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ACQUISITION UNDER DURESS: RECONSTRUCTION

CONTRACTING IN IRAQ

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

SEPTEMBER 28, 2006

Serial No. 109–192

Printed for the use of the Committee on Government Reform

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

http://www.house.gov/reform

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COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

BRIAN P. BILBRAY, California

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

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

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

BENJAMIN CHANCE, Clerk

MICHAEL GALINDO, Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

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C O N T E N T S

Page

Hearing held on September 28, 2006 ..................................................................... 1

Statement of:

Robbins, Earnest O., II, senior vice president and manager, international

division, Parsons Infrastructure and Technology Group; and Cliff

Mumm, president, Bechtel Infrastructure Corp. ........................................ 146

Mumm, Cliff ............................................................................................... 157

Robbins, Earnest O., II, ............................................................................ 146

Schinasi, Katherine, Managing Director, Acquisition and Sourcing Management, U.S. Government Accountability Office; Stuart W. Bowen,

Jr., special inspector general for Iraq reconstruction; Ambassador David

Satterfield, Sr., Senior Advisor on Iraq to the Secretary of State; James

A. Bever, Deputy Assistant Administrator for Asia and the Near East,

U.S. Agency for International Development; Tina Ballard, Deputy Assistant Secretary of the Army (policy and procurement); and J. Joseph

Tyler, Acting Deputy Director of Military Programs, U.S. Army Corps

of Engineers ................................................................................................... 19

Ballard, Tina .............................................................................................. 74

Bever, James A. ......................................................................................... 68

Bowen, Stuart W., Jr., .............................................................................. 39

Satterfield, Ambassador David, Sr. ......................................................... 50

Schinasi, Katherine ................................................................................... 19

Tyler, J. Joseph ......................................................................................... 81

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

Ballard, Tina, Deputy Assistant Secretary of the Army (policy and procurement), prepared statement of ............................................................... 75

Bever, James A., Deputy Assistant Administrator for Asia and the Near

East, U.S. Agency for International Development, prepared statement

of ..................................................................................................................... 70

Bowen, Stuart W., Jr., special inspector general for Iraq reconstruction,

prepared statement of ................................................................................... 41

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 141

Davis, Chairman Tom, a Representative in Congress from the State of

Virginia, prepared statement of ................................................................... 4

Lantos, Hon. Tom, a Representative in Congress from the State of California, prepared statement of ...................................................................... 13

Lynch, Hon. Stephen F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 208

Mumm, Cliff, president, Bechtel Infrastructure Corp., prepared statement

of ..................................................................................................................... 159

Porter, Hon. Jon C., a Representative in Congress from the State of

Nevada, prepared statement of .................................................................... 207

Robbins, Earnest O., II, senior vice president and manager, international

division, Parsons Infrastructure and Technology Group, prepared statement of ........................................................................................................... 149

Satterfield, Ambassador David, Sr., prepared statement of ......................... 52

Schinasi, Katherine, Managing Director, Acquisition and Sourcing Management, U.S. Government Accountability Office, prepared statement

of ..................................................................................................................... 22

Tyler, J. Joseph, Acting Deputy Director of Military Programs, U.S. Army

Corps of Engineers, prepared statement of ................................................ 83

Van Hollen, Hon. Chris, a Representative in Congress from the State

of Maryland, information concerning multiple layers of security subcontracts ........................................................................................................ 100

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Waxman, Hon. Henry A., a Representative in Congress from the State

of California:

Letter dated September 18, 2006 ............................................................. 187

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

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ACQUISITION UNDER DURESS:

RECONSTRUCTION CONTRACTING IN IRAQ

THURSDAY, SEPTEMBER 28, 2006

HOUSE OF REPRESENTATIVES, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The committee met, pursuant to notice, at 10 a.m., in room 2154,

Rayburn House Office Building, Hon. Tom Davis (chairman of the

committee) presiding.

Present: Representatives Tom Davis, Clay, Cummings, Dent,

Duncan, Foxx, Gutknecht, Kucinich, Lantos, Maloney, McHugh,

Norton, Porter, Shays, Van Hollen, Watson, and Waxman.

Staff present: David Marin, staff director; Larry Halloran, deputy

staff director; Keith Ausbrook, chief counsel; Ellen Brown, legislative director and senior policy counsel; Mason Alinger, deputy legislative director; Patrick Lyden, parliamentarian; Edward Kidd, professional staff member; John Brosnan, procurement counsel; Paul

Sherry, detailee; Benjamin Chance, clerk; Phil Barnett, minority

staff director/chief counsel; Karen Lightfoot, minority communications director/senior policy advisor; Jeff Baran and Margaret

Daum, minority counsels; David Rapallo, minority chief investigative counsel; Shaun Garrison, minority professional staff member;

Earley Green, minority chief clerk; and Jean Gosa, minority assistant clerk.

Chairman TOM DAVIS. The committee will come to order.

Good morning, we meet today to look into the challenges surrounding the daunting task of coordinating and executing contracts

to rebuild long-neglected critical infrastructure in war-torn Iraq.

Since 2004, the committee has been engaged in continuous and vigorous oversight of contracting activities in Iraq. The oversight has

involved four hearings on the challenges of contracting in a war

zone, numerous briefings from the agencies involved in the contracting efforts, as well as a review of thousands of documents the

committee obtained from key Federal agencies.

Those efforts focused primarily on contracts for logistical support

of U.S. military operations. In this hearing, we will examine the

process, the progress and the problems of reconstruction contracting activities in Iraq.

Since the beginning, it has been our goal to move beyond the polarized politics that swirl around any topic related to the war in

Iraq and conduct thorough, balanced oversight of acquisition activities there. Some have not shared that goal, choosing instead to play

hit and run oversight with inflammatory press releases and onesided presentations from self-appointed watchdogs and whistleVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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blowers. I think they oversimplified the story and pre-judged the

outcome of complex contracting processes to fit the preordained

conclusion that everything goes wrong in Iraq. And they will never

let it go without saying it is all Halliburton’s fault.

I hope this hearing will be different. We will hear from the administration, from two of the most active oversight offices, and

from participating contracting firms. I know that means we have

a larger number of witnesses and that this hearing will take some

time to complete. But real oversight, responsible oversight is as

much a matter of due diligence as startling disclosures. It should

be about sustaining good government, not the quick ‘‘gotcha.’’

The picture painted by our witnesses today will not be pretty,

nor will their testimony necessarily tell the complete story of an

evolving, dynamic, sometimes dangerous process. But this much is

clear: poor security, an arcane, ill-suited management structure,

and a dizzying cascade of setbacks have produced a succession of

troubled acquisitions.

The construction of a children’s hospital in Basrah is almost a full year behind schedule and more than $50 million over budget.

A project for the construction of 150 primary health care centers

across Iraq has consumed over $180 million but has resulted in the

completion of only six centers At best, the Iraqis will end up with

only 20 of the health facilities planned under this contract. Other

troubled projects include a $218 million emergency communications

network that does not allow citizens to call for emergency services

and multiple water projects that are chronically over budget and

behind schedule.

Just this morning, we learned the details of yet another critical reconstruction project gone terribly wrong, a $75 million police

academy that has been so poorly constructed that it poses health

risks to its occupants and may need to be partially demolished.

Obviously, security is the critical factor driving cost and confounding contract management and oversight. On a daily basis, our

military, civilians and contractors come under hostile fire. A number of contractor employees have been killed or wounded. It is a

major understatement to say Iraq is a tough place to conduct business. Travel can be difficult or impossible. So it is no surprise that

normal acquisition support and oversight resources are stretched to

the breaking point.

But a challenging security environment cannot excuse otherwise

avoidable problems and preventable waste. Original plans proved

wildly optimistic. Only about 55 percent of the planned water

projects and about 70 percent of the planned projects in the electricity sector have been completed. According to the Special Inspector General for Iraq Reconstruction, we keep spending more and

building less because cost estimates are still inaccurate, reconstruction priorities and funding allocations keep shifting, and contractor

performance is not being closely monitored.

So we need to learn how contracting systems designed to work

here are being adapted to function under very different, hostile circumstances over there. We have to ask whether contractors have

over-promised and under-performed or whether the companies

were stuck in an environment where success was virtually impossible. But things have been built, and some of our witnesses today

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will testify that, despite many challenges, we are progressing, slowly but surely. In fact, the Special Inspector General points out that

his onsite assessments show that about 80 percent of the projects

inspected have met contract specifications.

Many of our witnesses have spent considerable time working in

Iraq, and we value their experience and their perspective on the

important issues raised by reconstruction contracts there. Much is

at stake, in terms of U.S. tax dollars and in terms of effectively

helping the Iraq people rebuild the basic infrastructure of their nation. We look forward to their testimony and to a frank, constructive discussion.

I now recognize our distinguished ranking member, Mr. Waxman, for his opening statement.

[The prepared statement of Chairman Tom Davis follows:]

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Mr. WAXMAN. Thank you, Mr. Chairman, for holding this hearing. It is critical as part of our constitutional oversight responsibilities to have the Government agencies and private contractors involved in Iraq reconstruction work come before our committee to

explain how U.S. taxpayer dollars are being spent.

This is the first full committee hearing on Iraq during this Congress. I wish we didn’t have to wait until the last week of the session for it, but I am glad the chairman has called it.

I think most Americans understand that the reconstruction effort

is failing. Today, we have a new symbol of the Bush administration’s failure: the dilapidated and disgusting facilities at the Baghdad Police College, which the Army and the Parsons Co. spent $75

million to build.

A report today from Stuart Bowen, the Special Inspector General

for Iraq Reconstruction, describes how the contractor’s work and

the administration’s oversight were so grossly deficient that urine

and fecal matter were literally raining down on Iraqi police recruits.

Let me read some of the direct quotes from the report: ‘‘Toilets

are continually draining through the reinforced concrete floors,

from the top floor to the second floor to the ground floor, permeating and filling light fixtures, showers and toilet areas, with liquids,

including diluted urine and fecal matter.’’

‘‘The urine was so pervasive that it had permanently stained the

ceiling tiles.’’

Auditors ‘‘witnessed a light fixture so full of diluted urine and

feces that it would not operate.’’

‘‘The amount of material was so pervasive that it has soaked

through the reinforced concrete floors, causing deterioration of the

reinforced steel.’’

This debacle is not just a waste of taxpayer funds, and it doesn’t

just impact the reconstruction. It impedes the entire effort in Iraq.

Not only will the number of basic recruits graduating through the

facility be impacted, but more than that, this is the lens through

which the Iraqis will now see America, incompetence, profiteering,

arrogance, and human waste oozing out of ceilings as a result.

A new and disturbing poll found that 60 percent of Iraqis actually approve of attacks against U.S. forces and want us out of their

country. Can there be any more obvious indication of failure?

By no means, however, is this the only example. The administration has spent over $30 billion in taxpayer funds and another $20

billion in Iraqi funds under its control, yet it has produced little of

lasting value.

In the oil sector, the administration has spent over $2 billion. As

of July, however, they were producing only 2.5 million barrels per

day, still below prewar levels.

In the electricity sector, the administration has spent $4 billion.

Yet electricity generation in August was just 4,900 megawatts, well

below the administration’s goal of 6,000 megawatts.

In the health sector, Bechtel was removed from the contract to

rebuild the Basrah Children’s Hospital because of massive cost

overruns and schedule delays. And the Parsons Co., the same company in charge of the horrible Baghdad Police College, was termiVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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nated after it finished only 6 of the 142 health clinics it was scheduled to build.

At the same time, the American taxpayer is facing record overcharges. Just this week, the nonpartisan Government Accountability Office, which is also here today, issued a report documenting

that the Pentagon’s own auditors have now identified an enormous

sum, $3.5 billion, in questioned and unsupported charges under

Iraq reconstruction contracts. That amount, $3.5 billion, is what we spent on the entire reconstruction of Afghanistan. When we break down this amount, it

averages $2.7 million in overcharges each day we have been in

Iraq. That is amazing.

While there may be many reasons for this failure, there is no

sense mincing words about the primary reason: the utter incompetence of this administration and its stubborn refusal to heed the

warnings and advice of experts.

Last week, the Baghdad bureau chief for the Washington Post

published a book documenting overt cronyism in hiring for key positions at the Coalition Provisional Authority, which is the governing body of the Bush administration created to run Iraq. The

claims in this book were not made by anonymous, disgruntled employees. They were made on the record for attribution by some of

the highest ranking officials at the CPA.

One of the most noteworthy is Frederick Smith. He was the Deputy Director of the CPA in Washington. He revealed that the criterion for sending people to Iraq was that they had the right political credentials, not their substantive expertise. He said the ideal

candidate, from the administration’s perspective, was not someone

who spoke Arabic or had a development background, but someone

who worked on the Republican side of the Florida recount in 2000.

According to Mr. Smith, we ‘‘just didn’t tap the right people to do

this job. I just don’t think we sent our A-team.’’

But the fact remains that incompetence results in failure. And in

this case, incompetent decisionmaking at the highest levels of the

CPA undermined the reconstruction, squandered billions of taxpayer dollars, endangered our troops, and contributed to the massive discontent and violence occurring in Iraq.

The recent revelations in the declassified National Intelligence

Estimate underscore this assessment. The Intelligence Estimate

says the jihadists ‘‘are increasing in both number and geographic

dispersion,’’ and that ‘‘if this trend continues, threats to U.S. interests at home and abroad will become more diverse, leading to increasing attacks worldwide.’’

Those are sobering words, and they are not used by accident. The

intelligence community explicitly warns that there is a trend, and

this trend is getting worse. The President is wrong when he says

his strategy is winning the war on terror.

We have to face reality. Staying the course is strengthening our

enemies and putting our security in jeopardy. The administration’s

entire Iraq policy is a failure. For the safety of our troops, for the

sake of the taxpayer, and for our own security, the Nation urgently

needs a fundamentally new direction.

Thank you, Mr. Chairman.

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

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Chairman TOM DAVIS. Thank you, Mr. Waxman.

Do any Members wish to make opening statements? Mr. Lantos.

Mr. Duncan. I am sorry, and then Mr. Lantos.

Mr. DUNCAN. Thank you very much, Mr. Chairman. This is an

important hearing and I understand it is the seventh hearing that

this committee has held about Iraq. I have seen two recent articles,

one from a couple of days ago which says a review of Iraq reconstruction funding revealed the 96 contracts worth $362 million

were obligated for payment to dummy vendors, as opposed to legitimate suppliers. I think we need to know about that.

I have followed the Congress closely for more than 40 years, and

I have never heard of anything such as that. I am pleased that Mr.

Bowen is here to hopefully explain that to us, and what happened

to that money.

Then last month, the Wall Street Journal had an article that

said the corruption that has plagued Iraq’s reconstruction, described by U.S. officials as a second insurgency, is worsening, complicating American reconstruction efforts and shattering public confidence in the Baghdad government, according to a new report by

a Bush administration watch-dog agency. That also is for Mr.

Bowen, but it said that in his quarterly audit, the Iraqi government estimates the corruption costs the country at least $4 billion

a year, a staggering sum for a war-ravaged country that remains

heavily dependent on foreign aid.

It sounds as though much of this corruption is by the Iraqi people themselves. As I drove in this morning, I heard on the all-news

WTOP Station, they were having people call in about a recent poll

that said 75 percent of the Iraqi people want us to leave Iraq. I

know that people at the top of the Iraqi government want us to

stay because this is a country that just before the war started,

Newsweek magazine said had a gross domestic product of $65 billion total for the year before the war. So obviously they want our

money. I saw in one of the congressional publications yesterday

that we have now spent $463 billion since the start in both Iraq

and Afghanistan, mostly in Iraq.

But we need to ask questions about these dummy contractors

and about this corruption in Iraq. And also, I guess the key question here is, how much of these problems were caused by the contractors, but how much was caused by Iraqi corruption itself; and

also by mismanagement by the military; also by military change orders; also how much was caused by just the war and the fighting

itself.

So I think this is a very important hearing. I think the conservative Republicans have traditionally been the ones most concerned

about waste, fraud and abuse within our Government. I am pleased

that you would call this hearing and continue this series.

Thank you very much.

Chairman TOM DAVIS. Thank you, Mr. Duncan.

Mr. Lantos.

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

You and my friend, Mr. Waxman, have raised many of the specific issues that concern all of us. I would like to take a different

tack. But first let me commend Mr. Bowen for the invaluable work

you have done on behalf of the American people. If it were not for

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your inspector general’s reports, we would not know a fraction of

this very unsavory picture.

As I was doing all my reading in preparation for this hearing,

two images kept coming back in my mind, both of them I wish I

would not remember. Some 15 years ago, I chaired the Housing

Subcommittee of this committee, and we had, I believe, 27 nationally televised hearings on waste and corruption and abuse and cronyism in the Department of Housing and Urban Development. It

is the single most unpleasant episode of my congressional career

and it revealed a series of appalling actions by high-ranking officials of the Department of Housing and Urban Development some

15 years ago.

Many years ago, during the Soviet period, the Russians produced

some propaganda films taking little vignettes of the seamy side of

American society, put them together, and presented them as accurately reflecting what the United States is. And not until the Hurricane Katrina nightmare, where we saw the seamy side and the

incompetence of our society, did we have anything comparable to

that, and we provided, through our news clips during the hurricane, devastating propaganda against the United States by the failure to prepare and by the failure to manage that crisis.

This crisis is, in many ways, worse. It is worse because it is an

insult to our soldiers and Marines who are performing their jobs

magnificently, with over 2,700 having lost their lives, a vast number permanently injured. We don’t know how many with long-term

psychological repercussions. And it is an insult to the American

taxpayer. One really doesn’t know whether to call this a theater of

the absurd, where billions of American taxpayers’ dollars were

wasted in an obscene fashion; or whether to call it a chamber of

horrors.

