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MANAGEMENT OF MASSIVE HOMELAND SECURITY

CONTRACTS: DEEPWATER AND SBINET

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

FEBRUARY 8, 2007

Serial No. 110–19

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

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSISGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

——— ———

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on February 8, 2007 ......................................................................... 1

Statement of:

Duke, Elaine, Chief Procurement Officer, U.S. Department of Homeland

Security; Greg Giddens, Director, SBI Program Executive Office, U.S.

Department of Homeland Security; Admiral Thad Allen, Commandant,

U.S. Coast Guard, accompanied by Rear Admiral Gary Blore, Deepwater Executive Office, U.S. Coast Guard; Jerry W. McElwee, vice

president, Boeing SBINET Program, Boeing Advanced Systems; Leo

Mackay, president, Integrated Coast Guard Solutions (Lockheed Martin); and Philip Teel, president, Northrop Grumman Ship Systems ........ 97

Allen, Admiral Thad ................................................................................. 115

Blore, Rear Admiral Gary ......................................................................... 132

Duke, Elaine .............................................................................................. 97

Giddens, Greg ............................................................................................ 104

Mackay, Leo ............................................................................................... 140

McElwee, Jerry W. .................................................................................... 133

Teel, Philip ................................................................................................. 146

Walker, David, Comptroller General, U.S. Government Accountability Office; and Richard Skinner, Inspector General, U.S. Department of

Homeland Security ....................................................................................... 25

Skinner, Richard ....................................................................................... 49

Walker, David ............................................................................................ 25

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

Allen, Admiral Thad, Commandant, U.S. Coast Guard, prepared statement of ........................................................................................................... 117

Davis, Hon. Tom, a Representative in Congress from the State of Virginia, prepared statement of ........................................................................ 15

Duke, Elaine, Chief Procurement Officer, U.S. Department of Homeland

Security, prepared statement of .................................................................. 100

Giddens, Greg, Director, SBI Program Executive Office, U.S. Department

of Homeland Security, prepared statement of ............................................ 106

Mackay, Leo, president, Integrated Coast Guard Solutions (Lockheed

Martin), prepared statement of ................................................................... 142

McElwee, Jerry W., vice president, Boeing SBINET Program, Boeing

Advanced Systems, prepared statement of ................................................. 136

Skinner, Richard, Inspector General, U.S. Department of Homeland Security, prepared statement of .......................................................................... 52

Teel, Philip, president, Northrop Grumman Ship Systems, prepared statement of ........................................................................................................... 148

Walker, David, Comptroller General, U.S. Government Accountability Office, prepared statement of ........................................................................... 28

Waxman, Chairman Henry A., a Representative in Congress from the

State of California:

Prepared statement of ............................................................................... 8

Staff memo ................................................................................................. 3

(1)

MANAGEMENT OF MASSIVE HOMELAND SECURITY CONTRACTS: DEEPWATER AND

SBINET

THURSDAY, FEBRUARY 8, 2007

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10 a.m., in room 2157,

Rayburn House Office Building, Hon. Henry A. Waxman (chairman

of the committee) presiding.

Present: Representatives Waxman, Maloney, Cummings,

Kucinich, Davis of Illinois, Tierney, Clay, Watson, Lynch, Higgins,

Yarmuth, Norton, Cooper, Hodes, Sarbanes, Davis of Virginia, Burton, Shays, Mica, Souder, Platts, Duncan, Issa, Foxx, and Sali.

Staff present: Phil Schiliro, chief of staff; Phil Barnett, staff director and chief counsel; Kristin Amerling, general counsel; Karen

Lightfoot, communications director and senior policy advisor; David

Rapallo, chief investigative counsel; John Williams, deputy chief investigative counsel; Margaret Daum, counsel; Molly Gulland, assistant communications director; Anna Laitin, professional staff

member; Earley Green, chief clerk; Teresa Coufal, deputy clerk;

Caren Auchman, press assistant; Davis Hake and Sam Buffone,

staff assistants; David Marin, minority staff director; Larry

Halloran, minority deputy staff director; Jennifer Safavian, minority chief counsel for oversight and investigations; Keith Ausbrook,

minority chief counsel; Ellen Brown, minority legislative director

and senior policy counsel; John Brosnan, minority senior procurement counsel; Steve Castor and Charles Phillips, minority counsels;

Edward Kidd, minority professional staff member; John Cuaderes,

minority senior investigator and policy advisor; Patrick Lyden, minority parliamentarian and member services coordinator; Brian

McNicoll, minority communications director; and Benjamin Chance,

minority clerk.

Chairman WAXMAN. The meeting of the committee will please

come to order.

For the last days, we have been examining wasteful spending in

Iraq. With today’s hearing, the committee turns its attention to

fraud, waste, and abuse inside the United States.

We are going to examine the booming industry of Federal contracting by focusing on two enormous contracts awarded by the Department of Homeland Security.

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The first contract is the Coast Guard’s $24 billion Deepwater

contract. The Deepwater contract was supposed to modernize the

Coast Guard’s aging fleet.

Instead, it has produced a series of lemons that have cost the

taxpayers hundreds of millions of dollars. The second contract is the Department’s $30 billion contract with

Boeing to design and build a comprehensive border security plan.

The program, SBInet, is just getting off the ground.

Deepwater and SBInet are at completely different stages of the

procurement process, but they share something important in common: virtually every detail is being outsourced from the Government to private contractors.

The Government is relying on private contractors to design the

programs, build them, and even conduct oversight of them. As the

Deepwater experience shows, this can be a prescription for enormous fraud, waste, and abuse.

Today, the committee will release disturbing information about

the largest and most ambitious element of the Coast Guard’s Deepwater program: the new 425-foot National Security Cutter. In

March 2005, the Deepwater Program Office asked the Navy to

evaluate the vulnerability of the ship to fatigue.

The Navy followed through and, 9 months later, provided a damaging assessment of the new ship to the Deepwater Program Office.

According to the documents we have obtained, the Navy report included a series of ‘‘bottom line’’ warnings—printed in red ink—that

concluded the ship would not last for its full 30-year life span.

What happened next raises many questions. The Deepwater Office transmitted an edited version of the Navy report to the Commandant of the Coast Guard. The briefing slides given to the Commandant were nearly identical to the slides prepared by the Navy

with one critical exception: all of the Navy’s ‘‘bottom line’’ conclusions about the ship’s problems had been deleted. This took place

just months before the Coast Guard renewed and extended the

Deepwater contract.

My staff has prepared a memorandum that describes these

events in detail, and I ask that, by unanimous consent, it be made

part of the record.

[The information referred to follows:]

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Chairman WAXMAN. It is bad enough that the Coast Guard ignored the warnings and decided to renew the Deepwater contract,

but we now see the Homeland Security Department making the

same mistakes on the SBInet contract. As Yogi Berra once said,

‘‘This is like deja vu all over again.’’

I am also releasing a memorandum today with new information

about the SBInet contract. My staff has been examining what steps

the Department is taking to oversee the multi-billion dollar contract with Boeing to secure our borders. What we have learned is

that there seems to be no task too important to be outsourced to

private contractors.

As of December, the Department of Homeland Security had hired

a staff of 98 to oversee the new SBInet contract. That may seem

like a lot of progress until you ask who these overseers are. More

than half are private contractors. Some of these contractors even

work for companies that are business partners of Boeing, the company they are supposed to be overseeing. And from what we are

now learning from the Department, this may be just the tip of the

iceberg.

We need to correct our mistakes, not repeat them. The Deepwater contract is a textbook case of what not to do. Yet, Deepwater

seems to be the model for SBInet. We will explore these and related issues this morning, and I look forward to learning more from

the testimony we will receive.

[The prepared statement of Chairman Henry A. Waxman follows:]

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Chairman WAXMAN. At this time I want to recognize Mr. Davis,

the ranking member of the committee.

Mr. DAVIS OF VIRGINIA. Thank you very much, Chairman Waxman.

Today, we examine two critical acquisitions by the Department

of Homeland Security: the Coast Guard’s Deepwater Shipbuilding

and Aircraft Replacement Program and the SBInet, an ambitious

border security effort by the Customs and Border Patrol. Both are

vital components of the Department’s plans to meet its evolving

mission in the years ahead. Both multi-billion dollar programs

promise great operational benefits. And both pose substantial risks

to homeland security and fiscal integrity if they are not done right.

So I am pleased that the committee will examine these programs,

and I look forward to today’s testimony and future hearings on improving Federal procurements. These large-scale, complete, multiyear acquisitions are being undertaken using a lead system integrator. That approach has its critics, and both programs offer important lessons on the advantages and the pitfalls of that particular contracting vehicle.

Deepwater, 4 years into a planned 25 year project, has experienced well documented troubles. The Government Accountability

Office, the DHS Inspector General, and other congressional committees have found the Coast Guard’s Vanguard Fleet Replacement

Program in danger of running aground. Most recent reports suggest the program is finally getting back on course. But with so

many critical sets of eyes already trained on the program, this committee’s challenge today will be to bring a fresh perspective, not

simply to rehash old complaints about the Deepwater program or

the systems integrator concept in general.

And Deepwater can serve as a cautionary tale for SBInet. Work

on the integrated border security program has just begun. The contract is only 4 months old and currently within budget. But issues

regarding the adequacy of oversight mechanisms, cost controls, and

contractor performance assessments that plague Deepwater are already being raised about the program, and legitimately so. There

is a great deal at stake, and we should take every opportunity to

use our oversight, vigilant watchfulness, to keep SBInet on schedule and within cost.

That having been said, we need to be just as careful to distinguish between faults specific to particular programs and any general conclusions about the appropriateness or efficacy of the lead

systems integrator concept. It can be done well and there are circumstances in which it is the best method to acquire the best value

for the Government.

Deepwater may yet prove to be such a program. In the late

1990’s, under the Clinton administration, faced with the realities

of an aging fleet of ships and aircraft, the Coast Guard chose to use

a private contractor as a lead systems integrator for its most ambitious acquisition program ever. They chose that method because

the Coast Guard did not have the staff, the technical expertise, or

perhaps the desire to divert substantial internal management resources to a complicated acquisition. And, I might add, the diminution of the Federal staff was a concept coming out of the Clinton

administration in their reinventing government initiatives, where

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they would bring down the number of Federal employees and contract out more, a conscious effort coming out of that administration.

They evaluated their options, including asking the Navy for help,

and determined none would be better than using its lead systems

integrator approach. Similar considerations were explored by DHS

and SBInet, and their conclusions, so far, seem just as sound.

In attempting to secure the homeland, we face a disbursed and

adaptable adversary. Our efforts to empower personnel, strengthen

infrastructure, and integrate complex technologies against that

threat have to be just as nimble and just as innovative. Detailed

examination of these programs and the contracting modes used to

build them will help us reach that goal.

Again, Chairman Waxman, I appreciate your holding this hearing today.

[The prepared statement of Hon. Tom Davis follows:]

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Chairman WAXMAN. Thank you very much, Mr. Davis.

What I would like to do without objection is to have all Members

submit their opening statements for the record, and I will call on

Members who wish to make opening statements orally for no more

than 2 minutes.

Let me indicate that we are very fortunate to have on our committee Representative Elijah Cummings, and that he is here with

us today. He is the chairman of the Coast Guard Subcommittee of

the Transportation and Infrastructure Committee, so I particularly

look forward to his comments and am so pleased he is participating

with us in this hearing, because this is an issue that he knows a

great deal about.

Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman, and I do

thank you for holding this hearing. As you know, I held a hearing

to investigate Deepwater last week in the subcommittee that I

chair, the Subcommittee on Coast Guard and Maritime Transportation.

As I said last week, the Inspector General’s report on Deepwater

is one of the most disturbing reports that I have read during my

entire 11-year tenure in the Congress of the United States. The $24

billion, 25-year program represents the most complex procurement

that the Coast Guard has ever undertaken. And yet, according to

the IG report and the findings of our committee, the Coast Guard

chose to further complicate the process by hiring private contractors to serve as the systems integrator, tasking them with both

identifying program requirements and implementing them.

The conflict of interest that arises from this scenario is obvious

to even the most casual observer. We cannot expect private contractors to police themselves. Perhaps, not surprisingly, the Deepwater procurement process has had a series of failures, and we are

still trying to figure out who is going to pay for the failures. Most

recently, the IG reported that the first two National Security Cutters, designed to be the largest ships in the Coast Guard’s fleet, are

not likely to meet performance standards specified in the Deepwater contract.

Like many of the agencies that were combined into DHS, the

Coast Guard found itself in the situation of both trying to implement new missions and, at the same time, acquire new assets to

support those changing missions, while developing the management systems needed to control those acquisitions. The Coast

Guard’s example would suggest that some critical management

tasks simply cannot be outsourced to contractors, and I hope that

DHS and, indeed, our entire Federal Government will learn from

this example.

At this point, our top priority is to get the Deepwater procurement back on the right track so that it produces reliable assets

that the Coast Guard can use to protect our Nation for years to

come. Admiral Allen, to his credit, has committed to making the

necessary changes, and those of us in the Congress will be working

with him to make sure that happens.

Again, this is a hearing about accountability, competence, and

trust, and I am looking forward to hearing from the witnesses, and

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I want to thank you, Mr. Chairman, for your comments. I yield

back.

Chairman WAXMAN. Thank you very much for your comments,

Mr. Cummings.

The Chair recognizes Mr. Shays.

Mr. SHAYS. Thank you, Mr. Chairman, for having this hearing.

I am sorry, Mr. Walker, I missed your presentation yesterday at

Homeland Security.

Chairman WAXMAN. Thank you, Mr. Shays. Don’t feel obligated.

I appreciate your not feeling obligated to give an opening statement, but Members do have that opportunity.

I believe Mr. Souder is next.

Mr. SOUDER. Thank you, Mr. Chairman.

As the ranking member of the Border Security and Maritime Security Subcommittee over in Homeland Security, I have some deep

concerns about some of the way this is progressing on the secure

border initiative. There are obvious concerns about how best to control our borders, and how we do this initiative accurately and

whether the costs have been correctly stated. And I have expressed

that, and I believe there needs to be accountability, but some of us

believe that this question is partly because—and hasn’t been stated

because some oppose a fence and oppose a natural secure border,

and that this is a delaying problem, not a budgeting problem.

After the Homeland Security hearing yesterday, I am deeply concerned that some of this is a delaying tactic, and has nothing to

do with budgeting. It seems that our witnesses thought that the

700 miles of fence was something to be studied and debated, rather

than a specific law requiring it to be built; that the study is supposed to be for the areas that aren’t fenced and for how to back

up the fence. It is not within the authority of the IG or the Comptroller to try to rewrite specific legislation of Congress, whether

they agree or not. Bluntly said, you have not been elected to do

this.

Now, this is often discussed in the secure border initiative about

how complex it is and how it needs to be done correctly, and we

shouldn’t waste money, and I absolutely agree that there needs to

be more accountability, as Mr. Walker said yesterday, on subcontracting. But the fence is a specific requirement to be built; we

already have fencing areas. And this administration should not

hide behind, nor should Congress hide behind, oh, well, we need to

study this for a long time.

The American people are getting increasingly skeptical, as we

had a debate yesterday, and I am sure we will have more today,

about how the Border Patrol agents were handled. We seem more

concerned about how to stop getting things done on securing our

border than getting our border secure. I believe we need to carefully study our basic border defense—how to do the north border,

how to do the south border—but not to delay building the fence and

not have secure borders in this country.

Chairman WAXMAN. Thank you very much.

Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman. I am not going to make

a long statement, but the importance of the Coast Guard to my

particular district and region of the country is paramount, and we

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are all concerned, of course, about border protection. I think that

we have—you know, the serious questions that we want to hear

today is who should define the program and objectives, and who

should determine when they are met, whether or not the Coast

Guard and the Customs and Border Protection agencies really do

not have the human capacity to fulfill those obligations; and the

wisdom of allowing one single entity, a private entity to set both

the standards and design, and monitor whether or not compliance

and execution has gone the way it should.

I look forward to the answers to that. I think they will be instructive as to how we move forward in this area, and I want to

thank you, Mr. Chairman, for bringing this important hearing to

be today. Thank you.

Chairman WAXMAN. Thank you very much.

Mr. Sali.

Mr. SALI. Yielding to the Chairman’s admonition that we not feel

obligated to make a comment, I will forego that.

Chairman WAXMAN. Thank you very much.

Mr. Duncan.

Mr. DUNCAN. Well, thank you very much, Mr. Chairman. And I

really don’t have a formal opening statement, but I will mention

this, that an article yesterday or from yesterday’s hearing said

Homeland Security officials previously said SBInet would cost between $2 billion and $5 billion, but Skinner said it could cost as

much as $30 billion. When pressed by Rogers to provide a ballpark

estimate of the program’s cost, SBI Director Gregory Giddens

balked, ‘‘I wish I could answer that with greater clarity.’’

I think we need to look very, very closely at the costs associated

here, because like so many huge Government projects, there seem

to be all sorts of cost overruns and low estimates on the front end

and then huge cost overruns on the end of it. And when you are

talking about $30 billion or more, you are talking about a huge

amount of money. So I think we need very close oversight on this

project, and I thank you for calling this hearing.

Chairman WAXMAN. Thank you very much, Mr. Duncan.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman. I will submit my remarks

for the record, but I do want to say, prior to coming to Congress,

I had an opportunity to work as an iron worker for about 20 years.

I was educated, I got my associate’s degree in welding engineering,

worked at the General Dynamics Shipyard, so I probably know just

about enough in this matter to be dangerous.

I have read all the documents, the audits, and based on the audits and investigations conducted by GAO and the Inspector General, as well as thousands of pages of documents provided by the

Department to this committee, DHS’s oversight of Deepwater and

SBInet is severely limited by the prime negotiator contracts that

actually vest almost all of the authority over this program—the design, construction, operation, and quality control—with the private

contractors hired to do the work.

The documents indicate that the Government, DHS, has contracted out the oversight of contractors to contractors. That is the

problem. And in the case of SBInet, for example, DHS’s expendiVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
20

ture plan identifies 60 of the 98 personnel assigned to manage the

contract program as private contractors.

The last time I saw this type of model for managing a project

was the Big Dig in Boston. This is exactly what they did; they

fused the oversight function with the engineering and construction

function. Everybody was in the same tent. Nobody was watching

out for the owner, who in this case is the U.S. taxpayer.

This is a terrible model. I see a lot of it. And generally what we

see is when this model is in place, we see just colossal failures here

and huge cost overruns.

So I am delighted that we are having this hearing, Mr. Chairman. I am glad you are leading the way with Mr. Davis. And we

have a lot of work to do here, but if this was the private sector,

I will tell you, there would be some people getting their papers,

their walking papers over what has gone on in these two projects.

So this is very, very serious, huge losses, and somebody has to be

held responsible.

Thank you, Mr. Chairman. I yield back.

Chairman WAXMAN. Thank you very much, Mr. Lynch.

Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. I will put the majority of

my opening statement in the record, but I want to thank the chairman and the ranking member for having this hearing today. I believe this hearing should, in its best case, not be about the contracting mistakes alone of this 25-year program, an ambitious one

by the Coast Guard, but, rather, be a fair and impartial look at the

fundamental problems we have throughout our open and classified

procurement process today.

It is very clear that the admirals and captains sitting out here

at the end of their careers in fact could not have been properly told

as young ensigns that they were going to enter a 25-year career

and they were going to oversee a multi-billion dollar 25-year program, and that they would come in as an ensign and go out as a

captain and they were going to own that program. That is not the

way the U.S. military works; it is not the way the Coast Guard

works; it is not even the way our non-uniform services work.

So it is very clear to me that we are going to have to have contractor relationships throughout the process in which people are

hired and they are on a program for potentially decades, and that

is not going to happen with active government, and particularly not

active duty alone.

Having said that, it is also clear that we do not know how, as

a government, to share that responsibility, and that developing

what Mr. Lynch said, a way not to repeat the Big Dig mistakes,

is an obligation of this oversight committee.

So I look forward to delving further into how the relationship between the Government, the developing contractors, and the actual

building contractors needs to be done not just on this project, but

on $3 trillion economy or $3 trillion Governments broad projects.

And I would only say one last thing. This was begun under President Clinton’s watch. It is very clear that it will be President Chelsea Clinton before we will have reformed it entirely.

I yield back.

Chairman WAXMAN. Thank you, Mr. Issa.

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Mr. Cooper.

Mr. COOPER. No opening statement.

Chairman WAXMAN. Mr. Hodes.

Mr. HODES. Thank you, Mr. Chairman. I just want to make a few

comments.

The problems with the processes and relationships that we are

reviewing here highlight for me the challenge we face in how we

do Government business in this new era of homeland security. The

American people expect and deserve transparency, efficiency, costeffectiveness, and getting it right in these complex relationships between Government and contractors.

Ultimately, as Members of Congress, it is up to us to learn from

what are clearly glaring errors in these projects, the Deepwater

and the SBInet, and make it better as quickly as we can, because

in an age when we are facing tremendous budgetary challenges

and the enormous challenge of fiscal responsibility for the American people, we can’t afford to keep getting it wrong.

So as a new Member of Congress, I know I have a lot to learn,

but I want to hear what we can do to make sure that this doesn’t

happen anymore.

Thank you very much. I yield back.

Chairman WAXMAN. Thank you, Mr. Hodes.

In recognizing Mr. Mica, I want to point out that he is the ranking member of the full Transportation and Infrastructure Committee, which has jurisdiction over this issue. So I am pleased that he

is with us today.

Mr. Mica.

Mr. MICA. Thank you, Chairman Waxman. I feel a little bit

like—was it last Friday was Groundhog Day—that this is Groundhog Day, that we are repeating this, because on January 30th we

did conduct a full oversight investigation on the same matter in the

jurisdiction of the Coast Guard Subcommittee under Transportation and Infrastructure, but I guess sometimes we have to beat

a dead horse and we have to also beat a cracked vessel hull here.

But I think the exercise is good.

I heard some of the junior Members talking, and you don’t want

this repeated, but I have to put it a little bit in context.

We are dealing with a project that started in 2002. It started

under the Department of Transportation, actually, under the jurisdiction of the Coast Guard. We changed that out, as you know, to

DHS, and DHS has assumed some of the responsibility. We have

had two admirals, Admiral Collins—he is not here, is he?

Allen, you are going to take the heat, but he has come on board

and actually put in places I think some good protections so this

won’t happen again.

I come from the private sector, and when you take a project and

you are going to move forward on it, you try to bring in the best

people. It appears they did bring in the best. Lockheed was well

known for its communications ability, Grumman for its shipbuilding, probably the best in the world. But any unique development

program for new National Security Cutter and also the problem we

had with—we looked at the problem we had with eight patrol boat

cutters that will be retrofitted, and that program also went south.

22

The lessons learned, that you do need good oversight of these

projects. You need some single acquisition responsibility and oversight, and I think that has been put in place, so I feel pretty good

about that. Comparing this project and these mistakes with the

Boeing, I guess, project and border protection is kind of comparing

apples and oranges because we were developing a different product

with these vessels, the new vessels, in any event. Most of what

Boeing is going to do is off-the-shelf systems integration, and I

think they should be successful.

But the lesson learned is really good oversight and also oversight

from Congress in some continuum. And as we move these departments and responsibilities around, there have been problems, and

Mr. Walker is great at finding what they were and enunciating

them. But we can learn from this, and I believe that we have, and

changes by Admiral Allen, now that you are here now, are being

made and I am pleased with them.

Thank you.

Chairman WAXMAN. Thank you, Mr. Mica.

Mr. Yarmuth.

Mr. YARMUTH. Thank you, Mr. Chairman. I would like to submit

prepared opening remarks for the record, but I would like to open

by saying that there is a methodology in the world, and it seems

to be adopted as doctrine, irrefutable doctrine, in many Government circles: that the private sector is always more efficient and

effective than the Government sector. And I think what we have

seen in this particular situation is evidence to the contrary.

Having been in the private sector for quite a while, the reason

the private sector can be more efficient is that there is oversight

provided by customers and by shareholders and by the public, and

what I think we need to be aware of, and I think that these hearings will help illuminate, is that if the Government is going to employ private contractors for a great percentage of its business, that

it needs to provide proper oversight, because the normal controls

of the private sector aren’t always present.

So thank you, Mr. Chairman, for holding these hearings, and I

look forward to hearing from the witnesses.

Chairman WAXMAN. Thank you, Mr. Yarmuth.

Mr. Kucinich, do you wish to make an opening statement or you

have it for the record?

Mr. KUCINICH. Actually, I would like to make a brief opening

statement.

Chairman WAXMAN. The gentleman is recognized.

Mr. KUCINICH. Thank you very much.

We have seen that privatization has meant profit for a few at the

expense of the many, the many being the taxpayers of the United

States, but also at the expense of, for example, the Coast Guard.

The contractors having control and influence over Government acquisition has meant that the financial interest of the contractors

are regarded.

But when you look at a program like the so-called prime integrator contract, Deepwater, you have Coast Guard ships that are not

designed and constructed in a way that relates to the functional effectiveness of the Coast Guard. You see ships that have serious

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nesses in the new 425-foot National Security Cutter. What a great

metaphor that is, that our National Security Cutter has cracks in

it because of the ineffectiveness and of oversight by the Government itself. And it is good that this committee is undertaking such

an oversight effort.

I thank the Chair.

Chairman WAXMAN. Thank you, Mr. Kucinich.

Ms. Watson.

