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[Senate Hearing 108-561]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 108-561
 
                       USAID CONTRACTING POLICIES
=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
                   POLICY, EXPORT AND TRADE PROMOTION

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 25, 2004

                               __________

       Printed for the use of the Committee on Foreign Relations

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                 ------                                

                 SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
                   POLICY, EXPORT AND TRADE PROMOTION

                    CHUCK HAGEL, Nebraska, Chairman

LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
MICHAEL B. ENZI, Wyoming             JOHN D. ROCKEFELLER IV, West 
LAMAR ALEXANDER, Tennessee               Virginia
NORM COLEMAN, Minnesota              JON S. CORZINE, New Jersey
                                     CHRISTOPHER J. DODD, Connecticut

                                  (ii)

                            C O N T E N T S

                              ----------                              
                                                                   Page

Barton, Mr. Frederick D., co-director of Post Conflict 
  Reconstruction Programs, Center for Strategic and International 
  Studies, Washington, DC........................................    32
    Prepared statement...........................................    35
    Responses to additional questions for the record from Senator 
      Lugar......................................................    56
Beans, Mr. Timothy, Director, Office of Procurement, U.S. Agency 
  for International Development, Washington, DC..................     7
    Prepared statement...........................................     9
    Responses to additional questions for the record from Senator 
      Lugar......................................................    55
    Responses to additional questions for the record from Senator 
      Hagel......................................................    58
    Response to an additional question for the record from 
      Senator Sarbanes...........................................    60
Burman, Dr. Allan V., President, Jefferson Solutions, division of 
  the Jefferson Consulting Group, LLC, Washington, DC............    37
    Prepared statement...........................................    40
Hagel, Hon. Chuck, U.S. Senator from Nebraska, opening statement.     1
Mosley, Hon. Everett L., Inspector General, U.S. Agency for 
  International Development, Washington, DC......................     2
    Prepared statement...........................................     5
    Responses to additional questions for the record from Senator 
      Lugar......................................................    53
    Responses to additional questions for the record from Senator 
      Hagel......................................................    58
Stevenson, Mr. Marcus L., director of Grants and Contracts, The 
  Urban Institute, Washington, DC................................    44
    Prepared statement...........................................    48
    Responses to additional questions for the record from Senator 
      Lugar......................................................    57

                                 (iii)

                       USAID CONTRACTING POLICIES

                              ----------                              

                      WEDNESDAY, FEBRUARY 25, 2004

                           U.S. Senate,    
     Subcommittee on International Economic
                Policy, Export and Trade Promotion,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:38 p.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel 
(chairman of the subcommittee), presiding.
    Present: Senator Hagel.

                opening statement of senator chuck hagel

    Senator Hagel. Good afternoon. This hearing of the Senate 
Foreign Relations Subcommittee on International Economic 
Policy, Export and Trade Promotion will examine USAID 
contracting policies, focusing in particular on USAID 
contracting policies toward Afghanistan and Iraq.
    American reconstruction efforts in Afghanistan and Iraq are 
critical to successful political transitions in both countries. 
Since 2001, USAID has been allocated approximately $1 billion 
for reconstruction assistance in Afghanistan. Although the 
majority of the more than $20 billion in reconstruction 
assistance appropriated for Iraq is under the control of the 
Department of Defense and the Coalition Provisional Authority, 
USAID has so far awarded 11 reconstruction contracts in Iraq 
worth $3.3 billion.
    The primary reconstruction project in Afghanistan has been 
the Kabul-Kandahar highway. In December 2003, the Louis Berger 
Group, a leading American engineering and construction firm and 
the USAID contractor for this project, completed phase I of the 
reconstruction of the highway. In the spring and summer of this 
year, additional layers of asphalt will be laid. The cost of 
phase I of this project was $190 million; the total cost of the 
completed highway is projected to be $270 million. According to 
the November 2003 report issued by USAID Inspector General 
Mosley's office regarding progress of the Kabul-Kandahar 
highway, and according to Mr. Mosley's written testimony today, 
who we will hear from later, the Louis Berger Group did not 
adequately update USAID on changes in its implementation plan 
and schedule during phase I of the project. I would welcome 
testimony from both USAID witnesses regarding the schedule and 
plan for implementation of phase II of the highway's 
construction.
    Because of the urgency of the situation in Iraq, in the 
spring of 2003, USAID issued solicitations and awarded nine 
contracts for reconstruction in Iraq, bypassing the full and 
open competition process which normally governs USAID 
contracting. While limited competition rules, as they are 
known, may have had certain benefits given the crisis in Iraq, 
the contracting process has also raised questions about 
oversight and accountability of our Iraq reconstruction 
programs.
    USAID contracting policies in Iraq, Afghanistan, and 
throughout the world should reflect the best practices and 
values of American foreign policy and business. Our policies 
should encourage transparency and accountability, and empower 
the peoples of the recipient countries by developing and 
expanding their private sectors and providing local jobs.
    Some of the problems and challenges in the USAID 
contracting and procurement process may be linked to management 
and staffing decisions over the past decade. An August 2003 GAO 
report noted that USAID has evolved from an Agency in which 
U.S. direct-hire staff directly implemented development 
projects to one in which U.S. direct-hire staff oversee the 
activities of contractors and grantees. Between 1992 and 2002, 
USAID direct-hire staff declined by 37 percent overall and 42 
percent overseas, during a decade when USAID program funding 
increased by more than 50 percent. USAID staff deployed abroad 
to oversee these major foreign assistance and reconstruction 
projects may not have the contracting and procurement expertise 
required for proper oversight and accountability.
    USAID's contracting policies do not exist in a vacuum. They 
cannot be separated from USAID's overall policies and 
procedures for foreign assistance. USAID contracting policies 
also cannot be considered in isolation of overall U.S. policy 
objectives in Iraq, Afghanistan, or elsewhere in the world.
    I welcome and look forward to the testimony of today's 
witnesses. The first panel will include the Honorable Everett 
L. Mosley, USAID Inspector General and Mr. Timothy Beans, 
USAID's Director of Procurement. The second panel includes Mr. 
Frederick Barton, co-director of Post Conflict Reconstruction 
Programs at the Center for Strategic and International Studies; 
Dr. Allan Burman, president of Jefferson Solutions; and Mr. 
Marcus Stevenson, director of Grants and Contracts at the Urban 
Institute.
    Gentlemen, we are all grateful for your testimony and your 
time today and your availability and we appreciate very much 
your coming forward with that testimony and look forward to an 
opportunity to exchange views during a question and answer 
period.
    With that, Mr. Mosley, if you would begin, we would 
appreciate it.