Now, I am fully aware, as I am sure every single member of this

committee is, having visited Iraq, that it is a very difficult place

to function in an orderly and normal fashion. We all understand

the physical dangers, the unpredictability of the surrounding situation at any moment. But this degree of irresponsibility, incompetence, failure to engage in supervision and proper management

practices boggles the mind. When our leaders at the highest levels

say we want to stand up the Iraqi police and here we have this

awful report about the police academy; when we hear about the

need to improve health care, and 6 of 150 planned health care facilities are completed, one is speechless. It boggles the mind.

So Mr. Chairman, let me just say this hearing is long overdue.

I am very pleased we are holding it. I am very pleased that we

have, among other distinguished witnesses, the Inspector General,

because I don’t want to embarrass you with extreme praise, but

you have done an outstanding job in documenting this chamber of

horrors which confronts us.

Thank you, Mr. Chairman.

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

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Chairman TOM DAVIS. Thank you very much.

Mr. Gutknecht.

Mr. GUTKNECHT. Just real briefly, Mr. Chairman. I won’t give a

political speech at all, but I just want to make it clear that part

of the reason that we have as many inspectors general on this task

is because we insisted, some of the conservative Republicans insisted that if we are going to be spending this much money, we

want to make sure.

Mr. LANTOS. Mr. Chairman, a point of personal privilege. Did my

colleague refer to me as he referred to a political speech?

Mr. GUTKNECHT. No. I said I am not going to give a political

speech.

Mr. LANTOS. Was that a reference to my earlier comments?

Chairman TOM DAVIS. No, he made no reference to that.

Mr. LANTOS. I appreciate that.

Mr. GUTKNECHT. But the point really is, this is not a partisan

issue. I think people on all sides of the political aisle want to make

sure that when we are spending taxpayer dollars, that they are not

wasted. And so, I share some of the outrage of all of my colleagues

on all sides of the aisle.

The point I wanted to make is that the reason we have as many

inspectors general poring over these, and the reason we have had

seven hearings on these kinds of issues is because on both sides of

the aisle, we think this is outrageous, and we want to get to the

bottom of this. But most importantly, we want to put in place the

accountability standards so this kind of thing stops. That is the key

to this whole discussion today.

I yield back the balance of my time.

Chairman TOM DAVIS. Thank you very much.

Let me just note, we have held several subcommittee hearings on

contracts in Iraq, and we have been waiting to get these reports

together and working together on this. But this is important and

I appreciate the Member’s interest in this.

Mr. Van Hollen.

Mr. VAN HOLLEN. Thank you, Mr. Chairman. Thank you for

holding these hearings. I am looking forward to the testimony of

the witnesses.

This is a question of competence or lack of competence, and the

lack of accountability. You can look at the situation in Iraq today

and clearly see that it is a mess. Despite the fact that the administration continues to tell us, just trust us, we know what you are

doing. We need to go back and listen to what they told us before,

and we remember when the President stood on the aircraft carrier,

the USS Lincoln, back in May 2003, more than 3 years ago, under

the banner, ‘‘Mission Accomplished.’’

And we know more than a year ago that Vice President Cheney

went on national television and said, ‘‘The insurgency is in its last

throes.’’

Those are statements made by the two top political leaders in

our country. And yet we now know from a report that was released

by the Pentagon just earlier this month that the situation in Iraq

is dire, and that it is getting worse. That was a Pentagon report

required by the U.S. Congress.

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We now have an NIE just released that says that it is the consensus of all 16 U.S. intelligence agencies that Iraq continues to be

a magnet for jihadists and the terrorist movement, has inspired

terrorists around the world and has been a breeding ground for extremists.

So we need to have hearings on accountability and figure out

how we got into this mess. In my own view, there were two wrong

decisions. One was the initial decision based on what turned out

to be false information. But the second part, and this is part of the

exploration of the hearing today, is the post-invasion period, and

the lack of planning for the post-invasion period.

The fact of the matter is, especially over at the Defense Department, which was given the main responsibility in the immediate

aftermath of the war for reconstruction, you had an attitude started by the Secretary of Defense that this was going to be quick and

easy, and we were going to be out of there. We don’t have to plan.

Back on September 9th, a story in the Washington Post headline,

‘‘Rumsfeld Forbade Planning for Post-War Iraq, General says.’’

Brigadier General Mark Shea told the paper in an interview that

Rumsfeld had said, ‘‘He would fire the next person who talked

about the need for a post-war plan. The Secretary of Defense continued to push on us that everything we write in our plan has to

be with the idea that we are going to be in, we are going to take

out the regime, and we are going to be out of there, that we won’t

stay.’’

That is the mentality that infected the Defense Department planning when it came to these decisions. And so when it turned out

we had to be there longer, we had to go into reconstruction, look

what happened? Look what happened? Mr. Waxman has talked

about the political cronyism that seeped into the decisionmaking.

We remember more than a year ago with Hurricane Katrina,

people in the southern States got hit twice. They got hit first by

the hurricane, and then they got hit by the incompetence of a

FEMA that was headed by someone whose main credentials was

that he had been the head of the Arabian Horse Breeders Association. They got hit twice, hurricane and incompetence.

And now we learn that on the major national security priority of

our country, that same kind of mentality applied. I am just going

to quote the headline from the article that Mr. Waxman referred

to, ‘‘Ties to GOP Trumped Know-How Among Staff Sent to Build

Iraq.’’ You would think that what mattered most was expertise

with respect to Iraq; expertise with respect to reconstruction;

maybe people who knew the language; people who knew what they

were doing. But according to this article, in order to pass muster

with O’Beirne, who was a political appointee at the Defense Department who screened prospective political appointees for Defense

Department posts, applicants didn’t need to be experts in the Middle East or in post-conflict reconstruction. What seemed most important was loyalty to the Bush administration.

So yes, I think that both sides of the aisle should be outraged

with the incompetence, but both sides of the aisle also need to

begin to hold people accountable for the decisions that have been

made. Mr. Waxman quoted the No. 2 guy in charge of reconstruction saying that as a result of this political cronyism, we didn’t get

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the best people for the job. And now we are here, many years later,

wondering how things have gone so wrong in Iraq.

I think the story sort of tells itself. It is an unfortunate story. We

need to do our best to begin to restore confidence of the American

people in what we are doing in Iraq, but we have a lot of walking

back to do in order to do that.

Thank you, Mr. Chairman.

Chairman TOM DAVIS. Do any other Members wish to give an

opening statement?

Mr. MCHUGH. Mr. Chairman.

Chairman TOM DAVIS. Mr. McHugh.

Mr. MCHUGH. I am not going to make a statement, Mr. Chairman, but I just would like to hear the witnesses. It might be interesting. We are all interested in oversight. They may be helpful in

that regard.

Just a sentence that follows the issue about being in Iraq. It says

in the NIE, ‘‘Should jihadists leaving Iraq perceive themselves and

be perceived to have failed, we judge fewer fighters will be inspired

to carry on the fight.’’ In other words, if we win, they lose.

I think if we are going to quote a 34-page paper, we ought to pull

out more than just one sentence. This is too important an issue to

distill it down like a Readers Digest.

I yield back.

Chairman TOM DAVIS. Thank you.

Mr. Kucinich.

Mr. KUCINICH. I would agree with my colleague that an in-depth

approach is called for in a review of what has happened, where we

are at, and where we are going. I think it is important to look at

the type of thinking that took us into Iraq. There is a book out by

Corn and Isakoff called Hubris, and page 200 has a quote that I

think is instructive for purposes of this hearing. It says, ‘‘Post-war

Iraq planning paralleled what happened with pre-war Iraq intelligence. The work of Government experts and analysts was discarded by senior Bush administration policymakers when it conflicted with or undermined their own hardened views about what

to expect in Iraq.’’

So if we have a condition where there is a fundamental flaw in

the world view of an administration, it harkens back to that biblical quote, ‘‘That which was crooked cannot be made straight.’’ Everything about what happened in Iraq, from the lies that led us

into it about WMDs, trying to connect Iraq with September 11th,

trying to connect Iraq with al Qaeda’s role in September 11th, trying to say Iraq was an imminent threat. There is symmetry here

with the collapse of reconstruction, because it is the same type of

thinking.

Today, we are here to discuss how the administration wasted billions of American and Iraqi taxpayer dollars. The goal is to find out

where the money went and maybe ensure that the corruption does

not continue. But we also need to ask the question: What are the

effects of this failed reconstruction on Iraqi families? And then we

need to ask: What are the combined effects of the first Gulf war,

the economic sanctions throughout the 1990’s, the 2003 shock-andawe campaign, and its ‘‘collateral damage.’’

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Abu Ghraib, and finally the failed reconstruction efforts, we know the administration has spent over $30 billion in taxpayer

money to rebuild Iraq. The administration also spent an additional

$20 billion in Iraqi funds under its control. Yet the administration

has provided little relief for the suffering families in Iraq. We know

Iraqis don’t have adequate health care, schools, clean drinking

water or roads. We know Iraqi children are suffering from diseases

that do not threaten children in the developed world. We know that

few Iraqis can claim they are better off now than they were when

Saddam Hussein was in power.

We know that the U.S. sanctions against Iraq were perhaps the

toughest, most comprehensive sanctions in history, the sanctions

crippled the Iraqi economy during the time they were imposed,

forcing much of Iraq’s infrastructure into disrepair. UNICEF has

put the number of child deaths related to Iraqi sanctions at

500,000. The reasons include lack of medical supplies, malnutrition

and especially disease owing to the lack of clean water. Among

other things, chlorine needed for disinfecting water supplies was

banned as having a dual use in potential weapons manufacture.

For 1 minute, image yourself as an Iraqi mother or father. As

any parent, your primary duty is to safeguard your family. But to

do so, you have to overcome the effects of the first Gulf war, the

economic sanctions through the 1990’s, the 2003 shock-and-awe

campaign, and its, ‘‘collateral damage,’’ Abu Ghraib, and now the

failed reconstruction efforts.

Is it any wonder that the Iraqi people want the United States to

leave? Is it any wonder that the Iraqi people are hostile to a U.S.

soldier? Is it any wonder that the National Intelligence Estimate

found that our invasion and continued presence in Iraq is creating

a larger terrorist threat? We ought to refund back to the Iraqis the $9 billion in missing

Iraqi money and we ought to pull out of Iraq as soon as possible

as the Iraqis have made clear they desire.

Thank you, Mr. Chairman.

Chairman TOM DAVIS. Thank you, Mr. Kucinich.

I think we are ready for our first panel now. Thank you for your

patience. Members will have 7 days to submit opening statements

for the record.

On our first panel, Katherine Schinasi, who is the Managing Director of the Acquisition and Sourcing Management, Government

Accountability Office. Thank you for being here.

Stuart W. Bowen, the special inspector general for Iraqi construction. Thank you for being here.

Ambassador David Satterfield, the Senior Advisor to the Secretary for Iraq, U.S. Department of State. Thank you, Mr. Ambassador.

James Bever, Deputy Assistant Administrator for Iraq, Bureau

for Asia and the Near East, U.S. Agency for International Development. Thank you for being here.

Tina Ballard, no stranger to this committee, Deputy Assistant

Secretary for Policy and Procurement, the U.S. Army. Thank you

for being here.

And Joseph Tyler, the Acting Deputy Director of Military Programs, U.S. Army Corps of Engineers. Thank you.

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As you know, it is our policy, we swear witnesses in before you

testify, so if you would rise with me and raise your right hands.

[Witnesses sworn.]

Chairman TOM DAVIS. Thank you. Let the record show all replied

in the affirmative. Your entire statements are in the record. I read

them last night. Our questions will be based on that. If you would

like to supplement that or capsulize it, we would like you to stay

within 5 minutes so we can move on. You have a red light in front

of you. When the red light is on after 5 minutes, your time is up.

It will turn orange after 4 minutes. It will green when you start.

Ms. Schinasi, we will start with you. Thank you again for being

with us.

STATEMENTS OF KATHERINE SCHINASI, MANAGING DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; STUART W. BOWEN,

JR., SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION; AMBASSADOR DAVID SATTERFIELD, SR., SENIOR ADVISOR ON IRAQ TO THE SECRETARY OF STATE;

JAMES A. BEVER, DEPUTY ASSISTANT ADMINISTRATOR FOR

ASIA AND THE NEAR EAST, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT; TINA BALLARD, DEPUTY ASSISTANT SECRETARY OF THE ARMY (POLICY AND PROCUREMENT); AND J. JOSEPH TYLER, ACTING DEPUTY DIRECTOR

OF MILITARY PROGRAMS, U.S. ARMY CORPS OF ENGINEERS

STATEMENT OF KATHERINE SCHINASI

Ms. SCHINASI. Chairman Davis, Mr. Waxman, members of the

committee, I appreciate the opportunity to be here before you today

to talk about GAO’s work on reconstruction contracting in Iraq.

I think I would just like to briefly touch on progress in three sectors that we have been tracking, and then turn specifically to the

contracting challenges the United States is facing as it continues

its reconstruction efforts.

As we and others have reported, the United States has not

achieved outcomes from reconstruction efforts in Iraq as anticipated. As of August 2006, oil production was below pre-war levels

and restoration of electricity and new or restored water treatment

capacity remained below stated goals. One-third of DOD’s planned

construction work still needs to be completed, and the hope is now

that will be done before the end of 2008.

Because the United States is relying so heavily on contractors to

carry out reconstruction efforts, the strengths and weaknesses in

how the Government has implemented its contracting process has

a great bearing on the outcome of the U.S. efforts. The contracting

problems we and others have reported on over the last several

years are emblematic of contracting problems we have identified in

numerous other situations, but have more dramatic consequences

for failure as the nature of the task for the United States is so

large and so costly.

We have made numerous recommendations to correct contracting

problems we have identified, which the agencies have generally

agreed with, but we continue to find that the practice is not always

in line with the policy and guidance. When we reviewed the causes

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for individual project decisions and outcomes, the problems we find

tend to be interconnected, but they almost always start with requirements.

At the sector, program and project level, the failure to define realistic requirements, that is those that can be accomplished with

available resources, makes it more difficult to take every subsequent step to get to a successful outcome. Without understanding

the resources of time, money and capacity that are needed to

achieve a stated requirement, reasonable estimates cannot be established. Without reasonable estimates at the start, program managers cannot stay on track.

The resulting instability has negative consequences on two levels. First, it affects individual projects as funding needs fluctuate,

schedules slip and requirements are either added or dropped. Second, instability in individual projects has repercussions at the program and sector level, as money allocated for one use gets pulled

away for other uses.

Without matching reform as to time, money and capacity resources before beginning projects, the cascading effect of the contract level is the inability to definitize contract terms and conditions. The resulting situation puts the Government at risk of having to accept costs that it might not otherwise bear. For example,

recently reported that DOD contracting officers were less likely to

remove costs questioned by the Department of Defense’s Contract

Audit Agency when the contractor had already incurred those

costs.

Conversely, in the sample of DCAA audit reports we reviewed in

which the negotiations took place before the work was started, the

portion of questionable costs removed from the contractor’s proposals was substantial.

Without agreed-upon requirements, terms and conditions, closer

management and more oversight are needed, but more oversight

requires more resources. There are numerous reported examples of

not having enough skilled people on the ground. For example the

design-build contracting approach, which was put in place for a

large segment of the reconstruction work, by its very nature recognized the lack of sufficient Government resources as the United

States turned to a contractor to manage contractors’ performance.

In our June 2004 report, we also found that the lack of contract

administration personnel contributed to shortfalls in contract performance. We have found that without sufficient people supporting

project definition and execution, program officials have turned inappropriately to the use of interagency contracting vehicles, which

is one of GAO’s high-risk areas. We have reported both on the individual use of interagency contracts and on the breakdowns that

occur throughout the process as a whole. One of the most significant of those is the role played by contractors in the process, which

is usually reserved for Government personnel.

Finally, underlying market discipline offered by competition has

not always been present, especially in the early stages of the reconstruction efforts. Competition can be used most effectively when advance planning occurs, which brings me back around to the need

to establish realistic requirements at the beginning.

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As I noted at the outset, these conditions are not new or unique

in Iraqi reconstruction efforts. But understanding not just where

we are today, but why is important to make corrections and prevent repeating mistakes. As our work has demonstrated, it is often

not just one of these elements that leads to failed outcome, but a

combination of several or sometimes all of them. Just as multiple

factors are responsible for failure, multiple actors also share this

responsibility.

So moving ahead to successful acquisition outcomes must also be

a shared effort and responsibility between policymakers, program

managers, contracting officers and the contractors themselves.

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

take your questions.

[The prepared statement of Ms. Schinasi follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Bowen, thank you for being with us.

STATEMENT OF STUART W. BOWEN, JR.

Mr. BOWEN. Thank you, Mr. Chairman, and thank you, Ranking

Member Waxman and members of the committee for having me

here to testify today about SIGIR’s oversight of Iraq reconstruction.

And thank you, Mr. Chairman, for your support of my office since

its inception 21⁄2 years ago.

Mr. Chairman, you said accurately in your opening statement

that not everything is wrong in Iraq, and that is true. A fair reading of our full reports demonstrably underscores that fact. Indeed,

70 percent of the projects we visited and 80 percent of the money

allocated to them indicate that those projects, from a construction

perspective have met what the contract anticipated.

Mr. Gutknecht pointed out that oversight is not a partisan issue.

That is absolutely correct and is the approach that I take to this

issue and I think is the right approach. It is the message that I

give my auditors, inspectors and investigators. I just returned Monday from a 50 day trip to Iraq, where I met with senior U.S. leaders in the reconstruction programs, senior Iraqis involved in it, in

the anti-corruption fight, and also visited sites outside the Green

Zone.

I learned a lot. I learned from General Corelli, the commander

of the multinational Corps Iraq, the troops on the ground, the guy

who is looking out for our soldiers there, that the solution in Iraq

is not primarily military. It is an economic and political one. And

what that means is that it underscores the paramount importance

of succeeding in the reconstruction program moving forward, and

that means, as the chairman pointed out, we need to learn our lessons. That is something that SIGIR has pushed forward in real

time in the course of carrying out our mission.

In January, we did a lessons-learned report on human capital

management, effectuated some positive changes in how personnel

are managed in Iraq. We released a report in August on contracting and procurement in Iraq, and it has prompted responsiveness.