Ms. WATSON. I too want to thank you, Mr. Chairman, for holding

these hearings.

Today we need to determine if the prime contractors truly understand the needs of their Government clients or purposely change

these designs to fit their own preferences and products.

We also need to determine if the prime contractors played a

meaningful role or were an obstacle to direct communication and

assistance between the Government agencies and the subcontractors actually doing the work.

More importantly, we need to determine why these Government

agencies fail to do due diligence in monitoring the performance or

lack of performance of these contractors, and why they waited so

long to call in third party auditors to uncover the deficiencies.

And, last, we need to determine what impact the setbacks in

these two projects will have in our overall security programs and

whether these problems are unique or symptomatic of a larger

problem in the Department of Homeland Security.

And I hope the witnesses today will be able to give an honest assessment of what went wrong with these projects and how we can

prevent similar occurrences in the future. And I also hope that my

colleagues will take a critical look at whether the concept of the

prime interrogator is a feasible and cost-effective model for the procurement of large Government projects or another example of the

fox guarding the hen house.

Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you, Ms. Watson.

Mr. Higgins.

Mr. HIGGINS. Thank you, Mr. Chairman. I appreciate your taking

the initiative to do this hearing, and I think it is very important

just generally with respect to the Congress’s oversight role here.

What we are finding over the last several days in many aspects,

the contracting out of various functions within agencies is not producing cost-cutting stimulus, it is resulting in a lot of waste, which

is precluding various Government agencies from doing other responsibilities that come under their jurisdiction.

I represent an area of Buffalo, NY, where we have a shore facility that is in need of attention, but it is not being addressed because of the problems, I believe, having to do with the integrated

Deepwater systems. So my hope is that as the previous hearings

have, this hearing will shed light and promote transparency and

accountability into a system that is in desperate need of accountability and transparency.

Thank you, sir.

Chairman WAXMAN. Thank you, Mr. Higgins.

Mr. Sarbanes.

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Mr. SARBANES. Thank you, Mr. Chairman. And thank you for

your continued vigilance to ensure that taxpayer dollars are being

well spent when the Federal Government contracts with private

businesses. The hearings of the last 2 days have been serious examinations of our Federal procurement process, and I appreciate

your leadership.

That the Federal Government depends on private sector businesses for certain services is nothing new, but I remain concerned

that we have exceeded the limits of what can be characterized as

a healthy reliance on private contractors for the provision of Government services. Yesterday we heard about the role that contractors play in the conflict in Iraq. That literally hundreds of companies playing multiple roles and answering to different masters

leads to confusion in a war zone is without question. But as we

heard yesterday, it can also lead to tragedy when the lines are

blurred between combat operations and support services.

Today we are examining Department of Homeland Security contracts to determine if, with the so-called integrator model, the Department has relinquished too much authority by allowing contractors to not only execute a contract, but also design the scope of that

contract. Both the Deepwater Coast Guard program and the Southern Border Initiative are costly and serious programs. The congressional district I represent includes the Baltimore Harbor and

neighbors the Curtis Bay Coast Guard Yard, so I have a particular

interest in the upgrade of the Coast Guard fleet.

I hope this hearing will help to shine light on the issues associated with the integrator model of contracting, and I hope it results

in a better understanding of what steps the Department of Homeland Security must take to improve its management of both of

these important initiatives.

Mr. Chairman, I yield back the remainder of my time and look

forward to hearing from the panel.

Chairman WAXMAN. Thank you very much.

Mrs. Maloney.

Mrs. MALONEY. Thank you, Mr. Chairman, for continuing your

oversight of making Government really work better for the American people and for the values and goals of the American Government.

What I find so incredibly frustrating, Mr. Chairman—and I will

say Mr. Walker and Mr. Skinner—is that we see the same story

over and over again. It is like a broken record. The administration

wastes billions and billions on fundamentally flawed contracting

processes and approaches, and really lacks oversight. The $8.8 billion that they lost or they could not account for that we heard earlier in this week. But it reminds me of the movie of Groundhog’s

Day; we keep seeing the same problem over and over again.

So what I hope to learn from your testimony today and to hear

from you is what we in Congress can do to stop this seemingly endless continuing cycle of waste, fraud, and abuse, and mismanagement in the Government contracting process.

I yield back the balance of my time.

Chairman WAXMAN. Thank you very much, Mrs. Maloney.

I want to now turn to our witnesses to receive testimony today.

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Oh, Mr. Clay, I didn’t see you come in. Do you wish to be recognized?

Mr. CLAY. Yes, just for a short statement, Mr. Chairman.

Chairman WAXMAN. Certainly. The gentleman is recognized.

Mr. CLAY. Thank you for that. And I thank Ranking Member

Davis for holding today’s hearing on the management of the Deepwater and SBInet contracts.

It is extremely disturbing that the Coast Guard has been systematically rewarding Deepwater contractors whose products contain

crucial structural flaws. The Deepwater program’s goal was to replace an aging Coast Guard fleet with new and improved ships. Instead, the poor design and construction of these ships will prevent

them from carrying out their mission objective.

Giving these contractors high marks for their poor performance

and extending their contracts for substandard equipment is criminal. Someone is dropping the ball, and I look forward to hearing

testimony that explains who is being held accountable for this lax

oversight. It is my hope that today’s hearing will not only shed

light on the policy of DHS as to its procurement practices, but also

to learn if the Government is efficiently managing taxpayer dollars

by relying so heavily on private contractors.

That ends my statement, Mr. Chairman. I yield back the balance

of my time.

Chairman WAXMAN. Thank you very much.

Unless any other Members wish to be recognized for an opening

statement, we will proceed to the witnesses.

We are honored to have with us David Walker, Comptroller General of the United States and head of the U.S. Government Accountability Office; and Richard Skinner, the Inspector General of

the U.S. Department of Homeland Security. We welcome both of

you.

It is our policy in this committee to swear in all witnesses, and

I would like to ask you to rise and hold up your right hands.

[Witnesses sworn.]

Chairman WAXMAN. Thank you very much. The record will indicate that the witnesses answered in the affirmative.

Your prepared statements are going to be in the record in its entirety, but what we would like to ask each of you to do is to give

us a brief summary of the testimony and to try to keep it within

5 minutes.

Mr. Walker, we are going to call on you first.

STATEMENTS OF DAVID WALKER, COMPTROLLER GENERAL,

U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND RICHARD

SKINNER, INSPECTOR GENERAL, U.S. DEPARTMENT OF

HOMELAND SECURITY

STATEMENT OF DAVID WALKER

Mr. WALKER. Thank you, Chairman Waxman, Ranking Member

Davis, other members of the committee. It is a pleasure to be before you today to discuss GAO’s reviews of the Department of

Homeland Security’s acquisition challenges in general and the U.S.

Coast Guard’s Deepwater program in particular.

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In January 2003, the GAO designated DHS’s implementation

and transformation effort as a high risk area because of the size

and complexity of the effort and the existing challenges faced by

many of the components of the 22 different entities that were

merged into the Department of Homeland Security. Although DHS

has made progress in addressing a number of these challenges,

there are major items that remain which, therefore, keeps it on our

high-risk list. In fiscal 2006, DHS reported obligating $15.6 billion for acquisitions, making it the third largest Federal department in spending

taxpayer dollars in this area. DHS is undertaking large, complex

investments as the Federal Government is increasingly relying

upon contractors for roles and missions previously performed by

Government employees. Contractors have an important role to play

in the discharge of the Government’s responsibilities, and in some

cases the use of contractors can result in improved economy, efficiency, and effectiveness.

At the same time, they don’t always result in improved economy,

efficiency, and effectiveness. And there may be occasions when contractors are used to provide certain services because the Government lacks another viable and timely option. In such cases, the

Government may actually be paying more, and taking on more

risk, for such services as opposed to providing certain services by

Federal employees. Furthermore, giving more flexibility and responsibilities to contractors results in more risk to the Government

and to the taxpayers, which must be actively managed.

In this environment of increased reliance on contractors, sound

planning, effective contract execution, and ongoing oversight are

critical for success. We have previously identified the need to examine the appropriate role for contractors to be among the greatest

challenges facing the Government in the 21st century.

And, I might add, we may be talking about DHS today, we may

be talking about Deepwater today, but this is a systemic problem

which, Mr. Chairman, I would respectfully suggest may be meritorious of having a separate hearing just on the contracting issue

by itself.

DHS has a stated goal of integrating the acquisition function

more broadly across the Department. We have reported that this

goal has not yet been accomplished and we have identified a number of key impediments to achieving it.

From the outset, we have expressed some concerns about the risk

involved with the Coast Guard’s acquisition strategy for the Deepwater program. In 2004, we reported that, well into the contract’s

second year, key components needed to manage the program and

to oversee the system integrator’s performance had not yet been effectively implemented. It was clear that there was a possibility of

expectation gaps between what the Coast Guard may have wanted

and what they might ultimately receive.

We also reported that, despite documented problems in schedule,

performance, cost control, and contract administration through the

first year of the Deepwater contract, the contractor had received a

rating of 87 percent, which fell in the ‘‘very good’’ range and resulted in an award fee of $4 million of a maximum $4.6 million

being paid. The Federal Government all too frequently is subject to

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great inflation, not having adequate performance metrics, and paying award fees based upon attitude and efforts, rather than real results. That is a systemic problem and it needs to be addressed.

However, a number of actions have been taken and others remain to be taken in order to try to get control of the Deepwater

situation. I must say that Admiral Allen inherited a number of

problems. I would also like to say for the record that I have known

Admiral Allen for many years; I have great respect for his leadership ability and I know that he is taking this issue very, very seriously. And you will hear from him later.

We have ongoing work with regard to both SBInet as well as the

Deepwater program which we will be issuing in the near future.

And, in summary, let me just say we may be talking about DHS

acquisitions and Deepwater in particular today, but let me reiterate, this is a systemic problem throughout the entire Federal

Government. The taxpayers lose billions of dollars a year. We have

identified, Mr. Chairman and Ranking Member Davis, 15 Government-wide systemic problems in the contracting area, and I would

respectfully request at some point in time to have the opportunity

to appear before this committee to discuss those, because I think

they merit such a hearing.

Thank you.

[The prepared statement of Mr. Walker follows:]

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Chairman WAXMAN. Thank you very much, Mr. Walker. I share

your concerns and we will continue to look at the picture as well.

Mr. Skinner.

STATEMENT OF RICHARD SKINNER

Mr. SKINNER. Good morning, Mr. Chairman and members of the

committee.

Before I go into details, there are a couple of points I would like

to note, and they are also things that members of the committee

have also raised in their opening statements.

First of all, people have to understand when the Department was

stood up in March 2003, it was shortchanged. On one side of the

ledger it acquired entire operational assets and programs of 22 disparate agencies. On the other side of the ledger it did not acquire

a proportionate share of the acquisition management assets needed

to support those programs and operations.

To compound matters, DHS was asked or was required—the acquisition management function was asked to service whole new

components that were stood up as a result of the creation of the

Department of Homeland Security. For example, the Science and

Technology Directorate, the Intelligence Analysis Directorate, and

the Infrastructure Protection Directorate.

The Government’s greatest exposure to fraud, waste, and abuse

is undoubtedly in the area of procurement. As already pointed out

by members of this committee, the problem is not a new one; it

dates back to the Federal Government’s nearsighted policies of the

early 1990’s to reduce the Federal work force. While acquisition

management capabilities were being downsized, the procurement

workload was on the rise.

This phenomenon is most profound within DHS, the Department

of Homeland Security, where reliance on the private sector is critical. Forty percent of the Department’s budget in year 2006 was

spent on contracts, $16 billion. The Department, in essence, however, is in a catch–22. The urgency of its mission demands rapid

pursuit of major investment programs; it cannot wait until its acquisition management infrastructure is in place or fully staffed.

And, without a systems command or a program management capability to provide managers with expertise, business processes and

tools, DHS’s large, complex performance-based contracts, such as

Deepwater and SBInet, are at risk of cost overruns, delayed delivery schedules, poor performance and, yes, waste.

DHS recognizes these problems and is acting aggressively to correct them. However, many of these corrective measures will take

time, such as building a procurement work force to manage the Department’s massive workload. Until this is accomplished, DHS

needs to proceed with caution and take advantage of all the tools

at its disposal to mitigate risk and avoid future problems.

I am sure you will hear from the next panel about the precautions and plans that the Department’s Procurement Office, the

Coast Guard, and the Customs and Border Security Office are taking or planning to take to safeguard Department’s contract dollars

in the future. Some common themes and risks that have emerged

from our audits over the past several years are the dominant influVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
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ence of expediency, poorly defined requirements, and inadequate

oversight of staffing.

With regard to Deepwater, the Department of Transportation

created in the late 1990’s to replace, modernize, and sustain the

Coast Guard’s aging and deteriorating fleet of ships and aircraft.

In June 2002, the Coast Guard awarded the Integrated Coast

Guard Systems with a 5-year term, 30-year contract to serve as the

Deepwater systems integrator.

Five months later, in February 2003, the U.S. Department of

Transportation Office of Inspector General reported that the Coast

Guard lacked sufficient management controls and capacity to oversee the program. That was 4 years ago. The program was initiated

without the people and processes needed to manage the effort, even

with the outsourcing of program management to a systems integrator. This lack of a proper foundation for the Deepwater program remains a challenge to this day and, as a result, the Coast Guard has

encountered a number of challenges which have resulted in cost increases, schedule delays, and reduced operational performance.

The Deepwater contract essentially empowered the contractor

with authority for decisionmaking. Therefore, the Coast Guard was

reluctant, in our opinion, to exercise a sufficient degree of authority

to influence the design and production of its own assets. Furthermore, general ambiguities in the Deepwater contract terms and

condition have compromised the Coast Guard’s ability to hold the

contractor accountable for its performance.

The Coast Guard recognizes these challenges and I can assure

you Admiral Allen takes them very, very seriously, and he has assured us—and you will hear from him later today—that they will

take aggressive corrective action to turn this around.

Concerning the SBInet program, it too is a performance-based

strategy with a systems integrator to develop solutions to manage,

control, and secure the borders. The Department awarded the

SBInet systems integrator contract to the Boeing Co. in September

2006. We have been monitoring the Department’s implementation

of the SBInet program and recently provided a risk advisory with

recommendations to address weaknesses in the program. The Department has agreed with our recommendation and said it is planning to pursue corrective actions.

As described in that report, our main concern about SBInet is

that DHS embarked on a multi-million dollar acquisition project

without having laid the foundation to oversee and assess contractor

performance and cost control and schedule. Deja vu, Deepwater all

over again. Prior to the award, DHS has not properly defined, validated, and stabilized operational requirements. Moreover, until the

operational and contract requirements are firm, effective performance management and cost and schedule control are precluded.

We also reported that the Department does not have the capacity

needed to plan, oversee, and execute the SBInet program, to administer its contracts, and control cost and schedule. DHS needs to

move quickly to establish the organizational capacity to oversee,

manage, and execute the program.

Also, in all fairness, I should note that we also reported that the

SBInet program has taken steps to mitigate risk and avoid some

of the problems encountered by the Deepwater program. For examVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
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ple, unlike the Deepwater acquisition, DHS retained decision authority; included contract provisions ensuring Government involvement in the subcontract management or in make-or-buy decisions;

the system integrator is not necessarily the source of supply; adopted shorter contract terms which included off-ramps in the contract;

used concept demonstrations and incremental approaches before

committing to a long-term solution and investment.

I would like to conclude by saying that my office is highly committed to the oversight of these and other major acquisitions within

the Department. It is an area where we continue to focus considerable resources. This year, we plan to issue a report card on the Department’s management of its procurement responsibilities, the

Deepwater program, the SBInet program, and FEMA’S procurement program. We also plan to issue a series of reports on the Department’s management of both the SBInet and the Deepwater program.

Mr. Chairman, that concludes my remarks. I would be happy to

answer your questions, any questions you or the Members may

have.

[The prepared statement of Mr. Skinner follows:]

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Chairman WAXMAN. Thank you very much, Mr. Skinner.

Mr. Skinner, you testified about the structural problems with the

National Security Cutter. This ship, which is 425 feet long, is the

largest and most ambitious element of the Deepwater program.

The Deepwater contract is supposed to provide the Coast Guard

with eight of these ships, but the first ship has been plagued with

problems. Your report last week found that it will not meet the

performance specifications in the contract; it does not have an adequate fatigue life to serve the Coast Guard for 30 years.

The question of the ship’s fatigue life has been a consistent one

over the past several years. In 2002, technical experts at the Coast

Guard warned of problems, sending emails and memos to the Deepwater program office. Three years later, the Coast Guard asked the

Carderock Division of the Naval Surface Warfare Center to analyze

the ship’s fatigue life. In December 2005, the Navy prepared a preliminary report, as well as a summary in slides. These slides contained alarming conclusions that were highlighted in red letter,

and I would like to put them up on the screen. We have provided

them to you.

Here is one slide. It says, ‘‘Bottom line, stresses are too high for

Cat E—meaning Category E—details to last 30 years’’ and the

arrow points to the word ‘‘problem’’ with an exclamation point. Another slide said, ‘‘Bottom line, stresses are too high to allow details,

longitudinal weld, or E details but weld, to last 30 years.’’ Another

arrow pointing to the word ‘‘problem.’’

These slides were provided to senior Deepwater officials in the

Program Management Office who are responsible for the oversight

and management of the entire program. Later, that Office created

a briefing for the Commandant of the Coast. This briefing occurred

just 6 days later. The Commandant’s briefing had the same information, but the critical warnings were stripped. Let me show you

on the screen. Page 8 of the original briefing has that clear red

warning. Page 5 of the Commandant’s briefing is identical except

for the missing red type; it is gone.

Mr. Skinner, I would like to get your views about this. It appears

that someone modified these slides to strip out critical warning information that was originally included. Do you agree?

Mr. SKINNER. It certainly appears that way. And I am not sure,

I wasn’t present when they briefed the Commandant concerning

this, but I can say that we were aware of the Carderock study. We

were aware that—we prepared slides for the Commandant briefing.

We asked for those slides in early December of, I believe it was,

2005, and we waited a week, still didn’t receive the slides. We were

getting a little impatient; we pushed the issue. Our counsel talked

to the Coast Guard counsel.

Later that evening—it was actually after 7:00—the slides were

delivered to us. However, they were not the Carderock slides; the

red lettering had been removed. In the interim, we received, backchannel, the actual copies of those slides and later that week or the

following week we then received the originals that had the red lettering.

I think this was somewhat indicative of the Coast Guard’s attitude with regard—at least at that point in time—with regards to

the transparency of what was taking place. Throughout the entire

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course of 2005—matter of fact, we had to cancel our—we had to

delay our review, stop the audit for 5 weeks until we resolved some

access issues to document some personnel and the rules of engagement for the audit. And throughout that whole course the Coast

Guard and officials that we were talking to during that period of

time were simply denying that there were any problems, and if

they did say there were problems, they referred to them as just

some small technical ambiguities that needed to be addressed.

Chairman WAXMAN. Well, were you concerned that the Commandant didn’t get the full picture, they sent them slides with the

information taken off?

Mr. SKINNER. I was not aware that the Commandant himself did

not get the full picture. I was concerned that we did not get the

full picture, that we had to push very hard and involve our counsels to be able to get access to documents so that we could proceed

with our work.

Chairman WAXMAN. Do you know why the Program Management

Office would delete this important information?

Mr. SKINNER. I beg your pardon, sir?

Chairman WAXMAN. Do you know why they would delete this important information?

Mr. SKINNER. I don’t want to really speculate, but it would certainly appear that they did not want to admit to the fact that they

were having flaws with the Cutter because of the commitment they

had made, they had already invested a lot of money to proceed with

the construction of the Cutter.

Chairman WAXMAN. Did you determine who actually doctored

these slides?

Mr. SKINNER. No, I haven’t.

Chairman WAXMAN. You don’t know if it was one individual

or——

Mr. SKINNER. No, I don’t. We determined who delivered them to

us, but I can’t say exactly who doctored them.

Chairman WAXMAN. Surely, others at the——

Mr. SKINNER. If you want to refer to it as doctoring them. I don’t

know who changed them.

Chairman WAXMAN. Changed them. Surely, others at the Commandant’s briefing must have noticed these major alterations. Do

you know whether that was the case or not?

Mr. SKINNER. No. I wasn’t present and I don’t believe anyone in

our staff was present during that briefing.

Chairman WAXMAN. Do you know whether any support contractors were involved in the preparation, review, or production of the

Commandant’s briefing?

Mr. SKINNER. That is possible, but I don’t know.

Chairman WAXMAN. You don’t know. And can you tell us how

you ultimately found out about the changes in these briefing slides?

Mr. SKINNER. Officials from the Carderock advised us that they

had completed—because we were monitoring—we were in the middle of an audit and we knew that Carderock was doing a study of

the design, and they advised us that they had completed their work

and they were preparing a slide or a brief for the Commandant or

for Coast Guard officials, and we then went to the Coast Guard to

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ask for those slides. The Carderock officials pointed out to us that

they had serious concerns with the design.

Chairman WAXMAN. How unusual is it for you to ask for information and have this kind of—what—deflection—to be the nicest

about it—deflection of giving you the answers?

Mr. SKINNER. This is highly unusual. I have been in the IG community long before the IG Act, 38 years. I have never experienced

anything quite like this.

Chairman WAXMAN. Do you find it troubling?

Mr. SKINNER. Very troubling. So troubling that I did bring it to

the attention of the Commandant, and I also went and brought it

to the attention of the Deputy Secretary and I brought it to the attention of the General Counsel of the Department of Homeland Security.

Chairman WAXMAN. Well, sugar-coating the information may

have made life easier for the program managers, but it is certainly

a disservice to the Commandant and to you and to the taxpayers

of this country.

Mr. SKINNER. Most certainly.

Chairman WAXMAN. Mr. Davis.

Mr. DAVIS OF VIRGINIA. Thank you very much.

Let me just start, General Walker, with you. The taxpayers do

lose billions of dollars every year on contracting. It is for a lot of

different reasons, isn’t it? I have always argued that waste and

fraud and abuse don’t come in neatly tied packages together, they

are layered throughout the bureaucracy in the way we do business,

and contracting—Government has gone to more and more

outsourcing. The way we contract, the way we oversee it—and that

is a debate we should have, a full day of that, because I think there

are some serious issues.

One of the difficulties, it seems to me, is the more transparency

you build into it, sometimes, the more inefficient you become, too.

So there becomes a tradeoff. We spend so much time in Government sometimes making sure nobody steals a dollar that you can’t

get much of anything else done. And we have had these constant

debates through time, trying to find the right balance and the right

type of contract, whether it is a services contract or whether it is

a general production or the like.

Do you want to make any general comments about that?

Mr. WALKER. I do.

Mr. DAVIS OF VIRGINIA. You have been involved with this for

years.

Mr. WALKER. First, I think we have to understand that there are

many, many contracting arrangements that work very well for the

taxpayers, that are very economical, that are very efficient. So I

don’t think we want to paint with a broad brush here.

At the same point in time, the fact is we are relying on contractors, for a variety of reasons, to a much greater extent than we

ever have, in roles and responsibilities, in many cases, we never

have before, and then that represents additional risk.

I would like to provide for the record, Mr. Davis, something that

I was asked to do by Chairman Skelton of the Armed Services

Committee, and that is to come up with a definition of waste, and

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ties. And, quite frankly, it is a shared responsibility. In some cases

it is because the executive branch doesn’t do its job; in some cases

because the contractor doesn’t do its job; in some cases because the

legislative branch does or doesn’t do something. So I would like to

provide that for the record, if I may.

Chairman WAXMAN. Is there objection?

[No response.]

Chairman WAXMAN. We would be pleased to receive that for the

record.

Mr. DAVIS OF VIRGINIA. Thank you very much.

Mr. Skinner, let me just ask from your perspective, in this case

what went wrong? Was it the Government that went wrong, the

lack of direction? Was it the fact that in the initial design they

knew there were some chances that were going to be taken, there

were some risks involved? Is this the fault of the Government not

appropriately overseeing this thing and giving appropriate direction to the contractor, or is this something where a contractor has

run amok?

Mr. SKINNER. I think you have to go back to the contract itself,

and at that time—this was a novel approach that we were taking

here, to do a systems-of-systems approach, partnering with the private sector, incidentally, which I think was an excellent idea, because you really need, in projects like this, to partner with the private sector.

Mr. DAVIS OF VIRGINIA. Well, let me just ask you. There was no

in-house capability to do this completely within Government?

Mr. SKINNER. None at all.

Mr. DAVIS OF VIRGINIA. Was there any in-house capability to

properly oversee this?

Mr. SKINNER. Not—no.

Mr. DAVIS OF VIRGINIA. OK.

Mr. SKINNER. That was a problem that was reported in 2003, and

it is a problem that we are having today.

Mr. DAVIS OF VIRGINIA. So, frankly, it is a part of looking at this,

you are talking about at the governmental level we need to bring

in more high level trained professionals in the procurement area,

regardless.

Mr. SKINNER. Yes. And not only in just procurement types, but

also program managers, engineers, and others to form a team.

Mr. DAVIS OF VIRGINIA. And I would opine from the pay scales

we are offering now, are we even competitive with the private sector? Anybody think they can——

Mr. SKINNER. I would say not. And the reason I could say that

is because I am in a recruitment mode in our office, and we are

trying to hire procurement types, and it is very, very difficult.