STATEMENT OF HON. EVERETT L. MOSLEY, INSPECTOR GENERAL, UNITED 
          STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

    Mr. Mosley. Mr. Chairman, other committee members, and 
committee staff, thank you for the opportunity to provide my 
testimony today on the USAID contracting practices. As you have 
requested, my testimony will focus on USAID's overall 
contracting procedures with emphasis on programs in Afghanistan 
and Iraq, and I will provide my full statement for the record.
    Senator Hagel. All statements will be included in the 
record, so if you feel more comfortable with summarizing your 
statement, that is perfectly fine.
    Mr. Mosley. Mr. Chairman, my office has a continuing 
program to review USAID's procurement operations. These reviews 
consist of pre-award audits, incurred cost audits, and contract 
close-out audits that are performed by my staff, by contracted 
public accounting firms, and by the Defense Contract Audit 
Agency under a reimbursable agreement with my office. In 
addition, we conduct other audits and investigations as 
determined necessary. For example, we have conducted a series 
of audits to examine whether USAID cognizant technical officers 
[CTOs] are properly trained and accountable for performing 
their duties. Cognizant technical officers play a crucial role 
in helping ensure that contractors deliver the goods and 
services contracted for.
    We have done work in Washington and several USAID missions 
overseas, and while we have not yet completed the work and 
reached an overall conclusion, audit work to date indicates 
that many cognizant technical officers are not adequately 
trained to perform their CTO duties. We are in the process of 
finalizing our summary audit report which includes 
recommendations to ensure that CTOs receive specific training 
on a timely basis, and CTO accountability is improved by 
including their responsibilities in their work objectives.
    In response to a request from the Administrator, my office 
has provided advice on accountability and control issues for 
their Afghanistan assistance program from the beginning of the 
process. For example, OIG representatives serve as observers at 
meetings of the Central Asian Task Force established prior to 
the opening of the USAID mission in Afghanistan to plan 
Afghanistan activities. In addition, my staff visited 
Afghanistan to perform preliminary risk assessments of the 
USAID programs and developed an audit strategy.
    The audit strategy included a concurrent financial audit 
program as well as performance audits. We are conducting 
current financial audits of costs incurred under USAID's 
Afghanistan program. These financial audits are being conducted 
by a public accounting firm in-country, and the Defense 
Contract Audit Agency here in the United States. The audits in 
Afghanistan are supervised closely by my staff to ensure audit 
quality. The first of these quarterly financial audits was 
issued on January 23, 2004, and it covered about $1.2 million 
in local costs paid in Afghanistan, of which $29,000 was 
questioned.
    My office has also included a report on the progress of the 
Kabul-Kandahar highway rehabilitation. The report described 
both successes and challenges that have caused project delays. 
As of November 1, 2003, contractor reports showed that 222 
kilometers of the 389 kilometer road project had been paved and 
USAID stated that they planned to have the entire 389 
kilometers completed with an acceptable interim paved surface 
by the end of December 2003. USAID subsequently reported that 
that was achieved. Our next reviews will examine enhancements 
to the Kabul-Kandahar highway which you have referred to as 
phase II and we will expand our coverage to implementation of 
other activities being undertaken in Afghanistan.
    Our work on contracting in support of the Iraq program is 
being conducted in three phases: (1) by examining the decision 
to use less than full and open competition; (2) examining 
compliance with the Federal acquisition regulations in awarding 
the contracts; and (3) conducting concurrent financial audits 
and performance audits in Iraq. We found that the use of less 
than full and open competition in awarding contracts was 
allowed by the Federal Acquisition Regulations with a written 
determination that the use of full and open competition would 
be inconsistent with the fulfillment of the Foreign Assistance 
Program. The Office of the Administrator made this written 
decision on January 16, 2003.
    To date, USAID has awarded 11 reconstruction contracts 
totaling $3.3 billion. My office had reviewed 10 of these 
contracts with a value of $1.5 billion, the latest contract 
being the majority of the dollars, which was just recently 
issued. These reviews indicate that USAID has done a good job 
of processing these contracts under a tight time frame to 
support reconstruction programs in Iraq. We concluded that 
USAID complied with Federal acquisition regulations applicable 
to these contracts with the following exceptions:
    We noted weaknesses in USAID's documentation in market 
research efforts to identify prospective contractors. In one 
case USAID staff should have consulted with the Office of 
General Counsel on a potential conflict of interest issue. And 
USAID did not provide one offeror with timely notification that 
an award had been made, and did not provide timely debriefings 
to three unsuccessful offerors.
    In addition to these instances of non-compliance with 
acquisition regulations, we identified some other areas where 
contracting practices might be improved: fully documenting what 
was discussed in pre-solicitation meetings; full documentation 
of actual or potential needs to support the level of effort set 
out in contracts; making appropriate decisions on the need for 
facility clearances before awarding of contracts; and, assuring 
that contractors meet all legal requirements before deciding to 
award contracts.
    My office has also conducted concurrent financial and 
performance audits in Iraq. Specifically, we have initiated 33 
financial audits covering costs incurred by contractors in 
implementing the USAID program to rebuild Iraq. These audits 
are being conducted by the Defense Contract Audit Agency. To 
date, we have issued 22 audit reports covering about $35 
million in USAID funds. The audits have reported $339,646 in 
questioned costs, which includes about $276,000 in ineligible 
costs and about $64,000 in unsupported costs.
    We have also conducted one performance audit that examined 
the accuracy of results data compiled and reported by USAID for 
its education activities in Iraq. We are also currently 
drafting that audit report.
    We will be conducting additional reviews of performance in 
Iraq during the fiscal year of 2004 to examine the outcome of 
contracted rehabilitation work. We have also initiated 
proactive investigative work in Iraq that would include 
continual reviews and assessments of contracts and contract 
files to determine areas of potential vulnerability. In 
addition, contacts with key personnel involved in the efforts 
has been initiated. We are investigating any allegations of 
wrong-doings in Iraq programs.
    That concludes my testimony, and I will be willing to 
answer any questions that you have.
    [The prepared statement of Mr. Mosley follows:]