Paul Brinkley in the Business Transformation Agency under Deputy Secretary England’s direction are making a real-time difference

in trying to improve how contracting is done over there, and more

to the point, changing the system so that it operates better moving

forward.

Ambassador Khalizad has strongly supported our mission, as did

Ambassador Satterfield when he was DCM and now is senior advisor to Secretary Rice, and Ambassador Speckhard. As a result, our

audits, when they finally see the light of day in writing, mostly

have their findings resolved, because they have been recognized by

management, the issues raised by them, that is, and the problem

is addressed, at least solutions put in place.

So it is true. A week ago I visited a site that is outer-city, the

Baghdad Police College. It was an extremely disappointing visit. It

is essential that we succeed on the security front. The Baghdad Police College is the place where police will be trained. Phil Galioto,

the dean there, pulled me aside and was really in distress about

the fact that he had to close that college for 2 weeks because of its

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unsanitary conditions, and his fear that he was going to have to

close it again when he has this parade of recruits that are lined

up ready to come through and learn how to bring security to Baghdad.

The reality is that those issues are out there, but the reality also

is, as he told me, is the oversight was prompting change. Indeed,

the resources he was seeking and said he needs are moving forward to address the significant problems there.

Mr. Chairman, you asked us to address contracting issues. I am

happy to discuss the lessons-learned report. They are the subject

of potential pending legislation from Senator Collins and are I

think aimed at adjusting the system to improve contracting. But

the point of my contracting report ultimately is that the story of

Iraq reconstruction from a personnel perspective, from a contracting perspective, and from a program and project management perspective, we are writing that report now. It will be out in December. It is a story of gradual progress. It is a story of adapting,

learning lessons, and improving the execution in a situation where

security is a fundamentally overriding matter.

I would be happy to address in the question and answer section

primary health care issues and the Basrah Children’s Hospital

issue that you were concerned about.

Thank you for this time.

[The prepared statement of Mr. Bowen follows:]

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Chairman TOM DAVIS. Thank you.

Ambassador Satterfield, thanks for being with us.

STATEMENT OF AMBASSADOR DAVID SATTERFIELD, SR.

Mr. SATTERFIELD. Thank you, Mr. Chairman, Ranking Member

Waxman, members of the committee. I appreciate the opportunity

to testify today before this committee on the progress we have

made to date on Iraq reconstruction, and also on the steps we have

taken to execute more effectively our oversight responsibilities and

ensure that the taxpayers’ moneys are spent wisely, effectively and

to good purpose for the United States and good purpose for the people of Iraq.

We recognize fully the enormous responsibility we have to deliver

tangible benefits to the Iraqi people, to manage honestly and effectively the billions of dollars with which we have been entrusted.

We don’t intend to underestimate or understate the mistakes that

have been made, but we also do not wish to understate the successes that have been achieved, for there have been significant successes, successes in the face of perhaps the most difficult operating

environment in the world.

Success is critical in Iraq in terms of our ability, Iraq’s ability

and the support of the international community to economic development and growth. Security measures alone, as General Corelli

and others have said, cannot secure a stable, peaceful Iraq. Only

security measures augmented by good governance, progress on reconciliation, and development and growth of Iraq’s economy to provide a stake for all of Iraq’s citizens in a different, more peaceful

Iraq can achieve those goals.

We believe thoughtful, detailed, oversight can strengthen our

management of contracts and improve outcomes on the ground. It

already has. Over the last year, we have undergone a sea-change,

literally, in how we award, manage and monitor contracts. We have

shifted more contracts to Iraqis, revised cost-to-complete accounting

procedures, moved away from design-build and cost-plus contracts,

and have given grants directly to Iraqi ministries. In short, we

have learned from the past. We are adapting. We will continue to

adapt to changing conditions on the ground.

We take seriously and we apply in real-time, lessons learned

from the excellent sustained work of the Special Inspector General

for Iraq Reconstruction, our colleague Stu Bowen, the Government

Accountability Office, as well as the Inspectors General from the

Department of State, USAID, and the Defense Contract Audit

Agency. We look forward to the committee’s observations and suggestions to help us further improve this work.

I would like to begin with a brief review of what the IRRF funds

have accomplished, acknowledge the difficulties we have encountered, and review the specific mechanisms that we have put in

place to tighten oversight of this program.

I would like to begin by outlining what we have achieved. IRRFfunded projects have had a measurable and significant impact on

the lives of Iraqi citizens, but I want to make a comment at the

beginning. This impact, this positive impact comes against the

backdrop of the magnitude of need in Iraq for basic infrastructure

development. That is a need estimated by the World Bank in 2004

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at over $100 billion. It was never our intent to meet through U.S.

funds all of these goals. Our intent was to begin a process, to start

a process which Iraqi efforts themselves and the support, the

strong support, the vital support of the international community

and the Middle East itself, Iraq’s neighbors, would be required to

complete.

Electricity, our projects have added, rehabilitated or maintained

almost 3,000 megawatts of electricity generation. What this means

is about one-third of all of the power transmitted today, this day,

to Iraq’s citizens comes as a result of our efforts and our funding.

Other projects have succeeded in rehabilitating Iraqi equipment

that will provide, when infrastructure is improved for transmission,

still more ability to deliver power.

On water, our projects have improved significantly. Access to

fresh water and to sewage treatment services have included 19

major water treatment plants, as well as smaller projects that have

improved access to drinkable water. Five million Iraqis have access

today to clean water and sewage services as a result of our efforts.

That is not insignificant, and completion of all of our planned

projects will bring drinkable water to an additional 8 million Iraqi

citizens.

Before the war, Baghdad had no functional sewage treatment

plants. All sewage was simply dumped into the Tigris River, polluting all downstream consumption. Nine major plants have been rehabilitated and have capacity to serve 5 million Iraqis. Three of

these plants are in Baghdad, two-thirds of the city’s population are

being served by what they do. That is not insignificant.

Our funding has rehabilitated or refurbished over 4,000, that is

over 30 percent, of Iraq’s schools, trained 60,000 teachers, provided

over 8 million new textbooks, and we have inoculated through the

efforts of AID virtually all of Iraq’s children against the diseases

of polio and measles.

Oil production, vital to that country’s economic future, production

and exports as a result of our efforts have increased above 2002

pre-war levels. Exports have also exceeded pre-2002 efforts. That

is not insignificant.

We have also had setbacks, including work on the primary health

care centers and the Basrah Children’s Hospital, and like my colleagues, I am prepared to address those issues in response to committee questions. But I want to stress in closing, the lessons

learned here. We have tightened, in our mission in Iraq and here

in Washington, the procedures through which we oversee contracting, through which we assess the situation on the ground. We have

improved the way we do our accounting numbers so that we can

have a real-time estimate of funds available, and can shift those

funds within the parameters set by the Congress to meet changing

priorities on the ground. We want to work with the committee. We

want to work with our oversight agencies with the various auditing

systems in place now, to improve still further our work. Lessons

have been learned and will continue to be applied on the ground

as we seek to better ensure that the taxpayers’ money is spent

wisely and all benefit from those funds.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Satterfield follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Bever, thanks for being with us.

STATEMENT OF JAMES A. BEVER

Mr. BEVER. Thank you, Mr. Chairman and members of the committee. USAID thanks you for the honor of being able to be here

with you this morning.

First, I would like, as a U.S. Foreign Service Officer, to thank the

chairman and members of the committee for the times when you

come to the field and see what we do in the field, and you take the

risks that we also take as Foreign Service Officers in the field so

you understand the challenges that are there, and you bring us

courage that what we do to serve our country is the right thing.

Thank you.

In addition to the support for democratic infrastructure building

and economic infrastructure building in the ministries of finance,

I would like to focus my very brief comments on the physical infrastructure. There are some things that USAID and American taxpayer dollars have done today which we take for granted. First is

Umm Qasr Port. The dredging of that port, the repair of that port

early on in this conflict allowed hundreds of thousands of tons of

supplies to come in to the Iraqis in a timely fashion.

The repair of the airport, both in Baghdad and Basrah, has allowed thousands of commercial and civilian flights to come in and

out of Iraq and around Iraq. Thousands of small infrastructure

projects in every one of the provinces of Iraq have allowed the visible, tangible manifestation of American goodwill and caring and

improvement at the local level.

Ambassador Satterfield has also commented on the power sector,

and has commented on the water and wastewater. I won’t go further on that, except to say that we have also been very active in

the rural areas. This is where 25 percent of all the jobs are created

and maintained in Iraq. So much of our assistance has been in

building agricultural infrastructure, and 500,000 farmers have

water today that didn’t have it a few years ago.

The Ambassador also addressed our contribution to education

and to health. I won’t go further there.

I would like to just close, and I will make my comments very

brief, by saying that our agency, recognizing the importance of

Iraq, recognizing the importance of SIGIR and of GAO and the IG

comments, has created a Special Deputy Assistant Administrator

position specifically for Iraq. I was brought in by Ambassador

Tobias, our Administrator, from Israel where I was serving for the

last 2 years to help enhance Israel’s security, and advance Congress’ plans both there and in Afghanistan before that, to focus on

Iraq. So we welcome and look forward to continuing to work with

our accountability agencies. We are proud of the Government Accountability Office finding that USAID competitively awarded contract actions for 99 percent of all of our obligations and commitments.

And last comment, under our infrastructure activities, we are

also very proud that 97 out of 99 of our activities have now been

completed. The remaining two will be completed in the coming year

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and we will be sharing those activities with Army Corps and transferring them shortly.

Thank you.

[The prepared statement of Mr. Bever follows:]

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Chairman TOM DAVIS. Thank you very much.

Ms. Ballard, thanks for being with us.

STATEMENT OF TINA BALLARD

Ms. BALLARD. Good morning. Thank you, Chairman Davis, Congressman Waxman, and distinguished members of the Committee

on Government Reform, for this opportunity to report to you on the

U.S. Army’s reconstruction contracting efforts in Iraq.

It is my privilege to represent the Army leadership and the military and civilian members of the combined reconstruction program

management and contracting work force team. We appreciate your

wisdom, advice and steadfast support. The Army is the executive

agent for the Department of Defense reconstruction and relief mission in Iraq, as outlined in the IRRF, and is responsible for the execution of approximately $13 billion of the $18.4 billion appropriated

by Congress for projects in Iraq.

In January 2005, with the cooperation and leadership of the U.S.

Central Command, the Joint Contracting Command-Iraq and Afghanistan [JCCIA], was established. This Joint Command, which is

headed by a two-star general, operates under the Army’s acquisition authority and has more than 160 people in two theaters of war

who are working in dangerous and difficult conditions.

The JCCIA operates in full compliance with Federal acquisition

regulations and to date we have awarded more than 4,000 contracts for the reconstruction of Iraq. We do this mission with great

pride and gratitude to Congress, the Army team and our interagency partners, the Department of State and U.S. Agency for

International Development. This team has proven to be resourceful

and resilient, while adjusting to every challenge presented by the

evolving conditions in Iraq.

I want to emphasize the following important point in particular.

The reconstruction program in Iraq has been one of the most audited efforts ever undertaken by our Government. From the beginning, we have welcomed this good government look at our work.

Our policy throughout this mission has been to work side by side

with every auditor in order to ensure the proper expenditure and

oversight of money allocated by the Congress.

We have also found that the auditors serve a valuable role in

helping us execute our mission. While the challenges have been

daunting at times, we have maintained a tremendous sense of urgency and intense operational tempo with regard to our reconstruction mission.

In summary, we are an Army at war. We are proud of our accomplishments and we want the people of this great Nation and you,

the Members of Congress who represent them, to know of this

great effort in helping to create and build a stable and successful

Iraq. With your continued support, we will succeed.

This concludes my opening statement, Mr. Chairman. Again, I

thank this committee for its continuing wisdom, guidance and

steadfast support. I look forward to your questions.

[The prepared statement of Ms. Ballard follows:]

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Chairman TOM DAVIS. Tina, thank you very much.

Mr. Tyler, thank you for being with us.

STATEMENT OF J. JOSEPH TYLER

Mr. TYLER. Mr. Chairman, Ranking Member Waxman, and members of the committee, thank you for the opportunity to discuss the

successes and some of the challenges the U.S. Army Corps of Engineers and the team we work with has experienced in execution of

the reconstruction program in Iraq.

I have had the pleasure of having oversight management for this

program from the time it originally started. I would like to emphasize a few points included in my written statement.

First, the Corps of Engineers is committed to supporting the Nation’s global war on terror. We have supported the operation in

Iraq from the very beginning. Our entire work force of 34,000 personnel has been available to support the effort. About 3,300 personnel from both our civil works and military mission areas have volunteered for deployment, many for multiple deployments. The remaining personnel that stay here in the States are often used for

reach-back support of our personnel on the ground in-theater.

Our multi-talented expeditionary work force has allowed us to respond positively to this reconstruction mission. Our current work

force in Iraq consists of military personnel, U.S. Government civilians, DOD contractors, and Iraqi associates. We utilize these personnel in various capacities to allow us to execute our mission in

the most efficient and effective manner. We will use the Iraqi associates in insecure areas which would endanger U.S. personnel or

draw unwanted attention to the reconstruction effort. It is because

the Iraqi associates are able to move more freely throughout their

country.

Now, beginning in October 2005, the Corps’ office in Iraq, our

Gulf Region Division [GRD], and its three district offices, began a

gradual evolution toward consolidation with the Project and Contracting Office [PCO]. This consolidation commenced as reconstruction projects moved from the planning and design stage of execution to the construction stage. GRD has always supported PCO in

construction oversight. Therefore, it made sense from a cost and

program execution perspective to streamline our personnel and

processes by consolidating the offices and focusing on completing

program construction. This consolidation will be complete next

month.

Overall, the Corps has been successful in oversight management

and execution of its reconstruction mission. We have completed

construction on 3,100 quality projects at a cost of about $4 billion.

There are slightly over 800 projects under construction right now,

and there are over 500 projects that are anticipated to start construction in the next few months.

This success was not without challenge. Construction quality is

always a challenge, even in the United States. The challenge is amplified by the Iraqi environment. Our personnel and our contractors, United States and Iraqi alike, are constantly challenged in the

day-to-day operations. In spite of that challenge, we are able to deliver quality facilities for the Iraqi people.

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There are always the exceptions that rise to the surface in getting significant scrutiny. These exceptions also demand our intensive management, and often extraordinary actions to achieve the

appropriate remedy and the quality results.

Mr. Chairman, this concludes my opening remarks. Again, I

thank you for the opportunity to discuss the Corps’ reconstruction

efforts in Iraq.

[The prepared statement of Mr. Tyler follows:]

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Chairman TOM DAVIS. Thank you.

Let me start. Ambassador Satterfield, let me just ask you, in

terms of electrical power, does Iraq have more power or less power

today than when we came in?

Mr. SATTERFIELD. It has more power, Mr. Chairman, significantly more power. There are limitations to the amount that can

be physically transmitted on Iraq’s infrastructure, but within that

limitation, we are contributing as a result of our projects, our efforts and our money, over one-third of the delivered transmitted

power today to Iraq’s citizens.

Chairman TOM DAVIS. OK. Is there still a lot of sabotage of that

going on?

Mr. SATTERFIELD. There is significant sabotage. If you look nationally at electrical power, its operations and maintenance deficiencies, fueling problems, that is delivering the right kind of fuel

to the right plants on time, that is the biggest contributor, rather

than sabotage. But if you look at Baghdad as a signal piece of that

puzzle, the amount of damage or deficiencies due to sabotage is

about one-third of the total power.

Chairman TOM DAVIS. And Baghdad got the bulk of the power

under the previous regime.

Mr. SATTERFIELD. Under the Saddam regime, Mr. Chairman,

Baghdad deliberately received the bulk of the power for political

reasons. The rest of the Nation was starved.

Chairman TOM DAVIS. Thank you.

Mr. Bowen, let me ask, you just released a report on the shoddy

construction of the Baghdad Police College that is all over the

headlines today. Obviously, this lax contract oversight didn’t perform. It just has to be unacceptable. What were the prime contractor’s reaction when these defects were pointed out? And how did we

get to this?

Mr. BOWEN. It is a good question. It boils down to a lack of oversight, both on the scene by——

Chairman TOM DAVIS. But even with oversight, the contractor

should have, I mean——

Mr. BOWEN. You’re right. The way this happened, it is subcontracting. You understand this. Parsons got the design-build contract for facilities in March 2004, a $500 million IDIQ. Included in

that were the health care and also other facilities, including the

Baghdad Police College. It is a $73 million project. The work is

done through subcontracting.

Chairman TOM DAVIS. Let me ask, we do encourage them to hire

Iraqis for this. Isn’t that part of the policy?

Mr. BOWEN. That is exactly right. It is incumbent upon them to

hire Iraqi firms that are competent, and there are many. We talked

about the fact that many of our projects that we have seen have

been successful and they have been performed by Iraqi firms. So

that is not the dispositive issue. It is what happened at the Baghdad Police College that is determinative.

But in constructing there, there were all manner of shortfalls.

They used the wrong pipes. They didn’t have fittings. They just cut

pipes, cemented them together, and then finished the floor. Of

course, they burst, and that was in all barracks. There is a halfcompleted laundry facility that $300,000 was invested in that has

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to be torn down. They are not going to finish it. There is another

facility next to it, same story. There is a beautiful classroom building out just beyond that laundry facility that has no power.

Chairman TOM DAVIS. If this were out in Fairfax or in Los Angeles, you would have building inspectors looking at all of this. Do

they not have that regime in place there?

Mr. BOWEN. They did not. The Deputy Commander of GRD went

out there with me a week ago. I addressed this exact issue, that

you are pointing to. He was unaware of what the oversight situation was from the GRD perspective before the turn of this year.

And so, that is something that we continue to drill down on. This

was a quick reaction report to draw attention to it, to get the resources there to fix it now, because we are scheduled to turn this

over at the end of the year.

Chairman TOM DAVIS. What is the contractor’s responsibility in

something like this? Ultimately, they are building it. If you don’t

have a government regime doing the inspections, then they need to

do it, and it sounds like that wasn’t done.