Mr. DAVIS OF VIRGINIA. And once you train them, can you retain

them, I mean, with the pay levels we have?

Mr. SKINNER. My goal is if I can get someone and train them and

keep them 3 years, I am successful.

Mr. DAVIS OF VIRGINIA. Mr. Walker.

Mr. WALKER. Mr. Davis, I think you raise an excellent point. I

think we have to understand what went wrong and why, and what

are the systemic problems that we need to address in order to minimize the possibility of what happened before.

70

It is one thing to contract out more discretion and more responsibility, but when you do that, it means you have higher risks. You

cannot totally contract out oversight responsibilities. And, therefore, it is really critically important that the Federal Government

have enough people with the right kind of skills and knowledge to

manage cost, quality, and performance.

We may need to change our compensation strategies for highly

skilled people. We may need to change our recruiting practices and

how we can bring people in. It will save the taxpayer a lot of

money if we go about it the right way.

Mr. DAVIS OF VIRGINIA. Pay me now or pay me later, it just

seems to me. I have always felt in these large procurements like

this, if management brings this thing on time and under budget,

you ought to bonus them. It is worth it compared to what you are

paying them in the out years.

How much of this has been a problem with a change in terms

of the needs, the requirements change that has come through, with

these procurements?

Mr. SKINNER. I am sorry, I am not sure I understand.

Mr. DAVIS OF VIRGINIA. How much of the problem is created because of a change in requirements from the beginning, when this

was envisioned, to where we are today?

Mr. SKINNER. You have to anticipate change. You have to expect

that.

Mr. DAVIS OF VIRGINIA. But a lot of cost increases come from

changes.

Mr. SKINNER. Yes, they do. And when this project was initiated,

keep in mind it was before 9/11, so there were changes that were

absolutely necessary.

Mr. DAVIS OF VIRGINIA. Were they significant changes?

Mr. SKINNER. I can’t——

Mr. DAVIS OF VIRGINIA. Well, I guess we can ask the next group.

I mean, it is one thing to say, well, this was going to be $3 billion

and now it is $10 billion, or whatever, but you have to take a look

at what the Government then changes along the way and that

there are costs. I spent 25 years in procurement before I came to

Congress. I mean, we recognize how this happens, and many times

it is the Government’s changes that build in these extra costs that

weren’t anticipated at the time.

Mr. Walker.

Mr. WALKER. That is an excellent point, in fact, it is one of the

15 items. You have already hit on a couple of the 15 items. The

Government needs to do a much better job of defining the requirements up front, based upon needs versus wants, that are affordable

and sustainable over time. It is one thing for there to be a change

in requirements because of subsequent events. For example, 9/11

was a subsequent event. That caused certain types of needs to happen; not just with regard to Deepwater, but on the Capital Visitor

Center. It caused a number of changes on that. That might be understandable.

On the other hand, all too frequently there are changes in requirements that have nothing to do with subsequent events that

are based on preferences, wants versus needs; not necessarily here,

but systemically.

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Mr. DAVIS OF VIRGINIA. Thank you very much.

And also, Mr. Skinner, just to ask you, even when you outsource

some of the oversight—and I think there are times when you may

want to do it—you still need people that are overseeing the

overseers——

Mr. SKINNER. That is correct.

Mr. DAVIS OF VIRGINIA [continuing]. To be highly skilled and

trained, and at least know when to ask the right questions. Did

they have capability in-house?

Mr. SKINNER. No.

Mr. DAVIS OF VIRGINIA. So therein lies the systemic problem.

Mr. SKINNER. At that point in time, in our opinion, no, they did

not have that capability. That is the capability that they must

build and that is the commitment that Admiral Allen has made to

build that capability.

Mr. DAVIS OF VIRGINIA. So you have a contract, a huge contract,

with a number of changes in there, and no in-house capability to

really oversee it and ask the right questions, and no appropriate

direction sometimes to the contractor because the people inside—

no fault of theirs, but systemically we don’t have people to even ask

the right questions and give it the right direction.

Mr. SKINNER. That is correct. And we have to keep in mind this

goes throughout the Deepwater program, not just dealing with the

Cutters.

Mr. DAVIS OF VIRGINIA. Well, it is more than just Deepwater,

isn’t it? General Walker, isn’t this across Government?

Mr. WALKER. This is a systemic problem throughout the Federal

Government.

Mr. DAVIS OF VIRGINIA. Mr. Chairman, I would just say, as we

work our way through, one of the purposes of these hearings—and

what separates this from what some of the other committees are

doing is we take a broader view at this, try to get at the policy implications, both from a Civil Service perspective and an outsourcing

perspective, to try to save the taxpayers money.

Chairman WAXMAN. Would you yield?

Mr. DAVIS OF VIRGINIA. I would be happy to.

Chairman WAXMAN. It just seems to me what we are saying is

that if there is no infrastructure, the money is not going to be well

spent. If we find examples where they haven’t thought through, in

the Government, what exactly they want, so they outsource even

thinking through what they want and then they outsource doing it,

and then they outsource the oversight.

Isn’t that what we are finding, Mr. Walker?

Mr. WALKER. That has been done, and that obviously provides

additional discretion. With additional discretion means additional

risk. And as was said by Mr. Davis, you have to have somebody to

oversee the overseers if you have outsourced that.

Mr. DAVIS OF VIRGINIA. I think with a good in-house cadre this

can work, but you have to have that, and then with the changes

as you talk about. You get a good program manager or somebody

there, you are lucky to keep them 3 years. For these longer projects

it just doesn’t work.

Chairman WAXMAN. Well, this was $30 billion.

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Mr. WALKER. Right. And one of the challenges, one of the other

items on the list of 15 is you need the right kind of program manager with the right kinds of skills and knowledge, and they need

to stay on the job long enough, rather than being pre-programed

to turn over, which is another accountability challenge.

Mr. SKINNER. That is another concern that we have as well, is

the turnover rate. For the few they do have, there is a constant

turnover; they are not committed to the project long-term. We are

finding this in Deepwater. We are concerned about this in SBInet

as well because the people working there now, most of them are

detailees, they are not committed for the long-term. And we are

finding this—well, like Mr. Walker said, this is a Government-wide

problem, not just a DHS issue.

Mr. DAVIS OF VIRGINIA. One last question. Do you see this thing

turning around at this point? Do you think this is heading in the

right direction?

Mr. SKINNER. I do. I really believe in the leadership that is being

provided by Admiral Allen. I know that they are making some real

drastic changes right now with regards to the way that contract is

going to be managed. My biggest concern now is getting the resources needed to manage it. That is as with regards to Deepwater,

and it is also our major concern with SBInet. We learned lessons

from Deepwater when we entered into the SBInet contract, but we

still don’t have the resources, in our opinion, to provide oversight

and to ensure that funds are going to be spent efficiently.

Mr. DAVIS OF VIRGINIA. If I can just make one brief comment. I

think that most of us can agree getting those resources is critical,

and sometimes in Government’s efforts to cut expenditures we are

stupid, because we cutoff fingers and toes instead of losing weight

throughout the system in the way we do business in that a few dollars up front could save us billions of dollars. Is that fair?

Mr. SKINNER. Yes, that is very fair.

Mr. DAVIS OF VIRGINIA. Mr. Walker.

Mr. WALKER. Real quickly, with your indulgence, Mr. Chairman,

I think the other thing you need to focus on is I have a great deal

of respect for Admiral Allen, and he is on the case. You know, time

will tell, but I think we have the right person on the job. They may

need your help. They may need your help with regard to authorities to be able to have additional flexibilities to be able to attract

and retain the kind of people necessary to oversee the overseers.

That might require legislative change in addition to financial resources.

Chairman WAXMAN. Thank you both. Even with good intentions,

the job can’t get done if you don’t have the resources to do it.

Mr. Cummings.

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

First of all, let me thank you gentleman for being here and for

your testimony. Let me say from the outset, and what I said before

the Coast Guard Subcommittee on Transportation, that I have the

utmost confidence in Admiral Allen. I believe that he is an honorable man and I know that he will do a great job.

But then that leads me to this set of questions.

Mr. Skinner, you wrote in your report that prior to the award of

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verted many of the design standards it had previously specified to

guidance and did not incorporate a contractual mechanism to ensure that those alternative standards met or exceeded the original

guidance standards it had developed. Is that true?

Mr. SKINNER. Yes.

Mr. CUMMINGS. And do you know why that was done? In other

words, they changed their own standards, is that right?

Mr. SKINNER. It is hard to say if they actually changed their own

standards. The contract was so vaguely worded, there was disagreement within the Coast Guard by the contractors, the contracting officer, the systems engineers. There was disagreement as to

what those standards were. For example, from 2000 all the way

through 2005, we thought we were building a ship to be underway

for 230 days for 30 years. The 2005 is the first documentation—

matter of fact, all evaluations done by Carderock and others of the

Cutter did a base on that standard. The language in the contract

said 230 days. The navigational rules define 230 days as anchors

up, so to speak.

Mr. CUMMINGS. So we could have had some better contract attorneys putting this thing together?

Mr. SKINNER. The vagueness of the contract, the terms and the

specifications in the contract were so vague, it gave the contractor

discretion to define what those standards would be.

Mr. CUMMINGS. Speaking of vagueness, Mr. Walker, you know,

you were talking about back in 2004, and in your testimony you

said despite documented problems in schedule performance, cost

control, and contract administration throughout the first year, the

program executive officer—and who is that, by the way—awarded

the contract an overall rating of 87 percent, which fell in the very

good range. And this is what I am concerned about: and then it

says this rating resulted in an award fee of $4 million of a maximum $4.6 million. That is like a bonus, is that right?

Mr. WALKER. That is correct.

Mr. CUMMINGS. Help me with this.

Mr. WALKER. Well, this is——

Mr. CUMMINGS. I mean, our constituents are looking, trying to

figure out it would take them half a lifetime to make $4 million.

We have boats that aren’t even floating and they are trying to figure out why is somebody getting a bonus.

Mr. WALKER. This is another example of a systemic problem. The

Government has a number of contract provisions that provide for

incentive and award fees, but many times those provisions provide

for those incentive and award fees based upon attitude and effort,

rather than outcomes. And one of the things that has to happen is

that we need to focus these incentive and award fees on cost,

schedule, performance, outcome-based indicators——

Mr. CUMMINGS. I have to stop you there.

Mr. WALKER. No problem.

Mr. CUMMINGS. I beg you to tell me what do you mean getting

a bonus based on attitude?

Mr. WALKER. Well, what I mean is——

Mr. CUMMINGS. Because I am sure a lot of people would like to

know.

74

Mr. WALKER. What I mean by that is the contractor did what

they were supposed to do, they produced this particular document,

they did something that resulted in an output within the timeframes, they were cooperative, they worked together in a constructive fashion with the related Government officials, but not necessarily outcome-based. And that is the problem, clearly defining

on what basis there are going to be incentive award fees paid.

By the way, I think we need two other things. We also need to

have exit clauses in contracts. If things aren’t going the way that

they should be going, we ought to be able to pull the plug and the

taxpayers shouldn’t have to pay a dime.

Mr. CUMMINGS. If you had an exit—Mr. Walker, I want you to

get to No. 2, but if you had an exit clause here, would you be recommending to the Congress that the plug be pulled? I mean, irrespective of somebody great like Admiral Allen.

Mr. WALKER. We are not—we haven’t finished our work. We are

going to be issuing a report on Deepwater in the near future. I

don’t really want to speculate on that.

The other thing that we need, Mr. Cummings, is in addition to

incentive and award fees for good positive performance, we need

penalties short of exit clauses. You need to have a balance. We

don’t have a balance.

Mr. CUMMINGS. So right now we have a lot of disputes, but we

don’t have the mechanisms contractually to even address them, is

that what you are saying?

Mr. WALKER. In all too many cases that is true.

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

Chairman WAXMAN. Thank you, Mr. Cummings.

Mr. Shays.

Mr. SHAYS. Thank you, Mr. Chairman.

I would like to switch with Mr. Mica. Thank you.

Mr. MICA. Well, this isn’t quite as bad as it all sounds. I mean,

when I took this responsibility over the Coast Guard on the Republican side a month or so ago, I was absolutely petrified because the

Coast Guard has such a great reputation of performance in Katrina

and whatever else they do; it is a great agency. It is one of the

darker moments. I tried to find out what went wrong.

First of all, this is a total of about eight new National Security

Coast Guard cutters?

Mr. SKINNER. That is just——

Mr. MICA. That is the whole project?

Mr. SKINNER. Yes.

Mr. MICA. There are two of them here that were constructed and,

actually, those are usable. They are not usable for the lifetime that

they were looking at; they will have to be—there will have to be

some upgrades for some reason, again, it didn’t meet the specs in

this design, as I am told. The three through eight will, is that correct?

Mr. SKINNER. It is my understanding that——

Mr. MICA. OK, so they may have taken corrective action and we

can save those two. I don’t even want to get into the eight that we

tried to retrofit that are tied and moored to Key West. If Castro

drops dead, I am still wondering what we are going to do, but I feel

Allen has a plan, so I don’t feel too bad about it.

75

The other thing, let’s put this in perspective as well. First of all,

somebody said Government is more efficient than the private sector. I heard it from the other side. That is unbelievable. This is a

Government failure, it is not the private sector. The Government

ordered this; the Government was to oversee it.

Also, this is a very unique project. This is development of a new

class of Coast Guard cutter, correct?

Mr. SKINNER. That is correct.

Mr. MICA. OK. Never before built. Now, who were we going to

have design it? They didn’t have that capability. Did they have that

capability in-house?

Mr. SKINNER. No.

Mr. MICA. OK. Could we get a committee in Congress to design

it? God help us. The Government doesn’t build anything. A lot of

folks don’t understand this. It is privatization, oh my God.

So there are parts of this, there is the development of the specifications, which I guess the Coast Guard should probably have better people.

And I even have to disagree with the ranking member here,

Davis. Somebody told me the average life is 3 years—sorry, Mr.

Davis—[laughter]—3 years for keeping one of these folks onboard.

We can’t pay them; you can’t keep them onboard. This started in

2002; here are we in 2007. We would be through two of these

project people. We ought to be looking at even instead of trying to

do this in-house writing the specs, doing that in the private sector,

because you cannot, you will not retain those people to do that.

Again, folks here don’t understand that.

Then you have not only the turnover I described from Collins to

Allen and in between two agencies, and the changes in Congress—

I got this baby about 4 or 5 weeks ago. So you have to have somebody who can set the specs, somebody who can design it. There are

only two—really, if you look at who we have available, you have

two vendors available, the best. They picked them, Northrop Grumman and Lockheed. They are the best, aren’t they?

Then you start looking at shipbuilding, our shipbuilding capability. Sorry, Mr. Walker. Exit clause? They are not going to buy it

because there is nobody else to go to. That is how limited our national capability is in even doing these projects. Of course, we could

go to China, we could go to Korea, we could go to Scandinavia.

So we can sit around and bash and dash, but it is a little bit

more complex than that.

Now, Admiral Allen was brought in—and you will hear from him

later—some remedies. The sky is not totally falling; we will get

those other eight done. These can be repaired and resolved.

We do need better oversight, but it can’t all be done by Government or Government agencies in-house; some of it we are going to

have to retain professionals. Am I correct or incorrect?

Mr. SKINNER. That is correct.

Mr. WALKER. If I can, but let me——

Mr. MICA. Don’t argue with me.

Mr. WALKER. No, no, a couple of—no, I think it is important, Mr.

Mica.

Mr. MICA. I am just kidding.

Mr. WALKER. Which, by the way——

76

Mr. MICA. I’ll tell your father.

Mr. WALKER [continuing]. You are probably going to be my Congressman in the future, when I move back to Florida.

Deepwater is more than the eight National Security Cutters, it

is a range of surface and air assets.

Second, it is a shared responsibility for where we are; it is not

just the Government, but the Government has some responsibility.

Mr. MICA. Well, they had responsibility——

Mr. WALKER. No doubt.

Mr. MICA [continuing]. Under the contract.

Mr. WALKER. A lot.

Mr. MICA. And I’ve seen these contracts. I mean, we could spend

the rest of the day. They do go south on us and then there is no

resource for the Government. If it was the private sector, I would

sue the bastards.

Mr. WALKER. My comment on exit clauses is a generic comment,

not specifically here. We need to be doing that in general terms.

Sometimes they are more viable than others.

And the last thing is, on structural integrity, there are two

issues: how can you utilize and for how long will you be able to utilize that. Both are relevant.

Chairman WAXMAN. The gentleman’s time has expired.

Mr. MICA. May I have just one——

Chairman WAXMAN. No, I am sorry. We have to move on to other

people.

Mr. MICA. Would somebody yield me half a minute?

Chairman WAXMAN. The next one on the list is Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

I want to thank our witnesses this morning as well.

Just as an introductory remark, there are many of us that worried about this whole situation of starting up the Department of

Homeland Security and putting the Coast Guard in it, an agency

that we really feel very strongly about and the good work that they

have done, and then shorting them of all the resources that they

need to continue to carry out their work.

Mr. Skinner, I think your remarks in that regard are well taken.

We also—this is shared responsibility. There are some Government failures here and there are some industry failures, and that

is what the nub of this whole thing is: how are we going to work

this out so we make improvements on that without trying to assign

it just to one category or another. But I think the industry certainly has not done a great job on this, and Government’s inability

to oversee it has compounded it.

Mr. Walker, this morning you were quoted in the paper as saying, with regard to renewing a $16 million—a contract renewal and

giving $16 million in bonuses, that you didn’t even think it passed

the straight face test.

Mr. WALKER. That was with regard to the payment of some incentive and award fees in the past that are based upon attitude

and effort, rather than concrete outcomes, right.

Mr. TIERNEY. Exactly. You know, I think we have these contracts. You know, maybe the first thing we do is get all new lawyers here, because the contracts are ridiculous. But when you set

it up so you have the fox guarding the hen house arrangements,

77

you know, it is not a good deal. Corporations have a business of the

bottom line; Government has the business of making sure the

projects get done and get done properly on that.

Have either of you gentlemen ever sat in a meeting with these

teams and been uncertain as to who was the representative of Government and who was the representative of private industry?

Mr. WALKER. I have had a number of occasions where my staff

has told me that they have been in meetings and you had no way

of knowing who was a civil servant and who was a contractor.

Mr. TIERNEY. Mr. Skinner.

Mr. SKINNER. Yes, and I have had the same experience, as well

as my staff.

Mr. TIERNEY. I mean, it just shows through here—I mean, we

have been polite about this, I think. I am surprised there is not a

little more intensity in outrage in some of these. But you talk, Mr.

Skinner, about doctoring of documents. We showed some documents where things mysteriously disappeared, some warnings. But

didn’t you, at one point, have to suspend your investigation here?

Mr. SKINNER. Yes, for 5 weeks.

Mr. TIERNEY. This is a role that you, Mr. Walker, play. We rely

on you gentlemen, the Inspector General’s Office, the Government

Accountability Office, to help Congress oversee. There has been a

lot of criticism about Congress not doing enough oversight, and it

is well taken. But when we are going to do our oversight, we are

relying on your entities to help us with that.

Can you explain why you suspended your investigation, Mr.

Skinner?

Mr. SKINNER. Just because of the rules of the engagement or the

ground rules that were established by the Coast Guard as far as

to how we would conduct our review. We had concerns that we

were not getting unfettered access to documents. We did not have

unfettered access to individuals during interviews. The Coast

Guard insisted that if we interviewed anyone, their manager must

sit in. They insisted that if we made contact with any of the employees, they had to report that back to their manager. All documents had to be vetted through a central source. It was taking—

it created long delays for us to obtain documents. I felt that this

was impeding in our authority, so, therefore, I stopped the audit

and then start discussing a—requesting that we need to change the

ground rules; you have to understand what our authorities and responsibilities are.

Incidentally, Admiral Allen did issue a waiver lifting the draft

requirements that they had originally imposed, and over the last

several months——

Mr. TIERNEY. Excuse me, Mr. Skinner. I understand apparently

everybody at the table is very happy with Mr. Allen, and that may

be well deserved, but the fact of the matter is there are guidelines

existing for the Department of Homeland Security and the Inspector General’s Act of 1978 that make it pretty darn clear that what

they were doing was wrong, that you should have had access to

that. Am I right?

Mr. SKINNER. Yes, that is my opinion.

Mr. TIERNEY. I mean, you had the whole Management Directive

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able by these people that they cannot restrict access to your entity

for this. And I think that is an area this committee ought to go in,

as to why do these companies who have these relationships with

these private individuals—you can’t even tell who at the table is

the private contractor and who is the Government person—all of a

sudden telling you you can’t have access to documents about a contract that has gone belly up and then giving up $16 million in bonuses on that. That is something we ought to look at, and we need

your help to identify those instances so we find out who in those

agencies is doing it and put some systems in place so they can’t get

away with impeding the responsibilities that you have to help us.

I thank you for that.

And I yield back, Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Tierney.

Mr. Souder.

Mr. SOUDER. Thank you, Mr. Chairman.

I want to say up front how important I think your mission is and

how vital your mission is, and how both of you have been a great

leader. By definition, auditors are a pain in the neck and oversight

committees are a pain in the neck, but when you have a bloated

monopoly system like the Federal Government, without the people

in your services, we couldn’t even begin to hold it accountable.

I have some criticisms today, but it is not about your work in

general and not about your agencies. I have three questions that

I want to put on the record. They derive some from our discussions

yesterday of Homeland Security.

No. 1, you expressed concerns yesterday about the Coast Guard

leaders wanting to sit in on all interview sessions when you were

auditing—Mr. Tierney just kind of alluded to some of this—and

how it potentially inhibits your ability to do oversight. Yet, when

the minority asked to see information related to our ability to do

oversight after the case of the jailing of two Border Patrol agents

from their injury of a drug smuggler as he fled from arrest, your

position was that only the chairman could have the documents.

Why should you get full access for auditing purposes, yet deny it

to Members of Congress in their ability to audit?

Second, Congressman McCaul, also a Homeland Security Ranking Member, was required to file a Freedom of Information Act to

receive this basic oversight information that had been given to the

majority. Now that we have read it, we more clearly understand

why the Government wanted to conceal evidence. It raises grave

concerns about the underlying border patrol policies as to how they

protect the border, as well as how this report was mischaracterized

to provide cover for the prosecution of Federal agents. Do you believe that depriving documents from Members of Congress increases the risk of coverup?

My third question is in the case of these agents, employees of the

Inspector General made statements that have falsely defamed, possibly permanently, implying racist motives in a premeditated intent to murder, among other things. No such evidence exists in the

reports, as was alleged.

Yesterday, Mr. Skinner, you stated that you were upset and that

those false statements were also made to you, and that you reprimanded your employees. How were they reprimanded? Yesterday,

79

you also stated that the Border Patrol agents on a hill a considerable distance from the shooting, but were not prosecuted, had made

false statements. Their discipline was that they were fired.

The question is do you believe there is a double standard for

statements that are made in different agencies of the Government?

I am not necessarily saying that your people should be fired for the

false statements, but the Border Patrol people were fired and they

weren’t even in the immediate proximity of the thing. This raises

fundamental questions, and I would be interested in your responses.

Mr. SKINNER. Thank you, Congressman, and I am glad you

raised this issue.

First, I would just like to say that it is not—as far as the Border

Patrol agents, the decision to prosecute versus take administrative

action is not ours, that is the Assistant U.S. Attorney at Department of Justice.

But I made some notes here in anticipation of a question, and I

would like to read from these notes because I want to be perfectly

clear and I want to make sure I don’t miss anything about the misrepresentations I think that are occurring with regard to this issue

on this particular case.

First, at no time did any member of my staff knowingly and willingly lie to Congress about the investigation of Ramos and Campion, or any other matter. Anyone who states that my staff knowingly lied, willingly lied is slandering them.

Second, in a closed briefing on September 26th, members of my

staff reported that Ramos and Campion said they wanted to shoot

a Mexican. My staff reported that to me as well, and they reported

it to Chairman McCaul and others in a closed briefing. At the time

my staff made that statement, they believed it was true, although

we later learned it was inaccurate. In fact, Mr. Campion had stated

in a sworn statement that my intent was to kill the alien, and I

think Ramos was also trying to kill the alien. The alien Mr. Campion and Mr. Ramos attempted to kill had come from Mexico and

escaped back to Mexico.

The statement that Ramos and Campion supposedly wanted to

shoot a Mexican was never reported in any document by my office

or by the Department of Justice; never was introduced at the trial

of Ramos or Campion, which had been completed 6 months earlier,

March 2006; and never was reported by my office to anyone other

than Chairman McCaul and other congressional members and staff

in attendance at that particular briefing. The briefing my office

provided to them, to Chairman McCaul and the other members,

was initiated at his request in his capacity as chair of the subcommittee investigations. Chairman McCaul and the others understood that the information my office was providing was not public

and was not to be made public; it was for official use only, for the

committee’s use in discharging their official business.

At the time of the briefing, Mr. Ramos and Mr. Campion had not

been sentenced. Sentencing did not occur until October. At the time

of the briefing, three other members of the Border Patrol who had

engaged in misconduct, but were not prosecuted, had not been referred to CBS for administrative discipline; we were still preparing

those documents. That did not occur until the last week of January

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2007. Indeed, at the time of the briefing, my office had not even

written its report of investigation, which is not unusual. Oftentimes, we don’t even write a report of investigation. In this case we

did because it involved three other Border Patrol agents and administrative action needed to be taken.