              Prepared Statement of Hon. Everett L. Mosley

    Mr. Chairman, other committee members, and committee staff, thank 
you for the opportunity to provide testimony on the U.S. Agency for 
International Development's (USAID's) contracting practices. As you 
have requested, my testimony will focus on USAID's contracting 
processes, with emphasis on programs in Afghanistan and Iraq.
    My office has a continuing program to review USAID's procurement 
operations. These reviews consist of pre-award audits, incurred cost 
audits, and contract close-out audits that are performed by my staff, 
by contracted public accounting firms, and by the Defense Contract 
Audit Agency through a reimbursable agreement with my office. In 
addition, we have conducted a series of audits to examine whether 
USAID's Cognizant Technical Officers are properly trained and 
accountable for performing their duties. Cognizant Technical Officers 
play a crucial role in helping ensure that contractors deliver the 
goods and services contracted for.
                      cognizant technical officers
    To date, we have completed work in three USAID bureaus in 
Washington and six USAID missions overseas. While we have not yet 
reached overall conclusions, audit work to date indicates that many 
Cognizant Technical Officers are not adequately trained to perform 
Cognizant Technical Officer duties. We are in the process of finalizing 
our summary audit report to USAID which includes recommendations to 
ensure that (1) CTOs receive specific training on a timely basis to 
become eligible for certification, and (2) CTO accountability is 
improved by including their responsibilities in their work objectives.
                              afghanistan
    In response to a request for assistance from USAID's Administrator, 
my office has provided advice on accountability and audit issues for 
the Afghanistan assistance program. For example, OIG representatives 
served as observers at meetings of the Central Asian Task Force 
established prior to the opening of the USAID mission in Afghanistan to 
plan assistance activities. Additionally, prior to the awarding of the 
major contract for the rehabilitation of economic facilities and 
services program in Afghanistan, USAID's Bureau for Asia and the Near 
East requested the OIG's cooperation in identifying appropriate audit 
coverage of the contract. Shortly after the contract was awarded, my 
staff visited Kabul to perform a preliminary risk assessment of the 
USAID program and develop an audit strategy.
    The audit strategy includes a concurrent financial audit program as 
well as performance audits. A series of concurrent financial audits are 
planned of costs incurred under the USAID/Afghanistan rehabilitation of 
economic facilities and services program. These concurrent financial 
audits are designed to disclose accountability issues at an early 
stage, before larger sums of money are put at risk. These audits are 
conducted by a public accounting firms and the defense contract audit 
agency. The audits in Afghanistan are supervised closely by my office 
to ensure audit quality. The first of these financial audits, issued on 
January 23, 2004, covered about $1.2 million in local costs paid in 
Afghanistan of which about $29,000 was questioned by the auditors.
    My office has also issued a report on the progress of the Kabul-
Kandahar highway rehabilitation. The report described both successes 
and challenges that had caused project delays. As of November 1, 2003, 
Louis Berger progress reports showed that 222 kilometers of the 389 
kilometer road project had been paved and USAID officials stated that 
they planned to have the entire 389 kilometers of road completed with 
an acceptable interim paved surface by the end of December 2003. USAID 
subsequently reported that this was achieved. Our report also noted 
that Louis Berger had not updated its implementation plan required 
under the contract to reflect changes made to the road reconstruction 
schedule. Therefore, we recommended that USAID require Louis Berger to 
maintain an updated implementation plan for its activities under the 
contract.
                                  iraq
    Our work on contracting in support of the Iraq program is being 
conducted in three phases: (1) examining the decision to use less than 
full and open competition for nine contracts, (2) examining compliance 
with the Federal Acquisition Regulations in awarding contracts, and (3) 
conducting concurrent financial audits and performance audits of the 
program.
    USAID has used less than full and open competition in awarding nine 
of eleven contracts awarded to date. Subpart 6.3 of the Federal 
Acquisition Regulations and section 706.302 of the USAID acquisition 
regulations allow use of less than full and open competition when the 
USAID Administrator makes a written determination that use of full and 
open competition would be inconsistent with the fulfillment of the 
foreign assistance program. The office of the USAID Administrator made 
this determination in writing on January 16, 2003. The OIG advised the 
ranking member of the Senate Committee on Governmental Affairs of this 
determination in a letter dated April 14, 2003.
    To date, USAID has awarded eleven reconstruction contracts totaling 
$3.3 billion. These contracts relate to economic governance, education, 
infrastructure reconstruction, personnel support, seaport 
administration, local governance, monitoring and evaluation, health, 
airport administration and agriculture.
    To date, my office has reviewed ten of these contracts with a value 
of $1.5 billion. We have issued nine final memorandums on these reviews 
and a tenth memorandum is in draft at this time. We plan to review 
additional contracts as they are awarded during the remainder of FY 
2004.
    These reviews indicate that USAID has done a good job of processing 
these awards under tight timeframes to support the reconstruction 
program in Iraq. Based on the reviews completed to date, my office 
concluded that USAID complied with the acquisition regulations 
applicable to these contracts with the following exceptions:

   For three contracts, the auditors noted weaknesses in 
        USAID's documentation of its market research efforts to 
        identify prospective contractors.

   For one contract, USAID staff should have consulted with its 
        office of general counsel on a potential conflict of interest 
        issue.

   For one contract, USAID did not provide one offeror with 
        timely notification that an award had been made and did not 
        provide timely debriefings to three unsuccessful offerors.

    In addition to these instances of non-compliance with acquisition 
regulations, my office identified some other areas where contracting 
practices might be improved:

   For two contracts, we concluded that USAID should fully 
        document what is discussed in pre-solicitation meetings with 
        potential offerors.

   For two contracts, the level of effort initially estimated 
        by USAID varied significantly from actual needs.

   For two contracts, USAID initially determined that 
        contractors would need a facilities clearance and accordingly 
        included this requirement in the request for proposals. After 
        it found that the selected contractors did not have the 
        requisite facilities clearances, USAID deleted the requirement.

   For one contract, where a request for proposal did not 
        require that offerors provide evidence of their legal status, 
        the selected offeror's status as a corporation had lapsed. 
        However, the offeror became aware of this problem and corrected 
        it prior to signing the contract with USAID.

    In addition to this work which focused on contracting processes 
associated with the Iraq program, my office has also conducted 
financial and performance audits in Iraq itself.
    Specifically, we have initiated 33 financial audits covering costs 
incurred by contractors implementing the USAID program to rebuild Iraq. 
These audits are being performed by Defense Contract Audit Agency 
auditors located in Baghdad and Kuwait City and in DCAA regional 
offices in the U.S. the audits will examine the propriety of costs 
incurred under these contracts and the contractors' internal control 
systems. The OIG will review and issue final reports to USAID to ensure 
that USAID collects any questioned costs due to USAID and takes action 
on any identified management and financial system weaknesses. To date, 
we have issued 22 audit reports covering about $35 million in USAID 
funds. The auditors questioned $339,646, which included $275,772 in 
ineligible costs and $63,874 in unsupported costs.
    In addition, we have conducted one performance audit that examined 
the accuracy of results data compiled by USAID for its education 
activities in Iraq. My staff is drafting a report on the results of 
that audit now. We will conduct additional performance audits in Iraq 
during fiscal year 2004.
    Proactive investigative work will include continual review and 
assessment of contracts and contract files to determine areas of 
potential vulnerability. In addition, contacts with key personnel 
involved with the effort have been initiated. The OIG will investigate 
any allegations of wrongdoing in the Iraq program.
    Again, thank you for the opportunity to testify today. I will be 
happy to respond to any questions you may have.

    Senator Hagel. Inspector General Mosley, thank you very 
much.
    Mr. Beans.