Mr. BOWEN. You are exactly right. It is a multi-layered oversight

process and that is the case for every project in Iraq. Parsons had

a duty to supervise how this Iraqi firm was doing. In other words,

get a look at exactly what they were planning on doing with that

plumbing and not to let it all get laid and then burst and be a disaster.

Chairman TOM DAVIS. I guess our problem is, I mean, you can

look at one project, but when something can go this badly, and if

anything could go wrong, it did go wrong here, and you can point

back and forth, but the concern that I have, and I think Mr. Waxman and other Members have is, is this systemic? How many other

projects like this are going on?

Mr. BOWEN. I am glad you asked that. I have a list here of the

14 Parsons projects that our inspectors have visited; 13 of them

don’t meet standards. Ironically, the one that does meet standards,

the Nasiriyah Prison project that I visited in May, was terminated

for default for other reasons, primarily for the issues I saw then.

It was de-scoped from serving 4,400 prisoners to 800, and the cost

was 50 percent more. But I was there and I saw the construction

at that facility is of quality service, but the forward border post at

Sulaymaniyah, it was a design flaw in the center beam that our engineers, actually my inspectors are an engineer and an auditor, the

engineer picked up on it and adjusted the design. The Allaminon

primary care facility, the five PHCs we visited, all——

Chairman TOM DAVIS. My last question, I get you, but are these

taxpayer funds or are these Iraqi funds that were paying?

Mr. BOWEN. Taxpayer funds. These are IRRF projects.

Chairman TOM DAVIS. Mr. Waxman.

Mr. WAXMAN. Mr. Bowen, did Parsons get paid?

Mr. BOWEN. Yes.

Mr. WAXMAN. Are they going to pay any of this money back?

Mr. BOWEN. No. The structure of contracting, cost-plus, means

that the U.S. Government bears the burden, so to speak, of paying

for what happens in the course of performing that contract. That

means if a subcontractor fails, and you have to move on to someVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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body else, that cost is borne. That happened up in Urbeyo, the

water treatment plant I visited last November. Same story.

Mr. WAXMAN. Well, let me interrupt you. You issued this report

that just came out about this Baghdad Police College. I have some

photos of the police college that I am going to ask be available. You

said our job in Iraq is to provide help for their economy and their

security. What could be a more important symbol than giving them

the ability to have police trained for security and buildings that

will give them a boost to their economy? What you found in your

report is truly disgusting. The photos don’t really even capture it

all. It is a civil security project in the country that is a failure. It

is the Baghdad Police Academy and it is a disaster.

I went through some of the points earlier in my opening statement about fecal matter and urine going right through the building. It is not a very proud symbol for the U.S. efforts in Iraq, is

it?

Mr. BOWEN. As I said, the plumbing design and execution was

extremely poor. As a result, it failed once it came into use.

Mr. WAXMAN. Well, the chairman asked you this. Who is responsible for this disaster? Is it Parsons? Is it the Army Corps of Engineers? Or is it both?

Mr. BOWEN. I think it is a shared responsibility.

Mr. WAXMAN. And is this the first project that Parsons and the

Corps of Engineers bungled?

Mr. BOWEN. This is the most problematic project that we have

visited.

Mr. WAXMAN. But is it the first?

Mr. BOWEN. As I said, we have visited 14 Parsons projects, four

border forts up in Sulaymaniyah, five PHCs in the Tamime area.

Total value of the projects we have looked at is $136 million, and

I wouldn’t use the word ‘‘bungled,’’ but I would say that they have

not met the contract’s expectations.

Mr. WAXMAN. As I indicated, this is perhaps the new symbol of

the Bush administration’s failure, the dilapidated and disgusting

facilities of the Baghdad Police College. We spent $75 million of

taxpayers’ money on it. I am trying to figure out how we got to this

point. You have indicated you thought it is a failure of oversight.

Well, the Washington Post reported in 2003 and 2004, a Defense

Department political appointee named Jim O’Beirne directed and

organized a systemic screening process to hire Republican loyalists

for the key Provisional Coalition Authority. Mr. O’Beirne was the

Pentagon’s liaison to the White House. Mr. O’Beirne’s office posed

blunt questions about the political leanings of CPA applicants. People who were supposed to work on overseeing these kinds of

projects for this provisional government that we were in charge of

were asked questions about whether they voted for George Bush in

2000, and even their views on abortion.

To recruit the people he wanted, O’Beirne sought resumes from

the offices of Republican Congressmen, conservative think-tanks,

and GOP activists. He discarded applications from those through

his staff that were considered ideologically suspect, even if the applicant’s possessed Arabic language skills or post-war rebuilding

experience.

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Ambassador Satterfield, is this true? Was the Pentagon’s White

House liaison screening people to run Iraq on the basis of how Republican they were?

Mr. SATTERFIELD. Congressman, I cannot comment on the CPA

period. What I can comment on, though, is the extraordinary professionalism, dedication and qualifications of the staff at our mission in Iraq, in Baghdad and elsewhere, working on these development issues today and over the course of the past years.

Mr. WAXMAN. But so much of what we are talking about, including this police academy, was handled during the CPA period. There

was one specific example of this cronyism in the health sector.

There was Dr. Frederick Berkel, Jr. He was removed as the head

of Iraq’s health care system 1 week after the fall of Baghdad because, as I understand it, the White House wanted a loyalist. My

staff talked to Dr. Berkel. And the e-mail he received informed him

that he was removed purely on politics.

Mr. Bever, you are USAID, can you tell us whether Dr. Berkel

was removed from his position based on politics? Did USAID believe he was not qualified?

Mr. BEVER. I am not qualified to answer that particular question.

I have not seen that e-mail, sir. We can get a question for the

record if you would like.

Chairman TOM DAVIS. We will put that on the record.

Mr. WAXMAN. Thank you.

Chairman TOM DAVIS. Mr. McHugh.

Mr. MCHUGH. Thank you, Mr. Chairman.

Obviously, the conditions at the extreme are unacceptable, the

hemorrhaging of taxpayers’ money is despicable, and I would hope

we would all want to see it stopped. That is why we are here, in

large measure, I would hope.

Mr. Bowen, you mentioned the configuration of the contract as

cost-plus. What is the reason for that configuration?

Mr. BOWEN. Because of the risks that contractors must bear

when going to a place like Iraq, about which requirements are limited or unknown.

Mr. MCHUGH. Would it be your considered judgment, that is an

absolutely essential component of any contract to be successfully

let? Or is that just something we have allowed ourselves to slide

into?

Mr. BOWEN. No, absolutely. It is an essential tool in performing

construction contracts in contingent environments. I am not arguing for the abolition of cost-plus. I am just arguing for a review of

it to see how it can be better tuned to meet the needs in contingent

environments.

Mr. MCHUGH. Which leads me to my next question. Why is it not

possible, and this is not strictly in your lane, I understand, but you

have been there. Your folks have been there. You understand the

conditions. Why would it not be possible, even with the security situation, and I have been there six times, and I understand, not to

have some codicil in the contract structure that requires a minimum amount of applicable oversight? It sounds to me as though

Parsons was out at the oasis somewhere.

Mr. BOWEN. That is a significant point. The fact is that the oversight is expected and part of the contracting process. There are conVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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trols in the system that needed to be exercised that didn’t. For example, as one of our audits this last quarter underscored with respect to DOD IDIQ contracts, the need for definitization was

viewed as voluntary, and that was inaccurate as the General Counsel to the Army observed in a June opinion.

The lack of that discipline within the cost-plus contract system

created leeway for waste.

Mr. MCHUGH. Do you think there was a cause of action against

Parsons?

Mr. BOWEN. Let me put it this way, I have been an advocate for

terminations for default whenever the Commander of JCCIA and

I sees it as appropriate.

Mr. MCHUGH. Let me state, I do. I think, for the record, for

whatever that is worth, based on what I know, and maybe I could

learn more that would convince me otherwise, but it seems to me,

as I believe I heard you say, out of 14 Parsons contracts, 13 you

found to be unacceptable.

Mr. BOWEN. The construction at the border posts and at the

PHCs that we visited, the Primary Healthcare Clinics, was substandard, did not meet contract expectations.

Mr. MCHUGH. And 13 of 14, was that the figure?

Mr. BOWEN. Yes. And the 14th was the Nasiriyah Prison, which

was ironically terminated for default.

Mr. MCHUGH. So when they get the construction right, something else goes wrong?

Mr. BOWEN. That is right. I think the reason was that the scope

was reduced from 4,400 to 800, without the cost being similarly reduced.

Mr. MCHUGH. Thank you.

I would turn to Ms. Schinasi. You spoke about the fundamental

lack of oversight being, in your judgment, the No. 1 reason why we

have the conditions we are talking about here today. Did I hear

you correctly? I would be curious if you are able to evaluate the

reason for that lack of oversight. In other words, is it a resourcing

problem from your judgment? Or is it just a matter of lack of attention? Can you quantify that?

Ms. SCHINASI. I think it started out as a resource issue. I mentioned the whole design-build construct, which is the management

structure under which a lot of these projects got started. In that

project management structure, we relied very heavily on contractors to manage contractors. That was in part a decision made for

resource reasons.

Mr. MCHUGH. OK. I just have a few seconds left. My friend from

California, in his opening statement, talked about what he described, I am sure he is absolutely correct, 15 years ago, a very

painful experience in oversight that he went through talking about

cronyism and corruption, two of the words he used, at the highest

levels of the Department of Housing and Urban Development. In

either of your two experiences, Mr. Bowen or Ms. Schinasi, have

you seen any indications that there is corruption that would be

found in the higher levels of the agencies involved in these

projects?

Ms. SCHINASI. That is not an issue we have addressed.

Mr. MCHUGH. Sir?

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Mr. BOWEN. No. As I have said before, corruption is not and has

not been a pervasive component of the U.S. reconstruction program

in Iraq.

Mr. MCHUGH. Thank you.

Thank you, Mr. Chairman.

Chairman TOM DAVIS. Thank you.

Mr. Lantos.

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

In reading all of these reports and all of this testimony, one is

confronted with a new language. It is sort of sanitized

bureaucratese, not English. So what I would like to ask each member of the panel briefly is if you would be pretending that you are

in a living room talking to ordinary people, who don’t enjoy reading

bureaucratese. How would you evaluate and characterize the oversight and the accomplishments in this field which has cost the

American taxpayer $30 billion. We will begin with you.

Ms. Schinasi. Yes, if I can back up from the oversight question,

I think where I would like to start answering that question, is looking at the task we set out for ourselves and understanding up front

what that task was going to cost, and making sure that we had the

resources to assign to it, because without understanding what you

are able to accomplish, we put projects in place that perhaps were

not executable, particularly when you look across the country as a

whole.

So the oversight needs to come in to make adjustments to those

initial assumptions that proved faulty, and that oversight has not

been there. We have not been able to make adjustments, and so we

are at a point now where I think we have to step back and look

at what is it that we can do, and then how are we going to accomplish that with the reconstruction projects that are already on the

books.

Mr. LANTOS. What you are saying is that initially lots of projects

were proposed and approved, and according to the Inspector General, paid for, which were not feasible to begin with and never completed. Let me zero in on the primary healthcare center issue, because quite frankly it simply makes no sense what you are telling

us, Mr. Inspector General. You say this project began in March

2004, with a contract for 150 centers. Is that correct?

Mr. BOWEN. That is correct.

Mr. LANTOS. And only six were accepted as completed by the

U.S. Army Corps of Engineers 2 years later.

Mr. BOWEN. That is right.

Mr. LANTOS. Well, this failure ratio is a Guinness World Book of

Records answer. I mean, if you have 150 healthcare centers that

are planned, funded, construction begun, and 2 years later you find

that only 6 are completed, this requires an explanation.

Mr. BOWEN. Mr. Lantos, your core point is correct. The primary

healthcare program in my view is the most significant failure in

the overall reconstruction program.

Mr. LANTOS. This was a Parsons project?

Mr. BOWEN. That is right.

Mr. LANTOS. Parsons has a lot of experience. They have completed many projects globally over many years. How is it feasible,

explain it to us in very simple terms, that Parsons undertakes a

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project involving 150 health centers, and 2 years later 6 are completed, the contracts are terminated, although we paid Parsons.

They walk away with the money for 144 that were not completed.

Explain this to me as a taxpayer.

Mr. BOWEN. I would be happy to. The number of clinics was descoped to 141, reduced to that number.

Mr. LANTOS. ‘‘De-scoped’’ means? Let’s use English.

Mr. BOWEN. Right.

Mr. LANTOS. I don’t know what ‘‘de-scoped’’ is. We started with

150 and then we moved it down to 141.

Mr. BOWEN. To 141, you are right. I am sorry.

Mr. LANTOS. That is English.

Mr. BOWEN. I will speak in clearer terms. The six were completed.

Mr. LANTOS. Which means 135 were not?

Mr. BOWEN. That is correct. Parsons agreed to finish 20 of those

clinics that were nearly complete, of which those 6 that are complete are part of it. So that is down to 125. A couple of clinics were

handled by other direct contracting. But here is the point, of the

balance 122 clinics left in the number that I am talking about, they

are all either halfway or more completed, 50 percent, 75 percent,

90 percent. What the Corps of Engineers has done is picked up this

mess and developed a plan to solve it by contracting out the completion of those 125 clinics to Iraqi firms for about $40 million.

The Parsons point to me in the course of performing this audit

was that they had two significant complaints. One, this was supposed to be a 2-year program and they were unilaterally directed

by the Corps of Engineers to make it a 1-year program, so they

were expected to build 150 clinics in a year and the site selection

was difficult in many cases. There was one that was placed where

there was a swamp. There was so much remedial work that had

to be done at a number of the sites that they simply made some

of the PHCs unworkable.

Mr. LANTOS. Since time is short, may I just followup on one item,

Mr. Chairman?

Mr. BOWEN. Yes, sir.

Mr. LANTOS. When I was in Iraq, I met one of the most impressive human beings I ever met, General Petraeus, who took me

around on his helicopter and we landed many places. He showed

us that with $5,000, with $20,000, projects were completed. We

looked at them. They were functioning, and so on.

In your report, Ambassador Satterfield, and I wonder if you can

tell us when you went out to take over this assignment?

Mr. SATTERFIELD. In May of last year.

Mr. LANTOS. In May of?

Mr. SATTERFIELD. Of 2005.

Mr. LANTOS. Of 2005. Your report says, and I can quote it, but

I will paraphrase it and you correct me. You say you took many

of these projects away from these multinational firms, gave them

to local firms, and saved something like 40 percent. You are not in

the field of construction management, but you have some brains,

and you took it away at this incredible profit margin, gave it to

Iraqi firms at a 40 percent cost saving, and your inference was that

they are now being completed.

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Mr. SATTERFIELD. Yes, Congressman.

Mr. LANTOS. How do you explain this?

Mr. SATTERFIELD. Congressman, I will build with the remarks to

my two colleagues here, to answer in as plain English as I can the

query that you made. What is responsible for the mistakes that

have been made and what is the course to success with the remaining funds, the remaining projects in Iraq that taxpayer dollars provide for. It is an examination at the highest levels, not just at a

working level, of feasibility. Does the project make sense? Does it

make sense not when it was conceived, which may be several years

previous, but does it make sense in the political, security and needs

environment of Iraq today?

That cannot be a one-time assessment. It has to be a rolling assessment with dramatic re-thinking at all points as necessitated.

What is oversight? Oversight has to be continuous. It has to be on

the ground. It has to also reflect the unique circumstances in Iraq.

You need more, not less, oversight in the difficult circumstances

that prevail in that country, both the issue of corruption, inadequate performance standards, and also the security environment.

And finally, you need the ability to move from one project or

mode of funding or contracting to another, as flexibly as possible,

as you assess feasibility, as you review the results of your tight

oversight procedures. And you need to do it if you are operating in

Iraq in a way that is as integrated as possible between all of the

civilian and military agencies operating in that country as possible.

There can’t be stovepipes.

Chairman TOM DAVIS. The gentleman’s time has expired. Mr.

Lantos, you have had 10 minutes.

Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman.

First of all, I just want to say to Ambassador Satterfield, on behalf of myself and Mr. Shays and others who were in Iraq in July,

I just want to congratulate you. I have seldom dealt with someone

who was more professional and told us the good, the bad and the

ugly of things that were actually happening on the ground. The

briefing that you gave us was among the best I have ever received.

I just want to say that we are fortunate to have public servants

like yourself, who serve at great sacrifice in dangerous places like

Baghdad. I appreciated not only the information you gave us, but

the professionalism. It has had quite an impact on me.

I want to come back to a couple of things that are sort of glossed

over. Ms. Schinasi, this report, and I want to thank you for it, I

think it is helpful, but even the title, it seems to me, is awfully

soft: Continued Progress Requires Overcoming Contract Management Challenges. ‘‘Challenge’’ is a pretty soft word, isn’t it?

Ms. SCHINASI. It is one that we believe tries to reflect the positive side, that something can be done, that we still have time to

make changes to get better outcomes.

Mr. GUTKNECHT. OK, well I will accept that, but let me come

back to something else that you said in a rather soft way. For example, believe it or not, many years ago I was a business major,

and I wasn’t all that great a student, but I do remember Management 101. You start with objectives. You have a budget. And then

you figure out some way to measure or set up a matrix in terms

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of how are you doing relative to your objectives, with the budget

and so forth.

It strikes me that we don’t really have that now. In fact, with

all due respect to what we hear from the Pentagon often, the answer to every question we give them is, we’ll send more money.

OK? I am not one who believes that more money is the answer. In

fact, I will just tell you parenthetically that I remember when Paul

Wolfowitz came up and gave us a briefing before this all started.

I will never forget what he told us. He said that if you divided up

the wealth of Iraq per capita, it was about the third wealthiest

country in the world. And that once Saddam was toppled, and we

had regime change, which sounded so simple and so soft, it was

like changing a suit, and this would be easy and it wouldn’t be expensive for the taxpayers. The last time I checked, we have invested $323 billion in that

country. There doesn’t seem to be any real end in sight.

