IGs, as we discussed earlier, at the State Department;

and there will soon be a retirement, I understand, at AID, so we

need to fill that.
48

Second, we need to make sure that those three statutory IGs are

effectively resourced, that they have the necessary resources,

money, so that they can hire not just the numbers of people, auditors, investigators, inspectors, but also the people with the requisite expertise. And I think this is another example where our

present parlous economic state is actually helpful, because there

are lots of people out there who used to be employed by the private

sector, that aren’t employed now, that would do terrifically good

jobs, it seems to me, in these positions.

All that having been said, I still, we all still believe that it is critical that there also be, complimentarily, a special inspector general

position for a number of reasons, as we said before. That person

would have interagency jurisdiction, which the statutory inspectors

general do not. Unlike the statutory inspectors general, that special

inspector general would focus specifically and exclusively on contingency operations. So, as I have said before in other contexts, all

these recommendations are of a piece, in other words, a complete

package, so I think we need to do all of this at the same time. And

we would save the Government money, ultimately, if we were to do

it.

Ms. SCHINASI. I would just like to add a different perspective, a

little modification of that. We clearly support, as my colleague just

said, the need for the oversight, but I would also argue that better

management would help a lot. And you wouldn’t need as much

oversight if you could get the better management. And because of

that we have recommended new positions be created in the executive branch to realize that managing contractors and managing

contracts and deciding whether or not to actually use a contractor

work force to carry out the mission of the Government is something

that is part and parcel of a core mission for the Government. It is

not the back office administrative business who cares, let them

take care of it; it needs to also be incorporated into management.

Mr. CHAFFETZ. Well, the Obama administration is about to see

a major surge in contractors there in Iraq, 17,000 contractors,

5,500 private security contractors as the military goes away. Aren’t

we just playing a little bit of a shell game here and are they prepared to deal with what is going to happen in less than 90 days

from now?

Ms. SCHINASI. Our recommendations were that they needed to

pay more attention to getting those contractors in place and then

overseeing their operations.

Mr. ZAKHEIM. We have been following this closely, obviously, for

some time, and I think it is fair to say that we are very, very worried. And as you heard earlier, we think that there needs to be

oversight.

Mr. CHAFFETZ. Well, what are those worries? What are you worried about?

Mr. ZAKHEIM. The worries are very simple. I can give you the

worst case. The worst case is you have another Niger Square thing,

which is to say, as happened in Iraq, some contractors go after

somebody they think is shooting at them, there is a mob scene, the

contractors are killed, everything spins out of control. I mean, it is

a nightmare. And when you have 17,000 of them, as you say, you
49

are asking for trouble, and without oversight. They can’t hire these

people, they can’t train them; you have heard that.

Mr. CHAFFETZ. So if you are a contractor in Iraq, you are 1 of

these 5,500, who is your commander in chief? Who do they report

to?

Mr. ZAKHEIM. Well, in theory they are reporting to the embassy.

But, you know, the Deputy Chief of Mission and the Ambassador

is not going to be managing operations with security contractors;

you have to have people accompanying them, government civilians,

who will keep an eye on them and ensure that nothing untoward

happens; and without that we are simply asking for trouble. It is

going to happen.

Mr. CHAFFETZ. I think Commissioner Shays said earlier when everybody takes blame, nobody is responsible. Did I get that quote

right?

So let’s talk about these 5,500 security contractors. Who is ultimately responsible for those people? Who do we hold responsible

for that? The Secretary of State?

Mr. ZAKHEIM. In theory, it is the Ambassador and, through the

Ambassador, the Secretary of State. Good luck.

Mr. TIEFER. If I could mention a legal point here. There is a

giant loophole as far as legal accountability, as far as

prosecutability of security people for doing something like Niger

Square. The current statute clearly covers the military who are

outside the United States. The contracting industry has taken the

position though that the statute, it is called the Military

Extraterritorial Jurisdiction Act, doesn’t apply to State Department

contractors.

So we recommended that—we are not the first, this is a recommendation that goes back to 2007—we recommended to just extend the military act to cover State Department civilians. Well, you

are going to have a private army in Iraq which, in theory, the people there cannot be criminally prosecuted even if they committed

homicide.