 STATEMENT OF TIMOTHY BEANS, DIRECTOR, OFFICE OF PROCUREMENT, 
       UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

    Mr. Beans. Thank you, Mr. Chairman and members of the 
committee. I want to thank you very much for the opportunity to 
provide testimony for USAID and our contracting policies in 
Iraq and Afghanistan. Your specific letter to me requested my 
testimony to focus on contracting procedures with emphasis on 
programs in Afghanistan and Iraq. I will address the specific 
challenges, the lessons learned, and the policies and 
procedures that assured transparency and accountability.
    Now you have my written statement. Instead of just reading 
that, I would like to go to some other remarks that I have that 
may get to some of the issues that have been brought in the 
letter.
    Certainly, in the area of lessons learned, one of the 
things that is obvious to us in contracting is that the sooner 
one begins to plan for acquisitions the better the end product 
is going to be that you eventually get. Again, as to current 
planning, it is imperative to successful contracting and 
maximizes competition. It allows the staff to appropriately 
document the files. And of course, it holds down audit 
findings.
    It is very difficult and challenging to gear up for a 
large, determined initiative such as Iraq and Afghanistan given 
the aggressive time lines, the huge sums of money that were 
involved, and the intense scrutiny from Congress, the press, 
and from other sources.
    The Agency can do a better job if adequate resources are 
provided along with the new financial requirements. The initial 
contract with Bechtel was $680 million. We had an additional 
$300 million during the course of the contract which was 
abridged until we could make an award of a full and open 
competition contract. That award was also won by Bechtel and 
subcontracted with the Parsons Corporation, totaling $1.8 
billion, and was the largest award in the 42-year history of 
the Agency. In fact, the Administrator of USAID, Mr. Andrew 
Natsios, said that the two contracts comprised the largest 
single country foreign aid program since the Marshall Plan.
    Now, I have got to tell you that I am very proud of the 
Agency's efforts in supporting U.S. goals in Iraq and 
Afghanistan. However, these efforts have not been accomplished 
without some difficulties.
    As you alluded to in your testimony, Mr. Chairman, during 
the 1990s the Agency witnessed a rather large downsizing of 
personnel. My office was affected very much by this downsizing. 
In 1995, the Office of Procurement consisted of approximately 
170 individuals to handle about $4.5 billion worth of 
obligations a year. Today, the same office consists of 123 
people. During that time, the amount of money we had been asked 
to obligate has more than doubled to just over $12 billion a 
year.
    While we have been very successful in making the original 
awards, we are also doing everything we can to assure that 
taxpayers of this country are receiving value for these 
expenditures. This includes moving U.S. direct-hire staff to 
Iraq and Afghanistan to provide contractual oversight of these 
contracts. We are also hiring personal service senior 
contracting talent from around the world that has worked with 
us in other countries on direct construction contracts to help 
administer these awards.
    We have also developed a special program that will allow us 
to bring in foreign service nationals from around the world 
from the various missions that we have that can serve in either 
of these countries at much higher rates than they would receive 
if they stayed and worked in their own country.
    We are presently also planning back office contract support 
for Iraq from our mission in Jordan. We're going to hire two 
contracting officers and FSN staff which will support the Iraq 
efforts and help them with TDYs and overseeing the work there. 
We're also adding two contracting officers and an additional 
FSN staff in Bangkok, Thailand, to help with the Afghanistan 
contracts. We are making sincere efforts to make sure that we 
have adequate staff to oversee these contracts from a 
contractual point of view.
    It is important to me that we provide this oversight 
because procurement involves the expenditure of taxpayers 
dollars. This is the concern that is constantly with me. I must 
assure that the public trust is maintained, which is why I am 
very, very concerned about the oversight of these contracts in 
these two countries.
    We are doing everything possible to ensure that we have 
adequate people to protect taxpayers money. We are also pleased 
that the IG has made a commitment of people to make sure that 
things are being done properly. And the IG presently has staff 
in both Afghanistan and Iraq. We are also working with the 
Defense Contract Audit Agency to perform concurrent audits on 
all of our contracts so that we can identify any problems early 
on.
    Let me go away from my notes and let me go to something 
that Everett spoke to earlier. He identified three weaknesses 
within the contracting procedure, and I just want you to know 
that there can be honest difference of opinion between the 
contracts office and the IG on how we see certain things.
    Now you might say, how can an IG and a contracts person 
differ over reading the same set of regulations? And I thought 
about that, and I very quickly thought about the Supreme Court 
of the United States, and how we can have nine of the greatest 
justices in the world, and how can we get a five-to-four 
decision. They're reading the same Constitution and yet they 
interpret it differently.
    I have had a very good working relationship with Everett's 
office and much of the work he has done has helped improve my 
office. We have made changes which have made this office better 
as a result of IG audits. But, some of the differences of 
opinion are, for example, he said that we forgot to document 
market research. I read the contract and from my point of view 
as a procurement executive, we documented market research. We 
said where we went to, how we did this. Did we document it as 
well as we could have? No, sir, we did not. I mean, obviously, 
we could have gone into detail and listed the name of the 
person contacted and telephone numbers. However, we did 
document it and given the incredible time constraints that we 
were under, I felt that we did a very good job.
    There was one instance where they said that we should have 
consulted with GC on an organizational conflict of interest. In 
fact, we did discuss with GC at length on the organizational 
conflict of interest and would not have made the decision we 
did without that input. Unfortunately, when they went to the 
file they could not find written documentation from GC prior to 
our decision on that thing. We went back to GC who gave us a 
detailed, lengthy discussion, and we now have documentation 
which says this was done prior to the decision.
    Other differences of opinion concerning timely notification 
of awards and timely debriefings had to do with the initial 
award of the Bechtel contract. That was a situation where, 
after we made the award to Bechtel, the front page of the 
Washington Post, New York Times and every other major newspaper 
in the country, the next day announced the award.
    Now, we're supposed to within 3 days notify the losing 
contractors. We had talked to them on the phone, and they knew 
that they had lost. However, we did not officially send a 
letter out until after the 3-day period. But we gave them 
written debriefings on what took place. We gave them oral 
debriefings. We flew in the technical officers from around the 
world that served on the panel and provided that briefing.
    So, these are areas that we could have done a better job, 
and I absolutely agree. I just think that they need to be put 
in context. I think with that, I will end the testimony and 
respond to questions from the panel. Thank you.
    [The prepared statement of Mr. Beans follows:]