The ROI was not written until November 21st, 2 months after

the briefing. The only reason the inaccurate statement that Ramos

and Campion allegedly said they wanted to shoot a Mexican had

become public is because Congressman McCaul and others had

publicized this and reported it to the media. They have publicized

inaccurate information and that was not used in the trial. None of

that information that we briefed that was inaccurately reported to

McCaul and other members was ever introduced in the trial, there

is a misconception there. That played no role in the prosecution or

sentencing of Ramos and Campion, and that was provided to them

in confidence, with the understanding that it was not to be made

public.

At the time Campion and Ramos attempted to kill the alien by

shooting him in the back, he was unarmed and running away from

them. Evidence introduced at the trial proved that. That is why

they were convicted. At the time Campion and Ramos attempted to

kill the alien and shoot him in the back, they did not even know

that he was an illegal alien. They didn’t know if he was an alien

or not. At the same time, when they shot at him as he ran away,

they did not even know if there were drugs in the van; they found

that out after the fact, after they shot him.

Mr. TIERNEY. Mr. Skinner, we will take the rest of your statement on this issue. I gather you were prepared for this question,

or make it part of the record.

Mr. SKINNER. It has been coming up at every hearing this week.

Mr. TIERNEY. It is a little off track of the hearing. I didn’t want

to interrupt you.

Mr. SKINNER. I understand.

Mr. DAVIS OF VIRGINIA. Sounds like he is giving the same answer, though, at every hearing, right?

Mr. SKINNER. Yes.

Mr. TIERNEY. Do you have much further to go?

Mr. SKINNER. No.

Mr. TIERNEY. OK. We will make the whole——

Mr. SKINNER. I do, but I will stop now.

Mr. TIERNEY. We will put it all in the record.

Mr. SKINNER. Thank you.

Chairman WAXMAN. Without objection.

Mr. TIERNEY. And send it to another committee. [Laughter.]

Chairman WAXMAN. Mr. Lynch.

Mr. ISSA. Mr. Chairman, could I ask unanimous consent that his

statement be made available to us in real time, that copies be

made so that we have them and not have to wait for the record?

Chairman WAXMAN. We will do our best.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. SOUDER. I would also like to say for the record that I don’t

agree with some of the statements that were made, and the court

record, if released, would contradict some of it.

Chairman WAXMAN. Mr. Lynch.

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Mr. LYNCH. Thank you, Mr. Chairman.

I want to get back to what we were discussing before, especially

in the discussion with Ranking Member Davis and Mr. Waxman

about accountability about the whole function of oversight on all

these projects, not just with respect to the Coast Guard or DHS.

Mr. Walker, are you familiar with the project management oversight program that is operated through the Department of—well,

the Federal Transit Administration?

Mr. WALKER. Not personally I am not, no.

Mr. LYNCH. OK. What they do there—and it may suggest a

model—is that at the very outset, when these projects are announced, there is an immediate process where an internal engineering firm is hired as a project management oversight consultant, and they are working for the owner. In this case it would be

the taxpayer, essentially, but also the Department or the Coast

Guard.

Basically what that engineering firm does—and I have seen it

work on transit projects, and I don’t know why we don’t use it everywhere else—well, I know it is required under TEA–21—but we

actually hire an engineering firm to work on the same team with

the Government employees to make sure the taxpayer doesn’t get

robbed. And that is what I am seeing here.

I heard earlier one of my esteemed colleagues say this isn’t as bad as it looks. Now, we have $774 million, two cutters with defective hulls, and with stress loads on those hulls that have compromised the safety of those vessels. Now, it may not look too bad

from a hearing room, but if you are serving for the Coast Guard

on those cutters, or if you are a family member of someone on one

of those cutters, it does look pretty bad. Do you agree with that

statement, that this doesn’t look too—it is not as bad as it looks?

Mr. WALKER. Well, that is a personal opinion of one of the members. I think there are serious problems here that need to be addressed.

Mr. LYNCH. Mr. Skinner. If it doesn’t look that—you know, I am

just taken aback by that statement, it is not as bad as it looks. I

can’t imagine it looking any worse.

Mr. SKINNER. Those are the opinions of the shipbuilder. I am not

an engineer, so I can’t say one way or another. But it is my understanding that these ships are seaworthy today. The question is will

they be seaworthy in 30 years——

Mr. LYNCH. Right.

Mr. SKINNER [continuing]. Under the conditions they have to be

used.

Mr. LYNCH. Right. Look, again, why are we not adopting a process where there is actually an engineering firm working as a

project manager oversight consultant for our side so that our position is not being co-opted by all these contractors that are working

on the other side? I agree we need to use some, you know, private

sector employees, but they have to be on our team, working to save

the taxpayer money; they can’t be—because the contractors, let’s

face it, they are out for more profit. We are trying to pay as little

amount of money as possible as taxpayers; they are trying to make

as much money as possible on their side. There is an adversarial

relationship that has been set up here. But the way we have strucVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00085 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
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tured this whole deal is that they have all the expertise and all the

weight on their side, and the treasury is being looted here, the taxpayer is being fleeced. And, you know, we have two defective cutters here. We knew that they were defective. We have documents

that were edited to delete the red letter warnings that the hulls

were not, you know, structurally stable with the original design.

And yet I am hearing it is not as bad as it looks. I just—go ahead,

I am sorry.

Mr. WALKER. Well, let me say that while I was not familiar and

am not familiar directly with the Federal Transit Administration’s

approach, I am familiar generically with the approach that you are

talking about. In fact, we have used it ourselves at GAO. I mean,

when there are circumstances when we need highly scientific or

technical expertise and we didn’t have adequate capacity internally, we contracted independently and they worked side-by-side

with us and for us. So there are ways to deal with this. But even

when you do that, you have to have some expertise in-house so that

you are not just totally turning it over.

Mr. LYNCH. Absolutely. I agree with that. I am just saying—I am

sorry, Mr. Skinner, you——

Mr. SKINNER. And the Coast Guard, in fact, did have that expertise. They do have engineers there and they did review the design

before the Coast Guard decided to move forward with the construction of those ships. And those technical experts, the Coast Guard’s

own people admitted we have problems here.

Mr. LYNCH. OK. Would it help—I know that Congress required

that system to be adopted by the Federal Transit Administration.

It has worked well. I have seen two projects in my district where

one is $14 billion and it is way over budget, and that is under the

system that we have seen working here with Deepwater and

SBInet; the other was the system I just described, where there is

actually an oversight project management oversight consultant

hired. Would it help if we, as Congress, also required these projects

to proceed under that same structure?

Mr. SKINNER. That could be one solution. But there is also alternative solutions as well.

Mr. LYNCH. OK.

Chairman WAXMAN. The gentleman’s time has expired.

Mr. LYNCH. Thank you, Mr. Chairman. I yield back.

Chairman WAXMAN. Thank you, Mr. Lynch.

Mr. Duncan. Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. And I will be brief. As I

said in my opening statement, I look forward to this hearing because I think it is the opening salvo in what needs to be a broader

look at how we get into these problems.

So, quickly, Mr. Walker, I want to followup a little bit. In your

opening statement you talked about 15 percent—sorry, 15 similar—we will call them fiascos as a technical term—that are taking

place within the Government that you have already identified. The

question is you say they are systemic. Would you say that, in fact,

how we are approaching recruitment and maintenance of expertise

in the Federal Government—in other words, Federal employees—

is part of the problem? And would you also say that the second

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part of it is how we view contract relationships for out-of-house expertise? Not the production, but the expertise.

Mr. WALKER. Yes, I think they are both a problem. And what I

said was there are 15 systemic problems that exist throughout Government. Those aren’t particular projects, those are 15 recurring

problems that apply to thousands of projects, and I am going to

provide that for the record.

Mr. ISSA. I appreciate that. Now, this particular project—and I

said I wasn’t going to dwell on it, but at one point it was considered a possibility that the Navy would do this as a prime contractor, if you will, on the Government side because the Navy has built

this class and larger ships in the past. From what you both have

looked at, looking back, would that have fundamentally changed if

this had either been a Navy lead or what we like to call a purple

project, where the best were taken from all, if you will, naval sea

assets both in the Coast Guard and Navy?

Mr. SKINNER. I don’t want to speculate if it would have improved

it, but I can say that the Navy does have a system command capability which the Coast Guard did not. So, in that regard, you would

have better oversight and control over the shipbuilding and the design.

Mr. ISSA. So as Mr. Lynch might say, you couldn’t do worse than

we did; you could only likely do better had we done that.

Mr. SKINNER. Yes.

Mr. ISSA. Will you come back, Mr. Walker, to us, if invited, with

concrete suggestions of career path changes and in-house Government procurement that would lead to a broadening of this capability that you are saying we lack, and with any solutions to de-conflict contractors who provide you expertise? Are you prepared to

come back if invited?

Mr. WALKER. We would be happy to work with the committee on

that, yes.

Mr. ISSA. Thank you. I look forward to that and I yield the balance of my time to Mr. Mica.

Mr. MICA. Just a couple of quick points on what Mr. Lynch was

talking about.

First of all, we did catch this on the first two. This is a program

of eight. The six will be built right. The others can be corrected;

it is a diminution of the life service. OK?

If Mr. Lynch and others want to come and get examples of horrendous Government waste and abuse, I would be glad to spend

hours with him.

I do have a question, though, that relates to the award of the fee,

and this may concern me, it might be something we have to correct. They were given performance awards from time to time. Now,

I have heard huge amounts of money given out here in testimony—

at least from the dias, maybe not from testimony. But were the

awards given as work was performed, No. 1? And, No. 2—because,

again, they are given in, I think, 12 months or certain periods of

time—was that work performed? The second part of it would be, is

there recourse for sort of failure or recouping any of the awards

that were given after we found out that there were in fact errors?

Because certain work was performed according to the contract, as

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I understand it. Could you answer that? And I would like to look

at some mechanism for recouping taxpayer dollars.

Mr. SKINNER. Let me say first, if I may, David, go first, is that

it is very unlikely you are going to recoup any of that money. Why?

Because in the contract—the problem lies in the wording in the

contract. The contract—the award fee, it is my understanding, was

based on delivered assets. So the other problems that were existing

during the period covered by that award fee—for example, the Fast

Response Cutter, the 110, 123 conversion; the design problems that

we experienced with the National Security Cutter——

Mr. MICA. But it wasn’t lump sum, it was given in increments,

as I understand it. Correct me if I am wrong. And then what work

was performed, does anyone feel——

Mr. WALKER. Well, it is based upon efforts for a particular contract period, and it is based upon deliverables that were supposed

to be delivered during that contract period. And, quite frankly, I

would suggest that we shouldn’t be paying incentive and award

fees until we actually start getting some product. You know, cost,

quality, performance. So, I mean, part of it is how do we design

these contracts. You may want to give bigger incentive and award

fees based upon successful experience when you are actually getting a product that is on time, within budget, meeting performance

specifications.

Mr. MICA. We have no recoup, finally?

Mr. WALKER. To my knowledge, they are not designed for that.

And that is another example of how we need to re-look at these

contracting arrangements to provide for that.

Mr. SKINNER. That is exactly what the Coast Guard is doing now,

is redesigning this particular contract so that they can do that.

Chairman WAXMAN. The gentleman’s time has expired.

Mr. Cooper.

Mr. COOPER. Thank you, Mr. Chairman. The Chinese must be

laughing now. I visited, last year, a Chinese shipyard, where they

can build any ship in the world of any size in 6 months. We don’t

have that capability. And here we are arguing among ourselves,

and some of it is ideology, some of it is practicality, some of it is

just being new to Government.

I share the witnesses’ concern that this is a Government-wide

problem, and I look forward to tackling it on that basis. I would

like to ask my colleagues to take a look at an IG reform bill that

I have had in place for some time that would strengthen the position folks like Mr. Skinner so that he would have more clout to do

his job properly within the Department, because we need to make

sure that several problems with IGs are cured.

The fact that there has been no accountability so far in this is

truly amazing, and I was about to ask Mr. Issa’s question. When,

in previous responses, people said, well, we didn’t have the inhouse capability, I immediately thought to myself, well, what about

the U.S. Navy. And the choice here seems to have been to go private before we go purple, and that is truly astonishing to me because we are all on the same team. We are all here to protect taxpayer dollars and to protect the security of the United States. But

neither was done in this case, for a multitude of small reasons.

85

There has to be a way to bring a new generation of craft on, and

I appreciate Admiral Allen who is apparently held in very high regard, but this is so much larger than one person. This is a systemic

problem that needs a systemic cure. And I hope that Government

isn’t viewed as the enemy here, and I hope that more private sector

contractors care about hulls that last for 30 years, even if you use

them 231 days a year or 179 days a year. I mean, to skimp on national security requirements like that is truly astonishing. Do you

want to be aboard a craft that isn’t rated for longer than a few

years?

So I think as we tackle these systemic problems, we, as a committee, need to be open-minded and look toward all alternatives,

including strengthening the Federal Civil Service so that we can

hire and retain people who can help us do a better job—it sounds

like in this case, particularly, Government lawyers—so that the obvious mistakes of this contract are not repeated in the future.

I commend you gentlemen. I look forward to the next panel.

Chairman WAXMAN. The gentleman still has some time. Would

you yield to me?

Mr. COOPER. I would be delighted to yield.

Chairman WAXMAN. Some people asked us why we put a hearing

about Deepwater and SBInet together, and the purpose was to see

if we learned our lessons from past mistakes.

Mr. Skinner, in November 2006, your office issued a high-risk

management advisory for the SBInet program. It said, ‘‘The Department does not have the capacity needed to effectively plan,

oversee, and execute the SBInet program, administer its contracts,

and control cost and schedule. The Department’s acquisition management capacity lacks the appropriate work force, business processes, and management controls for planning and executing a new

start major acquisition program such as SBInet.’’

Well, this is pretty sobering, considering that the SBInet pro- gram plans to spend $30 billion. Does the program office have the

capacity to manage the SBInet program? And wasn’t this the same

problem as Deepwater?

Mr. SKINNER. Yes, initially at Deepwater. And the Department

currently does not have the capacity, either the Procurement Office

or CBP, the Customs and Border Patrol, to oversee a project like

this if we go full throttle. As it now stands, there are about 90-plus

people that are providing technical oversight in acquisition management, program management for this. What the Department is

doing, which they learned from Deepwater, is not to enter into a

25-year contract and to go full throttle and try to get everything

done at once.

Chairman WAXMAN. How many of those 90 are contractors?

Mr. SKINNER. In our opinion, way too many. Approximately 65.

I don’t have the exact numbers in front of me, but there are more

contractors than there are Government employees. And many of

the Government employees are just on detail.

We only have one major tasking right now. We can manage that

tasking. There are several taskings, but we can manage the

taskings that are now out there, that are being performed by the

contractor. But as we grow, and particularly as we start to grow

this spring and this summer, we are going to start getting very

86

tight. We need additional resources. This spring and this summer

we intend to—the Department intends to issue additional taskings.

With the 98 people, they are not going to be capable to manage the

existing taskings as well as start preparing for the new awards and

the new taskings. And if we don’t get people on board quickly, we

can get ourselves in a very poor position to where this thing can

get out of control.

Chairman WAXMAN. Well, isn’t that a recipe for hiring more private contractors?

Mr. SKINNER. I think we need a mix. You can’t——

Chairman WAXMAN. But you are not happy with the mix we have

now.

Mr. SKINNER. No, right now. But we are in the process of taking

and looking behind the scenes at exactly what these people are

doing, and we haven’t made a determination what that mix should

be or what the actual numbers should be. But on the surface it

does not look like, in our opinion, that we have sufficient departmental officials assigned to this project.

Chairman WAXMAN. Thank you.

Mr. Duncan.

Mr. DUNCAN. Thank you, Mr. Chairman. First, let me say that

I have long appreciated the work Mr. Walker has done in trying

to warn the country about the dangers we face in future pension

liabilities, and I appreciate, Mr. Walker, your recommendation

about exit clauses in these contracts. I think that is a good suggestion. And I think the work that both of you are doing is very, very

important.

Two years ago, the International Herald Tribune had a major article about what they called the revolving door at the Pentagon,

and they said in there that in the decade of the 1990’s, over 300

retired admirals and generals had been hired by the top 20 largest

defense contractors. And we see that throughout the Federal Government. It used to be when private contracting by Federal departments and agencies really started becoming a big thing, it was

being done because the private sector could almost always do these

things more efficiently and more economically than the Government itself could. But as the Government has gotten bigger and

bigger, we are seeing more and more multi-billion dollar contracts,

and so many of these contracts we read about are just exorbitant,

ridiculous profits or markups such as the contracts we heard about

in here yesterday. Then we read about these ridiculous cost overruns.

When a Federal agency messes up, they almost always say they

are underfunded or their technology is outdated. When a Federal

contractor has a huge cost overrun, they say it is because the Federal agencies changed their requirements or specifications in the

middle of the contract, or various excuses like that.

But what we are seeing more and more is that almost all these

really big Federal contracts are sweetheart insider-type deals of

one sort of another based on high-level Federal employees or retired admirals and generals who have been hired by these Federal

contractors. And it is getting where we are really not saving any

money by going to some of these huge contracts. So when I read,

as I did in this article in the FederalTimes.com from yesterday,

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where it says that Homeland Security officials previously said

SBInet would cost between $2 billion and $5 billion, but Skinner

said it could cost as much as $30 billion, when we are going so

quickly from $2 billion to $5 billion up to $30 billion, and then

when it says that the SBI Director, Giddens, says he couldn’t even

give a ballpark estimate of the cost of this program, that seems to

me to be something that all of us should be very concerned about.

So I have really two questions. One is are we about to see exorbitant costs and profits in this program? Are we on top of it enough

to each of your satisfactions? Or are we going to be here 5 years

from now, seeing that it has cost even more? I mean, you know,

I have been involved in other hearings and read about other contracts where the cost estimates were so low, and then we come

back 5 or 10 years later and it has just gone crazy. So I am wondering about that.

And, second, I understand there is already some concern that

much of the work that is being done in this program is work that

is being duplicated by other sections of the Homeland Security Department or other parts of the Federal Government. And I would

like your response to those two questions.

Mr. WALKER. Let me mention several comments.

One, I do think one of the things that we have to look at is the

conflict rules and look at the revolving door rules, and whether and

to what extent those ought to be modified. Second, we need to

make sure that we have meaningful competition. You know, there

has been a significant consolidation within the defense industrial

complex because of market forces and a variety of other things,

some of which are beyond our control.

Third, we need to really look hard at when we are doing costplus contracts. There are too many cost-plus contracts. And we

need to focus on outcomes. We need to make sure that we are paying for, you know, on-time, on-budget, with the capabilities.

But some of the things you talked about are true. I mean, Government doesn’t well define or keeps on changing its requirements,

and that is a major, major contributor to a lot of these problems,

and a lot of that is unjustified, it is not related to subsequent

events.

Mr. SKINNER. I would just like to add that just the mere nature

or the type of contract that we have entered into here, a performance-based type contract, a systems-of-systems type contract is

very, very risky, and you are absolutely right, if it is not properly

managed, the costs can get out of control. It is imperative that we

are able to define what our operational requirements are. It is imperative that we have to associate those requirements with our

budgets and monitor very, very closely the costs associated with a

project like this.

Right now, SBI is proceeding with caution. I mean, we are doing

a pilot down in Tucson, as you may know, and from that pilot, from

those lessons learned, the Department speculates it will be in a

better position to then define what its operational requirements

and true costs will be throughout the Southwest.

But when we talk about right now we are only speculating—they

are speculating it is going to cost $8 billion just for the Southwest.

We are not talking about our northern borders yet. And there is

88

a whole different scenario, a whole different environment up there

we have to deal with. It is not talking about a lot of the support

that is required or the other personnel costs associated with doing

what we are doing here. So, you know, those costs are going to rise

as we go on if we don’t monitor them carefully, do performance

evaluations. Is it worth the cost as we proceed, or do we need to

exit out and find alternative ways to secure the borders?

Mr. DUNCAN. Well, I hope you will make sure that the costs are

justified by the work that is being done, and we really do need to

look at the insider aspect of this revolving door throughout the

Government, and this committee is the appropriate committee to

do it, Mr. Chairman. And I know you share some of those same

concerns. Thank you very much.

Chairman WAXMAN. Thank you, Mr. Duncan.

Mr. Hodes.

Mr. HODES. Thank you, Mr. Chairman.

Gentlemen, thank you for coming today and sharing your expertise. I want to get to the question of who is in charge here.

Yesterday, in the New York Times, there was an editorial and

it talked about our Government becoming a government of the contractors, by the contractors, and for the contractors, something I

am sure Abraham Lincoln never really contemplated. And the

Deepwater debacle seems to me to be emblematic of problems that,

before I came to Congress, I was seeing, and, frankly, the taxpayers and our constituents out there are very concerned about the

capacity and capability of our agencies and our military to get it

right when it comes to spending their money. I am hoping that this

hearing and hearings like this are going to help reassure the taxpayers that we are now going to exercise real oversight over these

issues.

Mr. Skinner, in your prepared statement, on page 7, you talk

about the outsourcing of program management, and you point out

that, under the Deepwater contract, ICGS was the systems integrator and given full technical authority over all asset design and configuration decisions, and the Coast Guard’s role was limited to that

as an advisor, but that the contract said that ICGS doesn’t have

to listen to the advisor, the Coast Guard, who are going to end up

using these ships and our folks are going to go out on them and

out on the seas.

If you give away the decisionmaking authority to the contractor,

how can you ever be assured that you are going to get what you

need to do the job?

Mr. SKINNER. Therein lies the problem, and you are absolutely

right and that is exactly what we found, that the decisionmaking

for the entire Deepwater program—not just for these cutters, by

the way—rests with the contractor, and although the Coast Guard

can advise, influence, and try to direct, they didn’t have technical—

they did not have the authority to override decisions made by the

contractor. And that is one of the things I believe the current contract, the rewriting, as we speak, I believe, in redefining that, that

we need to pull back that authority and give it back to the Coast

Guard.

Mr. HODES. Mr. Walker, did you have something to add?

89

Mr. WALKER. I do. First, I think it is important that we recognize

that there are a lot of high-quality contractors that do good work

that we don’t have problems, so I don’t want to paint a broad

brush, OK?

Mr. HODES. Absolutely.

Mr. WALKER. Second, I think we have to recognize the reality

that civil servants have a duty of loyalty to the greater good, to the

collective best interests of all. The private sector, which is the engine of growth and innovation in this economy, has a duty of loyalty to its shareholders. And we have good people in the private

sector doing good work most of the time, who care about their clients, but, ultimately, civil servants have the duty of loyalty to the

greater good, and there are certain things you must not delegate.

Ultimately, responsibility and accountability has to come to civil

servants, whether they be uniformed or non-uniformed. You should

not delegate that.

Mr. HODES. I appreciate that. Let me just take it one step further with this question. I mean, we are aware of the difference between two single words—they are simple words—‘‘may’’ and ‘‘shall’’

in contracts. And being aware of the law of unintended consequences and not wanting to inflict that on anybody, do you think

it ought to be mandatory on military procurement contracts and

this process that the contracting agency—whether it is the Coast

Guard, the Army, the Marines, whoever it is—shall never delegate

ultimate decisionmaking authority to a private contractor? Is that

something that we ought to be looking at?

Mr. SKINNER. I think it is very important that the Congress provide this type of oversight. I think it is very important that we be

asking those types of questions. I don’t know if we want to jump

in and just draw conclusions and possibly because of some incident

or something that one occasion things went bad. We want to look

at all the options and how we can correct this.

Mr. WALKER. My view is that you don’t necessarily want to have

a blanket, but I do believe that we need to have more restrictions

than we have right now as to when and under what circumstances

that is appropriate, similar to the fiduciary constructs that apply

with regard to benefit plans and other——

Mr. HODES. Thank you. I appreciate it. That is what I was getting at.

I yield back. Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Hodes.

Mr. Burton.

Mr. BURTON. Thank you, Mr. Chairman.

The latest GAO report gives high marks to program improvements, noting that communication and coordination between the

Coast Guard and the contractors has improved, which should lead

to better management and a sound Deepwater plan. Has it improved? And if so, to what degree? Do you agree or disagree with

the GAO report?

Mr. WALKER. Well, first, Mr. Burton, there is no question that

the Commandant is taking this matter very seriously, Admiral

Allen. There is no question that a number of our recommendations

have been adopted. But we are in the process right now of updating

our work on Deepwater. We will be issuing something in the spring

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on that, and that will be the most up-to-date information. But it

has improved, but we will have a new report coming out in the

near future.

Mr. BURTON. So they are heading in the right direction.

Mr. WALKER. I clearly think that it is being taken seriously and

they are moving in the right direction.

Mr. BURTON. This Deepwater program is a 25-year, $24 billion

program that was supposed to modernize the Coast Guard’s air and

surface assets. This program was started—do you remember what

year it was started?

Mr. SKINNER. I believe the program actually started back in the

mid to late 1990’s. The contract itself was awarded in 2002.

Mr. BURTON. But the program was actually started under the

previous administration, was it not?

Mr. SKINNER. During the—when it was with the Department of

Transportation back in the mid-to late 1990’s.

Mr. BURTON. But it was in the previous administration.

Mr. SKINNER. I don’t track——

Mr. BURTON. According to my records.

Mr. SKINNER. I guess it was, yes.

Mr. BURTON. OK.

Mr. SKINNER. I can do the math in my head here.