Mr. SHAYS. One of the things that the State Department did that

made a lot of sense, a few years ago we just had contractors providing all security for State, and we had problems. So the State

then put in charge a DS agent, one of their own agents in charge

of every convoy and so on if the State was involved. The amount

of incidences were reduced significantly. But they can’t do this to

the extent now. In fairness to State, they are being asked to do

something that I don’t know how they are going to do it. They are

being asked to basically do what the military did.

My complaint with what State is doing is that they are not acknowledging that it is something that the Government should do.

And by not acknowledging it, you all aren’t getting the information

you need to say, my gosh, we have a very serious problem here.

They are saying, no, none of this is inherently governmental. That

is simply wrong; it is inherently governmental. They are asking

people to do something they shouldn’t be doing.

Mr. CHAFFETZ. Well, to the rest of my committee members here,

this is one of the big concerns that we have. We can see it coming,

we know it is about to happen. We are playing a little bit of a shell

game, drawing down the military but bringing back up the security
50

forces through contractors, and I truly do worry about it. We do

have an upcoming hearing about the transition that will continue

to provide some more insight.

I would like to recognize the gentlewoman from New York if she

has some additional questions; otherwise, I think we will——

Mrs. MALONEY. I do have questions, because I feel that if we are

in these countries—personally, I think we should bring our men

and women home, but given the point that you say that in the contract they don’t adjust for the ability to competitively bid in the future, should the impact on future competition be factored into decisions about how to design the initial contract, Mr. Shays.

Should we do a contract from the beginning that requires competitive bidding in another year? Would that help particularly in

areas that are less complicated than troops, such as food, fuel, and

logistics? How hard is that? I could even run the food. I could run

the logistics.

Mr. SHAYS. I think it should be the rule, but there will be some

exceptions in the beginning of an operation.

Mrs. MALONEY. In the beginning, but you could put a timeframe

on it. And in your testimony you argue that the wartime environment brings tremendous additional complications, just what you

were saying. Yet, the same basic rules apply whether an agency is

contracting for laundry services or ball bearings in Kansas, it is the

same basic rules. So do these additional complications suggest the

need for special contracting regulations tailored to the wartime environment?

Mr. SHAYS. Yes.

Mrs. MALONEY. You believe so. And do you see any reason why

we couldn’t take—take, for example, a food contract. Why can’t we

take the food contract and competitively bid it?

Mr. TIEFER. We support that very much. In terms of length of

time, there is a specific nuance in our chapter 3 I want to bring

out here, which is that the current practice has not only been that

the contractor gets whatever the term is in the contract and virtually automatically gets option years. We found no serious review

of decisions whether to give the fourth year or the fifth year out

of a 3-year plus two option year contract.

But at the end the extension contract, and we had three billion

dollar level examples, is sole-sourced to the contractor who has had

it for the previous 5 years. To take the translator contractor, which

hasn’t been mentioned, although the food service one works the

same way, the food one works the same way, the translator contract was extended in two five $500 million slices, sole-sourced to

the contractor who had held it previously. We could very well put

a contract strategy in place that would not let that happen.

Mrs. MALONEY. Well, let’s go over what the contract strategy

would be. First of all, it would be to make a list, advertise and

make a list of, say, 10 qualified bidders. These are people that are

providing services in the United States, they are successful, they

have financial resources. So you have a qualified list. Then let the

qualified list bid on the contract, and the lowest bidder would win.

And I would bet my right arm we would save billions of dollars

under that scenario. Is there any way you would improve that

roadmap?
51

Mr. SHAYS. I just would say that they are providing, in the case

of the cafeteria, they may be providing food, but they are providing

it in an area where the logistics requires them to have some unique

capabilities. And we wouldn’t always advocate the lowest bidder,

we would want the low bid.

Mrs. MALONEY. Lowest responsible bidder.

Mr. SHAYS. Yes, exactly. So I just make a point that I would feel

terrible leaving and ending this Commission and acting like, well,

providing food in Afghanistan and Iraq is the same as providing it

somewhere else. It isn’t.