                  Prepared Statement of Timothy Beans

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to provide testimony on the U.S. Agency for International 
Development's (USAID) contracting policies. As you have requested, my 
testimony will focus on USAID's contracting processes, with emphasis on 
programs in Afghanistan and Iraq. I will address the specific 
challenges, the lessons learned, and the policies and procedures that 
assure transparency and accountability.
    USAID's purchase of goods and services are done under the authority 
of the Foreign Assistance Act. The Foreign Assistance Act mandates, as 
a rule, a preference for American firms to carry out U.S. foreign aid 
programs.
    Under the initial Emergency War-time Supplemental in FY 2003, I am 
very proud to note that my office obligated approximately $2.1 billion 
of the $2.5 billion appropriated for the Iraq Relief and Reconstruction 
Fund in support of U.S. efforts to rebuild Iraq after the war.
    During this initial period, we awarded contracts for personnel 
support, airports, seaports, reconstruction, education, health, local 
governance, economic growth and agriculture. Based on the need to act 
quickly following the end of active hostilities, we chose to do a 
limited competition for most of the initial awards. Although the vast 
majority of USAID's procurements are conducted using fully competitive 
procedures, the Federal Acquisition Regulations grant the Administrator 
the authority to waive normal contracting procedures by making a 
written determination ``that compliance with full and open competitive 
procedures would impair foreign assistance objectives, and would be 
inconsistent with the fulfillment of foreign assistance programs.''
    Under the second Iraq supplemental, USAID was the first agency to 
make an award in support of the continuing efforts in Iraq, with a $1.8 
billion contract to Bechtel for infrastructure support utilizing full 
and open competition. The award was made under ideal contracting 
circumstances in that the highest technical scored proposal also was 
the lowest cost proposal submitted.
    While we are very proud of our efforts in supporting U.S. goals in 
Iraq and Afghanistan, these efforts have not been accomplished without 
some difficulties. The urgency of these actions made for difficult and 
challenging circumstances. We have been very creative in trying to meet 
the shortage of personnel that would normally be needed for this large 
an undertaking. However, a review of the numerous audits performed by 
our Inspector General's (IG) Office will show that we followed federal 
procurement rules and regulations in the award of these contracts, with 
minor exceptions. The IG audit report also pointed out things we could 
have done better to strengthen our procurements, particularly in the 
area of additional documentation. Many of the suggestions have already 
been implemented. We have a good working relationship with the Office 
of Inspector General and will continue to work closely with this office 
to ensure compliance with all relevant regulations.
    As Director of the Office of Procurement, one of my major goals is 
to make sure we are as open and transparent as possible in our 
procurement process. We have made very serious efforts to be as 
transparent as possible by making available virtually everything we 
legally can on our Web site. Steven l. Schooner, Associate Professor of 
Law at George Washington University Law School, recently wrote at a 
Government Contracts Year in Review conference that USAID ``. . . has 
endeavored (for the most part successfully) to provide information 
relating to its contracting activities on its Web page.'' He goes on to 
say that, ``. . . I believe that USAID has set a new standard for 
transparency in public procurement.''
    This is exactly the kind of open and transparent agency we are 
striving to be. We will continue to expand our efforts to meet the very 
high standard we have set for ourselves.
    Given the large increases in our budget with Iraq and Afghanistan 
and beginning in FY 2004, we have gone from an annual obligation of 
just over $6 billion in 2001 to approximately $12 billion in 2003. 
While we have been very successful in making the critical awards, we 
are also doing everything we can to assure that the taxpayers of this 
country are receiving value for their expenditures. This includes 
moving U.S. direct-hire staff to Iraq to oversee the contracts as well 
as hiring senior contracting talent to help administer these awards. We 
are also requesting support from the IG's office and audit support from 
the Defense Contract Audit Agency to make sure that funds are being 
spent appropriately and accounted for properly. As such, this is an 
area that we will want to monitor very closely over the coming months 
and years.
    You will note I spoke more to the Iraq contracts than I did the 
Afghanistan contracts. The reason for this is that we negotiated the 
Iraq contracts here in Washington, and then sent them over to Iraq for 
administration. Afghanistan is a stand-alone mission and has its own 
contracting staff, so the awards in support of Afghanistan have been 
run from the USAID mission in Kabul. As a result, we here in Washington 
are much more familiar with the Iraq actions than we are the 
Afghanistan procurements.
    Mr. Chairman, I would be pleased to answer any questions you and 
the Committee members may have.