Mr. BURTON. I guess the point I am trying to make is that, you

know, I think both the previous administration and this administration thought they were heading this thing in the right direction,

but obviously there has been some slipups and some miscues, so

you are obviously correct that there have to be some improvements.

Let me just ask you. It was said by one of my colleagues that

there has been a lot of consolidation among contractors; some of the

big contractors have joined together. Are there certain contracts

that are being let where there are not enough contractors who are

capable of doing a job, so that you pretty much have to go with one

set of contractors who have the expertise?

Mr. WALKER. There is absolutely no question that there has been

a consolidation of major defense contractors, and in many cases you

may only have a couple of choices.

Mr. BURTON. How do you control, you know, them getting away

with excessive spending or excessive waste if you only have just

one or two contractors that are capable of doing the job? I mean,

how do you control that?

Mr. WALKER. Well, while clearly that means the fewer people

that you have that can effectively bid, it means we have less competition. But there are a lot of things that we can and should do.

We need to nail down our requirements; we need to make sure they

are based upon needs versus wants; we need to make sure that we

are changing how we are doing our contracts to make them outcome-based; we need to change with regard to what we are doing

in incentive fees, with regard to exit clauses, with regard to penalty

provisions. There are a lot of things that we can and should do no

matter how many players are on the field, but obviously the more

qualified players on the field, the more checks and balances there

will be with regard to pricing.

Mr. BURTON. But it does make it a lot more difficult when you

only have one or two contractors that are capable of doing a job,

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because you have to deal with them, they are the only ones who

can do it and you need to have the job done, so it is kind of difficult.

Mr. WALKER. Especially when you are dealing with national security assets. Obviously, when you are not dealing with national

security assets, you have a little bit more flexibility. But when you

are dealing with national security assets, it is even more complicated.

Mr. BURTON. But how would the—I don’t want to belabor this

point, but how would the Commandant of the Coast Guard deal

with an intransigent contractor when he knew that was the only

one that was capable of doing the job and had already gotten the

contract?

Mr. WALKER. You would have to ask the Command about—I am

not—I don’t believe that there was only one contractor that was

qualified to do this particular work, OK? I am not that familiar

with the original award back there, but I am not sure that it was

just only one that could do the work. But, again, there are things

that could and should be done even if there was only one, some of

the things I talked about before. And these aren’t problems just

with regard to Deepwater and they are not just problems with regard to DHS, I mean, they exist throughout Government.

Mr. SKINNER. There was more than one contractor and they did

in fact choose the integrator based on some competition. I would

like to point out that there are some laws and regulations dealing

with fair pricing, and there are capabilities to go behind the scenes

and to validate whether we are getting a fair price or are we being

gauged. Simply because you are the sole owner or the sole contractor does not mean that you can gauge the Government.

Mr. BURTON. To illuminate this issue for some of our Members

who may not be here now, can we get a list of suggestions that you

might make on how you would deal with one or two contractors

that have the inside track on getting these contracts because of

their position and because of their size? I mean, if you have some

ideas on how to do it, I think the committee would like to know

how you deal with these guys, the big guys on the block that have

the inside track on getting these contracts.

Mr. WALKER. Well, I think part of that goes back to my commitment to provide the 15 systemic problems and to work on the committee with dealing with it. Very capable staff says there were

three teams that competed for this contract.

Chairman WAXMAN. The gentleman’s time has expired.

Mr. Yarmuth.

Mr. YARMUTH. Thank you, Mr. Chairman.

Earlier, we heard from the other side the comment that characterized part of this hearing, anyway, as dash and bash or bash and

dash, and that concerns me because I have heard nothing today

other than a very sincere attempt by this committee to understand

the contracting process and see how we can make it better.

Having just been elected in 2006 and having been among the

electorate, I know that one of the things they are most concerned

about is whether this Government knows what it is doing and is

spending its money wisely, and I think that is why Mr. Waxman

is holding the gavel this year, so I am not going to apologize in any

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respect for the way this hearing has been handled and the objective. I want to talk a little bit about the SBInet program because

that seems to me to illustrate possibly a little bit better some of

the problems we have here.

In January 2006, at the beginning of the procurement process for

SBInet, DHS Deputy Secretary Michael Jackson—I am sure no relation; I hope not—told potential bidders for the contract ‘‘We are

asking you to come back and tell us how to do our business.’’ Three

months later, in the request for proposal, DHS still hadn’t identified the specific Government needs; instead, they asked the private

contractors—not Government officials—to figure out the right mix

of technology, infrastructure, and personnel to secure the border.

Mr. Walker, what are some of the risks of beginning a multi-billion program without any defined requirements, essentially saying

we want you to defend our borders?

Mr. WALKER. Well, it is one thing when you are providing flexibility to the contract to determine how best to meet the capabilities

that you need. But ultimately you have to nail down the specific

requirements; what type of platforms you are going to have, in

what type of quantities, with what type of capabilities, with what

type of timeframe. Those are examples of requirements and obviously need to go in more detail. It is essential that you nail that

down. If you do not nail that down, no matter what size the contract is, you are going to have problems.

Mr. YARMUTH. An important part of managing a contract like

this, like SBInet, is the development of program management

plans, system engineering plans, and performance plans, outcomebased, as Mr. Walker might have referred to.

Mr. Skinner, in this particular case, who is developing these

plans, is this the contractor or is this DHS?

Mr. SKINNER. This is DHS developing these plans. They are still

in process, and we don’t expect to see results of anything of real

significance probably until early summer.

Mr. YARMUTH. In some of these cases—and correct me if I am

wrong—it seems as though, or at least I got the impression, that

we have, as part of the contracting process, the contractor is actually setting the performance standards, setting the reward guidelines. Is that true as well? And wouldn’t that be a conflict of interest if that is occurring?

Mr. SKINNER. I am not aware of that occurring in either Deepwater or SBInet, or any other contract within DHS. And if it is occurring, it shouldn’t be and it is occurring behind closed doors, not

being talked about.

Mr. YARMUTH. Thank you.

I yield back.

Chairman WAXMAN. Thank you very much, Mr. Yarmuth.

Ms. Watson.

Ms. WATSON. I want to thank the Chair and Mr. Skinner and

Mr. Walker.

It boils down to this: that we got into this contract and subcontracting without the management and the analytical skills

available in Government, and you said they are working on it. Has

anybody—since we are looking at waste, and probably some fraud

and some abuse, and certainly conflict of interest—has anybody

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been charged with any of this? Has anybody been let go? Has anybody been reprimanded? I mean, what are we doing? Are we just

saying, as some of my colleagues think, oh, it is really not important, and when you look at it overall, this is small change, compared to the overall amount? You know, this cavalier attitude

about the public’s money in such a crucial kind of program. And

we are giving bonuses out. That, to me, is bordering on criminal,

because we are taking taxpayers’ money to backfill and bonuses are

being given out to people who have not performed.

So I am sure I am the last one here, probably. In conclusion,

what would be your best recommendations, and can you let me

know if incompetence has been replaced with competence? And I

think that competence ought to be in Government, and not civilian

contractors who don’t have the best public interest in mind. It is

too critical an issue—homeland security—to be so blase about it,

and I just can’t understand what is going on in this Government

where this is the standard.

And thank you, gentlemen, for spending the time and having the

patience and answering our questions. Thank you.

Mr. WALKER. Ms. Watson, I would suggest that you may want

to ask the Commandant whether or not anybody has been held accountable or not; he would be in the best position to know that.

Second, I think it is important to note that we are not asserting

that there wasn’t a basis to pay that $4 million incentive or award

fee; we are questioning whether or not the Government should be

structuring contracts in a way that allows for the payment of those

type of fees and circumstances that aren’t placed on outcomes.

Ms. WATSON. I got that.

Mr. WALKER. And, last, I will send up, as committed, the 15 systemic areas and will commit to work with this committee to try to

address them, and I hope that the chairman decides to have a

hearing on the systemic problem, because it clearly is deserving of

it.

Ms. WATSON. I will conclude by saying this. I have been sitting

here for hours. I stepped out for 5 minutes, came back in. I have

heard everything that has been said, and I do get it. So we have

to go up the line and down the line, Mr. Chairman, to find out

what is being done. But the incompetence that we have heard

about is just inconceivable to me.

So, with that—and we are going to be looking, because I have to

go back to my taxpayer constituency and tell them that the moneys

we are putting out for all of these programs are going to be secured

because they are going to be accounted for.

Thank you so much, Mr. Chairman.

Thank you, gentlemen.

Mr. DAVIS OF ILLINOIS [presiding]. Thank you very much, Ms.

Watson.

Mr. Sarbanes.

Mr. SARBANES. Thank you, Mr. Chairman.

A number of my colleagues have already kind of referred to the

structural issues that we are talking here—Mr. Lynch and Mr.

Hodes did—and that is the part that interests me the most. We are

all talking about there being healthy tension between the procurer

and the contractor, and the way I sort of envision that is it is sort

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of like a tug of war, and you have the Government, in this case,

on one side, you have the private contractor on the other side, and

the project is in the middle. And the goal is to make sure that they

are both sort of pulling enough on each side that the project stays

within the appropriate bounds as it moves forward.

Now, what happens is if you get too many—if you get asymmetry

in the resources on either side, or in the design or authority or

scope of authority that is on either side, then it can pull too far in

one direction or the other. You know, it can pull too far in the direction of the Government and you don’t get what you need, and

it can go in the other direction too. And when you don’t have the

right balance, parties are disserved and obviously the project

doesn’t get where it needs to go.

So one of the questions I had was about these integrated product

teams, which I guess was a feature of this integrator model, and

the design of those teams. If you could just describe that briefly,

I would like to come back and ask you whether structurally there

is something wrong with that design. And I guess we could start

with you, Mr. Skinner.

Mr. SKINNER. I don’t know if I am a position to actually describe

its entire structure——

Mr. SARBANES. OK.

Mr. SKINNER [continuing]. But it was made up of both the staffing technical experts from the contractor as well as from the Coast

Guard. The integrated teams were a mechanism in which decisions

would be made or problems could be addressed. I believe it was

chaired by the contractor, as opposed to being chaired by the technical authority of the Coast Guard. So as the Coast Guard brought

problems up through that process, through that team, to discuss

issues or where they were going to go, they could advise we have

problems. But it was only advice and the ultimate authority rested

with the chair of the team, which was the contractor. That is my

understanding how it was working.

Mr. SARBANES. And what is your perspective on that kind of a

structure?

Mr. SKINNER. We questioned the utility of—you need a strong integrated project team; you need to bring the different expertise everywhere from the budgeteers to the accountants to your procurement officials, your technical reps and others, they are essential to

the implementation of a performance-based contract, one such as

Deepwater or SBInet. But the important thing is who ultimately

has technical authority or who ultimately has legal authority to

make the final decision as to which direction the Government

wants to go.

In the case of Deepwater, it is my understanding that ultimate

authority rested with the contractor, not the Government.

Mr. SARBANES. Right.

Mr. SKINNER. We suggested that be changed.

Mr. SARBANES. Is the system integrator model, do you think,

structurally flawed against this backdrop of what I said, of trying

to kind of keep the project in the middle and make sure that you

have—because you could have a situation—it doesn’t appear to be

the one here, but you could have a situation where you felt like you

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sight, you know, procurement, a performance assessment, cost and

schedule containment, all that kind of stuff—but because of a design feature in the way authority was ceded over to the contractor,

all of those resources wouldn’t make a difference. And I am trying

to figure out whether, within this model itself, there are structural

flaws and this is sort of, by definition, over the boundary.

Mr. WALKER. It is possible for the system integrator model to

work if you have appropriate checks and balances in place in order

to keep you on a reasonable path. It is very similar, quite frankly,

to the Constitution, the checks and balances between the executive

branch and the legislative branch: hopefully, both are focused on

trying to do the right thing for the country, but there needs to be

that check and balance. Same thing here, the contractors and the

Government have a similarity of interest: we want positive outcomes for the benefit of the country. But there have to be adequate

checks and balances, and you can’t have an asymmetry too much.

If you do, you are going to get in trouble.

Mr. SARBANES. Mr. Chairman, I just worry about whether the

structure of it is such that there is just too much heavy lifting that

has to be done to achieve those checks and balances on the Government end of this, and I think that is what we are trying to grasp

here. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Chairman WAXMAN. The Chair will recognize himself. [Remarks

made off mic.] Some of this is happening with virtually no guidance

from the Government. A 2000 memo from a high-ranking Coast

Guard official described it as giving the contractor a blank sheet

of paper. We have seen the disastrous impacts of that approach in

Deepwater, but now the Department is using the system integrator

approach again, this time to secure the border in a contract called

SBInet for Secure Border Initiative.

In the committee, we have been examining what steps the Department has taken to prevent a repeat of the Deepwater abuses,

and what have we found? What we have found is alarming. The

Department appears to be relying on contractors, not Federal officials, to plan, award, and manage the SBInet Contract program.

According to material provided to the committee by the Department, 13 individuals participated in the development of the acquisition plan for SBInet. The majority of these individuals, over 60

percent, were private contractors, not Government employees.

When it came time to award the contract, DHS advised all the potential contractors that the Department would use private contractors to evaluate and analyze the bids.

And now, as of December 2006, over 60 percent of the positions

in the SBInet program management office are contractors. There is

a staff of 98 people currently overseeing the SBInet contract. Sixty

of these individuals work for private contractors, not the Government. In other words, the office that is supposed to be overseeing

the contractors is itself staffed by contractors.

Mr. Skinner, does this raise any concerns for you?

Mr. SKINNER. Yes, it does, and it is a concern we also shared

with the Department, and it is an issue that we are currently looking at to see the impact that this could have on this acquisition.

Mr. DAVIS OF ILLINOIS. Thank you.

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Mr. Walker, you addressed the issue of over-reliance on contractors in your testimony. Does this appear to be a case in which contractors are performing jobs that should be performed by Federal

employees?

Mr. WALKER. Are you talking about the SBInet project, Mr.

Davis, or Deepwater, or just in general?

Mr. DAVIS OF ILLINOIS. In Deepwater, as well as in general.

Mr. WALKER. That is an area where I think there are some roles

and responsibilities where civil servants should be more involved

in the decisionmaking. I will tell you we have a report that is going

to be coming out next week on SBInet, and I do think that the Government doesn’t have the right checks and balances in place and

doesn’t have the right division of responsibilities in order to fully

protect the taxpayer interest.

Mr. DAVIS OF ILLINOIS. Just to followup, to rectify that, what do

you think the Government needs to be doing?

Mr. WALKER. Well, among other things, we need to nail down the

requirements; we need to re-look at the division of responsibility as

to who has decisionmaking authority over certain types of critical

decisions; we need to focus the contracting arrangements to delivering positive outcomes as it relates to cost, timing, and performance;

we need to structure our incentives and accountability systems to

either reward and/or penalize those who are not meeting those objectives. Those are just a few off the top of my head.

Mr. DAVIS OF ILLINOIS. Thank you. Thank you both very much.

Mr. WALKER. Oh, by the way, Mr. Chairman, we also need to

make sure that we are taking steps to make sure we have enough

people with the right skills and knowledge who can oversee whichever contractors are there. I mean, you know, you can contract out

more and not have to have as many people to do the oversight of

the overseers, but you have to have some, and they have to have

the right skills and knowledge to be effective.

Mr. DAVIS OF ILLINOIS. Thank you very much.

And let me just ask, before we conclude, if Mr. Sarbanes has any

further questions.

[No response.]

Mr. DAVIS OF ILLINOIS. Then thank you gentlemen very much.

Mr. SKINNER. You are welcome. Thank you.

Chairman WAXMAN [presiding]. We very much appreciated the

testimony of this panel. Now we are honored to welcome our second

panel, which includes officials from the U.S. Department of Homeland Security. On this panel we have Elaine Duke, who is the Chief

Procurement Officer for the Department of Homeland Security;

Greg Giddens is the Director of the SBI Program Executive Office

at DHS; Admiral Thad Allen is the Commandant of the U.S. Coast

Guard. He is joined by Rear Admiral Gary Blore, who is the Executive Officer for the Deepwater Program at the Coast Guard. We

also have with us from the contractor community Jerry McElwee,

vice president for SBInet Program at Boeing Advanced Systems;

Leo Mackay, president of Integrated Coast Guard Solutions; and

Philip Teel, president of Northrop Grumman Ship Systems.

We want to welcome all of you to our hearing today. It is unusual

for this committee to have a panel with both agency and contractor

97

witnesses, but for this hearing we want to explore that very relationship, so we appreciate your flexibility and your cooperation.

It is the practice of our committee to swear in every witness, so

if you would please stand and raise your right hands, I would like

to administer the oath.

[Witnesses sworn.]

Chairman WAXMAN. Let the record acknowledge that each of the

witnesses answered in the affirmative.

What I would like to ask each of you to do is to give a summary

of your full statement within 5 minutes. Your complete statement,

if it is longer, will be made part of the record.

Ms. Duke, let’s start with you.

STATEMENTS OF ELAINE DUKE, CHIEF PROCUREMENT OFFICER, U.S. DEPARTMENT OF HOMELAND SECURITY; GREG

GIDDENS, DIRECTOR, SBI PROGRAM EXECUTIVE OFFICE,

U.S. DEPARTMENT OF HOMELAND SECURITY; ADMIRAL

THAD ALLEN, COMMANDANT, U.S. COAST GUARD, ACCOMPANIED BY REAR ADMIRAL GARY BLORE, DEEPWATER EXECUTIVE OFFICE, U.S. COAST GUARD; JERRY W. MCELWEE,

VICE PRESIDENT, BOEING SBINET PROGRAM, BOEING ADVANCED SYSTEMS; LEO MACKAY, PRESIDENT, INTEGRATED

COAST GUARD SOLUTIONS (LOCKHEED MARTIN); AND PHILIP TEEL, PRESIDENT, NORTHROP GRUMMAN SHIP SYSTEMS

STATEMENT OF ELAINE DUKE

Ms. DUKE. Chairman Waxman, Ranking Member Davis, and

members of the committee, I am Elaine Duke, the Chief Procurement Officer for the Department of Homeland Security. I am

pleased to be here today with my other panel members. Thank you

for the opportunity to appear before you to discuss DHS procurement practices, the management and oversight of complex acquisitions within the Department, specifically the Deepwater and

SBInet contracts.

These programs are two of our most complex and visible contracts. The Secretary and Deputy Secretary, as well as other DHS

leaders, are personally engaged in monitoring, planning, executing,

and assessing these programs. We want to assure that these programs succeed in meeting our mission needs.

In fiscal year 2006, DHS obligated approximately $17 billion in

contract dollars. Our preliminary small business accomplishments

show approximately 34 percent were awarded under the various

small business programs, exceeding the goal by over 11 percent.

My vision as Chief Procurement Officer is to create a high performance acquisition organization that is aligned with the DHS

mission. My top priorities in implementing this vision are, first, to

make good business deals. Meeting mission requirements while

being good stewards of the taxpayer dollars involves the entire acquisition team. Second, to build and strengthen the DHS acquisition work force to manage risk. This requires developing and maintaining a work force that is the right size and has the requisite

skill mix and talent. Third, to strengthen contract administration.

The acquisition team can take proactive measures to make the deal

work and ensure that products and services purchased meet conVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00101 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
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tract requirements and mission needs. Here, we can also leverage

resources through partnering with technical experts in the Federal

Government, such as the Defense Contract Management Agency

and Defense Contract Audit Agency.

My initial focus in providing departmental oversight is to design

an acquisition management infrastructure that will optimize our

human capital talent in the program and contracting offices. Additionally, I will ensure that processes are in place to oversee the effective issuance and administration of task orders under these contracting vehicles. DHS, the U.S. Coast Guard, and Customs and

Border Protection are committed to acquisition management and

oversight of these contracts and programs.

In my oversight role, I am making sure that appropriate resources are in place. The fiscal year 2007 budget provided funding

to hire additional acquisition personnel. Higher staffing levels will

improve DHS’s ability to monitor department contracts and effectively identify and correct poor contract performance.

My staff and I are specifically concerned with ensuring that adequate competition occurs throughout the life-cycle of our acquisitions, that small businesses receive their fair share, that the right

people with the right skills are staffed in both the program and

contracting offices, that there is a focus on contract management

to ensure that acquisition and program offices adequately monitor

contract performance, and processes are in place to control effective

issue and administration of task orders. We have agreements with

the Defense Contract Audit Agency and Defense Administrative

agencies to provide specialized technical support to us in those

areas. We also want to ensure that our contracting officer representatives and program and project staff are trained in monitoring contract performance.

My staff and I have been working closely with the Coast Guard

and Customs and Border Protection to ensure good acquisition

management. I actively participate in both acquisitions and will

participate in the Department program review activities, including

meetings of the Investment Review Board. I will be actively involved in reviewing both programs, and this entails regular reviewing the planning documents, the solicitations, the awards, and contract administration activities. Moreover, my office led the formation of a program management council which will develop the policies, procedures, and other tools needed for the DHS program managers to succeed. Finally, DHS has implemented earned value management with high priority programs and program management

periodic reporting to assess performance of our major programs on

a quarterly basis.

In terms of staffing this acquisition office, we are actively recruiting and forming an intern program, in addition to recruiting for

more traditional sources. We have a strategy of developing relations with local universities that have accredited contracting curricula to attract collegiate talent at the junior level instead of waiting

until graduation. We are devising a recruitment strategy to attract

mid-level professionals that includes targeting military personnel

who possess requisite skills, and including participating with the

Department of Veterans Affairs program for hiring injured veterans.

99

We have taken the lead to create a centralized recruiting system

and we have centrally funded a Department-wide intern program

for 66 interns in the fiscal year 2006 budget submission.

With respect to the SBI contract, I concur with the Inspector

General on staffing issues, and we continue to work on fully staffing the program and contracting offices in this area.

I appreciate having to be before the committee today and look

forward to your questions.

[The prepared statement of Ms. Duke follows:]

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101

102

103

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Chairman WAXMAN. Thank you very much for your testimony.

Mr. Giddens.

STATEMENT OF GREG GIDDENS

Mr. GIDDENS. Chairman Waxman and Ranking Member Davis

and other members of the committee, thank you for the opportunity

to appear before you today. I am Greg Giddens, the Director of the

Secure Border Initiative Program at Customs and Border Protection. I am a 27-year public servant and spent most of that time in

the acquisition and program management field.

As Mr. Walker, I hope we can use this hearing as a springboard

for real productive dialog on how to accomplish the goal I know we

all share: getting the capabilities and capacities delivered to the operation user quickly and in a way that provides real stewardship

for the American taxpayer. I welcome your and the committee’s interest and believe it is critical we mature our ability to manage

these large programs not just within the Department of Homeland

Security, but across the Federal Government.

The Secure Border Initiative at the Department of Homeland Security is a comprehensive approach to both border security and immigration reform. The approach requires simultaneous progress on

three different goals. The first is gain effective control of our borders, the second is to increase enforcement of our customs and immigration laws, and the third is supporting the passage of a temporary worker program.

The SBInet program supports the first goal, gaining effective

control of the border. As part of the Department of Homeland’s solution for border security, Customs and Border Protection will use

the SBInet program and its prime contract to design, acquire, deploy, and sustain the technology and tactical infrastructure necessary to achieve control at and between the ports of entry.

In establishing this contract, Customs and Border Protection selected a vehicle that gives the Government the flexibility it needs

when a solution is not repetitive and where risk changes throughout the program. The vastly different terrain, threats, and evolving

nature of the operation environment require a solution that is flexible, adaptable, and tailored to the specific needs. This contract allows Customs and Border Protection to acquire border security solutions in discreet, workable phases, implemented through task

and delivery orders, without committing the Government to acquire

additional capability from the SBInet prime contractor.

We have applied a number of lessons learned to SBInet from

other major acquisitions. They include mechanisms to ensure value

at the subcontractor level, to allow Customs and Border Protection

to separately complete work to support program implementation,

and the establishment of the right number and type of resources

to manage the effort with separate Government office and private

contractor teams.

We believe that strong program management and contract oversight will ensure successful execution of SBInet. We will manage

the SBInet in-house for greater connectivity to the operators and

control the program through direct oversight. We have established

a robust program management structure to oversee the successful

implementation of the solution and we are rapidly building upon

105

that foundation. The SBInet project team includes certified program managers and senior contract specialists.

Let me make just one clarification. The Government provides

management and oversight of SBInet. We do have support contractors on our staff, but they are support contractors, like Miter and

others. They are support, they are not providing oversight for the

Boeing prime contract. And they all sign non-disclosure agreements

to be part of the Government team.

Quite simply, there is no risk-free approach to a program of this

size and scope. As is appropriate with a program of this value and

importance, the Government Accountability Office and the Department of Homeland Security Office of Inspector General have already begun evaluating SBInet and offering recommendations. The

recommendations received to date have provided useful and collaborative improvement upon the SBInet program management

and execution. Attention to enhancing organizational capacity, increasing requirement definition tailored to specific tasks as the program matures, and diligent oversight of cost, schedule, and performance are essential elements of program management embraced

by both the Department and Customs and Border Protection.

Managing large programs is a difficult task, it is what some refer

to as big ‘‘A’’ Acquisition; it involves orchestrating the intersection

of requirements generation and management, budget formulation

and execution, acquisition of procurement strategies, contract

award and management, and science and technology explorations

and development. There are lots of moving parts that must be

managed in a cohesive, integrated fashion.