Mrs. MALONEY. But, Mr. Commissioner, in the RFP or in the request for proposal you could put the specific requirements in. Do

you believe that other American companies aren’t capable of providing translation, logistics, fuel——

Mr. SHAYS. Congresswoman Maloney, you and I do not have a

basic disagreement. I just wanted to qualify your comments to

make sure we realize that there are some unique parts to this.

Otherwise, I think the Commission would look foolish in making an

assumption like it is just like doing it in New York City or somewhere else.

Mrs. MALONEY. What I think we should do, because I like to do

things and not just talk, could we see if the Commission could take

one area of these three billion dollar contracts that they are giving

out sole-source, one area, probably the simplest with the less complications and go forward and see if we can competitively bid it?

Mr. SHAYS. We no longer exist. We ended our work this September and now we are on to new things.

Mrs. MALONEY. Congratulations on your report.

Mr. SHAYS. Thank you.

Mr. CHAFFETZ. Now recognize the chairman of the committee,

Mr. Issa, from California.

Chairman ISSA. I thank the chairman. And I want to follow up

on what I heard while I was in a meeting in the back.

Professor Tiefer, Commissioner, SIGAR, obviously there is bipartisan support for reform, but isn’t there a bigger problem that

when Americans or, in some cases, non-Americans, but under the

American umbrella, operate overseas, we don’t have a uniform

standard today, period? Our military men and women have one

standard; our State Department covered employees have another;

our contractors have yet another; and we could go into a couple

other derivatives. In any reform we do, not just closing the loophole, not just assuring that a contractor who violates law overseas

can be held accountable in the United States, but shouldn’t we also

try to have a uniform presentation of what an American or agent

of America would expect in a foreign nation while doing the bidding

of the American people?

Mr. TIEFER. Well, on the main aspect of what you are saying,

that is exactly right; it is currently a patchwork system. It has

been moved this way at one time, a different direction another

time, another direction a third time. So, yes, there is no uniformity

and consistency as if it had been thought out.

Chairman ISSA. It was a rhetorical question to get you to go further.
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Mr. TIEFER. Okay. Thank you. Why would we want to put a

patch on a particular hole right now? Because right now there is

no immunity from Iraqi justice for the security personnel that we

have in Iraq. Now, while we had military people doing that, Iraqis

had this attitude as elsewhere, well, they will be controlled, they

will be prosecuted, they are under American law, they can even be

court-martialed under American law. That is fine with us.

Chairman ISSA. Heck, they can be court-martialed for not paying

their just debts. We have a pretty strong UCMJ.

Mr. TIEFER. If given a choice, I would much rather be in civil

court than in court-martial. But what is going to happen if there

are incidents involving these civilian security contractors for the

State Department is that we are going to have this choice: we can

either let Iraqi justice proceed—and my sympathy is for the contractors faced in that situation—or we can hustle them out of the

country before the Iraqis get to them, which will not aid in our relations with the Iraqis.

Chairman ISSA. Good point. I want to follow up on one last question, and I think this probably goes to Commissioner Henke and to

Commissioner Zakheim, and I will start with you, Commissioner.

You made the point of secunding those people from DOD to State

if that allows us to have this inherently governmental job be done

by trained, experienced, prepared government people who understand rules of engagement and can make such adjustments. If you

could elaborate a little bit on—let’s assume for a moment that that

is a model not just in one country where we agree to remove our

uniformed armed forces, but taken to all other hot spots in which

the State Department today is using alternatives to, if you will,

their own forces. How could we do that in a way that protected

that status of forces, if you will, that normally the uniformed military has when they are secunded to the State Department?

Mr. HENKE. Well, as you just heard from my colleague, Commissioner Tiefer, it is just much too complicated when you are dealing

with civilians. I mean, our whole approach to civilians is so outdated. Now, I am speaking personally. I know the Commission is

over, but we have been speaking as a Commission. I am just speaking as an individual.

Chairman ISSA. Once a Commission, always a Commission.

Mr. HENKE. Well, that is right.

Chairman ISSA. You just can’t make recommendations the way

you could if you were——

Mr. HENKE. We are still living with living with the 1883 Civil

Service Act, with Chester Arthur Allen’s Act. It is crazy. And one

of the problems we face is that we simply have not updated the

role of civilians in the 21st century. So your concern is part of that.