And so what I want to know, again going back to the word ‘‘challenges,’’ do you foresee that we are really beginning to set up using

Management 101, real objectives with real budgets and real ways

of measuring those things?

Ms. SCHINASI. Clearly, we have progressed from where we were

when we started. So we are on a continuum here. I think there are

different ways to look at the need to measure, but I agree absolutely with you, if we don’t know where we are trying to go, and

don’t have the measures, then we won’t know how far it takes, how

much longer it is going to take us to get there.

At the project level, I think something that Ambassador

Satterfield said is encouraging, and that is we are developing

measures now to understand what it will cost to complete these

projects, but the fact that has been lacking until now is a very,

very serious deficiency.

Mr. GUTKNECHT. Let me just come back to the last point, and it

is sort of embedded in all of our questions and all of the concerns

that we represent among our constituents, and that is the word

‘‘consequences.’’ Because it strikes me that even today, when we

talk about some of these colossal failures, and enormous cost overruns, it just seems that there isn’t really a consequence to these

contractors.

I would welcome input from any of the members of the panel.

What can we do as a Congress to make sure that we have real accountability and that people are held accountable for the amount

of money that is being wasted?

Ms. SCHINASI. I think one of the most significant findings in the

report that we issued Monday, that the chairman referenced on

whether or not the Government is recovering costs from contractors, is that we have a situation where we have not been able to

definitize our contracts. In English, that means agree on the terms

and conditions under which the contractors will be operating, what

are the Government’s requirements.

What we found in that report that we issued Monday is that if

we do not definitize those contracts before we start work, the contracting officers believe they have no flexibility to recover costs that

in retrospect are determined to be unreasonable or unallowable or

unallocable. So that is an internal control that we expect to be

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working in this cost-plus environment that we have talked about

this morning, but it is apparently not working.

Mr. GUTKNECHT. Mr. Chairman, my time is about expired. I just

want to say that we owe it, this committee owes it to a much more

aggressive oversight of all of this. I think it has to be built on real

objectives, manageable objectives, but more importantly and finally, people have to be held accountable. I think that is one area

where both your office and this Congress have really not done the

job that needs to be done. I think it is one thing that the American

people expect and I don’t think those expectations are unreasonable.

I yield back my time.

Chairman TOM DAVIS. Thank you. Mr. Gutknecht, that is always

a problem is when things go wrong, nobody ever loses their job,

whether they are losing data or whatever.

Mr. Van Hollen.

Mr. VAN HOLLEN. Thank you, Mr. Chairman.

I would agree with my colleague that we do need much more aggressive oversight. On that note, I would like to ask the chairman

that we maybe have a hearing and bring before the committee

some of the individuals who were discussed in the story about political cronyism at the Defense Department. I think when you have

the former Deputy Director of the CPA’s Washington Office saying

publicly that we didn’t tap the right people to do the job. Instead,

we got people who went out there because of their political

leanings, that we need to have aggressive oversight on that issue.

I would suggest that we should have Jim O’Beirne, who apparently

held this political job at the Defense Department, and others to

come up here and under oath explain what they did and did not

do.

Chairman TOM DAVIS. Mr. Bowen did report on that.

Mr. BOWEN. Yes, sir, Mr. Chairman, I did.

Chairman TOM DAVIS. You are welcome to ask him.

Mr. VAN HOLLEN. No, I heard you. You mean, in response to Mr.

Waxman’s statement or something else?

Chairman TOM DAVIS. In response to your question right now

about the hiring practices over there.

Mr. BOWEN. In February, we issued our first report on human

capital management and did identify in that report the fact that

there were allegations of political elements in decisionmaking on

hiring.

Mr. VAN HOLLEN. Thank you. I understand and I appreciate

that. It seems to me we should get the people who were directly

involved, Mr. Chairman. That is what I am saying.

Let me go on. I have some questions with respect to particular

contracting, because I do think that in order to protect the taxpayers’ money and try to get at the bottom of some of these contracting problems, we do need exactly the oversight that we have

all talked about.

There is a contract that this committee, in fact the subcommittee

that Mr. Shays chairs, has been pursuing with respect to one of the

Army’s LOGCAP contracts. So Ms. Ballard, I have a couple of questions for you, because back on June 13th of this year in that subcommittee, I asked about a news report about a contractor called

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Blackwater USA, which was one of the fourth-tier contractors

under Halliburton’s umbrella contract of $16 billion. They were a

logistic support contract. We have a copy on the screen. It is not

that visible, but essentially what it does is, and I hope you have

a copy in front of you.

It shows that the individual employees that were hired by Blackwater were being paid $600 a day. Blackwater was then

charging $815 a day. Then you go right up through the different

subs and get up to Halliburton. As Mr. McHugh was pointing out

earlier, one of the things about a cost-plus contract is there is absolutely no disincentive to the person at the top of the food chain or

anywhere else to charge a reasonable price because they get rewarded on a percentage basis on the overall amount.

In any event, this is a list. We had a hearing to try and figure

out exactly what this contract was costing the taxpayers. And so

we wrote to the Secretary of the Army and we asked a question

with respect to these contracts. The response we got back was in

a letter dated July 14, 2006. I just want to read the third paragraph, because it has created a real mystery for the subcommittee.

That paragraph says, under the provisions of the LOGCAP contract, the U.S. military provides all armed force protection for KBR

unless otherwise directed.

Additionally, the LOGCAP contract states that KBR personnel

cannot carry weapons without the explicit approval of the theater

commander. And then there is this sentence, ‘‘To date, KBR has

not pursued any requests under the LOGCAP contract for personnel to carry weapons, nor has the theater commander directed or

authorized KBR or any LOGCAP subcontractor to carry weapons.’’

KBR has stated they have no knowledge of any subcontractor utilizing private armed security under the LOGCAP contract. Do you

see that here?

Well, if this letter is correct, from the Army, it suggests that this

whole subcontract for private security personnel was never authorized. Is that right?

Ms. BALLARD. Congressman, the information stated in Secretary

Harvey’s letter is accurate. I can’t comment at this time on this

document that you have given me, but I would be happy to take

it back for the record. I checked before I came over to testify, and

in fact exactly what is quoted in Harvey’s letter is the information

that I validated before this morning.

Mr. VAN HOLLEN. Alright.

Chairman TOM DAVIS. And that question will be in the record.

Mr. VAN HOLLEN. Thank you, Mr. Chairman. If I could also put

those documents in the record?

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Chairman TOM DAVIS. Without objection.

Mr. VAN HOLLEN. Along with a contract that we found in the

course of this investigation, with Blackwater, between Blackwater

and Regency, that specifically outlines the conditions for hiring private security personnel. In fact, it says there are 34 vetted U.S. expat professional security personnel will form the core of the security organization that will support ESS operations.

So this raises a lot of questions, because if you look back at the

contract, it specifically mentions that ESS is one of the subs to Kellogg, Brown and Root, and Halliburton. So on the one hand, we are

doing an investigation to figure out what these private security

contractors were costing the taxpayer, because it seemed to be lots

of exorbitant costs.

In the process, according to the letter we received from the Army,

we learned that in fact the Army never authorized Halliburton or

any subcontractors from hiring private security. Is that right?

Ms. BALLARD. As I said, Congressman, the information stated in

Secretary Harvey’s letter is correct. I did verify that, in fact, again

this morning before I came over to the Hill. But I will pursue answers to your questions.

Mr. VAN HOLLEN. Just in closing, Mr. Chairman, I just have two

questions to leave with you. No. 1, was it authorized? And No. 2,

did Halliburton get paid? Did the American taxpayer pay Halliburton for those private security services through that food chain

on what is now said to be an unauthorized contract?

Thank you, Mr. Chairman.

Chairman TOM DAVIS. Thank you.

For more questions, we will go directly to Mr. Shays.

Mr. SHAYS. Thank you very much, Mr. Chairman, for holding

this hearing. This is obviously not the first hearing you have held

on Halliburton and others. This is generated by the Comptroller

General who basically said Halliburton may be the catch-phrase,

but there are a lot of other businesses that we should be looking

into if we don’t want to be political. So now we have a great opportunity.

I want to ask you, Ambassador Satterfield, first I want to say

ditto to what my colleague said about your service and your candidness whenever we have interacted. I thank you for that.

I would like to know, you came in in 2004. When in 2004 did you

come in?

Mr. SATTERFIELD. Mr. Chairman, I came in May 2005.

Mr. SHAYS. May 2005. OK. So a lot of this is looking back for

you. You weren’t there when it was happening. But when did the

United States begin to have a sense that we were building Rolexes

instead of Timexes, and maybe Timex was what they needed? In

other words, we had some really big projects and yet there was a

recognition that maybe we should have done smaller projects and

just gotten a lot more done, and utilized Iraqis to do it instead of

foreigners. When did that start to become evident to folks in Iraq?

Mr. SATTERFIELD. I can speak to the experience with which I am

familiar, but I think it is generically the answer to your question.

During the summer of 2005, particularly the period from June to

August, we essentially worked, the military, General Casey, new

Ambassador Khalilzad, and our respective teams, on examining all

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aspects of the U.S. presence, mission, strategic goals, lines of operation, and action to achieve those goals, benchmarks, monitoring

mechanisms to see how progress was being made, with an eye to

exactly the sorts of issues that have been discussed today, not just

on the development and project execution side, but also on the

broader issues of political and security goals in the country.

As I outlined a moment ago to you, that was the approach we

took. What was the strategic plan? What were the lines of operation and action needed to get there? What was the feasibility of

those lines of operation and action based on realities as we saw

them and could best assess them in Iraq? What were the benchmarks that you needed to put in place on all of these goals, on all

the lines of operation? And what kind of monitoring mechanisms

did you set up to ensure that the benchmarks were or were not

being made? And if they weren’t, what change in direction was necessary? Could you still achieve the same set of strategic goals?

That was a fundamental revamping of the way we did business

in Iraq as a collective military-civilian mission. And the work was

assisted very much in the ongoing flow of reporting, recommendations, assessments coming from the various oversight entities working in Iraq.

Mr. SHAYS. So did that mean that ended up stopping certain

projects from continuing because there was an assessment that

they just weren’t meeting the objectives?

Mr. SATTERFIELD. It very much meant a review of contracting

procedures, execution and projects.

Mr. SHAYS. I have a particular bias because having been there

14 times, the most memorable trips were when I stayed with Mercy

Corps and stayed with children. These were non-government organizations that were given small dollars and they were then requested to help build schools and to do programs. What they did

is, Save and Mercy Corps and others, they hired Iraqis to be within

their own offices. And then these Iraqis hired Iraqis to do the job.

My understanding was, and I would like to know, Mr. Bowen, if

you have reviewed that, that a lot of these projects got built and

a lot of them are still standing.

Mr. BOWEN. You are right, Congressman Shays, there were other

contracting approaches that succeeded, separate and apart from

the design-build phase. General Corelli told me last week that

there are six PHCs open and operating and they were built with

CERP funds. He approved those allocations and, according to him

as he represented, they are working.

So in our contracting lessons-learned report, the second recommendation in there is to find ways to institutionalize and carry

forward alternate, more targeted contracting approaches, and indeed that has been the emphasis of the last year under Ambassador Khalilzad.

Mr. SHAYS. Thank you.

Mr. Bever, I saw you nodding your head. What is your sense

about the choice of projects and whether we build them? Just

weigh in on this. My time is ending, so just weigh in on how you

would respond to the questions that I asked the others.

Mr. BEVER. Those particular projects you mentioned are under

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pendable, who then sub-grant to all kinds of community organizations that in themselves also are subject to audit. We have had

very, very good performance on those, with very low security costs,

sir.

Mr. SHAYS. Mr. Chairman, I would like to just say to the Members of Congress, we reinstituted dollars, but not a lot, for this program. It has been one of the best. Projects have been built throughout Iraq. They are still standing. The Iraqis respect them. They

built them themselves. It would be nice to see more of this activity

being carried out.

I just want to ditto Mr. Lantos’s comments about General

Petraeus. He got it early on, but unfortunately there are people

that replaced him who didn’t.

Chairman TOM DAVIS. Thank you, Mr. Shays.

Mr. Kucinich.

Mr. KUCINICH. Thank you, Mr. Chairman.

Mr. Bowen, we have come a long way in this Congress from the

days of $600 toilet seats. Now we have a $75 million building

project that has been turned into a toilet. Are you going to have

to tear those buildings down?

Mr. BOWEN. No, they are being refurbished as we speak. As I

said, effective oversight has moved resources to remediate the problems at the Baghdad Police College.

Mr. KUCINICH. In the recommendations, you say you are going to

perform a critical technical study of the structural integrity and

load-carrying capacity. How can you say, if this report was just

issued, that you are not going to have to rebuild those buildings?

Mr. BOWEN. Well, as I said earlier, the half-finished laundry will

be torn down. The building next to it will be torn down. The assessment is critical, and I emphasized that to the Deputy Commander

of the Gulf Region Division of the Corps of Engineers when I met

with him a week ago. But from what my engineers tell me in reviewing that, while there will be a couple of buildings that will

need to be torn down, the rest will require significant work to bring

them to standard.

Mr. KUCINICH. Thank you. I have been looking at the statistics

after listening to Mr. Lantos, and 32 percent of 14,121 school buildings rehabilitated or refurbished. Have all those been inspected to

the degree that this has been inspected?

Mr. BOWEN. No.

Mr. KUCINICH. Note that, Mr. Chairman.

Four percent of 141 buildings with respect to health clinics have

been completed; a $50 million hospital project ends up costing $170

million at least. When I am looking at these statistics, OK, this is

the big leagues, right? It doesn’t get any bigger than this. This is

the big leagues. And when you look at these statistics, 32 percent

of 114,121 school buildings rehabilitated or refurbished, and you

say they haven’t been inspected; 4 percent of 141 health clinics.

This is the big leagues. The worst team in the big leagues has a

373 percentage. OK? This performance is not major league. It is

bush league. And we have put the taxpayers’ dollars at risk, and

we have been given a measure of performance here that I think

needs a little bit more explanation.

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Now, Mr. Bowen, you had said in your testimony that your in- spectors reported on projects that represent more than $308 million

in contract value. Of this total, almost $250 million or 80 percent

have met contract specifications. Now, you go on to concede these

figures are not statistically significant, but let’s put them into context of $30 billion in U.S. contracts; $20 billion in Iraqi funds. So

you have a total of $50 billion in contracts, and $250 million of that

has been reviewed and basically passed on. That is one-half of 1

percent. That is where we are, sports fans, major leaguers.

I want to raise another question here. Mr. Bowen, do you know where the infamous missing $9 billion in Iraqi funds has gone, for

reconstruction?

Mr. BOWEN. Yes, sir. You are referring to my audit of January

30, 2005.

Mr. KUCINICH. I am just asking if you are looking for this $9 billion.

Mr. BOWEN. We are working with the Board of Supreme Audit

to track the use of the DFI.

Mr. KUCINICH. ‘‘DFI,’’ what do you mean?

Mr. BOWEN. Development Fund for Iraq, which is what that $9

billion was. That was not taxpayer dollars.

Mr. KUCINICH. No, but I want everyone to know for the record,

that wasn’t taxpayers’ money. That was Iraqi money. OK, you

made the point. Are you finding it?

Mr. BOWEN. I made the point that it was not taxpayers’ dollars

and it is Iraqi money, and that is why we are working with Dr.

Abelo.

Mr. KUCINICH. Would you agree to a congressional request to see

the Coalition Provisional Authority documents to determine what

happened to the missing $9 billion?

Mr. BOWEN. Yes.

Mr. KUCINICH. Thank you.

Chairman TOM DAVIS. Thank you very much.

Who was next? Mr. Clay.

Mr. CLAY. Thank you, Mr. Chairman.

I thank the panel for being here. Let me start with Ms. Schinasi.

I know for certain that mismanaged funds, your report on the uncover could go a long way in helping to rebuild New Orleans, or for

that matter helping us in St. Louis, which I represent. I am especially disgusted because our domestic priorities are being ignored

and States are struggling with budget cuts as this administration

continues to allow billions of taxpayer dollars to be wasted year

after year in Iraq. Tell me, there has been over $50 billion in taxpayer money spent

toward rebuilding Iraq with little to show for the money. According

to your report, Pentagon auditors have challenged $3.5 billion in

questionable charges from contractors. It is obvious that no one has

been held accountable for wasting taxpayer dollars. What is the potential for criminal charges against individuals or corporations who

have mismanaged these dollars? Has any of this information been

turned over to the U.S. Attorney or Special Prosecutor?

Ms. SCHINASI. Congressman Clay, we have not seen evidence

that we would believe needs to be turned over, and that is a question that we do——

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Mr. CLAY. You don’t think it needs to be turned over?

Ms. SCHINASI. We do turn over information to the Justice Department when we find it.

Mr. CLAY. You don’t see anything criminal about ripping off taxpayers?

Ms. SCHINASI. We have not seen anything——

Mr. CLAY. You don’t see that happening? Let me go to Mr. Tyler.

Mr. Tyler, let me ask you.

Chairman TOM DAVIS. I think she answered that.

Mr. CLAY. Mr. Tyler, I am sorry. Mr. Tyler.

No, she didn’t answer that.

Chairman TOM DAVIS. She said they didn’t refer it.

Mr. CLAY. Fine, Mr. Chairman. Let me do my time, OK?

In March 2004, Parsons received a $500 million contract to rebuild hospitals, health clinics and buildings. After 2 years and

wasting $186 million taxpayer dollars, they were found to be a poor

contractor. Another Parsons contract for $99 million was terminated after 2 years for failure to complete prisons. Were any of

these funds recouped or has the Inspector General found that the

poor contractor performance delayed completion of the project and

escalated costs?

Mr. TYLER. Sir, those contracts were managed. They were

worked with Parsons. It has already been documented that there

has been terminations I believe on all of those. And we are working

to close the contracts out with Parsons, while we are working to

finish the work through other contractual means.

Mr. CLAY. Have they been put on a list as a poor contractor, or

not used again? Are you going to continue to use them? Maybe Ms.