If we want a future where the Government is managing complex

programs in a way that delivers value-based performance, we must

work to make it so. I believe it will take us working together focusing not just on oversight, but on foresight, being able to see what

the future can be, and then joining together to make it so. We

should expect no less and we should accept no less on behalf of the

American public. Without a dramatic shift in the way that we, as

a Nation, protect our land borders, we leave ourselves and our citizens vulnerable. We recognize the challenges that lie ahead. By securing our borders with the right mix of personnel, technology, and

infrastructure, we will fulfill our mission of protecting our country

and its citizens.

Sir, I again thank you for appearing before the committee and

look forward to answering your questions.

[The prepared statement of Mr. Giddens follows:]

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Chairman WAXMAN. Thank you very much, Mr. Giddens.

Admiral Allen.

STATEMENT OF ADMIRAL THAD ALLEN

Admiral ALLEN. Mr. Chairman, Ranking Member Davis, and

members of the committee, my No. 1 goal today is to convey to you

the critical importance of recapitalizing aging Coast Guard cutters,

aircraft, and sensors.

Deepwater is essential to the future of the Coast Guard; we do

not have the luxury to restart this program. Our aging platforms

cannot sustain the level of operations required in the current

threat environment. Each year new cutters and aircraft are delayed, we lose more mission hours and our capabilities eroded by

failing or unsustainable equipment. We have to get this right and

we have to do it quickly.

Getting it right means several things. First, internally in the

Coast Guard, we must create the right organization and culture

that focuses on effective management and contract oversight. We

are doing that. When I was interviewed by Secretary Chertoff to

be the Commandant, I proposed to create a single acquisition organization, improve program management, and align that organization with a new service-wide mission support structure. We are in

the process of implementing those changes, and I will submit for

the record our blueprint for acquisition reform.

I have strengthened the role of the Assistant Commandant for

Engineering and Logistics as the Coast Guard’s technical authority

for acquisitions. I have issued a service-wide directive which states

this individual is the authority responsible and accountable to establish, monitor, and approve technical standards, tools, and processes. I have assigned Rear Admiral Ron Rabago to lead the Deepwater Program Office. Rear Admiral Rabago is a distinguished

naval engineer, former cutter commanding officer, and former commanding officer of the Coast Guard Yard.

We have sought external independent feedback on our acquisition process from the Defense Acquisition University and received

a number of recommendations we are reviewing.

Second, we must collaborate effectively with our industry partners and, when appropriate, provide direction that preserves the

Government’s interest and ensures the performance of our cutters

and aircraft. Are we doing that?

Since assuming my duties as Commandant, I have met and

talked with both Mr. Stevens of Lockheed Martin and Mr. Sugar

of Northrop Grumman on numerous occasions. We most recently

held a meeting in January which was frank, open, and insightful.

A team will provide recommendations to us shortly as to how we

can best align and optimize the relationship for the next award

term.

We will adjust the terms of the contract going forward to ensure

proper emphasis on cost control, competition, and program management. Where required, we will play a larger role in systems integration.

Third, we must maintain cordial productive relationships with

oversight bodies that have legitimate roles in this endeavor. We are

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doing that. To the extent that we can improve or better provide

guidance to our people, we will do that as well.

Two weeks ago I sent a personal message to every person in the

Coast Guard, and it stated the following: External scrutiny from

the Inspector General and other overseers will raise questions on

the Deepwater acquisition throughout its life. As public servants,

we are not only subject to their oversight, but it is a central feature

of the appropriations process. I welcome external review, as it enables us to improve our process, be more effective stewards of taxpayer dollars and better serve the American public.

I have met regularly with the Inspector General. To the extent

there is any ambiguity regarding our position on the NSC audit,

let me clearly state that we concur and have implemented five or

six recommendations made. Regarding the sixth and final recommendation, we are deferring to the Department of Homeland Security to establish policy.

In the past 10 years, the Coast Guard has acquired a number of

assets on-schedule, below estimated cost. Examples include our

coastal patrol boat, large buoy tenders, and the Great Lakes icebreaker. However, in each case it was a single platform and systems integration was not a challenge. Our current challenge is to

transform our competency as a mid-sized Federal agency to one capable of effectively managing a large, complex systems integration

contract like Deepwater.

And while there is current focus on two specific cutters, it should

be recognized that Deepwater continues to provide new and valuable capability in the form of new fixed-wing aircraft, re-engined

helicopters, and significant upgrades to our legacy cutters. I have

flown in our helicopters; I have ridden our cutters on patrol in the

Caribbean. Our people appreciate these tools. That is my promise

to them as Commandant.

We acknowledge there are issues with the fatigue life of the National Security Cutter, and I must emphasize fatigue life only. We

should also acknowledge that this is the most capable cutter we

have ever provided to our people. The decision to continue the constructions of hulls one and two was based on the determination at

the time that stopping the production line after design was complete and long-lead time materials were procured would create an

unrecoverable schedule loss and increase cost.

We consciously evaluated its capability and elected to add additional critical post-9/11 capability that was reviewed and approved

by the Department and the administration, and funded by the Congress. Costs associated with damages from Hurricane Katrina have

also been funded by the Congress. These are not failed cutters.

I suggested to Chairman Cummings at the hearing held on January 30th under his leadership that a second hearing be held in 120

days to assess our progress, and that hearing be held onboard the

Cutter Bertholf in Pascagoula.

We will resolve any remaining issues and have funding to complete the construction of hulls three and four in our fiscal year

2008 request.

This program must move forward, and it is my responsibility to

get it right.

[The prepared statement of Admiral Allen follows:]

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Chairman WAXMAN. Thank you very much, Admiral Allen.

Rear Admiral Blore, do you have a statement you wanted to

make?

Admiral BLORE. Yes, sir.

Chairman WAXMAN. OK. Please, go ahead.

Admiral BLORE. Yes, Mr. Chairman, if I could.

STATEMENT OF REAR ADMIRAL GARY BLORE

Admiral BLORE. Mr. Chairman, Ranking Member Davis, distinguished members of the committee, I am Rear Admiral Gary Blore,

the Program Executive Officer of the Deepwater program. As you

know, this $24 billion, 25-year effort is absolutely critical to the

Coast Guard and our Nation’s maritime security.

In the mid-1990’s, we recognized the need to replace and upgrade

our aging fleet of cutters, small boats, and aircraft. The enormity

of that task demanded a mission-based approach to the acquisition.

Our vision was to work with industry partners to create a systemof-systems to provide the right mix of platforms and capabilities to

meet 21st century mission requirements. Sitting here today, the

circumstances have changed and we need to evolve the acquisition

program accordingly.

Recently, there have been a number of reports highlighting Deepwater projects. Some of what is being reported is true: we do face

major challenges. But some of the reports include half-truths or

facts taken out of context. Allow me to give you two examples to

help separate myth from reality.

First, much has been said about the cost growth of the Deepwater program. The fact that overall cost projections have grown

from $17 billion to $24 billion is true. But the assertion that the

growth is due to cost overruns is false. Following the tragedy of 9/

11 and the Coast Guard’s transfer to the Department of Homeland

Security, our mission requirements changed. After a detailed performance gap analysis, requirements for additional capabilities

were approved by DHS. These new requirements are what drove

most of the cost growth, not cost overruns.

The second myth is that there are few Deepwater successes.

While we have experienced setbacks during these early years, we

are also witnessing Deepwater assets making a difference in the

fleet already. Last July, a hiker in the Olympic National Forest fell

down the side of a mountain and owes his life to a daring rescue

by well trained Coast Guard air crew flying a newly delivered HH–

65 Charlie model helicopter recently re-engined by the Deepwater

program. That rescue would not have been possible without Deepwater.

Also, censoring communications upgrades on 39 cutters are directly contributing to Coast Guard missions worldwide. As stated

in operators’ trip reports, ‘‘Secure chat is a leap forward in technological prowess. The possibilities of this application are staggering.’’

Or from a joint maneuver by the Coast Guard Cutter Forward and

the USS Doyle, ‘‘Doyle and Forward were able to communicate directly with each other. The time from granting the statement of no

objection for warning shots to rounds out of the barrel was 6 minutes. If the statement of no objection had been 10 minutes later,

the go fast would have eluded us.’’

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We appreciate this opportunity to present the facts and we value

oversight. The GAO and DHS OIG have provided us with key recommendations for improvement, and we are implementing them. I

regret the assertion that we are not fully cooperative with the OIG,

especially during the audit of the National Security Cutter. There

was never any intention to impede the IG’s critical work. During

the 18-month-long audit, we provided thousands of pages of documents and direct access to our electronic program data base. To the

extent that our coordination activities were interpreted as interference, we will work to resolve those issues to the IG’s satisfaction.

While we are on the NSC, I would like to also reiterate there has

never been a safety issue with the National Security Cutter, nor

have any restrictions been placed on its operational performance.

As I have stated, oversight by our Department, the OIG, GAO, and

this committee is invaluable. So, you may ask, how, then, are we

moving forward? With Admiral Allen’s encouragement and guidance, we have already: strengthened the relationship between

Deepwater and the Coast Guard’s chief engineer; required the use

of third-party independent expert analysis; engaged Defense Acquisition University to do a complete review of program management

practices; increased use of written decision documents, along with

creating an electronic data base in which to store them; begun

major study efforts by third parties on both our unmanned aerial

vehicle project and our composite patrol boat initiatives; re-established business case analysis as a fundamental cornerstone of the

acquisition; and begun significant changes to our structure to create a single Coast Guard acquisition work force.

In summary, we in Deepwater’s second generation of program

management recognize the confidence you have placed in us to adjust our acquisition strategy based on lessons learned, funding realities, and current events. It is our duty to realize the program’s

original promise by recapitalizing the Coast Guard while integrating best practices, resulting from both past challenges and current

successes.

Thank you again for this opportunity to appear before you. I look

forward to answering your questions.

Chairman WAXMAN. Thank you very much for your testimony.

Mr. McElwee.

STATEMENT OF JERRY W. MCELWEE

Mr. MCELWEE. Good afternoon, Mr. Chairman, Ranking Member

Davis, and members of the committee. I am pleased to have the opportunity to talk about our plans and progress on the important

SBInet program. The Boeing team does welcome the interest of the

committee and look forward to working with you in your oversight

role. This program will not succeed without the support of you and

your colleagues in the Congress.

This committee asked us to discuss how we developed our proposal, how we took lessons learned or problems from previous programs into account, and how we intend to interact with the Department on oversight activities.

As you may know, the Boeing team was formed with people from

across the entire enterprise and from nine companies Those nine

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companies plus Boeing have a collective 45 years of experience in

working with Department of Homeland Security and in securing

borders around the world.

Forming a 100-plus person team from disparate backgrounds into

a cohesive team to accomplish a difficult task requires a unifying

theme or concept. For SBInet, we developed two central themes.

First, focus on the Border Patrol agent to give him or her the tools

necessary to be more effective and to reduce their personal risks.

Our second central unifying theme was that SBInet is not a development program, it is a design integration and deployment program. It is analogous to a homebuilder who hires first an architect

and then a general contractor to design and build 17 homes or, in

this case, 17 Border Patrol sector security solutions, all from a common design.

With these two unifying concepts, we then applied our Boeing

systems engineering processes to develop our fundamental designs.

These processes are Boeing core competency and are based on

standard time-testing engineering principles for managing large,

complex projects.

More importantly, they are continuously refined, as we learned

both from our successful and our less-than-successful experiences.

In the proposal phase, we performed several iterations of this systems engineering process using data provided by CBP and from our

due diligence visits to both the Swanton and the Tucson sectors.

We also talked extensively with former Border Patrol agents who

helped our engineers understand the human dimension of how our

borders are secured today.

Our conclusion was that the best value over the life cycle of the

program was a ground-based system using proven technology, literally available off-the-shelf. This became the basis of our successful proposal.

We were certainly aware of the lessons learned from previous

programs, and applied them both to our proposal and our proposed

program management structure. First, we listened to our teammates and from their experiences. And we also, of course, learned

from our experience with the Department of Homeland Security

and with the TSA from our Boeing explosive detection system. The

result is a program management structure that provides Customs

and Border Protection and the Department of Homeland Security

with virtually continuous and transparent insight into the health

and status of the program.

In summary, for SBInet, the Boeing team will find, procure, and

integrate the best value, technology, and services to secure our Nation’s land borders and deliver them to CBP and, more importantly,

to the Border Patrol men and women securing our Nation today.

To guide our search, we have a 40 percent small business goal for

this program, which we intend to meet. We have established the

dedicated Web site for SBInet suppliers and have received information from nearly 650 interested companies already. We will need

these companies, as you know, to maintain a competition in the

program, providing new technology and giving us the increased capacity that we will need to complete the tasks that lie ahead.

In summary, we have made a good start on this important program. We are on track to meet the milestones and the task orders

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that have been initiated, and we look forward to your help as our

Nation faces the current and future challenges to our security on

the borders.

Thank you, and I look forward to your questions.

[The prepared statement of Mr. McElwee follows:]

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Chairman WAXMAN. Thank you very much, Mr. McElwee.

Mr. Mackay.

STATEMENT OF LEO MACKAY

Mr. MACKAY. Thank you, Mr. Chairman.

Chairman WAXMAN. Pull the mic closer, and there is a button on

the base.

Mr. MACKAY. Thank you, Chairman Waxman, Ranking Member

Davis, and other distinguished members of the committee. Thank

you for this opportunity to explain the progress being achieved in

the U.S. Coast Guard’s Integrated Deepwater System Program.

Speaking for the men and women of Lockheed Martin, we are

proud to be associated with this critical program.

Deepwater is modernizing the Coast Guard by recapitalizing

aging assets, providing new assets, and expanding capabilities.

Lockheed Martin is responsible for four of five Deepwater domains:

first, aviation—including refurbishment and upgrade of existing assets such as the HH–65 Charlie helicopter and the HC–138 aircraft; production of new assets, the HC–144 maritime patrol aircraft, the Mission IC–130J aircraft, and unmanned aerial vehicles;

and management of a service contractor, the MH–68A HITRON

helicopters—second, C4ISR, the command and control network,

third, logistics, the processes and systems to support fielded assets;

and, four, systems engineering and integration, the process to

make sure all Deepwater assets can work together as a system.

We work within the Integrated Coast Guard Systems joint venture with Northrop Grumman to ensure their communications,

aviation, and logistics systems are properly coordinated with the

program ships and ship systems. The purpose of ICGS is to provide

for rapid allocation of work to the two companies and to ensure collaboration and cooperation between the two companies. Today,

when I refer to ICGS or separately to Lockheed Martin, this means

the role of Lockheed Martin as part of ICGS.

Together, Lockheed Martin and Northrop Grumman are using

more than 600 suppliers in 42 States plus the District of Columbia.

We maintain an active data base of more than 3,000 potential suppliers.

In assessing the program, it is important to maintain emphasis

on implementation of the Deepwater command and control network. C4ISR, a very awkward acronym for command and control,

computers, communications, intelligence, surveillance, and reconnaissance, is the network ‘‘glue’’ that permits various assets including ships, aircraft and shore stations to work together to achieve

a common purpose. Modern civil, commercial, and military systems

are dependent on the value delivered by the integrating power of

the network. This is the core responsibility of Lockheed Martin.

The initial system deployment has already resulted in measurable

progress with the Coast Guard’s rescue, enforcement, and interdiction missions on the high seas.

Lockheed Martin is accomplishing high rates of software reuse,

as well as system commonality and integration by the rigorous application of proven systems engineering processes and capabilities.

Overall, 65 percent of Deepwater software is reused from Government or commercial sources. In addition, the application of off-theVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00144 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
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shelf software permits Deepwater to take advantage of the rapid

changes in the commercial marketplace and the investments which

commercial firms make in their best-of-class technologies. This approach is the key to commonality, interoperability, efficiency, and

effectiveness.

All of the Coast Guard’s 12 high-endurance and 26 medium-endurance cutters have received two separate command and control

system upgrades. As for shore sites, there are a total of 12 on contract to receive upgrades: two communication area master stations,

eight districts, one sector, and one headquarters.

The first medium-range surveillance maritime patrol aircraft, the

newly designated HC–144, has been transferred to the Coast

Guard. It arrived at Elizabeth City, NC, on December 20, 2006,

and it was 9 days ahead of its contractually scheduled delivery. It

is now undergoing missionization that will be completed in April.

The second aircraft was accepted by the Government on January

25, 2007, and the third aircraft is in flight testing.

We are working to complete re-engining and upgrading of HH–

65 Charlie helicopters, with some 65 of 95 helicopters re-delivered

to the Coast Guard to date. These HH–65C Charlies can fly faster,

twice as far, and with twice the payload of their predecessor. The

service contract for the Helicopter Interdiction Tactical Squadron

(HITRON), based in Jacksonville, FL, has been renewed for a 4th

year. These eight helicopters are equipped with airborne use of

force capability and have had a significant impact on illicit drug

interdictions, and last May they celebrated their 100th successful

interdiction.

All of our designs and improvements are based on system engineering trade studies, analyses, and technical consideration. In addition, industry’s performance has been closely supervised by the

Coast Guard, with additional oversight by the Department of

Homeland Security, the Congress, and the Government Accountability Office. Each of these multiple reviews has provided constructive recommendations as requirements continue to evolve.

Thank you again for the opportunity to present and explain the

progress we are achieving on the Deepwater program. I look forward to answering your questions. Thank you, sir.

[The prepared statement of Mr. Mackay follows:]

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Chairman WAXMAN. Thank you, Mr. Mackay.

Mr. Teel.

STATEMENT OF PHILIP TEEL

Mr. TEEL. Good afternoon, Congressman Waxman, Ranking

Member Davis, and distinguished members of the committee. Let

me first apologize for the sound of my voice today; I seem to have

caught a cold or something, so if you bear with me, I will struggle

through it.

I am the vice chairman of the Board of Directors of Integrated

Coast Guard Systems and, as you said, the president of Northrop

Grumman Ship Systems. And on behalf of both organizations and

all the men and women working in support of the Integrated Deepwater Program, I thank you for the opportunity to appear before

you today and discuss the issues associated with Deepwater.

The Deepwater system consists of five domains, as Mr. Mackay

said earlier: surface, aviation, C4ISR, integrated logistic support,

and systems-of-systems, all compliment each other in a highly capable network of surface and aviation assets linked with the C4ISR

systems. This system-of-system approach ensures the interoperability across all domains and avoids unnecessary redundancy in

the systems.

In June 2002, the Coast Guard selected an integrated Coast

Guard systems to manage the integrated Deepwater system following a rigorous competition. The ICGS is a joint venture between

Northrop Grumman Ship Systems and Lockheed Martin. The ICGS

business structure provides the Coast Guard with direct access and

active management participation by Northrop Grumman and Lockheed Martin, two leading Defense and Homeland Security contractors. At the same time, the Coast Guard is provided with a single

point of contact to address Deepwater program matters expeditiously.

The Coast Guard and ICGS jointly established a management

structure consisting of working and governance teams. The working teams are comprised of Government and industry members,

which are co-located in the Systems Integration Program Office in

Rosslyn, VA, and at various productionsites around the country.

Governance teams are comprised of executive level industry and

senior Coast Guard personnel. Additional Coast Guard-composed

teams provide oversight up to and including the Coast Guard acquisition executive, the Vice Commandant.

The IPT, or integrated product team, process is the means by

which ICGS and the Coast Guard work together to accomplish the

operational requirements of the Deepwater program. While IPT decisions are consensus-based, IPTs do not make decisions impacting

schedule, cost, or contract requirements. Such decisions at all times

reside with the Coast Guard. Moreover, if any IPT member believes

that an issue is not being resolved in the Coast Guard’s best interest, he or she may raise the issue through several reviews, up to

and including the Coast Guard’s senior acquisition executive.

As part of the IPT process, ICGS and the Coast Guard engage

in programmatic and design reviews for each assets at various decision points. ICGS and the Coast Guard also work together on technical scoping reviews prior to the issuance of work orders under

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this contract. The Coast Guard remains the decisionmaking and

contracting authority, and has retained the traditional contract

management functions, including the right to issue unilateral

change orders, to stop or terminate work, to order or not order assets and supplies, and to accept or reject work. ICGS takes very seriously the oversight responsibilities of the Coast Guard, Department of Homeland Security, the GAO, and Congress.

ICGS has routinely provided support for audit team site visits to

its facilities, has conducted management and technical staff meetings with audit teams, provided briefings and updates to auditors,

and has supported document requests from the Coast Guard and

independent reviewing bodies. In this regard, we remain committed

to facilitating the important oversight responsibilities.

Thank you for the opportunity, and I stand by for your questions.

[The prepared statement of Mr. Teel follows:]

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Chairman WAXMAN. Thank you. Thank you all for your testimony. We very much appreciate it. It has been very helpful.

I am still trying to figure out about this change in the direction

of the information that came from the test that was done in

Carderock, and it seems like the findings from the Navy about the

new Coast Guard cutter were changed by the Deepwater Program

Office, and I want to return to that issue.

Admiral Allen, I recognize you were not the Commandant when

the Navy findings were altered. Do you know anything about what

happened?

Admiral ALLEN. Mr. Chairman, I had a discussion with the IG

in the last couple weeks; it is the first time I had seen the two sets

of slides. I told him I was going to take a look at it and get back

to him with information. I would just provide a couple pieces of

background information.

The information provided by Carderock for that briefing was a

status briefing that led to a final report that wasn’t issued until

August 2006, so it was a status report on the findings to that date,

which had to be refined. The report was scheduled to go to the

Coast Guard’s technical authority, our chief engineer, who would

then interpret it and provide input to the Deepwater project for

what needed to be done to address the issues raised by Carderock.

To the extent that there was concern that somehow the fatigue

service life was not well known or that information was not provided, there were other slides in both briefs that say it in another

manner; not in red ink, but the information remains in the brief,

aside from the caveats that you showed us. So my commitment is

to go back, look at that; I will give you the information. But I can

provide you the slides or the information that was provided elsewhere in the brief.

Chairman WAXMAN. Then why did they delete those red letter

words?

Admiral ALLEN. I made a commitment to the IG to look into it,

sir, and I would be happy to get back to the committee. I was made

aware of it in the last couple of weeks.

Chairman WAXMAN. Mr. Giddens, you are running the SBInet

program, but you previously helped run the Deepwater program,

which I guess raises a question, since we put the two together as

two problem programs. Do you know anything about these doctored

slides? Were you aware of the Navy findings of serious problems

with the Coast Guard Cutter?

Mr. GIDDENS. I was not aware of the slides or any particular

slides being doctored. I do remember that issue was discussed, as

Admiral Allen indicated it was; in the briefing package the issue

was raised.

Chairman WAXMAN. But you weren’t aware of it?

Mr. GIDDENS. I was not aware of the changing of the markings,

but the issue was raised in the briefing package.

Chairman WAXMAN. And what is that briefing packet? That was

the briefing to Admiral Allen?

Mr. GIDDENS. It was a briefing. I believe it might have been to

the Commandant. I am not sure who the——

Admiral ALLEN. Mr. Chairman, if I could elucidate there a little

bit. The briefing was held around December 8, 2005, a little over

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a year ago; it was a status briefing to the Commandant. It was on

the status of the Carderock review, and at that point it was generally well known throughout the Coast Guard that there was a fatigue life issue that had to be addressed, sir.

Chairman WAXMAN. Mr. Giddens, did you have a role in preparing the slide presentation to the Commandant that excised the

Navy’s most damaging findings?

Mr. GIDDENS. Sir, as Admiral Allen indicated, that briefing was

December 2005, and I was working, at that time, for the Department of Homeland Security.

Chairman WAXMAN. Do you know who did it?

Mr. GIDDENS. No, sir.

Chairman WAXMAN. OK. Do you know whether any of the contractors were involved?

Mr. GIDDENS. Sir, again, I was not working at the Coast Guard

at that time. I don’t have any additional information.

Chairman WAXMAN. Do you know why they might have deleted

that information?

Mr. GIDDENS. No, sir.

Chairman WAXMAN. Does anybody on the panel—well, let me—

rather than open it up—well, let me ask. Anybody on the panel

know what happened, why it happened, and who did it?

Admiral BLORE. Mr. Chairman, if I could, I was not the Program

Executive Officer then, but I was starting to transition into the

Deepwater program. First, let me just say for context, it was

never—it is not the same brief. The brief that was given to us by

Carderock was a brief to the Deepwater program and our technical

authority to understand specifically some structural and fatigue

issues. The brief that was prepared for the Commandant was an

update on the National Security Cutter. So when we use words like

the slides were changed, none of the slides were transitioned directly over; the brief was recreated to brief the Commandant. And

I would say——

Chairman WAXMAN. They were the same slides, though.

Admiral BLORE. Some of them are the same slides because we

were using the same information because it was an update on national security.

Chairman WAXMAN. Why would somebody go to the trouble of deleting those words on those slides so that what was given in that

briefing was not exactly the same as Carderock had originally submitted?

Admiral BLORE. Can’t answer that question directly, sir, other

than to say the seriousness of the issue is covered in the brief.

Chairman WAXMAN. The seriousness of the issue is covered in

the brief?

Admiral BLORE. The seriousness of the issue with the National

Security Cutter, in the sense that we needed to do a fatigue structural enhancement upgrade for it, is covered in the brief.