We ought to be able to secund civilians. We ought to be able to

have some uniform code of civilian justice, to give it a name, that

applies to all civilians, wherever they are serving, whoever they are

serving. Once you do that, it becomes a lot easier to augment the

State Department, or any other agency, for that matter, in a variety of contingency situations. We simply don’t have that. We have,

as Commissioner Tiefer said, a patchwork and nothing more.

Chairman ISSA. I think I will end with Commissioner Henke.

You have seen DOD in your two roles. I was taking Commissioner
53

Zakheim at a different point, which was these are active duty military personnel who would, like a military liaison officer, work for

an ambassador, would in fact run a garrison, if you will, potentially

out of uniform but still active duty military. That is the only instant fix we would have that I can see for replacing DOD uniformed people in our current situation of 5,500 promised and needed, but promised not to be uniformed military.

Do you see any way for us to, if you will, dot the I or turn a circle

into a box? Because I am very concerned, and I think both sides

of the aisle should be concerned, that another square somewhere

in Iraq could turn into a real problem for the State Department

with some of those 5,500 people, and then the question is are these

military or at least Federal employees who have the full faith and

it is somebody in the chain of command’s mistake, or is it ‘‘you

hired a bad contractor and now we have to deal with it.’’

And it goes beyond the question of who tries it; it is a question

of we are going to be responsible for those people, even if they are

contractors. How are we going to ensure that all the way through

the Secretary of State and the President there is some accountability for an army that is larger than most units I served in in

the Army myself?

Mr. HENKE. Mr. Chairman, I think there has to be a way to figure out along the continuum of embassies that State has. There are

some that are low threat, low risk, some that are medium, some

that evolve into a high risk; and as long as the management controls are in place for contracted security, and they are vetted contractors and they are trained and certified contractors, there is this

idea out there about a third party certification, like an ISO 9000

certification for private security. That makes a lot of sense.

Another idea is don’t require in law the State Department to

choose, that they must choose low price, low bid, technically acceptable contracts for security; give them the ability to say I want to

do best value security in that high risk circumstance. When it gets

beyond high risk and it gets into combat, that is the province of

the military, and State and DOD have to be able to figure out,

without subordinating State to DOD and making it an arm of

DOD. Nobody wants that.

But there needs to be a way to operate as separate agencies but

recognize the gate guards at the Kabul embassy who were attacked

on September 13th, OMB issues this policy guidance on September

12th that says, look, security in combat is inherently governmental;

here is a list of other ideas. The day after the Kabul embassy was

under attack for 4 or 5, 6 hours and several people were killed. If

that is not combat, I don’t know what is. And State and DOD have

to be able to figure out a way to operate more seamlessly for us

to have an effective foreign policy apparatus.

Chairman ISSA. Any other guidance you could give us on something we may legislate from any of the Commissioners?

Ms. SCHINASI. I would just add something on this question that

is beyond what we looked at while we were operating, but there are

an awful lot of other trained security forces throughout the civilian

side of the U.S. Government, and one of the things that we saw in

looking at Iraq and Afghanistan is that really the rest of the civil-
54

ian government was not participating in a way that we thought

was useful for what is a common U.S. policy.

Chairman ISSA. Thank you.

Thank you, Mr. Chairman.

Mrs. MALONEY. Would the gentleman yield?

Chairman ISSA. Of course.

Mrs. MALONEY. In line with the gentleman’s question, and I

think the Commissioner, you raised a lot of good points. Combat is

very, very different. I am not questioning the standards, but what

happens when we have a multi-million dollar contractor that is an

exclusive provider of an essential service that is needed? Say there

is some serious abuses that were alleged against some of the providers, that they were very, very serious abuses, and we have had

hearings on them, specifically Blackwater. But what happens when

the contract is let appropriately, it is professional people, but there

are some serious abuses? Then who is accountable in that type of

situation?

Mr. HENKE. Contractually?