Ballard can answer?

Ms. BALLARD. Mr. Congressman, a contractor’s past performance

is in fact kept record of in the department, and it is used as an

evaluation criteria in future acquisitions. Contractors’ past performance is kept record of in the department and it is used as a

basis for evaluation in future acquisitions.

Mr. CLAY. Let me ask Ambassador Satterfield, GAO reported that Halliburton contracts total $1.4 billion of the $3.5 billion in

question in unsupported costs in Iraq contracts. It is unfortunate

that a Halliburton representative is not present to answer my

question. They have been proven to abuse taxpayer dollars again

and again. Why does Halliburton continue to be granted Government contracts when they have been proven to be wasteful with

taxpayer dollars?

Mr. SATTERFIELD. Congressman, we take very seriously the reports to which you refer. That is why we have supported the work

of the GAO, of the Special Inspector, and the other auditing and

accounting agencies and entities working in Iraq today.

Mr. CLAY. Have they been put on a poor contractor list? I mean,

has anyone decided that these are the people that we need to protect our U.S. taxpayer dollars from?

Mr. SATTERFIELD. I am not aware of any such decision.

Mr. CLAY. Also, I ask you, Ambassador, the Washington Post recently revealed the administration’s system of hiring, which you

have heard already. A Frederick Smith, for example, was the Deputy Director of CPA. Do you know a Frederick Smith?

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Mr. SATTERFIELD. No, Congressman, I do not.

Mr. CLAY. Well, he went on the record and explained that the

key criterion for hiring people to serve in Iraq was that they had

the right political credentials; that they probably worked in the

Florida recount in 2000. Does anyone have any reason to believe

that he is not telling the truth? Do you have a reason to believe

he is not telling the truth?

Mr. SATTERFIELD. Congressman, I simply can’t comment on those

reports.

Mr. CLAY. Is he telling the truth?

Mr. SATTERFIELD. Congressman, I have no personal knowledge of

these allegations. I can’t comment on them.

Mr. CLAY. I thank you.

Thank you, Mr. Chairman.

Chairman TOM DAVIS. Thank you.

Ms. Watson.

Ms. WATSON. I think that the expenditures of funds for reconstruction in Iraq are the best example we send to this country, to

the taxpayers, and to the world of waste, fraud and abuse. We have

been in Iraq for 3 years. We are trying to rebuild it. And I am looking at Parsons, I am looking at Halliburton. They have been paid

off. They cut-and-run indeed, and they get paid cost-plus. Why has

it taken us 3 years, and maybe we are to blame, Mr. Chairman,

for not having oversight.

I was an ambassador. We had to report by cable to the Department of State almost on a daily basis. Our watch, if this kind of

abuse occurred, we would have been out of there. I cannot understand the professionals sitting in front of us not giving us an outline on how we are going to correct it now. I find your answers to

be really considering us as of low intelligence.

I am just going to say it. I am so frustrated sitting here, because

the costs of this war is almost $400 taxpayer dollars, and we keep

giving contracts out to people who cannot do the job. I think that

if you can’t tell me who has lost a job, who has been demoted, who

had to step down for faulty planning, then you ought to step down.

I just want to say that our contracts and our reconstruction plans

are opaque and with these no-bid and cost-plus contracts, we are

ripping the people of Iraq, who we are trying to model a democratic

government, and the taxpayers of the United States.

So I want some brave soul in the group to tell me what has been

done constructively and what U.S. Government policies and procedures have been changed so that the chaos that has happened in

Iraqi contracts will not happen again, and what Government officials, as I said before, have lost their jobs or been charged with

crimes or malfeasance in regard to Iraqi contracting. Is there a

brave soul among you that would like to respond?

Mr. BOWEN. Yes, ma’am. My office has 25 cases right now at the

Department of Justice regarding wrongdoing. Five convictions have

been attained from our investigations, four of them will be sentenced over the next few months. So I have 10 investigators in Iraq

now pursuing 90 other cases.

And so yes, oversight is at work in Iraq, in Baghdad and across

the country. I have 10 inspectors who virtually every week travel

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outside the Green Zone and bring back reports like this, like the

Baghdad Police College. And so yes, oversight is there.

Ms. WATSON. Let me interrupt you for a minute. Would you send

your response to Congresswoman Diane Watson, 125 Cannon, as

soon as we finish this hearing? I would appreciate that in writing.

Be sure there is a date on it and that you sign it.

Mr. BOWEN. Yes, ma’am.

Ms. WATSON. Because I am going to hold it up.

I thank the Chair for having this hearing. We have to do more

of it, because I have to go back to my district in Los Angeles and

explain to them why we are spending the taxpayers’ money the

way we are as it relates to reconstruction. So I can hold your document up that we are catching the wrongdoers.

Thank you so much for having the courage to respond to me.

Mr. BOWEN. I will get you that answer today.

Ms. WATSON. Thank you.

Chairman TOM DAVIS. Make it available to the committee, too.

I think we would all like to have it. Thank you very much.

The gentleman from Maryland?

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

Ms. Schinasi, I want to thank you for being here. GAO issued a

report on Monday regarding contracts in Iraq. Although we don’t

have a Pentagon auditor here today, we do have your report which

is based on auditors’ findings. I would just like to ask you a few

questions.

First, the GAO found that the Pentagon auditors have now identified some $3.5 billion in questioned and unsupported costs under

Iraq contracts. Is that right?

Ms SCHINASI. Yes, that is correct.

Mr. CUMMINGS. That is a stunning figure, and that is a much

bigger figure than we have ever heard publicly. And your report

discusses two types of charges. First, the auditors identified $2.1

billion in questioned costs. Is that right?

Ms. SCHINASI. Yes, that is correct.

Mr. CUMMINGS. The manual by the Pentagon auditors states that

questioned costs are unreasonable costs in amount and exceed that

which would be incurred by a prudent person. They recommend

that these charges not be paid to the contractor. Is that right?

Ms. SCHINASI. Yes, sir.

Mr. CUMMINGS. Second, the auditors identify $1.4 billion in unsupported charges for which the contractor has not provided adequate documentation. Is that correct?

Ms. SCHINASI. Yes, sir.

Mr. CUMMINGS. Now, it seems, however, that the Pentagon isn’t

following the advice of its own auditors. Traditionally, the Pentagon upholds a majority of auditor findings and does not pay most

questioned costs. Normally, the Pentagon refuses to pay contractors

between 55 percent and 75 percent of the costs identified by auditors as questioned. They call this their sustention rate. Is that correct?

Ms. SCHINASI. Yes.

Mr. CUMMINGS. In your report, you identified some $386 million

withheld from contractors in response to auditor recommendations.

Is that correct?

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Ms. SCHINASI. Yes, it is.

Mr. CUMMINGS. That was out of $1.4 billion. Is that correct?

Ms. SCHINASI. Yes, sir.

Mr. CUMMINGS. Now, that means that the Pentagon followed its

auditors’ recommendations only 27.5 percent of the time, or half

the normal rate. Is that correct?

Ms. SCHINASI. Yes.

Mr. CUMMINGS. And why is that?

Ms. SCHINASI. One of the reasons that we identify in the report

is this issue of beginning work before we agree with the contract

on what they are going to do and how much we are going to pay

them. And so what we found was that the contracting officers to

whom the auditors report believe that they did not have the flexibility to get back costs that already had been incurred by the contractor.

Mr. CUMMINGS. Have we done anything to correct that situation?

Or is there anything that can be done?

Ms. SCHINASI. As far as I am aware, as long as we have the

undefinitized contract issue that we have, unless we give those contracting officers different directions than they appear to have been

given, we will continue to see the same kinds of sustention rates.

Mr. CUMMINGS. Now, I won’t ask you to comment on the causes behind this, but if my math is correct, $386 million was withheld

out of $1.4 billion in charges identified by the Pentagon auditors

as questioned. You are doing additional work on this issue, I understand, for the committee. Is that right?

Ms. SCHINASI. Yes, sir, for the chairman and the ranking member.

Mr. CUMMINGS. OK. And will you be able to break out for us the

biggest contracts and tell us how much the auditors questioned,

how much they identified as unsupported, and how much was actually withheld from contractors? Will that be a part of your report?

Ms. SCHINASI. We believe we will be able to do that.

Mr. CUMMINGS. Now, Ms. Ballard, let me turn to you for a moment. As I said, the Pentagon historically has followed its auditors’

recommendations between 55 percent and 75 percent of the time,

but now GAO says that you are following those recommendations

only 27 percent of the time. Is that right?

Ms. SCHINASI. That is what the report says.

Mr. CUMMINGS. I can’t hear you. I am sorry.

Ms. SCHINASI. That is what the report says, yes, sir.

Mr. CUMMINGS. OK. Do you agree with it or don’t you?

Ms. SCHINASI. Our policy is that the contracting officers are responsible for investigating the questioned costs raised by DCAA. In

that process, they are supposed to either determine if those costs

are allowable and allocable and reasonable, or they are supposed

to disallow those costs. That is the policy that we have.

Mr. CUMMINGS. Well, in May 2005, the committee received a

briefing from the Pentagon auditors. We were told at that time

that under the LOGCAP contract, the largest contract in Iraq, they

had identified $813 million in questioned costs and $382 million in

unsupported costs. Can you tell us today what the current figures

are under the LOGCAP contract? And how much in questioned and

unsupported costs have now been awarded to the contractor?

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Ms. SCHINASI. I can tell you that today we have $468 million——

Mr. CUMMINGS. I am sorry, Mr. Chairman, I can’t hear.

Ms. SCHINASI. We have $468 million in questioned costs today.

Mr. CUMMINGS. And what is happening with regard to that?

Ms. SCHINASI. We are working to determine if those costs should

be recognized or disallowed.

Ms. SCHINASI. When costs are disallowed, I mean, I notice that

like in Maryland, there is something called debarment. In other

words, you can’t contract anymore, and there are small contractors

that are looking at this, looking at us on C–SPAN right now and

they are listening to all these billions of dollars, and figuring out

where they are going, and they are being debarred for small numbers compared to this. I was wondering, do we have such a mechanism in regard to this?

Ms. SCHINASI. The regulation does specify the circumstances

under which we debar contractors. Usually that occurs when there

is a criminal act on the part of the contractor and we comply with

the regulatory guidance in following the process to determine if a

contractor should be debarred.

Mr. CUMMINGS. Have we debarred anybody with regard to Iraq?

Ms. SCHINASI. Not to my knowledge.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Chairman TOM DAVIS. OK. The gentleman’s time has expired.

Let me just take a couple more minutes on each side. Let me just

ask Mrs. Schinasi, the way this works is the DCAA would come up

and question costs, right, in their report?

Ms. SCHINASI. Yes.

Chairman TOM DAVIS. And that doesn’t mean they are not allowable. That really starts the conversation whether it is allowable?

Ms. SCHINASI. Yes, that is correct.

Chairman TOM DAVIS. And then a settlement is reached. Is that

correct?

Ms. SCHINASI. Yes, that is correct.

Chairman TOM DAVIS. So a DCAA questioning the cost doesn’t

per se mean that they are now allowable. They look at documentation and oftentimes the contractor will come back and have to either further document or explain what happens. Is that correct?

Ms. SCHINASI. Yes, that is correct.

Chairman TOM DAVIS. And we have asked you, have we not, to

take a look at once this is done, and DCAA has questioned costs,

and the contractors come in, and it is settled, we have asked you

to come back and look at those settlements at the GAO and see if

these settlements are within the ambit of what should be proper.

Is that correct?

Ms. SCHINASI. Yes, and we are just starting that work now.

Chairman TOM DAVIS. I just wanted to make that clear because

questioning the cost doesn’t equal unallowability or mean that anything is necessarily wrong. In fact, I did this for 20 years previously. Many times, it is DCAA’s job to question these things, but

many times the contractor comes back and can show for good cause

that it is not necessarily unallowable and that it was in fact proper.

Sometimes they don’t, but we have asked you to look at those settlements so the committee can then get further details in terms of

how these are carried out and that there is no favoritism and try

to answer those questions.

Mr. Van Hollen, I can give you a couple of minutes to followup.

Thanks.

Mr. VAN HOLLEN. Thank you. Just a couple of things.

First, I was asking some questions earlier, Mr. Shays, about the

subcommittee hearing we had a while ago where we went over

some of the contracts, the Halliburton contracts. At that time, you

may recall that we asked for, we were thinking about getting a

subpoena, but instead you gave them 2 weeks to respond. We

haven’t, for the record, heard anything back from any of the folks

either with respect to the documents on these cases.

Mr. SHAYS [presiding]. Let me do this. Let me research after the

vote and tell you what we responded because I think the gentleman

is primarily right, but let me fill in the details.

Mr. VAN HOLLEN. OK. I have the transcript from the hearing

here, so I think we need to followup.

Mr. SHAYS. Yes, we will followup.

Mr. VAN HOLLEN. If I could just ask a question of any of the

panel. This is a followup on the questions of political cronyism and

to what extent they infected our efforts and the choice of people

that we sent over for the reconstruction period. In the Washington

Post story, they talked about a specific issue dealing with the pubVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00147 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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lic health where they removed somebody and replaced him with a

political appointee, essentially, named James Haveman. Mr.

Haveman, according to the story, decided it was important to slash

the list of drugs the Iraqi doctors could prescribe. In fact, a Navy

pharmacist was brought in to come up with a new list, according

to the story, and this Lieutenant Commander found that the existing list, ‘‘really wasn’t that bad.’’ And he told the Washington Post

that Mr. Haveman and his advisors, ‘‘really didn’t know what they

were doing.’’

Are any of you personally familiar with this particular case and

could you comment on why this person was brought in? With

USAID, Mr. Bever, was this someone who was brought in under

UsAID contract?

Mr. BEVER. Absolutely not, sir.

Mr. VAN HOLLEN. The person who had been there was with

USAID.

Mr. BEVER. Absolutely, yes, sir.

Mr. VAN HOLLEN. And for the record, the person who you had

as your expert was removed. Is that correct?

Mr. BEVER. Absolutely, yes. He was highly qualified, with a master’s in public health and a highly experienced health officer, sir,

in conflict situations.

Mr. VAN HOLLEN. I’m sorry?

Mr. BEVER. In conflict situations.

Mr. VAN HOLLEN. Yes, and the highly experienced person was removed in favor of a political appointee. Is that right?

Mr. BEVER. I can’t comment on that. I don’t know the details of

that, but we can get an answer for you. We will try.

Mr. VAN HOLLEN. If you could please provide the details about

how the decision was made to remove the expert with long experience under conflict situations, and replace him with someone with

no experience in this kind of situation.

Mr. SHAYS. And you do agree that the person who came in did

not have experience?

Mr. BEVER. I would have to research this more fully. I am generally aware of the press reports, but I have not seen the details

and we want to make sure we have an accurate administration answer for you on this.

Mr. VAN HOLLEN. Thank you very much, Mr. Bever.

Mr. SHAYS. Thank you.

Mr. Bowen, I just want to make sure the record is clear. Whatever the record is, but when I constantly hear the reference to $9

billion missing, I am curious as to why you don’t, or maybe you

didn’t feel you had the time, to share with us whether it is $9 billion missing, or whether it is an issue of billions missing, not $9

billion. My recollection is that dollars were given, say, to Generals

to pay troops. They don’t have a checking system, so dollars are

given. Then the General gets those dollars and supposedly gives

them to his troops. But the real issue is that we don’t have a paper trail of that $9

billion. Is that right?

Mr. BOWEN. That is right. I didn’t get a chance to finish the

point on this, but we have discussed it at previous hearings that

you chaired. The core issue is that there was a lack of sufficient

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controls to track how the money that was transferred from the

CPA to that fledgling government of Iraq with ministries barely

standing back up, and how they used that money. KPMG did audits on the Iraqi side. We just looked at what the U.S. controls

were and they were inadequate.

Mr. SHAYS. The U.S. controls were?

Mr. BOWEN. Yes.

Mr. SHAYS. So we can’t be certain of how much of the $9 billion

that we had control of originally actually got to the Iraqis?

Mr. BOWEN. We know it got to the Iraqis, but we don’t know how

it was used.

Mr. SHAYS. But do we know, do we have a paper trail that says

we gave certain dollars to certain Government officials.

Mr. BOWEN. Yes, we do.

Mr. SHAYS. Mr. Satterfield, you can answer, too, yes.

So the issue is, once it got into Iraqi hands, what happened to

the $9 billion?

Mr. BOWEN. Right. Under UNSCA 1446, CPA was the de jure

government of Iraq and had stewardship responsibilities, fiduciary

I would venture to say, over the development fund for Iraq. Therefore, my criticism was fairly narrow. What was in place with respect to the transparency requirement was not sufficient to ensure

full transparency.

Mr. SHAYS. So the bottom line is, though, this was dollars that

we ultimately had a responsibility for because we were ‘‘the occupying Nation.’’ They had the $9 billion to spend on their own, and the

challenge is there is no paper trail to know how the Iraqis spent

their own $9 billion. Is that correct?

Mr. BOWEN. That is correct. And the key point that I continually

make whenever this issue comes up is that we did not say it was

lost, stolen, or misappropriated. The finding in the audit was that

there were insufficient controls to account for its use and the anecdotal investigation that we did on the Iraqi side of the ledger

raised concerns.

Mr. SHAYS. I mean, huge concerns.

Mr. BOWEN. They were significant concerns, and indeed the corruption issue that Mr. Gutknecht addressed on the Iraqi side of the

ledger is, while we don’t draw the line, may be related to the fact

that there was a very large sum of cash, all of it cash, transferred

to fledgling ministries in 2003 and 2004.

Mr. SHAYS. Do the Iraqis have a checking account system now?

Mr. BOWEN. They do not have electronic funds transfer, and that

continues to burden the management of money in Iraq.

Mr. SHAYS. Oh, it has to.

Is there any comment that any of you would like to make before

we get to the next panel? Any other comments?

Let me thank you all for your service. I appreciate your being

here today.

We stand at recess until the next panel.

Did you want to say something?