    Senator Hagel. Mr. Beans, thank you very much.
    Mr. Beans. You're very welcome.
    Senator Hagel. And, your written statement will be 
included.
    Mr. Beans. Thank you.
    Senator Hagel. As I noted before in the record. Thanks to 
both of you for taking the time to prepare your statements and 
prepare yourself for the hearing. We appreciate it very much. 
Mr. Mosley, let me begin with you. How do you assure follow-up 
and oversight, you mentioned this in your statement, of the 
recommendations made in your reports, particularly on 
contracting in Iraq and Afghanistan? And I have a follow-up 
question to that.
    As I noted in my statement, and was noted by Mr. Beans, the 
manpower of your Agency has diminished significantly as the 
dollars and responsibilities have increased. So, in addition to 
the first part of the question, how many IG officials do you 
have now in Iraq? I know that you mentioned moving from Jordan, 
from the Jordan mission a couple of people. I don't know if 
those are IG people or if they're your people. Also, how many 
are in Afghanistan? And then, Mr. Mosley, do you believe that 
manpower is enough?
    Mr. Mosley. Well, first of all, the way that we follow up, 
Senator, on any recommendations that we make, we have a policy 
that all recommendations have to be answered within 6 months 
from the time that we make the recommendation. So we 
periodically get together with management to try to determine 
what action has been taken.
    Then we have to report in our semi-annual report, and there 
is a reconciliation with management at that time, at March 31 
and at September 30, of all recommendations that we made from 
the Office of Inspector General to ensure that action has been 
taken.
    Where there has not been adequate action, in which we have 
agreed upon between management and the IG's office, we report 
that in our semi-annual report to you here in Congress and then 
we continue to work on those. Once there is an agreed-upon 
management decision, final action on all recommendations has to 
be taken within one year from that date of agreement. So there 
is a process and regulation that we use to follow up on all 
recommendations.
    In reference to your question regarding the number of 
people we have in Iraq, currently we have four people in Iraq. 
They are on a temporary duty, and that duty ends March 31. We 
then plan to expand and go to six people in Iraq starting April 
through June. And then in July, we hope to open an office in 
Iraq because of the large amount of money that is going into 
Iraq. And for the period of time that these projects will take, 
we hope to open an office there with about seven auditors and 
one investigator beginning July 1, and those will be one-year 
assignments.
    In terms of whether we have enough staff to do the work 
that we have been assigned, I would never want to tell you that 
we have too many people for the work that we have been 
assigned. Our staffing has not increased.
    As you know, as a result of the Consolidated Appropriation 
Act of 2004, we have now been assigned IG responsibilities for 
the Millennium Challenge Corporation. That provides additional 
funds so that we can expand and maybe hire more people either 
through contracting or through direct-hired staff to accomplish 
that work, as well as the work that we have in USAID, African 
Development Foundations and the Inter-American Foundation.
    In terms of Afghanistan, we do not have any people assigned 
to Afghanistan. We are doing the work in terms of the 
concurrent financial audits through a CPA firm that is out of 
Pakistan with affiliations with one of the big four here in the 
United States and we monitor their work.
    In terms of the performance audit work, we are sending 
people in from our Manila office. They go in about once every 
other month and stay for a period of 2 or 3 weeks to accomplish 
their work.
    Senator Hagel. You have no people in Afghanistan?
    Mr. Mosley. No people permanently assigned to Afghanistan, 
but they are in and out on a rotating basis.
    Senator Hagel. According to my information for Afghanistan, 
USAID obligations are $976 million, USAID disbursements, $442 
million. Do you think having no people on your staff in 
Afghanistan is the right way to do this?
    Mr. Mosley. We think it is.
    Senator Hagel. With those kinds of volumes and those kinds 
of numbers?
    Mr. Mosley. We think it is at this point.
    Senator Hagel. Yes.
    Mr. Mosley. Because I don't want to lead you to believe 
that there is no coverage. As I said, we have a CPA firm that 
has been there on an almost constant basis doing their work in 
terms of the concurrent financial's and then we go in to review 
their work and we issue their reports. And then we have people 
going in on a periodic basis not less than every other month 
from our Manila office to do work and they are in for 2 and 3 
weeks at a time.
    We also send people out from Washington. My assistant 
Inspector General for Audits has been to Afghanistan. He was 
there in November, and one of the gentlemen here with me today, 
a Deputy Assistant Inspector General for Audits, will be going 
there next week. So we are giving it, what we believe, is 
adequate coverage at this time.
    Senator Hagel. So essentially, USAID obligations of about a 
billion dollars in Afghanistan and you feel comfortable having 
no one from your office there for the oversight 
responsibilities that you have?
    Mr. Mosley. I feel comfortable that we are giving adequate 
coverage. If I had more people to assign and could open an 
office I would consider that. But I think we are giving it the 
coverage that we can at this point. And I don't want to lead 
anybody to believe that because no one is assigned there we are 
not giving adequate coverage. I think we are giving, certainly, 
a lot of coverage.
    Senator Hagel. So is your point, the main reason that you 
do not have anyone there is that you do not have the people?
    Mr. Mosley. I do not have the people or the money to assign 
people there.
    Senator Hagel. How would you say that billion dollars 
stacks up with other missions around the world? Is that not 
unusual to not have anyone from your office in a country that 
has that much volume?
    Mr. Mosley. That's quite possible because we don't have 
offices in every location that the Agency has missions. We have 
six regional offices around the world. Our offices cover a 
number of countries by traveling, just like the people from 
Manila are doing in Afghanistan. When we have coverage in an 
office like Iraq, that's a lot of money and we will have an 
office in Iraq that will be dealing only with Iraq, whereas the 
other offices will be regional in nature.
    Senator Hagel. Let me ask both of you, and you mentioned 
this, Mr. Mosley, in your testimony, I believe at the 
beginning, the cognizant technician officer issue. And for the 
shorthand, I think this is the way that you refer to them, 
CTOs. How many CTOs do you have on the ground in Iraq?
    This would probably be for you, Mr. Beans.
    Mr. Beans. Mr. Chairman, we presently have two or three 
CTOs on the ground, actual U.S. direct-hire CTOs. The way that 
the Agency has tried to handle this was the initial contract 
that we awarded for Iraq was with a firm called IRG 
Corporation. They have acted as back-door support for our 
mission director and deputy mission director, doing a lot of 
the day-to-day work that normal government contracting people 
would do. That's from a CTO point of view.
    We actually have had more contracting officers in country. 
At one time we had five contracting officers in-country. We now 
have four, with someone slated to go over shortly to make it 
five people in country.
    Because of my concern with the oversight of the Bechtel 
contract, the big contract, we asked the Army Corps of 
Engineers to take over administrative contracting authority for 
us and oversee the contract as a quasi-extension of our staff. 
They are experts in this particular area, they know 
construction, and so that alleviated a lot of the concerns that 
I had over oversight of Bechtel.
    Your initial question was, am I happy with the oversight 
that we have got? I believe that we're OK at this point in 
time. But, when you're a career Foreign Service officer and you 
reserving under a warrant--I don't know if you understand what 
a warrant is, but contracting officers that receive a warrant 
are able to bind the Federal Government and can be held 
personally liable for anything that they do. They can go to 
jail as a matter of fact if they violate rules and regulations.
    So, when you have that kind of authority and responsibility 
with this kind of money, I don't know if I can have enough 
people over there to oversee this kind of contract. It is a 
constant concern regardless whether it is Iraq, Afghanistan or 
if it is Bangladesh or India. I am always concerned about 
making sure taxpayers dollars are used correctly.
    Right now, I am very comfortable with where we are. 
However, we are constantly looking, and when we get these two 
CTOs in Jordan that will be supporting Iraq, I will be a lot 
more comfortable that we have real good contractual oversight, 
and support for what we need.
    Senator Hagel. What about Afghanistan?
    Mr. Beans. Afghanistan. Surprisingly enough, we have been 
finding a lot of people willing to go to Afghanistan. And we 
have recently offered the mission director, the contracting 
officer and the support staff that is out there additional 
bodies to go out and help them with the contracting.
    The problem in Afghanistan, of course, is the security 
situation which exists is very dangerous. We're on a compound, 
which is sealed off, and the actual space is limited by the 
State Department as to what USAID can have. We offered 
additional bodies and they actually turned them down and said, 
we do not have adequate space on the compound to take them. So 
we're offering support from Washington to make sure that they 
have adequate support to do the contracts. But we have people 
ready to go. We just do not have space to put them into the 
country at this point in time.
    Senator Hagel. When you say they turned them down, who is 
they?
    Mr. Beans. They being the USAID mission. The mission said 
that they do not have adequate space. So the mission director 
and the contracting officers said, you all have done everything 
possible, but we can't take additional bodies even though it 
would be nice to have.
    Senator Hagel. Have you taken this up with the 
Administrator and Secretary Powell?
    Mr. Beans. I have talked to the Administrator about it, and 
I am sure that the Administrator has talked about it to 
Secretary Powell. It is an ongoing problem in Afghanistan 
because of the limited footprint we are allowed to have within 
this certain confined spaces.
    Even this morning we were talking about Afghanistan and 
they wanted to move in additional bodies. They are talking 
about taking an individual bedroom and cutting it up into two 
or three bedrooms, so that it is so small, but just to get the 
bodies into the spaces we have.
    So there is a sincere effort on the part of USAID to get as 
many bodies in to oversee these contracts as possible. The 
security situation is dominating everything at this point in 
time.
    Senator Hagel. Which I assume that was anticipated?
    Mr. Beans. Yes.
    Senator Hagel. At some point both in Iraq and Afghanistan?
    Mr. Beans. I am sure that it was anticipated in both 
places. I think that we realized in Afghanistan just how 
serious that it was going to be. But yes, it has been 
anticipated that that was going to be a problem.
    Senator Hagel. OK. Thank you. You mentioned in your written 