Chairman WAXMAN. Well, the timing of the deletions is important. Several months after the Navy findings were removed, the

Coast Guard made a decision to renew the Deepwater contract with

the same contractors. I don’t know how the problem with the ship

could be ignored when the renewal decision was made. When I

read the Coast Guard’s announcement of the renewal, it is full of

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praise for the contractor; there is no mention made of the huge

problems uncovered by the Navy and no corrective action. That

may be great for Lockheed and Northrop, but it is costing the taxpayers billions. Do you have any comment on that?

Admiral ALLEN. Sir, first of all, I don’t believe it will cost the taxpayers billions, and——

Chairman WAXMAN. Well, let’s hope not, but it is troubling. Mr.

Skinner said it was very disturbing to him, and as we saw when

this contract was renewed, there was no mention of any of this.

Admiral ALLEN. Yes, sir. First of all, I think we need to be careful not make the fatigue issue on a National Security Cutter a surrogate measure for the entire acquisition, as was stated in the

opening statements. The decision on the new award term—I will

let Admiral Blore fill in any holes that I fail to cover here.

The criterion for the award of the next award term was embedded in the contract and was awarded in 2002 and locked in at that

time. Moving forward, we will change the award criteria for future

awards to focus on performance, cost control, and project management, but the decision on how that would be awarded based on

operational efficiency—and at that point the National Security Cutter had not been in service yet—did not impact that determination.

We are changing that for the next award term. But the original criteria were locked in in 2002.

Chairman WAXMAN. Well, it sounds like you are saying you made

a decision that wasn’t based on cost or performance.

Admiral ALLEN. It was based on the criteria that was contractually agreed to in 2002, sir. That was the contract.

Chairman WAXMAN. Maybe Rear Admiral Blore can further explain this, but——

Admiral BLORE. Yes, sir, it was based on——

Chairman WAXMAN [continuing]. This wasn’t great performance,

was it? You did have a problem. You wanted them to build a ship

and the ship was not going to meet your standards for 30 years,

and that is what the people at Carderock had reported. Maybe it

was known, maybe it wasn’t known, but then the contract was renewed with all sorts of praise.

Admiral BLORE. Yes, sir. First off, it was not for the National Security Cutter, it was for the Deepwater program. The criterion that

were on contract at the time——

Chairman WAXMAN. This Cutter is part of the Deepwater program, isn’t it?

Admiral BLORE. Yes, Mr. Chairman.

Chairman WAXMAN. OK.

Admiral BLORE [continuing]. Was total ownership cost, operational effectiveness, and customer satisfaction. That was the contractual way that their past performance would be reviewed. And

the contract has not been renewed. The contract was not renewed

for 43 months. What was offered was the opportunity for an additional period of performance for 43 months. We are currently working with our industry partners to negotiate a contract. If we negotiate a contract, that would be put in place in June 2007.

Chairman WAXMAN. The week before—there was a document

that says ‘‘ICGS/NGSS participation, energy focused on deflecting

governmental technical analysis and reinterpreting contract reVerDate 11-MAY-2000 15:28 Sep 20, 2007 Jkt 000000 PO 00000 Frm 00162 Fmt 6633 Sfmt 6633 C:\DOCS\37263.TXT HGOVREF1 PsN: HGOVREF1
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quirements, a little interest yet displayed to partner for solutions.

Technical response, gradual back-peddling away from NGSS 2004

fatigue technical positions. No interest yet expressed to assume

technical leadership.’’ Are you familiar with this document?

Admiral BLORE. Yes, Mr. Chairman, I am.

Chairman WAXMAN. Well, why all the praise for the contractor

when this document seems to be critical?

Admiral BLORE. Sir, I can’t speak to the praise for the contractor;

I can speak to that document, which reflected the work that was

going on between the Coast Guard, which, at the time, was proposing structural enhancements to get a 30-year fatigue life on the

National Security Cutter and our relationship at that time with industry. Integrated product teams were mentioned before IPTs, and

I think that reflects a lot of the atmosphere in the IPT at that

time. The IPT is actually the lowest level these things are negotiated at——

Chairman WAXMAN. Let me stop you right there, because I only

have a few minutes, even less than a minute, but I want to ask

Mr. Giddens a question before my time is up.

As of December you had hired 98 people to oversee the SBInet

contract. That sounds good, but the problem is that 65 of these people don’t work for the Government, they work for the contractor,

as we were told earlier. During the first panel, we heard repeatedly

about the problems with Deepwater contract. One of the features

of Deepwater was your reliance on contractors to perform this oversight. My staff tells me you hired 135 people to oversee Deepwater

and that over half of them, 76 of the overseers, are themselves contractors. It seems to me this was the same mistake in SBInet.

We asked for a list of these contract employees working in the

SBInet office, as well as the identities of the private companies

they work for, and some of the individuals work for Booz Allen

Hamilton, one of the Nation’s largest consulting firms. But Booz

Allen apparently has a number of ties to Boeing, the prime contractor. In fact, on Booz Allen’s own Web site the company touts a business relationship with Boeing going back to 1970. Here is what it

says: Booz Allen has a ‘‘solid working relationship’’ with Boeing

with ‘‘deep knowledge and personal relationships from the group

president to the people on the shop floor.’’

What is going on here, Mr. Giddens? Why are you hiring contractors with conflicts of interest to provide contract oversight?

Mr. GIDDENS. First, sir, as I tried to state in my opening statement, support contractors do not provide oversight for Boeing, the

prime contractor. That is a Government responsibility. The support

contractors are just that: They are support.

For this particular example, what Booz Allen Hamilton is doing

in the office in this regard, they are supporting our mission engineering group. And they’re going out, and working with the fill sectors, and gathering requirements so that we can bring those back,

compile those, and then go back to the field and brief those requirements to make sure that we have correctly captured the operational conditions in the field.

Chairman WAXMAN. Well, a majority of the people in your office

are private contractors. You’re relying on them to do the function

that a Government ordinarily would do, yet it’s contracted out and,

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in this case, contracted out with a company that may have a conflict of interest.

Mr. GIDDENS. We have currently 56 percent of the staff, the support contractors, working for the Government. Those staff have to

sign non-disclosure agreements, so they do not share the information that they see in the program office. We have a structure to

support that.

I would echo the concerns of the first panel that hiring Government employees in the program management acquisition world is

a difficult task. We are looking to get to the end of this fiscal year

to a balance of 48 percent to 52 percent in 2008 and have more

Government employees than we do support contractors. But again,

they are support contractors, they do not provide an oversight function for Boeing. That is the Government’s responsibility.

Chairman WAXMAN. Mr. Davis.

Mr. DAVIS OF VIRGINIA. As I look at this, it seems to me that

there are really more problems associated with the ships as opposed to the airplanes and the C4ISR. Anyone want to comment on

why that is the case?

Admiral BLORE. Let me say, sir, first, I agree with you, that we

have tended to face most of our major challenges on the surface

side. A lot of them are much more complex platforms than we are

getting, for example, in aviation; as opposed to buying a CASA and

converting it in aviation, we are building a ship from scratch.

One thing I would say, though——

Mr. DAVIS OF VIRGINIA. Do you attempt to be more innovative on

the ship side than perhaps——

Admiral BLORE. I just think it is a much more complex structure.

We do participate openly with the Navy; we do use NAFC. We have

a Government regional office for the Coast Guard in Pascagoula,

and we use the Navy’s regional office in Pascagoula. So we do try

to use—it came up before—Navy resources whenever we can.

Admiral ALLEN. I would say I would separate out the 123 conversion, which has been an issue for us, from the ships that are being

designed from scratch. You normally will encounter some issues

with the first in class that will require a retrofit, and then changes

made for the subsequent hulls. That is something we are finding

out with the National Security Cutter.

The failure of the platforms on the 123s, which were extended

110 hulls, is an issue where we need to go back, and we are taking

a look at it.

Mr. DAVIS OF VIRGINIA. OK, thank you.

Ms. Duke, let me ask you did the Coast Guard make the right

decision in using a private contractor as the systems integrator for

the Deepwater program? As we sit here today.

Ms. DUKE. I don’t see using a systems integrator as the issue.

A system integrator is a contract choice; it is appropriate where

you have a large program. They had a huge amount of asset recapitalization that needed——

Mr. DAVIS OF VIRGINIA. So with what you had at the time, you

think it was the right decision.

Ms. DUKE. Yes.

Mr. DAVIS OF VIRGINIA. At the beginning, the Coast Guard was

obviously limited in their ability to manage a large program like

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that, and the previous panel has spoken on that to the GAO and

the IG. What about today, do you have the ability to manage this

today, or would you need more assets?

Ms. DUKE. I think that Admiral Allen has recognized the need

for more assets in both the number of people and the structure and

the consolidation of the authority and the decisionmaking, and his

restructuring of the acquisition program within the Coast Guard is

going to address those staffing and skill mix problems and authority problems that were present in the start of the contract.

Mr. DAVIS OF VIRGINIA. This is a Coast Guard program, but what

role does DHS play? What role is your organization playing in overseeing this?

Ms. DUKE. We are working with Admiral Allen in both his plan

for restructuring the acquisition function within the Coast Guard

and we are working with the restructuring of the—his implementation plan for the new vision for the new Deepwater program. So we

consult and we work with him, and he is very cooperative.

Mr. DAVIS OF VIRGINIA. Yes, Admiral Allen?

Admiral ALLEN. Consistent with my interview with Secretary

Chertoff, when I was interviewed to become the Commandant, I

said that we had internal reasons why we needed to look at the acquisition program, but a side benefit to all that, it aligns us organizationally and functionally with the Department of Homeland Security and achieves better functional integration for the Department.

Mr. DAVIS OF VIRGINIA. OK. Let me ask the same question I

asked Ms. Duke. There are those who criticized your acquisition

approach, particularly using the private contractor to act as the

systems integrator. In hindsight, as you sit here today, recognizing

you weren’t there at the beginning, was this a good decision? If you

could do it all over, would you make that decision any differently?

Admiral ALLEN. Given the conditions that existed at the time, I

would have made the same decision. The problem we had was

block obsolescence of our cutter and aircraft fleet that we needed

to basically recapitalize them all at once, a limited funding stream,

and a service that had recently been downsized by 4,000 people

and $4 million a year as part of making Government smaller. We

were forced to make some tradeoffs in how we would move ahead

with the vessel and aircraft recapitalization. I think the original

proposal was sound. I think the approach was sound. What happened was the same month that we received the proposals for evaluation there were the 9/11 attacks. That was a major intervening

variable. And when you start taking apart the requirements, as

they said in the first panel, what should have been just a menu of

items that we could pick that were already priced out within a contractual structure, all of a sudden had to be rewickered, and that

is where you start getting behind in terms of the amount of people

that are on the problem and resolving technical issues.

Mr. DAVIS OF VIRGINIA. If you could go back to that stage, right

after 9/11, when you were reconfiguring it, when the requirements

changed, how would we do that differently?

Admiral ALLEN. Well, that was the devil’s dilemma that they had

at the time. We could have pulled the solicitation back and resolicited new proposals with a new set of requirements.

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Mr. DAVIS OF VIRGINIA. That would put it out.

Admiral ALLEN. You would have pushed it out and then you

would have failing cutters and aircraft out there. So the question

is do you proceed and make the adjustments, because this is a considerable change in requirements. Normally, we would not have

done that.

Mr. DAVIS OF VIRGINIA. But in hindsight, seeing where we are

now—and this is hindsight, I am not criticizing the original decision—might that not have been a better way to go?

Admiral ALLEN. It would have, but you would have run the risk

at that time of facing block obsolescence or being able to have a capability gap where a platform would have failed and you would not

be able to replace it.

I would note today, on February 8th, we are retiring the Coast

Guard Cutter Storis at age 65 that had World War II service.

Mr. DAVIS OF VIRGINIA. GAO notes that the Coast Guard has declined to implement their recommendation to establish a baseline

to determine whether the system-of-systems approach is costing

more than the traditional acquisition approach. Seems reasonable.

Could you explain your reasons for rejecting that recommendation?

Admiral ALLEN. I will let Admiral Blore comment in a minute,

but I think the original premise was that it is impossible, until we

have the system up and operating, to generate the information by

which we could do a comparison, and, technically, we didn’t think

it would be feasible at this time. It is not—we don’t object to the

basic premise.

Admiral BLORE. I would agree, sir. There is not a conceptual difference, it is just a matter of workload. We are trying to move more

Government personnel into program oversight. This might be something that would be valuable to develop once Deepwater is a little

further along and basically try to do an apples-to-apples comparison, but we just didn’t have the resources to do it right now.

Mr. DAVIS OF VIRGINIA. OK. Let me turn to the contractors. I will

confess I am kind of a Northrop Grumman alumnus, having been

general counsel at PRC, which is now part of the Northrop Grumman empire, and been a senior VP there before I came to Congress.

But let me ask the contractors on this. Can you give us an example

of how Deepwater’s use of the systems integrator approach specifically benefited the Coast Guard? Because that seems to be a concern that has been raised by some of the Members today.

Mr. MACKAY. Well, Congressman Davis, where we—as I mentioned in my opening statement, we are pushing interoperability,

commonality, the glue that holds the network together. With regard to that, we have been able to achieve about 65 percent software reuse, where we are using GOTS, Government off-the-shelf,

and commercial off-the-shelf software, and we have also achieved

some notable commonalities. For instance, the mission system of

the HC–144, the new twin engine maritime patrol aircraft, uses

about 50 percent or about 23,000 lines of code from the Navy’s AIP

program for the P3, and there is about a 90 percent commonality

between the mission system for the AC–144 and the mission system for the missionized C–130J, which we will redeliver to the

Coast Guard here in September and we will complete that program

by the end of calendar year 2008.

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Also, about 75 percent of the Aegis Open Architecture Command

and Decision System from the U.S. Navy’s very successful Aegis

program is reused in the command and Op center of the National

Security Cutter, and the displays and consoles that we use in that

Op center are derived from the UIQ–70 series that we use on the

CVN–77 proposal. So we are getting a lot of commonality, a lot of

reuse, starting to make the national fleet concept for the Coast

Guard and the Navy and all the maritime services have common

standard and common equipment and interoperability. I think the

story that—not the story, the operational report that Admiral Blore

quoted from, where you had a Navy frigate and a Coast Guard cutter operating together, talking on the same net, sharing technical

data is indicative of that.

Mr. DAVIS OF VIRGINIA. Information sharing.

Admiral BLORE. Yes, sir.

Mr. DAVIS OF VIRGINIA. Admiral Allen, do you agree with that?

Admiral ALLEN. Wholeheartedly. My good partner, Mike Mullen,

and I have made a commitment to achieve commonality to the extent that we can. The deck gun on the LCS, the deck gun on the

National Security Cutter are the same. The air search radars are

the same. In fact, we are training Navy personnel at Coast Guard

training commands on the operation of the radar.

Mr. DAVIS OF VIRGINIA. Let me ask the contractors again. As we

look back—I don’t know if you were there at the beginning, but as

you just take a look over the history of the program, what lessons

have you learned from the early years of the Deepwater program?

What could you have done differently? Recognizing you didn’t write

the requirements, but seeing some of the problems the program has

had as it has moved down. From a contractor perspective. I have

asked the Government what they would do different. What would

you do differently?

Mr. MACKAY. I will let Mr. Teel comment as well, although neither of our tenure start back in the 2000 timeframe; we both joined

the program in our respective roles in the middle of 2005.

I think——

Mr. DAVIS OF VIRGINIA. For the record, I don’t think anybody on

this panel had anything to do with the original part of it. You are

part of the solution, but you are familiar with what happened early

on.

Mr. MACKAY. Yes, sir, fairly familiar.

I think where we—there was just an ineluctable problem or an

issue that has been brought up with respect to the timing of a very

large exogenous event with 9/11. In fact, changing departments for

the Coast Guard, the generation of a new mission needs statement,

the refining of the requirements that went into platforms like the

National Security Cutter or the VUAV, the requirements for those

had a long gestation period that was affected by many of the factors that we have talked about today. In fact, the new mission

needs statement was not generated for the program until July

2005, some 3 years after the original contract award; just a long

period to look at all of the cross-cutting issues and the new capabilities that are generated when a service gets—not only changes

home departments, but also picks up three discreet new national

security and homeland security missions that revolve around tough

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things like counterterrorism. It is a joint problem. Working the requirements, I don’t know how they could have been done more expeditiously, but that certainly would have helped.

Mr. DAVIS OF VIRGINIA. Mr. Teel.

Mr. TEEL. Yes, sir. I would just add that in our governance model

as it is associated with ICGS, both Leo and I and others in that

leadership chain have recognized that the chart that was shown

earlier is part of the dynamic tension that one sees within the

IPTs, and we collectively believe—and part of what is being addressed by the Coast Guard and the changes that we are making

within ICGS—are to allow those issues to get quicker access to decisionmaking outside the IPTs. I think there are some structural

issues, and we are dealing with those and, in fact, have already

made the changes to begin that process. So there are certainly

changes there to get issues vetted more quickly.

Mr. DAVIS OF VIRGINIA. Thank you very much.

Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Davis.

Admiral Allen has to leave fairly shortly to go to another meeting. I just wonder if members have questions of that.

Mr. Cummings.

Mr. CUMMINGS. Yes.

Chairman WAXMAN. Anyone else? If not, it is Mr. Cummings’

time anyway, so I am going to recognize him and then, after he is

finished, Admiral Allen, you would be free to go.

Mr. CUMMINGS. Was my timing running? [Laughter.]

I see a green light and a red light. I just want to make sure. I

will take the green. I mean, I will take the red. OK, I got the

green.

Admiral, first of all, as you know, I have the utmost confidence

in you, I really do, and the Coast Guard. My concern, though, goes

to several things that have taken place today. The chairman asked

you some questions about the changed slides, or whatever, and I

was thinking to myself if I had that situation, if I were you, and

I had the situation where the civil equivalent of the FBI sat at that

desk and said that he had received some altered documents during

his investigation, I would be doing everything in my power to find

out who did it, because it basically—it taints the operation.

Admiral ALLEN. Yes, sir.

Mr. CUMMINGS. And that is a very, very serious—I have not seen

that, by the way, since I have been here in the Congress, that an

IG, to sit there and say something like that.

Admiral ALLEN. Yes, sir. If I could clarify just a little bit.

Mr. CUMMINGS. Yes.

Admiral ALLEN. First of all, I was not aware of it either, until

the last couple of weeks. Mr. Skinner came to me directly and

showed me the slides. What he presented were copies of slides that

were used in briefs, OK, that we then provided to the IG. And the

brief to the Commandant that doesn’t have the red ink on it was

part of a larger brief to the Commandant that contained other

items. Now, why that was removed for the purpose of briefing the

Commandant I have committed to Mr. Skinner to finding out.

Mr. CUMMINGS. Thank you.

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Admiral ALLEN. And I am committing to the committee to do

that too, sir.

Mr. CUMMINGS. Yes. I just want to make sure you understand

that is a very serious matter for us.

Admiral ALLEN. I have to state, though, that the same information is included in a later slide that indicates the 30-year service

life is a problem. It is not in red, but the information wasn’t totally

removed from the brief.

Mr. CUMMINGS. But my concern is that the IG didn’t get it from

the Coast Guard, he had to go—the Coast Guard apparently would

not give him that information, he had to get it through some other

source.

Admiral ALLEN. Yes, sir. And I have committed——

Mr. CUMMINGS. That really bothers us.

Admiral ALLEN. We will get to the bottom of it and we will find

answers.

Mr. CUMMINGS. Thank you. I have a limited amount of time.

Let me go back to something else that is also of concern. This

bonus thing, there is no one single Member of this Congress that

if they had evaluated the performance of an employee, where the

scheduled performance was not good—well, it wouldn’t be cost control was bad, contract administration was not good, we would give

them a bonus. And I am wondering what is the criteria for bonuses

as we go forward and how are we going to determine that? And I

am not trying to take anything away from anybody if they earn it,

but, you see, our responsibility, if we don’t—see, our constituents

hold us accountable, so we have to hold you accountable. So I am

just wondering—I would really like to know how we are going to

go forward with bonuses. And if there are going to be bonuses, I

would love for this committee to know that they are coming up so

at least we can hear about them.

Admiral ALLEN. Yes, sir. Let me give you a high level answer,

and I will have Admiral Blore expand on that.

The parameters by which these folks are evaluated, as we said

earlier and as David Walker said earlier, are included in contractual agreements for a set period of time. What we need to do is

take a look at the criteria and the period of time and restructure

the contracts. We have already done that for the period that is

starting in January, and that will be restructured in the new contract if we move forward to the new award term. But I will let Admiral Blore expand.

Mr. CUMMINGS. And I hope attitude isn’t the criteria, because if

that were the case, everybody sitting behind you would have a $4

million bonus.

Admiral.

Admiral BLORE. Yes, sir. Attitude is not one of the criteria. And

to give this kind of context, just in rough terms, the Deepwater

program is about $1 billion a year. Within that $1 billion there is

$40 million in a systems engineering bucket, so to speak. Of that

$40 million, 10 percent is set aside for management reserve, which

is $4 million. That $4 million is divided in half for an award fee

program that occurs every 6 months.

When I became the program executive officer, the criteria was already established. I professionally don’t think the criteria is at a

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high enough bar. I think I am hearing that from you also. I recently awarded a fee, so you should be aware of that, last week of

82.4 percent, so that would give them, monetarily, $1.6 million.

That was the lowest award they have ever received from the Coast

Guard in the history of the award fee.

I do feel ethically bound to honor the criteria that was on contract. I was not able to change the criteria to January 1, 2007; it

has been changed. I would be happy to provide for the record the

old criteria and the new criteria, which talks about cost control and

competition.

Mr. CUMMINGS. Thank you. I would love to have that.

Admiral BLORE. Yes, sir.

Mr. CUMMINGS. Admiral Allen, just one other thing. During our

Coast Guard Subcommittee hearing, you said that you would compete the Fast Response Cutter contract. And after hearing—and I

know you are already familiar with what Mr. Walker might have

to say and the IG might have to say, but after hearing all of that,

do we have clear standards for the Response Cutter? Do we have

penalties; do we have an exit clause? Do we have anything—any

kind of warranty? And, again, as I said to you in that other hearing, one of the things that Americans understand are warranties.

Almost everybody buys a car. And the thought that we could spend

money and not have any kind of guarantee is a major problem. So

I was just wondering.

But I want you to address all those things.

Admiral ALLEN. Yes, sir. Regarding the Fast Response Cutters,

it is really a two-part answer.

Mr. CUMMINGS. All right.

Admiral ALLEN. The Fast Response Cutter A Class was being

considered for construction as a composite hull design. We have

done a risk assessment on that and we feel we need to resolve

some technical issues before we go forward. To mitigate that acquisition, the Undersecretary for Science and Technology is going to

be teaming with Northrop Grumman to produce a technology demonstrator to see if the technology works before we go to production

of that vessel. So that will mitigate risk for the composite hull.

In the meantime, as you know, we have a patrol at Hour Gap

that has been exacerbated by the performance of the converted 123

for cutters. We are moving at best speed there to award a contract

under a parent craft design, and that means taking an existing design that is already out there, making minimal modifications to it,

and getting it into production as fast we can to start filling that

gap. That is what I referred to in the hearing. That is going to be

openly competed, and it will also be a third-party certification

through American Bureau of Shipping for standards.

Mr. CUMMINGS. Now, what happens when—you know, one of the

things I am concerned about is there was some discussion, I think,

by the Rear Admiral about cost overruns, and basically he told us

that there were certain things that were not accurate. Let me just

say this. What happens when it is discovered that there is a problem and then it costs money to repair, to do the repair? I mean,

in other words, we had some—with the National Security Cutter,

who pays that? In other words, the American people don’t want to

be paying twice. They pay for it and then folks come back and say,

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OK, it didn’t work, so then they pay again. So I am just wondering

who pays for that.

Admiral ALLEN. Again, I will give you a high level answer and

I will pass it to Admiral Blore to expand upon.

The way the Deepwater program is structured, there are a series

of delivery task orders that are issued, and these are various contractual arrangements. Some might be cost-plus, some may be for

a firm fixed price, depending on the particular instrument by which

the asset was ordered would carry a different duty on the part of

the contractor and the Government and a different level of risk.

But all of those infer a certain level of performance that the contractor is held to under the conditions of that contract, and they

are enforceable, sir.

Admiral BLORE. Yes, sir, the short answer is if we couldn’t work

it out in other means, we would ask the contracting officer to enforce the terms and conditions of the contract or, if necessary, a

lawyer to enforce the terms and conditions of the contract. I think

what both the IG and GAO spoke to, which is accurate, is we need

to pay more attention to our contracts, what is specifically written

and what the terms and conditions are, and we are doing that now.

Mr. CUMMINGS. Thank you, Mr. Chairman.

Mr. COOPER [presiding]. I thank the gentleman.

I believe our friend from California, Mr. Issa, has a few questions

for the Admiral.

Mr. ISSA. Thank you, Mr. Chairman. I will direct primarily to the

Commandant, because I understand you have to go.

Sort of the big picture question, Admiral, do you believe that

joint is the preferable way, in other words, that we should have

both the uniformed armed forces and the Coast Guard, even in

peace time, be as purple as possible?

Admiral ALLEN. Yes, sir, I am in favor of joint. I am also in favor

of interagency, and I would be in favor of plaid if it made us work

better, sir.

Mr. ISSA. So if—and we are back to Monday morning quarterbacking, but let’s just assume that 9/11 was the beginning of the

second cold war and that for the next 50 years, in various States,

we are going to be dealing with some of the problems we are dealing with here today around the world. What would you say this

committee needs to—how can we empower you and your brothers

and sisters in the other uniformed services to be able to work more

jointly, to be able to create common platforms, take advantage, leverage each other’s expertise and, of course, we would hope for cost

savings in addition to maybe more reliable results?