Mr. BOWEN. No. Thank you, Mr. Chairman.

Mr. SHAYS. Thank you.

[Recess.]

Chairman TOM DAVIS [presiding].

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If we can get the witnesses in. Thank you for bearing with us.

We have Mr. Earnest O. Robbins II, senior vice president of Parsons, I guess you drew the short straw today, and Cliff Mumm, the

president of Bechtel Infrastructure Corp. Thank you for being with

us.

It is our policy we swear you in. You just raise your right hand.

[Witnesses sworn.]

Chairman TOM DAVIS. Thank you very much.

Mr. Robbins, you can go first. I think you know the rules. We

just appreciate your patience with us as we move through. Thank

you.

STATEMENTS OF EARNEST O. ROBBINS II, SENIOR VICE

PRESIDENT AND MANAGER, INTERNATIONAL DIVISION,

PARSONS INFRASTRUCTURE AND TECHNOLOGY GROUP;

AND CLIFF MUMM, PRESIDENT, BECHTEL INFRASTRUCTURE

CORP.

STATEMENT OF EARNEST O. ROBBINS II

Mr. ROBBINS. Good afternoon, Mr. Chairman, members of the

committee. I am Earnie Robbins, senior vice president of Parsons

Infrastructure and Technology Group. I joined Parsons 3 years ago,

and I serve as the manager of our Infrastructure and Technology

Group’s International Division. Management of Parsons’ Iraq reconstruction projects fall under my division.

As you may be aware, the Coalition Provisional Authority divided the Iraqi reconstruction effort into six sectors. Parsons submitted proposals for several of those sectors, and in early 2004 was

awarded design-build prime contracts in two of the six: security

and justice, or S&J; and buildings, education and health [BEH].

Parsons understood there would be risk involved with these contracts, but many of the challenges could not have been foreseen.

Before I explain the challenges and lessons that we have learned,

let me first identify for you a few things that went right. I will

focus on projects completed, our safety record, and our capacitybuilding contributions to the U.S. Government’s reconstruction efforts.

We repaired or rebuilt several large Iraqi ministry facilities and

judicial facilities. We repaired and improved 12 hospitals, constructed 119 border forts in far-flung, remote, often to the point of

inaccessible locations. We built five border points of entry, constructed 54 fire stations, and even the public health clinic program,

hospital renovations, prisons and the Baghdad Police Academy

were on their way to having additional successes before the government issued termination notices.

We are also proud that Parsons consistently achieved safety

metrics that exceed the average for companies performing similar

construction within the United States. In the process, we constantly stressed the need for personal and collective safety on hazardous constructionsites.

Parsons successfully trained, educated and employed thousands

of Iraqis. The Government required design-build prime contractors

to provide measurable contributions to capacity building within the

Iraqi private sector. This was defined as promoting the growth and

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modernization of the Iraqi engineering and construction sector.

Parsons aggressively met our responsibilities in this area from the

earliest stages of our arrival in Iraq. For every U.S. engineer or related professional we deployed to manage these contracts, we hired

approximately four Iraqi engineers, architects, planners, accountants, inspectors, schedulers and so forth.

At the high point of our presence in-country on these two contracts alone, we had 140 expatriate employees and 600 Iraqis working side by side with us. Through hands-on and classroom-type

training, we introduced Iraqis to contemporary engineering and

management processes and techniques, including U.S. approaches

to project safety, quality control, contract administration, finance,

design procedures and standards.

As noted by the Corps of Engineers and other Government agencies, the ability of some companies and individuals within the Iraqi

engineering and construction community to absorb and particularly

to apply Western ways of doing business proved to be problematic.

The concepts of competitive contracting, transparent business practices, detailed documentation regarding invoices, and even rudimentary job-site safety were all alien to the majority of Iraqis we

worked with.

Add the issue of security due to the rising tide of terrorism and

sectarianism to the formula and the desired results became increasingly difficult for anyone, either Parsons or the Government,

to attain. Despite our recognized achievements in capacity-building,

we encountered a shortage of capable Iraqi managers and skilled

craftsmen. This was particularly challenging given the sheer number of reconstruction projects simultaneously conducted as requested by the Government.

This leads me to a discussion of the challenges we did face. There

were many unusual challenges, but I will mention three: sole definition of our contract scope; the impact of the deteriorating security

situation; and the turnover among key Government staff.

At the time of the contract award, the Government did not know

precise scope of work or even where it wanted many of the facilities

to be located, and thus neither party knew the exact site conditions

and could not accurately predict costs and schedules. Key factors

such as this are typically known, or at least better understood prior

to contract bid, award and execution. As mentioned by the GAO

member of the preceding panel, this disconnect between requirements and available funding was always obvious. In some cases, it

took up to 15 months for the Government to identify to Parsons

what was to be built, where it was to be constructed, and what

funding was available.

Again, I believe the GAO statement this morning summarized

the impact of this issue. The delay in definitizing task orders significantly impacted both costs and schedule. A description of the

situation can be found in various of the Special Inspector General’s

reports, including report No. 2 dated July 2006, in which the following statement is made: ‘‘By law, undefinitized task orders must

be definitized within 180 days.’’ The PMO/PCO usually did not

meet this 180-day definitization deadline.

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Even when we thought the scope of a particular project was definitized, we often continued to struggle with constant changes and

interpretations regarding our contractual requirements.

The next challenge was security. As the Special IG has noted in

previous reports, the presumption made by the Government and

accepted by Parsons was that the security situation would be permissive. That environment simply did not materialize.

One aspect of our contracts with the Government-established

measure of merit was hiring subcontractors. Iraqi construction

companies performed all of the actual construction work under our

management and supervision. We awarded over 1,700 subcontracts

to Iraqi firms and at the peak of construction we had over 11,000

Iraqis employed on security and justice and medical projects. Even

the day-to-day oversight of those Iraqi subcontractors was, as a result of cost and security concerns, conducted almost entirely by

Iraqis hired and trained by Parsons.

Our reliance on Iraqi construction firms, and even to some extent, our dependence on Iraqis to assist us in managing those subcontractors made us extremely vulnerable to adverse schedule and

cost impacts as the security situation deteriorated.

The third challenge I will address today was the well-documented and constant turnover of U.S. Government managers. This

resulted in an endless stream of changes in priorities, expectations,

direction and procedures. The results of these frequent changes are

discussed in several of the Inspector General’s reports. I would categorize them as counterproductive at best.

Finally, I want to address the inference made by some that Parsons walked away from the public healthcare clinics after completing only 20 of the 150 under contract. That is not accurate. The

Government terminated us, our task orders for convenience. At

that time, we had completed 20 of those PHCs with 35 additional

clinics between 75 percent and 100 percent complete, and an additional 66 between 50 percent and 75 percent constructed. Parsons

fully intended and wanted to complete those projects, but the Government apparently decided it could complete them faster and

cheaper by other means.

In summary, we are proud of the role Parsons has played in assisting the U.S. Government and the Iraqi people in the reconstruction effort. The men and women who work for Parsons and for

many other contractors present in Iraq have endured the daily danger, family separation, and lack of personal comfort and convenience that come with working in a combat zone, and they have for

the most part received little credit or appreciation for doing so.

When the final stories of the Iraq reconstruction are told, their efforts will hopefully be more objectively recognized and appreciated.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Robbins follows:]

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Chairman TOM DAVIS. Thank you very much, Mr. Robbins.

Mr. Mumm.

STATEMENT OF CLIFF MUMM

Mr. MUMM. Good afternoon, Mr. Chairman and members, and

thank you for this opportunity to appear before this committee.

My name is Cliff Mumm. From April 2003 through December

2004, I was the chief of party of the USAID Iraq Reconstruction

Project. During that period, I lived in Iraq. I lived and slept in

Iraq. I maintain ongoing executive responsibility for the USAIDBechtel work in Iraq and I continue to travel back and forth to Iraq

frequently.

Bechtel won two competitive contracts from USAID to cover the

restoration of essential power, water, civil and telecommunications

infrastructure. It did not, neither of the contracts, included oil or

gas sectors. Under my direction, Bechtel delivered its first team to

the region within 3 days of winning the contract.

One of our first priorities, and in those days you could travel because the security situation was such that it allowed it, was to

crisscross the country and assess the state of Iraq’s infrastructure

so USAID and the U.S. Government could make a determination

of the highest priority needs.

In addition to war damage, our teams discovered that many critical facilities such as water treatment and power plants, had been

wrecked by years of neglect, looting, and ministry mismanagement.

Our assessment concluded that approximately $15 billion was

needed to bring that country up to some regional standard. Given

the country’s vast needs, no one expected that our contracts, which

totaled $2.3 billion, could complete the job. The work under those

contracts could and did, however, provide a platform upon which

the Iraqis could build and sustain themselves.

To help get the country back on its feet, we used Iraqi contractors every place we could. In fact, we awarded to Iraqi contractors

three-quarters of our work, and anyplace we didn’t award to Iraqi

contractors, such as power suppliers, we required in their contract

that they award to Iraqi contractors. At peak, our work employed

40,000 Iraqis across the country.

Among other accomplishments, we dredged and refurbished

Iraq’s only deepwater port of Umm Qasr, which hadn’t been opened

since the Iran-Iraq War. We restored the bulk of Iraq’s water treatment and sewage treatment capacity, which is capable of serving

millions of people. Our work in the power sector increased capacity

by more than 1,200 megawatts.

Hundreds of thousands of Iraqi children were able to attend

classes in 2003 in more than 1,200 schools we refurbished. We repaired three major bridges for humanitarian and commercial traffic, and we also restored the national telecommunications grid.

One of our most important contributions was in institutional

strengthening. More than 600,000 hours of training programs were

provided by Bechtel, which improved Iraqi skills in plant operations, in plant safety, construction management, and information

technology.

The security environment we encountered in Iraq was profoundly

difficult. Armed insurgents stop at nothing to sabotage major infraVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00161 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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structures. Key Iraqi operating staff are often forced to abandon

their posts in the face of murder and kidnaping. And power generation is often stranded when fuel pipelines are blown up or transmission lines cut.

In the case of the Basrah Children’s Hospital, escalating violence

frequently made work impossible. In May 2006 alone, 85 people

were murdered in Basrah, including nine British soldiers. Iraq’s

Prime Minister declared a state of emergency in the city and that

state continues to today.

In the face of all of this, our team still managed to complete the

essential civil and structural work for the hospital, leaving it in the

good condition that it is today for future consideration.

We are proud of the work we did in Iraq on behalf of the American and the Iraqi people. We are also proud of our own people, including the over 600 professional Iraqi colleagues. USAID has attested that Bechtel performed exceptionally well under extremely

difficult circumstances.

I am honored to share my experience with you this morning, and

look forward to questions.

Thank you.

[The prepared statement of Mr. Mumm follows:]

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Chairman TOM DAVIS. Thank you both very much.

I am going to start Mr. Robbins off. I will start with you on the

Academy. Your firm had the contract for construction of the Baghdad Police College. Of course, when we asked you here, this wasn’t

even on the agenda, but the report got, so I have to ask you. It was

the subject of today’s Special Inspector General’s Report.

I understand that much of the work in question was actually performed by a subcontractor, but your firm had the overall responsibility for the project. What is the explanation?

Mr. ROBBINS. Mr. Chairman, in fact we had 13 Iraqi subcontractors working on this complex.

Chairman TOM DAVIS. Well, you saw the report. This isn’t the

type of work that Parsons has traditionally been associated with.

That is fair to say, isn’t it?

Mr. ROBBINS. No, it is not. The buildings in question, the cadet

barracks, were all completed in the April-May timeframe of 2006.

They were inspected and the quality control was done by Parsons,

with quality assurance by the Corps, both of whom signed off on

the facilities as being completed. The plumbing systems which have

caused this problem were pressure-tested according to standard.

Chairman TOM DAVIS. Who tested them?

Mr. ROBBINS. We had independent labs and our own engineers.

There is a normal test that you conduct on a pressurized drain system.

Chairman TOM DAVIS. But there is no city inspectors or Federal

Government inspectors that come out?

Mr. ROBBINS. Other than the Corps QA person that was there

and witnessed the test, along with the Parsons person——

Chairman TOM DAVIS. So the Army Corps was there to witness

the test?

Mr. ROBBINS. Yes, they were.

Chairman TOM DAVIS. And basically did they approve who you

had testing it and everything else?

Mr. ROBBINS. Yes, they did.

Chairman TOM DAVIS. So the Corps was overseeing this?

Mr. ROBBINS. The test results were published and approved. The

buildings were accepted. Again, this was in the late April, early

May timeframe. And Parsons was essentially complete then. We

turned the buildings over to the government.

Chairman TOM DAVIS. And you got paid?

Mr. ROBBINS. Well, we are still getting paid, but yes, sir. We submitted invoices and that continues as subcontractor invoices come

in.

About the first week of July, we were notified by the Corps that

there was a problem with the plumbing in these facilities and even

though, again, our contract was completed, they asked us if we

would send our engineers out to assess the issue, and we did. We

dispatched a couple of our engineers from the IZ, the International

Zone, to look at it. They discovered this workmanship issue. There

was no question. You are right. This is not correct.

We, with the Corps, got the subcontractor who had performed the

work to come back.

Chairman TOM DAVIS. Had this subcontractor done previous

work for you?

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Mr. ROBBINS. This was the only subcontract that he had with us,

was for these barracks.

Chairman TOM DAVIS. OK. This was an Iraqi contractor?

Mr. ROBBINS. Yes, it is an Iraqi subcontractor.

Chairman TOM DAVIS. It wasn’t Halliburton?

Mr. ROBBINS. Oh, no, sir.

Chairman TOM DAVIS. OK. I just wanted to take that off the

table.

Mr. ROBBINS. As I said earlier, all of our subcontracts were with

Iraqi firms for construction.

Chairman TOM DAVIS. OK.

Mr. ROBBINS. And we had withheld payment on that sub until

some time had passed, and the warranty on the work was in fact

passed to the Corps down to the Iraqi Police Academy administration to enforce the warranty. So they called the company, the subcontractor, back in. And as the IG report notes, the Iraqi subcontractor is in fact replacing all of the, it is not substandard

plumbing, it is substandard installation. So the entire plumbing

network for those barracks is being replaced.

Chairman TOM DAVIS. Now, you heard Mr. Bowen say that they

had 13 out of 14 contracts they had looked through, that your work

was basically inadequate. At 14, you talked about the termination

for convenience, and frankly he didn’t go after that contract. He

didn’t get into that.

Mr. ROBBINS. Right.

Chairman TOM DAVIS. What is going on here? What is your explanation?

Mr. ROBBINS. I was not able to take the notes fast enough on

which 13 sites he visited, but I recall he said he visited, for example, 5 border forts, and I think we did 119. I mentioned how remote

they were. What he said was that the construction was substandard. Each of those facilities was completed by Parsons’ subcontractors. Inspections were conducted by us and by the Corps

and the buildings were all accepted as complete and in compliance

with the contract in terms of materials and workmanship.

Chairman TOM DAVIS. By the Corps of Engineers?

Mr. ROBBINS. By the Corps. Now, I don’t know without seeing exactly what Mr. Bowen is talking about what kind of issues there

were on those border forts.

Chairman TOM DAVIS. Right.

Mr. ROBBINS. But I have also heard this morning quite a bit of

discussion about expectations from Iraqi subs. I would suspect that

it is safe to say the further you get from the large cities, industrial

areas, the less likely you are to find any skilled craftsman to do

work. And subcontracts, in Iraq I think it is safe to say all contracts is local. You deal with the firms that are there. These were

all competitively bid. Tenders were put out on the market in the

Iraqi market.

Chairman TOM DAVIS. Was your contract competitively bid as

well?

Mr. ROBBINS. Yes, sir.

Chairman TOM DAVIS. OK, so you beat out other companies to

be able to do this.

Mr. ROBBINS. That is correct.

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Chairman TOM DAVIS. Well, I mean, you saw the pictures. A picture is worth 1,000 words, and I don’t need to sit here and walk

through it, but this has to be corrected. The fact that they went

back and looked at 13 out of 14 projects they inspected were substandard tells us there is a problem. I think the Corps of Engineers

will be called up appropriately, but I also think, if you look at that

as the contractor in charge of that, that there is a problem here

that we are going to have to take a look at obviously. I am sure

you are going to have auditors crawling all over as we move this

through.

Mr. ROBBINS. Yes, sir.

Chairman TOM DAVIS. Mr. Waxman.

Mr. WAXMAN. I am going to let Mr. Van Hollen go ahead.

Chairman TOM DAVIS. Mr. Van Hollen.

Mr. VAN HOLLEN. Thank you, Mr. Chairman. I would like to followup on some of the questions regarding the Police Academy, because as I understand it, you signed off, Parsons signed off on the

project. Right?

Mr. ROBBINS. That is correct.

Mr. VAN HOLLEN. It is a simple question. How could you sign off

on a project, or how could it be that the tests conducted did not

reveal the huge problems we see? I mean, how can any reasonable

test designed to determine whether or not this is ready for the purposes it was designed for, not reveal these massive, massive problems?

Mr. ROBBINS. Sir, the tests were conducted. The systems passed

the test and were signed off by our inspectors and the Corps. I

can’t address why the tests, which were conducted according to

standard methodology, failed to detect these fittings. I have some

conjecture, that is all it would be, and that is, it took a while of

use for this to manifest itself, for the fittings to come loose or whatever.

That is purely conjecture, but to me it is the most explainable

explanation.

Mr. VAN HOLLEN. How much was Parsons paid for the Police

Academy project?

Mr. ROBBINS. Our definitized final agreed-on costs for the entire

program was about $72 million.

Mr. VAN HOLLEN. About $72 million?

Mr. ROBBINS. Yes, sir.

Mr. VAN HOLLEN. And how much profit did Parsons make on this

project?

Mr. ROBBINS. Sir, all of our Iraq contracts, the two design-build

contracts, had a 3 percent base fee and a 12 percent award fee associated with them. The 3 percent base fee applied primarily to

labor and some other direct costs. It did not apply to others, such

as security, life support.