statement, which we had a chance to go through, and I looked at 
it this afternoon, that I think, in your words, Afghanistan is 
a stand-alone mission and has it own contracting staff?
    Mr. Beans. Correct.
    Senator Hagel. So the awards in support of Afghanistan have 
been run from the USAID mission in Kabul-Kandahar. As a result, 
we here in Washington are much more familiar with the Iraq 
actions than we are the Afghanistan procurements.
    I am a little puzzled by that statement, especially in 
light of what you just said. Maybe you could explain to me what 
you mean by that?
    Mr. Beans. I certainly can. When I say that the initial 
contracts for the award in Iraq, all of those actions, all of 
the actions that you originally referred to as limited 
competition which brought some heat from the press and from 
the----
    Senator Hagel. By the way, I will give you an opportunity 
to respond to some specifics that I am going to talk about here 
today.
    Mr. Beans. I hope so. Yes, sir. All of those contracts were 
done in Washington, DC. We made all of the awards in 
Washington. So, we were very, very familiar with the contracts. 
We dealt with the contractors. We made these selection. We made 
the award. After award, we transferred all of the files out to 
Iraq. They are now being administered by the staff I talked 
about earlier in Iraq.
    Afghanistan is different in that Afghanistan is a typical 
mission that we have overseas, total autonomy and control 
within the mission, a mission director and a deputy mission 
director and he has the appropriate staff to run a mission. 
There we have a resident contracting officer with supporting 
staff.
    I would not be as familiar with what they are doing on a 
day-to-day basis in Afghanistan as it would with the initial 
awards that we personally made in Washington, just like I 
wouldn't know exactly what is going on a day-to-day basis in 
India, or Thailand, or any other mission around the world.
    The CTO makes the awards. We go out and do evaluations of 
the missions periodically during the year to make sure that 
things are being done in accordance with Federal procurement 
rules and regulations. But when I say that we had more 
knowledge of Iraq, it is because we actually did the work, 
whereas the work that is being done in Afghanistan is by a 
tenured Foreign Service officer.
    Senator Hagel. Yes.
    Mr. Beans. That's what I meant by that.
    Senator Hagel. Thank you.
    Mr. Beans. You're welcome.
    Senator Hagel. Well let me get to a couple of specifics on 
the contracts, and then we will move into some more general 
areas. I will get Mr. Mosley involved. I understand a contract 
was awarded to International Resources Group, IRG, and I think 
that was referred to?
    Mr. Beans. That's correct.
    Senator Hagel. You said earlier, for the initial amount of 
$7.1 million with an extension options to total $27.1 million, 
the OIG report on this contract shows that the RFP was issued 
on January 24, last year, and the response due back to USAID by 
January 27, only 3 days later. And the contract awarded on 
February 7. I am not expecting you to know all of those exact 
dates. We were able to get our hands on these dates from your 
files, and I think that they are correct.
    Here is my question, was this a sole source contract done 
under expedited conditions? Is this an example of what was 
referred to in an earlier testimony?
    Mr. Beans. Mr. Chairman, that is the only sole source 
contract award that we did under the initial Iraq award. It was 
the first award and it was a personal support award for the 
mission. It was to stand up the mission. This is literally, 
while I am going home in the evening and turning on TV and CNN 
showing the troops moving up the road, we had to get ready to 
go. So it was the only sole source contract that I am aware of.
    All of the other contracts that we did were done under the 
limited competition which you originally questioned, which I 
would be more than happy to address, because the Agency did 
take some heat on limited competition. And I think it is 
because of a lack of understanding of what it is.
    Everett testified earlier, it is a legal way that you can 
make an award. And it is a special authority that is contained 
under the Foreign Assistance Act which is special to USAID, 
which is impairment of foreign assistance, which is not a 
normal exception that would be found in Part 6 of the Federal 
Acquisition Regulations.
    So, it is something that can be done by the Administrator 
if there is fear that foreign assistance--I can tell you the 
exact quote here--``compliance with full and open competitive 
procedures would impair foreign assistance objectives, and 
would be inconsistent with the fulfillment of foreign 
assistance programs.'' The Administrator made that 
determination early in the Iraq war that a delay in 
procurement--normally, our procurement cycle for a full and 
open competition, I think we list it at about 210 days.
    Obviously, Mr. Chairman, you realize the beginning of the 
Iraq war, I believed that every night that I went to bed that 
if we didn't get these contracts in place, that certainly the 
potential existed that harm could come to American servicemen 
and women serving overseas.
    I was told that if we didn't get these things up and 
standing, and if we won, and eventually went into Baghdad, and 
we had no programs up to take care of economic growth and 
development, health, food security, that was going to be a 
problem. If we couldn't get into the ports, if the airport 
wasn't opened, then the troops would be subject to potential 
harm. We're seeing what is happening right now. It could have 
been worse.
    We were working under those assumptions, and as a result we 
did everything humanly possible to move it along. We took 
advantage of exceptions to get these contract awarded. But let 
me give you an example of why I think the criticism is unjust 
in some cases.
    The original Bechtel contract, of course, got some 
attention. It was limited competition for $670 million. But 
what USAID did, was we selected seven major U.S. firms to bid 
on that contract. We did the exact same thing that we would 
have done under full and open competition if we had gone out 
for bids except we limited the competition to seven known firms 
that we felt could participate.
    We went out on the street. We got proposals. All seven of 
them came in one form or another and bid in different 
arrangements. We received four competitive proposals on that 
particular contract. We negotiated and we made the award to the 
highest technical, low-cost proposal, which happened to be 
Bechtel. There was extensive competition, if you talk to the 
non-selected contractors, they felt that they were certainly in 
very big competition.
    The second procurement that we let was open to full and 
open competition, which is what the Congress prefers and what 
USAID prefers. It was for a much larger sum of money. For that 
contract we received three proposals which came in under full 
and open competition and we made the award.
    So limited competition is not the way we prefer to go, but 
we did everything humanly possible to maximize competition 
under all of these contracts that were so-called limited. We 
can forego announcing it in the Federal Business Opportunities 
and leaving it 15 days before you're allowed to release the 
RFP. We cut out all of those steps.
    However, before we made any award, we would go back, for 
example, in the area of health, and we would say, have we made 
an award recently under our competition, that we could go back 
and say who was competing under that, and limit it to those 
firms. That's how we kind of made decisions. We said, let's not 
just arbitrarily pick people we liked. Have they competed 
before? Have they won a competition?
    Most of the contracts that we awarded with the exception of 
the airport and seaport which are things that we don't normally 
do, we had experience in those areas. And we picked what we 
would call indefinite quantity contracts, which are competitive 
contracts won by a group of people under technical and cost 
considerations.
    We limited the competition to someone that had recently won 
an IQC because we knew that they had the technical wherewithal 
to do the work, they had financial systems that were in place, 
and that we could move quickly. We tried to maximize 
competition. It's called limited competition, but it was 
totally legal and appropriate.
    Senator Hagel. I am going to ask you a little more about 
Bechtel in a moment.
    Mr. Beans. OK.
    Senator Hagel. But let's stay on the IRG program for a 
minute. As you know, and I think you said it, 210 days is the 
normal processing time.
    Mr. Beans. For full and open competition, that's correct.
    Senator Hagel. That's right. And this was done, as I 
understand, in about two weeks. And I think that you have given 
a sufficient explanation as to why you were under great 
pressure. American troops cannot go to Baghdad empty-handed and 
one, two, three, four. Let me ask you this about the IRG 
contract. Was there contact with IRG prior to the issuing of 
the RFP?
    Mr. Beans. Senator, I cannot answer that question. I was 
not personally involved with the IRG contract, so I don't know 
whether we issued a solicitation. I suspect in a sole source 
procurement that if you have 2 weeks to do something and 
someone has selected a firm, yes, you would contact that firm 
as quickly as possible to try to get a proposal. But I will get 
back to you on that when I talk to the people that actually did 
the work.
    Senator Hagel. Thank you. While the Inspector General is 
here, I would like also to get his take on this. Inspector 
General Mosley, this gives you time to confer and you probably 
never thought that anyone would think that your words were this 
important to stop a proceeding, but they are. So, tell us what 
you know about that question that I asked Mr. Beans.
    Mr. Mosley. Are we speaking relative to the IRG contract?
    Senator Hagel. Yes.
    Mr. Beans. Yes.
    Mr. Mosley. That was a----
    Senator Hagel. That was a specific question that I asked 
Mr. Beans about. Was there contact before the RFP?
    Mr. Mosley. Well that was a sole source contract, so it 
really would not have mattered about the conversations before 
or after.
    Senator Hagel. Is that normal?
    Mr. Mosley. That particular one?
    Senator Hagel. Is that normal that you would go out that 
way if it is a sole source? I know that you said that there are 
many sole source contacts. So you got out and identified an 
organization that you feel is uniquely capable, qualified on 
the timely basis to fulfill the contract. Then that's why you 
do it, which I am going to let you answer that, but which leads 
me to the next question. Where do you find new people? How do 
you reach out and find new people? And I am going to get into a 
little more of that in a minute after I deal with Bechtel in a 
minute.
    How many recurring contracts does USAID give to the same 
people over and over and over? And then, how do you make sure 
that that doesn't happen? That you're not in pattern of just 
giving it to the same old crowd whenever it comes up? But I 
suspect that there must be more than one organization qualified 
to do something like this. Maybe there are not.
    Mr. Beans. You know, I am sure that there is another 
organization that could do this kind of work. It is consulting 
work. So the answer is, yes, there probably is. And how the 
decision was made to go with IRG, I am going to get back to you 
because I am not sure.
    [The following information was subsequently supplied.]