Admiral ALLEN. Sir, I would say that is embodied in the current

national fleet policy statement that has been jointly signed by Mike

Mullen and myself. It is a commitment to looking at joint interoperability. If you look at the Navy as the high-end fleet of this

country and the Coast Guard, in closer to shore, maybe smaller,

how we seam up together to create a national fleet is of extreme

importance. Our contractors just spoke about how much code is

being reused in our command and control systems in the Deepwater system, it is also used in Navy aviation and surface platforms. We have commonality of air search radars between the LCS

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and the NSC, and we are both using the 57 millimeter deck gun

across.

I meet with Admiral Mullen probably every 2 or 3 months in

war-fighter talks. We have people who focus exclusively on how we

can get greater synergies. And we are constantly talking about

their shipbuilding programs and our shipbuilding programs, and I

also have met regularly with the Secretary of the Navy on shipbuilding programs. So we are focusing on it. We actually have a

vessel out in San Diego that is being jointly crewed by Coast Guard

and Navy folks in a test and evaluation period, the high-speed

craft.

Mr. ISSA. The sea fighter?

Admiral ALLEN. Yes.

Mr. ISSA. So-called X craft previously?

Admiral ALLEN. Yes. And another good example is the great cooperation we got out of the Navy that allows us to extend the use

of the 179-foot patrol craft to fill our patrol boat gap while we get

the new Fast Response Cutter built. But we are side-by-side developing strategy together, and where we can we work together.

Mr. ISSA. Well, following up on the sea fighter, you know, it was

commissioned I guess now it is going on 2 years ago. It spent a lot

of time dockside. How much more do you have to go through to find

out what the advantages of this high-speed ferry, its air landing capability, fueling, etc., how much more is there before you know

whether to build unit two?

Admiral ALLEN. Well, if I could, I would like to get together with

Mike Mullen and give you an answer for the record on that, sir,

because I am just not up to speed on the current data from the

testing and so forth, and my answer may not be current. But happy

to answer for the record.

Mr. ISSA. OK, I will put you on the spot where I can, though.

How do you like it as a ship? How do you like it as a new category?

Admiral ALLEN. I think it has some intriguing potential uses in

our mission set. The question is we have to look at life cycle cost,

the propulsion and so forth. I have had some discussions with Admiral Mullen about it, and I think at some point we are going to

need to sit down and discuss what is the way forward and the potential utility for the Coast Guard. Obviously, large deck space can

accommodate a lot of our missions. We have situations in the

straights of Florida where we get in a position where we have a

large number of migrants on the deck of a cutter that is really not

designed to do that. But those are the things we might talk about.

Mr. ISSA. I appreciate that. I certainly recognize that the air conditioned down below capability is very good.

Switching to Ms. Duke, now, you work for the Secretary of

Homeland Security, is that right?

Ms. DUKE. Yes.

Mr. ISSA. How do you interface—the Commandant made it clear

that he feels he has the authority to have these liaisons and joint

operations, but you work for a single cabinet officer who has a

budget. What is it that you can do in your daily life, or can’t do,

that allows you to leverage other hundreds of contracts and contractors in the rest of the Federal system?

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Ms. DUKE. Well, as the senior contracting person for the Department of Homeland Security, I am part of the Office of Management

and Budget Chief Acquisition Officer Council, so all the leaders in

the contracting community, the Federal Government, are part of

this, and we take on Federal initiatives from the contracting perspective. That is chaired by the OFPP Administrator, Paul Denett.

Mr. ISSA. OK. But does it have shortcomings? You know, today

we are talking about whether or not there should have been a better integration of fleet Navy assets in this acquisition. Your organization was certainly part of the process of looking at your brethren

in other procurements and saying, you know what, they have some

expertise we should bring in to reduce the chances of exactly what

has happened here happening. So what went wrong?

Ms. DUKE. Well, our focus from the contracting perspective is the

business deal, not the technical aspects. The technical aspects are

handled by the program management lead. So in terms of the business deal, what we have to look—the main thing we are doing at

the Federal level is trying to rebuild the skill set of contracting and

being able to bring the business deals to fruition.

Mr. ISSA. OK, Mr. Waxman, just one final followup.

So if you are looking at the deal to contract and an admiral and

a chain of command are looking at whether or not to go out of their

chain of command for expertise, then where is the incentive to do

so within a typical, you know, chain of command? Isn’t there in fact

a problem of not having an independent decisionmaker that says,

wait a second, I believe we can do better if we go purple on this

project? It doesn’t sound like that was inherent in the system.

Ms. DUKE. I do think it rests with the Coast Guard, as Admiral

Allen said, right now with the jointness of the military operations.

I do know that he has the relationship with the Secretary, as I do,

as one of the major components in the Department, and the Secretary has an interest in the jointness too, not only for the coast

part, for preparedness, disaster response under our national response plan. So I think that is both shared by the component heads

and our Secretary.

Ms. ISSA. Thank you for your indulgence, Mr. Chairman.

Chairman WAXMAN [presiding]. Thank you, Mr. Issa.

Mr. Cooper.

Mr. COOPER. Two quick questions for the Admiral before you

have to leave.

Your understanding of the contract for the National Security

Cutter, what was the fatigue life and what were the days underway that you thought were specified by the contract?

Admiral ALLEN. Yes, sir. That is a great issue. Thank you for

asking, because there is ambiguity in the contract. I think we need

to be perfectly clear about what we are talking about.

In the report produced by Carderock, it indicates a standard of

230 days. When we awarded the work order to them, we did not

specify a number of days, and they inferred that from the performance specification that was awarded to ICGS. The understanding

by the Coast Guard is that the vessel will be away from home port,

not in home port, 230 days a year. If you discount transit times,

places where you might be in a shipyard away from home port and

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so forth, that will yield somewhere around 180 days on mission, onsite.

So the question is what should you use for accumulating the

number of hours in the sea state for the purpose of the fatigue

modeling. Both the Coast Guard and our contractors agree that the

model is 230 days away from home port, but 185 days on mission

or 180 days on mission, and that is what should be used to do the

fatigue life calculations.

Mr. Skinner and I now agree that is the interpretation. I have

a legal opinion of what the contract language says, and Admiral

Blore has actually made a contractual change to make that clear

to everybody.

Gary, you want to add anything?

Admiral BLORE. No, sir. We made the contractual change yesterday so there would be no more—it is our fault for introducing the

confusion because in the performance specification, which is the

reference, sometimes it is referred to as 230 days underway, but on

page 8 there is a table that explains it. So we have changed it to

make it clear that it is 230 days away from home port.

Mr. COOPER. How about fatigue life, years of service?

Admiral ALLEN. What you do then is you take the number of

days that you are going to be operating in the North Pacific environment or the Atlantic environment, and you use that for your

calculation on the repetition of stresses on the hull, and the number in the contract, as adjusted, is what has been used all the way

along, it is a commonly understood standard for both the Coast

Guard and the contractor.

Mr. COOPER. For non-sailors, non-coastees, how does this compare with old ships that we might be familiar with? You mentioned

you are retiring a World War II ship today that lasted 65 years.

Admiral ALLEN. That is another very good point, sir. The current

High-Endurance Cutter that is deployed by the Coast Guard is deployed away from home port 185 days a year as a standard. That

is a personnel tempo restriction. We can operate the ships longer

than that, but we don’t want our people gone any more than 185

days a year. That would yield us something on scene, after the

transit times, down around 125, 130 days, or something like that.

The goal with the National Security Cutter is to take three National Security Cutters and four crews, multiple-crew them and get

230 days away from home port with them and actually increase the

capability of the cutters. That is the reason we are placing 12

High-Endurance Cutters with only 8 National Security Cutters.

Mr. COOPER. But the length of life is 30 years, 40 years?

Admiral ALLEN. Thirty. Thirty years, sir.

Mr. COOPER. And that is the contractor understanding now too?

Mr. TEEL. Yes, sir.

Mr. COOPER. But there had been confusion before that.

Admiral ALLEN. To the extent—and I would agree with Admiral

Blore there was some ambiguity because terms were used in different areas of the contract, and we have straightened that out.

Mr. COOPER. What was the lawyer’s name on the original contract?

Admiral ALLEN. I would have to go back and look, sir.

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Mr. COOPER. If you could supply that for the committee, that

would be helpful.

I thank the chair.

Chairman WAXMAN. Thank you very much.

Admiral, I know you have to go to another appointment, so we

are going to excuse you.

Mr. Souder, do you have questions of the panel?

Mr. SOUDER. I have questions for Mr. Giddens.

Chairman WAXMAN. OK.

If Mr. Souder would permit, just one quick question, and then we

will get back to you.

Ms. NORTON. Just a short question.

I want to thank you, Admiral Allen, for your work in the Gulf

Coast, very much so. I was there and saw it firsthand. I want to

just ask you one question. Do you think we are going to get a Coast

Guard Headquarters this time?

Admiral ALLEN. We hope so, ma’am.

Ms. NORTON. The President has put the money in his budget

once again. I certainly appreciate that.

Admiral ALLEN. We know it is a priority for the Secretary and

the Deputy Secretary, and, as you know, we support the Secretary

in this endeavor.

Ms. NORTON. Thank you.

Chairman WAXMAN. Yes.

Thank you very much, Admiral.

Mr. Souder.

Mr. SOUDER. Thank you, Mr. Chairman. Without Deepwater,

there is no maritime security, and the new planes, which I saw before and after, and the upgraded boats are really critical to our

mission, but I think all of Congress, as a whole, would be highly

preferable if the new boats would work, and that just has been a

very frustrating process for those who went way out on a limb to

push this. The debate here and in the articles we have seen have

been very discouraging. I appreciate, through my time as chairman, I have had a Coast Guard detailing and others and just have

done whatever I can to boost it, and the type of—what I view as

a lot of nitpicking in the sense of we knew what we were looking

for in length, we knew what we were looking for in service, that

they were going to be out in the Eastern Pacific for extended periods. And this type of stuff should have been clear from the beginning, and it has been incredibly exasperating.

But I particularly wanted to focus on SBInet with Mr. Giddens,

and I have some questions first. Do you believe that the entire land

border will be secure by December 2008?

Mr. GIDDENS. No, sir.

Mr. SOUDER. Do you know what the cost to secure the entire land

border would be?

Mr. GIDDENS. Our cost estimate for securing the southwest border is approximately $8 billion, and our timeframe for that is in fiscal year 2013.

Mr. SOUDER. You think it will be $8 billion to secure all the

southwest border?

Mr. GIDDENS. Yes, sir.

Mr. SOUDER. You don’t agree with the $30 billion estimate?

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Mr. GIDDENS. No, sir. For the southwest border, our current cost

estimate, based on independent Government estimate, is $8 billion.

That includes the acquisition, as well as some of the integrative logistics and sustainment support through the year 2013.

Mr. SOUDER. And the current program that Boeing has is for 6

years?

Mr. GIDDENS. The current program that Boeing has is a 1-year

contract that is renewable for up to 6 years.

Mr. SOUDER. So, presumably, you think this is at least going to take 6 years and $8 billion?

Mr. GIDDENS. Yes, sir, for the southwest border.

Mr. SOUDER. Do you know, in this study—here is my concern,

and the concern of many of us who have supported and understand

we need immigration reform, that in your statement—but suspect

that there is not really a commitment to a secure border or secure

IDs. And in your statement today there is a bold political statement mixed in with what you do as Homeland Security. It says

gain effective control of the borders, strengthen interior enforcement in compliance with immigration and customs laws, and support passage of a temporary worker program, which is a political

goal. And my question is you attributed that to Secretary Chertoff

and then said your challenge is to execute SBInet. What in the

world is a political goal doing in the Department of Homeland Security? At the very least it would be over in the Justice Department.

And here is my question. If the political goal is for this administration to pass a bill which, quite frankly, I am favorable toward,

by December 2008, but you just said that the land border won’t be

secure in 2008, that SBInet is working on a proposal that is renewable for up to 6 years, that there is a huge disparity and debate

about the cost—I personally disagree with the $8 billion—how do

you reconcile the political goal that has been stated here to implement a work permit program when you, yourself, just said under

oath that you are not going to have the border secure?

Mr. GIDDENS. Yes, sir. The statement that I made was focused

on the southwest border, that is where our initial focus is for the

SBInet program. That does not mean the Department, nor Customs

and Border Protection, is not doing anything on the northern border. We have quite a bit of activity focused on the northern border,

but——

Mr. SOUDER. Do you believe the southwest border will be secure

by December 2008?

Mr. GIDDENS. No, sir. I still stand by my statement that the projection for that is 2013.

Mr. SOUDER. My time is about to run out. Have you looked at—

because if we do a work permit, they are time-limited work permits. That means they are going to have to go back across the border wherever they came from for a work permit. But if the border

isn’t secure, how does work permit work? What if somebody gets

fired? What if somebody gets laid off? What happens to a work permit then? Have you had research into that and trying to figure out

how in the world you would even manage an exit program? I know

from talking to U.S. visit they haven’t even been asked yet for an

exit program, quite frankly, because they are looking at 2009 for

173

airports, 2014 for maritime. The land border isn’t going to have an

exit program. How can you come before us and say that you can’t

have the border secure, but you have the political goal of passing

a bill by 2008?

Mr. GIDDENS. Sir, while we may not be complete with the southwest border until 2013, we will be making lots of progress even

over the next couple of years in securing the southwest border. The

purpose of my statement was try to set in context the SBInet program and how it supports the overall goals that the Department

has that relate to secure border and immigration reform. It is part

of a larger comprehensive Department of Homeland Security strategy.

Chairman WAXMAN. Thank you, Mr. Souder. Your time has expired.

Mr. Clay.

Mr. CLAY. Thank you, Mr. Chairman.

I would like to ask Ms. Duke about why DHS did not follow proper procedures in awarding the SBInet contract. For example, the

DHS Inspector General has testified that he is concerned the

SBInet proposal did not go through the DHS’s Investment Review

Board or through its Joint Requirement Council. My understanding

of these reviews is that they would have helped the SBInet program define their scope and acquisition strategy, which would give

the SBInet program office a better ability to oversee the activities

of the contractor.

Ms. Duke, why did the Department feel the need to bypass these

two boards?

Ms. DUKE. The SBInet program did go through the DHS Investment Review Board chaired by the Deputy Secretary.

Mr. CLAY. And through its Joint Requirement Council?

Ms. DUKE. The Joint Requirement Council is a subordinate

board, it is, as being currently implemented, a preparatory board,

and I do not know if it went through the JRC, but the IRB is the

decision board, it is the DHS homeland security investment decision board, and that decision was formally made.

Mr. CLAY. OK.

Mr. Giddens, do you have anything to add about the procedure?

Mr. GIDDENS. No, sir, I believe Ms. Duke characterized that correctly.

Mr. CLAY. OK, let me say something to both of you, then. You

know, I don’t understand why the Department of Homeland Security failed to follow these practices in awarding the SBInet contract. These procedures are in place for a reason: to ensure that the

interest of the Government and the taxpayers are protected.

Let me ask a question of both of you. How many taxpayer dollars

have to be wasted before we learn the lesson of being an efficient

steward of taxpayer dollars? I guess neither one of you wants to

tackle that one.

Ms. DUKE. Well, I think no taxpayer dollars have to be wasted.

I think—I don’t agree with the statement that procedures were not

followed to award the SBInet contract, and I——

Mr. CLAY. Now, you just said they didn’t go through the review.

Ms. DUKE. No, it didn’t go through——

Mr. CLAY. It didn’t go through the Joint Requirements Council.

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Ms. DUKE. The investment review process under DHS is under

revision, and that preparatory board for the IRB is a discretionary

step. The investment review decision was made by the Deputy Secretary.

Mr. CLAY. All right.

Let me go to Mr. McElwee. I would like to thank you for joining

us, Mr. McElwee, and before I begin my questions I would like to

say that, as of the present, I don’t know of a single instance of

waste or management on your end of the SBInet contract. Nevertheless, I would like to ask a few questions about why the DHS

chose to entrust this crucial program to Boeing.

In a hearing before this committee last summer, we heard a

number of auditors and contract experts tell us about the problems

with DHS contracts, and one of those problem contracts was a contract to install baggage screening machines in airports. Mr.

McElwee, that contract was held by Boeing, wasn’t it?

Mr. MCELWEE. Yes, sir, it was.

Mr. CLAY. The original cost for the contract was estimated to be $508 million, but according to a DHS Inspector General report,

costs for that contract ballooned to at least $1.2 billion and the performance period was extended by an additional 18 months. What

is more, according to media reports, the baggage screening equipment installed under the contract has suffered from high false

alarm rates and GAO has reported that the machines suffer from

a variety of operational inefficiency.

How do you respond to these problems?

Mr. MCELWEE. Sir, I wish I had the background details. I have

not been associated with the EDS program. I have in fact worked

other programs, but SBInet is the first one that I have worked with

the Department of Homeland Security. I am sure we can provide

you the background information on that.

Mr. CLAY. You sure you will?

Mr. MCELWEE. Yes, sir.

Mr. CLAY. Can you provide me some background information——

Mr. MCELWEE. Yes, sir.

Mr. CLAY [continuing]. To tell us about the ballooning of the cost

and extending the additional contract period? I mean, look, you all

bid on these contracts and then you come back and say, oh, we

need more time and it costs more than twice as much.

Mr. MCELWEE. Sir, I do have——

Mr. CLAY. Are you gaming the taxpayers here?

Mr. MCELWEE. No, sir.

Mr. CLAY. Or gaming DHS?

Mr. MCELWEE. The one comment I can make based on my understanding of the contract is that we were awarded the contract in

nearly June 2002 to provide the baggage—yes, sir.

Mr. CLAY. My time is thin, and thank you for that response.

Let me ask Ms. Duke one last question, Ms. Duke. The investment review process required by Department directive were bypassed and key decisions about the scope of the program and the

acquisition strategy were made without the proscribed review and

analysis or transparency. Do you agree with that statement?

Ms. DUKE. No, I do not.

Mr. CLAY. You do not.

175

Ms. DUKE. No.

Mr. CLAY. Well, this is in a report from your——

Unidentified SPEAKER. No, it is from the Inspector General.

Mr. CLAY. This is from the IG. This is from the IG. You don’t

agree with what the IG said from DHS?

Ms. DUKE. Not in that specific case, no.

Mr. CLAY. You don’t? Why? Why? Your own IG said it.

Ms. DUKE. Because the investment review board decision was

made before the award of the SBI contract properly.

Mr. CLAY. Maybe DHS is gaming the taxpayers. You think that

is possible?

Ms. DUKE. I can only answer——

Mr. CLAY. My time is up.

Thank you, Mr. Chairman.

Chairman WAXMAN. I think that question was rhetorical.

Let me just, in conclusion, today, private for-profit contractors

are woven into the fabric of every Federal agency. In fact, it is difficult to think of any area in which the Government does not rely

on contractors, including for inherently governmental functions.

For example, we held a hearing yesterday on private security contractors in Iraq. Today’s hearing is about contractors running our

Nation’s borders and building ships to protect our ports and coastlines. We have had contractors interrogate detainees, we have even

had contractors collect our taxes. I think anyone who has attended

the sometimes bureaucratic meetings especially in the executive

branch has had the experience of shaking hands around a table,

but not necessarily knowing which person is a Government employee and which person is a contractor.

Is that something you have seen, Ms. Duke, when you have been

at meetings, that some are contractors and some are Government

employees?

Ms. DUKE. Yes, that is true.

Chairman WAXMAN. And Mr. Giddens, is that your experience as

well?

Mr. GIDDENS. Yes, sir, they are both at the meeting. I won’t say

it has never happened. The bulk of the meetings I remember we

go around and introduce so everybody knows what the roles are at

the meetings. So I don’t agree with the assertion that there is not

clarity about who is in control and who at the meetings are Government or support contractors.

Chairman WAXMAN. And to your experience there has not been

a problem?

Mr. GIDDENS. Yes, sir. We go around the room and introduce to

make sure everyone understands the role and the representation

that they are there.

Chairman WAXMAN. Well, you have private contractors working

alongside Government employees in your office, right?

Mr. GIDDENS. Yes, sir.

Chairman WAXMAN. And, Ms. Duke, you must have private contractors, support contractors working in your office as well, don’t

you?

Ms. DUKE. Yes, we do.

Chairman WAXMAN. OK.

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And, Rear Admiral Blore, I am sure the Coast Guard has some

arrangements with private contractors who provide support services, is that correct, and, for the record—well——

Admiral BLORE. Yes, sir, it is correct. It is also true that on our

ID badges we identify support contractors. But I won’t argue the

point that if a coat is on or the badge is turned around, you may

not know you are speaking with a support contractor.

Chairman WAXMAN. Do you know how many private support contractors are working alongside Government employees in the Deepwater Program Office?

Admiral BLORE. In the Deepwater Program Office, as was previously—somebody mentioned, sir, we started with 75, approximately, military and civilian, with a little bit more than that in

contract support. This is not ICGS, this is direct contract support

to the Government. We now have about 133 military and civilian

and about 80 support contractors, and we are in the process of

building by about 40 more Government positions this fiscal year.

Chairman WAXMAN. Which brings me to my larger question.

Does anyone know how many contract employees are working at

the entire Department of Homeland Security? Has anyone calculated that?

[No response.]

Chairman WAXMAN. We will see if we can get an answer to that.

Does anyone know how many contract employees some of these

large contractors have, Booz Allen, Miter, and others, in various offices throughout the Department? Anybody have an answer to

that?

[No response.]

Chairman WAXMAN. We heard at yesterday’s committee hearing

that our own Department of Defense has no idea how many forprofit security contractors it has hired directly or indirectly through

self-contracts in Iraq. I gather we may have a similar experience

here at DHS. Well, because of our committee’s broad jurisdiction,

we might be uniquely suited to investigating the pervasiveness of

contractors throughout the Department of Homeland Security, and

that is something I just want to put out there, because I think we

need to get more information.

Anybody else a concluding statement? Mr. Cooper.

Mr. COOPER. Mr. Chairman, along the same lines, I would like

to know how many retired military work at Boeing, Lockheed, and

Northrop, and I am particularly interested in general officer level

retirees who work directly related to the procurement process. I

think that would be very helpful because I think one of our colleagues, Mr. Duncan, mentioned the possible revolving door problem earlier.

Chairman WAXMAN. We will send a letter and hope we can get

an answer to that question.

Mr. Souder.

Mr. SOUDER. Thank you, Mr. Chairman.

I wanted to ask Mr. Giddens again, because I am not sure I

heard it correctly, and I want to give him a chance to correct the

record, and it ties to a broader point that we are doing with this

hearing. You believe that $6 billion will secure the entire southwest border?

177

Mr. GIDDENS. No, sir, I believe my answer was $8 billion.

Mr. SOUDER. $8 billion will secure the entire southwest border?

Mr. GIDDENS. For the southwest border. That is the technology

and the tactical infrastructure. That does not include salaries for

Border Patrol agents or field officers, that covers the acquisition

and sustain cost to get us coverage on the southwest border.

Mr. SOUDER. Basically, to complete the SBInet type program.

Mr. GIDDENS. Correct. Yes, sir, the technology and the tactical

infrastructure for that program.

Mr. SOUDER. Isn’t it true that we don’t know what that is yet?

Mr. GIDDENS. We have, since we awarded the contract last September, internally completed an independent Government cost estimate and that we have in the program office Boeing as part of the

source selection activity completed their overall concept design and

how they would lay it out, and we used that to form our initial estimate. But, sir, I don’t want to tell you I can sit here today and,

with pinpoint accuracy, project the cost of something that is going

to happen in 2011, but we have to start with a baseline and then

we have to manage that baseline, and our baseline is the $8 billion.

Mr. SOUDER. Mr. Chairman, my concern with this is that, in

looking at Government versus contractors, that when we review

this and realize that it is much more likely to be a larger figure,

that it doesn’t get laid at the foot of the contractor. I believe there

has been, for lack of a better word, low-balling in the administration of the real cost. I believe the American people should know

what the cost is, we ought to implement that cost; that there is a

political will to do it.

I believe we need comprehensive immigration reform, but we

need to understand that part of that is making sure we have secure

IDs and a secure border, and we ought to be up-front about the

cost. And I just do not believe that any outside evaluation, anybody

who has worked the border believes that is a realistic figure, and

I am not going to embarrass Boeing right now to ask them what

they think is a realistic figure. But part of the problem here is

when the Government heads into a project, we should have a

broader kind of context for what we are going into here and what

it really requires, and that is my concern. I know that is the current administration’s position, but I don’t believe it is realistic.

Thank you, Mr. Chairman.

Chairman WAXMAN. Well, that is a good point. Of course, the

question is if you have a southwest border, is that going to stop all

illegal entry into this country? Because there are other parts of the

country where people can come through, in the northern border.

People often get off on airplanes and have a visa and then overstay

their visas. And if there is such a tremendous magnet for people

to come into the United States, they are going to be pretty creative.

So after we spent $8 billion and we see that sealed off, let’s see

how far we are in solving the problem. There might be a lot more

that will have to be done.

But that is a topic for another hearing and we will save it for

them. Thank you all very much. That concludes our business. The

committee is adjourned.

[Whereupon, at 2:15 p.m., the committee was adjourned.]

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