Mr. VAN HOLLEN. So 3 percent on top of costs, and then 12 percent?

Mr. ROBBINS. And then 12 percent award fee based on the Government’s evaluation of our performance.

Mr. VAN HOLLEN. So what was the amount of that award fee, the

12 percent?

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Mr. ROBBINS. Well, there are different periods, so the first period

covered part of when we were doing the design. What I will tell

you, on the period in question, our award fee was zero.

Mr. VAN HOLLEN. What was the cumulative award fee?

Mr. ROBBINS. Sir, I really don’t know.

Mr. VAN HOLLEN. Can you get that for the record? Look, I mean,

that is a question here. The question I think the American people

would be asking, my constituents would be asking is how is it that

a job that clearly turned into this kind of disaster, how is it that

the Federal Government would actually pay the money? Is this

something that you are going to go in, and are you going to return

the money? What is the recourse for the taxpayer in these circumstances? Don’t you think that Parsons, given what has turned

out to be a very shoddy job, should return some of its profits to the

taxpayer?

Mr. ROBBINS. Sir, I will merely say that Parsons will abide by

the terms of the contract and we will deal with the Government on

a fair basis, and we will abide by whatever the decision is.

Mr. VAN HOLLEN. So you won’t voluntarily look at this and say,

given what has happened in this project, we will return the profit.

Mr. ROBBINS. No, sir, I will not.

Mr. VAN HOLLEN. Do you think this was a job well done?

Mr. ROBBINS. I think parts of it and a lot of it was well done,

yes, sir.

Mr. VAN HOLLEN. Do you think the taxpayer got a good return

on its investment for this project?

Mr. ROBBINS. I think the taxpayers got what our contract called

for it to get.

Mr. VAN HOLLEN. I am sorry, but you think that this is what the

contract called for?

Mr. ROBBINS. No, sir. And that is why we are repairing it at no

cost to the Government. It is being repaired at no cost to the Government. We have warranties on construction. There are no construction bonds in Iraq. And so the situation is being remedied.

Mr. VAN HOLLEN. The cost-plus feature of these contracts provides no incentive to the contractor to keep down costs. Is that

right?

Mr. ROBBINS. No, sir. It provides every incentive, I believe, to the

contractor to keep costs down.

Mr. VAN HOLLEN. I thought I understood your testimony to be

you got paid 3 percent on top of costs.

Mr. ROBBINS. Yes, sir. I would suggest that 3 percent is not particularly a very good return on investment. In fact, the reason for

the award fee is to in fact incentivize you to do your best and to

be recognized for doing that. The Government determines the

amount of that award fee.

Mr. VAN HOLLEN. OK. Just sticking to the cost-plus, I mean, 3

percent of a bigger number is going to be a bigger number, right?

Mr. ROBBINS. That is correct.

Mr. VAN HOLLEN. So I mean, there is no incentive in that system

to keep to costs.

Mr. ROBBINS. Well, actually there is because of the definitized

costs. You are paid your base fee based on a definitized cost. Any

growth after that, there is no fee paid.

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Mr. VAN HOLLEN. OK. I will just close. So what were the criteria

that the U.S. Government used to determine that you got the 12

percent award fee?

Mr. ROBBINS. Sir, it changed about four times over the course of

the last 2 years, but it was everything from how well we did the

capacity-building aspects of it. There are safety features. There are

quality issues. There are schedule metrics. There is a whole litany

of measurement that the Government uses to determine the award

fee.

Mr. VAN HOLLEN. OK.

Chairman TOM DAVIS. Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman.

In August 2004, Bechtel was tasked with building a state-of-theart children’s hospital in Basrah. The hospital was supposed to be

finished by the end of 2005 at a cost of $50 million. By March 2006,

however, the expected completion date had slipped by 19 months

and the expected cost had grown to $98 million. As a result of the

schedule delays and cost overruns, USAID took Bechtel off the

project in June, and the Army Corps of Engineers contracted directly with Bechtel’s Jordanian subcontractor, MidCon, in September. I have a copy of the Corps of Engineers’ justification and approval document. Mr. Chairman, I would like to place this document in the record.

[The information referred to follows:]

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Chairman TOM DAVIS. Without objection.

Mr. WAXMAN. In this document, the Corps explains why it decided to take Bechtel out of the loop. The document notes that

Bechtel ‘‘employees state they were unable to visit the project from

October 2005 to March 2006.’’ Mr. Mumm, is that true? Were Bechtel employees unable to visit the constructionsite for 6 months?

Mr. MUMM. I can’t speak to whether or not those months are exactly right, but I think that what is important to understand about

the Basrah Children’s Hospital is, first, we were not taken off by

USAID. I will come to that in a moment. In fact, what you have

to do if you think about Basrah, if I think about the Basrah Children Hospital or Iraq in general, is one has to think about kind of

the security environment.

There is nothing more in Iraq that affects both schedule and

costs than security. It is both a direct cost and an indirect cost.

Mr. WAXMAN. I understand the security concerns, but the Government was paying your firm to oversee your subcontractors. How

could Bechtel provide adequate oversight if its employees were not

present at the site for 6 months, is the figure we have? This Army

document refers to Bechtel’s failure to perform contractually mandated oversight. Do you disagree with the Corps of Engineers that

Bechtel failed to perform required oversight?

Mr. MUMM. Yes, in fact we provided the oversight and in fact,

if you talk to the Corps of Engineers, what you will see is that we

did in fact provide a facility, a structure, the civil and structural

work completed in a quality manner. They will tell you that.

Mr. WAXMAN. Well, this document from the Department of Army

says the U.S. Army’s intent to award this contract to MidCon is occasioned by the U.S. Agency for International Development’s decision to stop work on the BCH construction project under its 2004

contract with Bechtel. MidCon was BNI’s construction subcontractor on this project. And the justification was the inattentiveness to

oversight. It states that Bechtel failed to pay MidCon progress payments in a timely manner. Is that accurate?

Mr. MUMM. We paid MidCon in a timely manner, but we did not

pay MidCon for things that MidCon had not completed. I was part

of that, Congressman, and was back and forth to Jordan and to

Iraq talking to MidCon at every level, trying to get MidCon to continue performing.

I want to go back to the security issue just a moment, if I could.

Mr. WAXMAN. No, I don’t want you to because I have some questions. If we have time, I want you to go further into it. But if Bechtel wasn’t actually building the hospital, and the question is whether you were overseeing the Jordanian company that was doing the

construction, and the claim is that you weren’t paying that company on time, why were we paying Bechtel? Wouldn’t the Government have been better off to contract directly with the Jordanian

subcontractor earlier than it did?

Mr. MUMM. The Government actually, I don’t know if they are

or not, going to contract with MidCon. MidCon is reluctant to continue. So I am not sure about the document, Congressman Waxman, that you are talking about. I have not seen it. However, the

reason we left the project, or are leaving the project and turning

it over to the Corps of Engineers, is because there is a real quesVerDate 11-MAY-2000 09:50 Dec 06, 2006 Jkt 000000 PO 00000 Frm 00205 Fmt 6633 Sfmt 6633 D:\DOCS\30592.TXT HGOVREF1 PsN: HGOVREF1
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tion about whether or not, now that the project is in a stable condition, that is the civil and structural work are completed on it,

whether or not it should continue, or whether it should sit in abeyance for a period of time, not costing more blood and more money.

We did provide absolute oversight and the quality of the work,

and maybe this could be part of the record, the quality of the work

will absolutely substantiate that this is a quality installation.

Twenty-four people, Representative Waxman, 24 people died getting it to that place.

Our contract ends, period, ends at the end of October.

Mr. WAXMAN. Mr. Mumm, you have to——

Mr. MUMM. OK. I am just keyed up. I am sorry. I am not trying

to be rude.

Mr. WAXMAN. As you can see, I have a red light and that means

I have a limit on time, and sometimes the witnesses like to get

keyed up and run our time out.

Mr. MUMM. Sorry.

Mr. WAXMAN. But this document is from the Department of the

Army, and we will certainly make it available to you. I am surprised you haven’t seen it, but it is their document of why they decided to abandon you and go to MidCon. You are saying you did

a good job. They say you didn’t. I would like to see that document

and I see no reason why we shouldn’t put it in the record.

How much profit did Bechtel make off this project? If you can

give me that answer quickly?

Mr. MUMM. One is, we weren’t working for the Department of

the Army, sir. They didn’t make a decision about whether or not

to remove us from the project. We instigated the idea.

Mr. WAXMAN. How much profit did you make?

Mr. MUMM. Our profit was not tied to either the cost or the days

or the schedule of that particular hospital.

Mr. WAXMAN. If you don’t have a number, please get it for me

for the record.

Mr. MUMM. We don’t have one tied to that. I’m sorry.

Mr. WAXMAN. OK.

Mr. MUMM. Our profit is actually a line item, and it is not tied

to the contract.

Mr. WAXMAN. It is a line item in the appropriations?

Mr. MUMM. Yes.

Mr. WAXMAN. This children’s hospital was supposed to be a

model for Iraq’s reconstruction. Instead, it has been a disaster,

with cost overruns, schedule delays and absence of oversight. Just

in my mind, I have to tell you, there is no wonder this reconstruction is failing. This is what the Iraqi people see, these kinds of

projects, these kinds of problems.

Mr. MUMM. What the Iraqi people will see is a quality installation. The Iraqis themselves are afraid to go there and work on this

installation. Again, I will reiterate, 24 people died. Our own site security manager was murdered. Our site engineer’s daughter was

kidnaped and he was forced to go. Our site manager was threatened by two different militia groups. They summarily marched out

our electrical mechanical contractor and murdered 12 of them. And

you probably saw in the press a few months ago where they took

our concrete supplier on one Saturday, the subcontractor providing

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the concrete and installing it, they took him out, marched him out

and executed 11 of them.

Under those circumstances, what we did in reaction to that was

focus very hard on bringing this hospital in, and we accomplished

that before our contract finished to a very stable state, and then

in a very transparent way, went to USAID and suggested that they

take a look at how we go forward with the hospital, which they did.

And the decision was made, since our contract was ending, that we

would turn that work over to the Corps of Engineers and we have

done exactly that.

We have one project that we have not finished in Iraq, and that

is it.

Mr. WAXMAN. OK. I am sorry for the losses of people and the difficulties. It is difficult in Iraq.

Mr. MUMM. It is profoundly difficult.

Mr. WAXMAN. Many people have suffered as a result. I want to

look at your document. I know what the Army said. It is a question

that I think we have to evaluate and I want to do it in a fair way.

Thank you.

Chairman TOM DAVIS. Let me just wrap up, both for Mr. Robbins

and Mr. Mumm. How do we stop the kind of problems that we had

at the Police Academy? What is the best way to ensure they don’t

occur? If we can’t look to the contractor to produce the result,

where are we supposed to look?

Mr. ROBBINS. A very valid question, Mr. Chairman. I think for

one thing it goes back to a point that was made I think by the GAO

witness this morning about requirements and resources, and I

would add time to that. The pressures on all the contractors to

complete these projects in time periods far less than it would take

to do this kind of work in the United States, let alone when, as Mr.

Mumm has so well articulated, and it is true for us as well, when

your subcontractors are being intimidated. There is no real rule of

law to govern business practices in the country. The amount of

oversight is probably much greater, not probably, it is definitely

much greater than the Government wants to allow, and in this

case, than the Government can guarantee us free access to the job

sites.

Chairman TOM DAVIS. How many employees have you lost in

Iraq?

Mr. ROBBINS. Fortunately, we have lost none of our U.S. employees. What we have lost, and I don’t have an exact count, but I

would guess across all of our contracts, at least two dozen Iraqi

subcontractor employees. Typically, they are Iraqi citizens.

Chairman TOM DAVIS. Mr. Mumm, how many have you lost?

Mr. MUMM. We have lost people and casualties associated with

our work are something about 101. Of those 52 died.

Chairman TOM DAVIS. OK. So it is tough doing business over

there, obviously.

Mr. MUMM. I’m sorry?

Chairman TOM DAVIS. It is obviously very, very difficult doing

business there, getting continuity, getting workers.

Mr. MUMM. It is difficult doing business there, but we did. We

went in. We said what we were going to do with USAID. We had

99 jobs orders and we did every one of them, and we did it in a

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way that sustained, and we have provided a platform for the Iraqi

people that they could build on if they had a stable environment

going forward. We are absolutely proud of what we did, and there

is no quality issue.

Chairman TOM DAVIS. Given the difficulties that you have had,

do you regret doing business in Iraq?

Mr. MUMM. I’m sorry?

Chairman TOM DAVIS. Do you regret doing business in Iraq in

retrospect? Or would you do the same thing over again?

Mr. MUMM. You know, I wish I could tell you. I have lived and

breathed Iraq for all these years since after the invasion. I wish I

could tell you how emotional I get about this, or just even coming

to this hearing today, all the people that wrote to me and said, tell

them this, tell them that. All of us feel attached to the Iraqis and

to the people there and to the things we did, and we wanted this

to work. You cannot imagine the imperative that we felt, the sense

of urgency, or the emotional investment and the tearful farewells

that we have. Absolutely, I don’t regret it.

Chairman TOM DAVIS. Who paid for the security forces for your

workers? Did you have to handle that yourself, or were those

passed through in the contracts?

Mr. MUMM. It was passed through in the contract, but we managed it ourselves.

Chairman TOM DAVIS. How about you, Mr. Robbins?

Mr. ROBBINS. Sir, on our constructionsites, we actually made site

security the responsibility of the Iraqi construction firm that was

doing the work. So our security costs reflected only the cost of protection and transportation for our expatriate employees in the

Green Zone, and then as they would travel to a job site.

Chairman TOM DAVIS. And you understood, Mr. Robbins, when

you took this contract that you would be hiring Iraqis to do most

of the work. Wasn’t that part of the policy?

Mr. ROBBINS. Absolutely.

Chairman TOM DAVIS. Let me ask you both, what kind of quality

have you had out of the Iraqi workers and the subcontractors? I am

going to ask you the same thing, Mr. Mumm.

Mr. ROBBINS. First of all, on the one hand, we have 600 Iraqis

working side by side with Parsons. So these were people that were

actually helping us administer and manage the contracts. When

you get 600 people, you will have a lot of good ones and maybe a

few not so good. The not so good ones you try to bring along, and

if they don’t work out, you dismiss them.

But I would echo Mr. Mumm’s comments about the dedication

and sincerity and hard work, the ethic that these people went

through every day just to get to work was mind-boggling. They

would have to take a circuitous route, different forms of transportation, then go stand in line at the gate at the Green Zone, at the

International Zone, which is the most vulnerable place you could

possibly be. You are a target waiting to go through all the detection

and inspection necessarily conducted by the U.S. forces guarding it.

On the other hand, the subcontractors, when you have 1,700 Iraqi

subcontractors, you’re going to have some good ones and you are

going to have some bad ones.

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Chairman TOM DAVIS. Did you have any problems, either one of

you, in people that you hired or had access to your sites, of people

trying to set it back, blowing it up, or anything else? Any problems

with that?

Mr. ROBBINS. You mean sabotage of our work?

Chairman TOM DAVIS. Sabotage.

Mr. ROBBINS. We did, yes, sir.

Chairman TOM DAVIS. You did.

Mr. MUMM. We had no problems with that. We actually instituted this in Iraq. We were the first ones in and we realized we

had to go local and go deep, just from all the years that I have

spent in the Middle East and Bechtel has. But institutional

strength is an important thing. You can bring people on that are

bright and energetic, but you need to teach them how to do it the

right way, get process and procedure. People don’t like that, but

you have to get process and procedure in place, and they respond

to it. And the Iraqis absolutely responded to it. They are so good

that where we can, we are trying to put Iraqis on other work that

we have in other places. They are just an outstanding group of people, and no sabotage.

Chairman TOM DAVIS. Maybe you ought to share your list with

Mr. Robbins and his group as they go through.

Mr. MUMM. Well, we are very covetous of our people. We hang

on to them.

Chairman TOM DAVIS. Mr. Waxman.

Mr. WAXMAN. Mr. Chairman, I am moved by the statements that

have been made, how difficult it has been for the contractors in

Iraq. But I have to put it somewhat in perspective with Parsons,

when we are told that 13 out of the 14 projects were not successful,

and the 14th was canceled. We are talking about these two projects

today. If those were the only ones, that would be one thing, but

when you have so many others.

If we are spending billions of dollars and we don’t get anything

for that money, we don’t get anything that is worthwhile and lasting, it is a waste of money. In Mr. Mumm’s cases, for his firm, it

was also a waste of many lives.

Now, we are looking at an Iraq that seems to be moving fast to

a civil war. If we have had problems up to now, I can’t imagine the

problems are going to get any easier. No doubt the Iraqi people are

looking to find out why we are there, and if we are there to help

them be more secure and get on their feet, I don’t think we can be

judged successful in that regard if we find more and more projects

not getting completed.

In fact, I worry about the Police Academy being a symbol for the

failure of this country in Iraq. I worry about our failures in the

health sector to be a reminder to people in Iraq that we haven’t

added to their well being. And their electricity and the drinking

water, and other things that people want and expect, and don’t

have on a regular basis, are a reminder to them that we haven’t

given them what they wanted, other than for most of them, maybe

most, or certainly many of them, we got rid of Saddam Hussein,

but they want a better life.

So I thank you for this hearing. I think it has been worthwhile.

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ficult circumstances, not just the contractors we hired and then

had to pay for their security, and that still wasn’t enough, but for

all the men and women we sent there who didn’t get paid as much

as the contractors and subcontractors, but in many cases are going

to have to live with the injuries for the rest of their lives, their psychological trauma, and of course, for those who are gone, the families trying to understand the loss in their lives.

That is the only comment I wanted to make.

Thank you, Mr. Chairman.

Chairman TOM DAVIS. I want to thank you for being here today,

for being patient with us.

The hearing is adjourned.

[Whereupon, at 1:50 p.m., the meeting was adjourned.]

[The prepared statements of Hon. Jon C. Porter and Hon. Stephen F. Lynch, and additional information submitted for the hearing record follows:]

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