Mrs. MALONEY. Yes. Say you have a contractor providing an essential service and then there are serious abuses that become almost international outcries. Who is responsible then, the contractor

or how do you handle it? You know, in certain cases they said we

are private contractors and no one was accountable. So I just wonder what your answer is.

Mr. HENKE. In the example of the Kabul embassy, where we had

the guards who were drinking and partying and cavorting off duty,

the contractor was responsible, the government overseers were responsible. But you know, ultimately, they besmirched the reputation of the United States, and that is why, to me, that is the very

definition of high risk and where we don’t want to have a foreign

policy outcome at risk because of the way a low bid contractor performs in a combat zone.

Chairman ISSA. Thank you.

Thank you, Mr. Chairman.

Mr. CHAFFETZ. Thank you.

Again, on behalf of the committee and the U.S. Congress, thank

you for your great work, an awful lot of time and effort and talent

going into this. We do appreciate it.

I would like to give you an opportunity for any other final comments that you would like to share with us.

Mr. SHAYS. Thank you, Mr. Chairman. I would love to jump in

just for a second and say, first, the Congress and the general public

wanted the military to be the tip of the spear, so we have put all

our resources to say, you know, you fight the fight; and that, I

think, makes sense. It does mean that you can’t go to war without

contractors.

So this Commission is not besmirching the fact that we have to

depend on contractors; that was by design. What is of concern is

that the QDR, the Quadrennial Review of the Military, hardly

makes mention of the fact that we depend on contractors, we need

to integrate them in a way that is effective. We are saying that we

think we are over-dependent on contractors. That is another issue.

But we clearly understand that we have them and we need them.
55

My colleague, Ms. Schinasi, made this reference to the fact of a

concern about the number of civilians, and the fact is we have a

huge number of military, a huge number of contractors, and I was

really stunned by the low level of civilian Government employees,

who are actually in theater. There is such a difference. And then

I became even more stunned by, and stunned is the word, we have

to entice civilians, civil servants, I mean, to go there by doubling

their salary, giving them hardship pay, oversea pay, overtime; and

it is amazing the number of employees who make twice-plus what

they made here. And that is an issue I think we didn’t really fully

address, but what do we do to get more civil servants taking a role

in that area.

And then if I could add and if I could get the attention of Mr.

Issa, I would love it. Mr. Chairman, I just want to say to you, in

closing——

Chairman ISSA. Yes, Mr. Commissioner.

Mr. SHAYS. I just want to thank you for your opening words, how

gracious they were. I want to thank you for your concern about this

very issue that you have worked with others on both sides of the

aisle to get at waste, fraud, and abuse on a bipartisan way. I appreciate, and the Commission appreciates the work that you have

done.

We also want to thank Mr. Tierney years ago reaching out to the

Republican side to establish this Commission, which then leads me

to my final comments that I will make as a Commissioner.

Michael Thibault, my co-chairman, did a terrific job. He encountered a huge serious illness in his family that caused him to pay

great attention to that. He lost family members. He has missed

both hearings because of being with family at a time of some great

grievance. So he didn’t have the opportunity to present at the Senate or here. I just want to be on record as saying how much we

valued his work. And then to say that I have never had such an

easy job being a co-chairman, because I worked with such extraordinary people.

So, in conclusion, I just thank Congress for giving me this opportunity, the speaker for giving me the opportunity and Mitch

McConnell for allowing me to be the co-chairman as well, and

thank you for allowing me to put that on the record.

Chairman ISSA. Thank you. But I did note that you were saying

you got an upgrade in your colleagues after leaving Congress.

Mr. SHAYS. You know, I found myself going there and I thought

I better back off. But, Mr. Chairman, I should also say we do have

one criticism of this committee. We had a very fine counsel named

Rich Beutel, who was working, and the next thing we knew, he decided to raise the status of his position and work for this committee. But we missed him.

Chairman ISSA. Well, you know, we don’t pay a lot, but we offer

long-term employment, something your Commission couldn’t.

Thank you. [Laughter.]

Mr. CHAFFETZ. Thank you again, all. We appreciate it.

The committee stands adjourned.

[Whereupon, at 12:36 p.m., the committee was adjourned.]

[Additional information submitted for the hearing record follows:]
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