    There are indeed other entities in the United States that are 
capable of providing technical assistance similar to the work 
undertaken by International Resources Group (IRG). However, given the 
urgency at the time and the need to provide expertise to the USAID 
mission, IRG was identified by the technical office as the most 
feasible choice, given positive past performance history and previously 
established links with USAID under competed indefinite quantity 
contracts (IQCs). As had already been mentioned, IRG was the only sole 
source award in the initial round of Iraq procurements and their 
services were absolutely critical to the success of establishing a 
functioning USAID mission in Baghdad

    Senator Hagel. Well, it's a bigger picture, you understand, 
Mr. Beans.
    Mr. Beans. Yes, I do understand where you're going.
    Senator Hagel. Yes.
    Mr. Beans. The bigger picture question, remember the IRG, I 
just want to re-emphasis. The IRG was the only sole source 
that's in this particular arena that we're talking about right 
now. Your other question is a criticism that you hear about 
around the government, not just with USAID, but also when I was 
with DOD and the FAA, which is that the agencies tend to award 
to the usual suspects. Certain organizations do tend to win 
more contracts with certain companies.
    And my experience has led me to believe that it has to do 
with companies that will specialize in a particular agency. 
They will get to know it very well. They will know how to speak 
the language. They will know what the objectives are. They will 
know how to respond to certain solicitations.
    Senator Hagel. Develop personal relationships.
    Mr. Beans. Develop personal relationships. Yes, I would say 
that that's probably true too. However, you have to remember, 
in a procurement process, when I issue a solicitation, I am 
only going to make that award in strict accordance with what we 
call the evaluation criteria. We set out in Section M a 
contract, in specific detail, the winner will meet the 
following requirements. And that's how we do it.
    Now, when I say that they do well, they really understand 
how to respond to Section M of the contract. Andrew Natsios has 
been very concerned about this, as has Secretary of State 
Powell, and has pushed USAID to expand the number of people 
that we have doing work with. We are being challenged as to why 
we are giving these contracts to the same people.
    As I explained to Andrew Natsios, they tend to turn to 
procurement, and they say, why are these people winning the 
contract? I explain that we are not the selecting officials. We 
are the people who make sure that the rules and regulations are 
followed. However, whenever a proposal is received, and most 
selections are made on the merit of the technical proposal, 
even though it is a best value decision to the government, 
those technical proposals are evaluated by the technical people 
in the Agency. They score the proposals. They send it back. And 
if I tend to get the same contractors over and over, it is 
because they are finding their proposals to be better. So I 
have been challenged to come up and take a serious look at the 
evaluation criteria.
    Andrew Natsios recently said that we're to take out any 
reference to past experience with USAID as being an evaluation 
criteria. He doesn't want companies that have done business 
with us. He has asked why companies that are in a country for a 
number of years have not won a contract. They certainly know 
the country, and why aren't they winning? So as an Agency, 
we're going through a change right now as to how we can expand 
the number of people that are winning contracts.
    It is something that we are taking very seriously. We're 
doing it now with taking a look at the faith-based 
organizations for the new HIV-AIDS infectious disease. We're 
trying to make sure that they get a fair shot at getting their 
fair share of work. So this is a very timely question, because 
it is something very important to us at this point in time.
    Senator Hagel. Well, I am glad to hear that. I know that 
Administrator Natsios has noted that when he has been before 
this committee, as well as Secretary Powell. And I don't think 
it is much of an argument to say that those who are selected 
for contracts comply with all the rules and laws and the 
regulations. Of course they do, or we hope that they do. The IG 
makes sure that they do.
    If the universe still stays the same, of course, did they 
comply with the contract? Yes. But it never gets any bigger, 
the universe. I would hope that you are all serious about this 
because we are very serious about this in the Congress. There 
have been too many examples that have come back to us all on 
this, and we're going to be very closely focused on this and 
monitoring this. And I think that Administrator Natsios 
understands this as well.
    Let me go back to the Bechtel contract which you started to 
develop a little bit, and let's see if I can restate this. This 
contract, as you know, was awarded in April 2003, and as you 
noted valued at about $680 million. Now, my information is, and 
we have looked at this, that the OIG reported several problems 
with how this contract was awarded. Under the Federal 
guidelines on contract procurement regarding notifications, the 
OIG found that the USAID did not comply with those guidelines. 
Would you like to respond to the OIG report?
    Mr. Beans. Mr. Chairman, I certainly would.
    Senator Hagel. OK.
    Mr. Beans. The OIG's report is absolutely correct. We did 
not meet the required time lines within the Federal 
acquisitions regulations that say that a non-selected 
contractor shall be notified within 3 days if they did not win 
a contract.
    The regulation makes complete sense when a firm puts in a 
bid, they have a complete right to know that they were not 
selected. They are trying to hold a team together, and it is 
not fair if they sit there without being notified. So the rule 
makes complete sense.
    In this particular case, this was a rather unique contract. 
Bechtel got a considerable amount of attention, as you were 
well aware. Once the award was made, we sent it to the Hill for 
notification. It was announced, as I was on my way home in the 
car, I heard it on the radio that Bechtel had won. You had just 
received the notification. The word was out very quickly on the 
street, and it was the headlines in the papers the next day. 
Everybody in the country knew that Bechtel had won the 
contract. It was on CNN and it was on the morning news.
    We did not call the two non-selected contractors within 3 
days and tell them that they were not selected. We should have 
done that, the assumption being that we were trying to do a lot 
of things. They were probably pretty well aware that they did 
not win the contract. However, we did go out of our way to make 
sure that they received an adequate debriefing so that they 
understood the reasons that they did not win the contract, both 
technical and written debriefings.
    We spent a considerable amount of time to make sure that 
they felt satisfied because we missed the 3-day time limit as 
set forth in the regulations.
    Senator Hagel. Inspector General Mosley, would you like to 
respond to any of this since it was your report?
    Mr. Mosley. Well, no. We understand the difficulties that 
they had in terms of timing and some of the other pressures. We 
simply have to audit in accordance with what the regulations 
said and that was what we were reporting.
    In most of these cases we're talking about documentation 
and timely follow-up and making notifications, and we audited 
them in accordance with the procedures. We're very sympathetic 
to the situation that they had to deal with, but we have to 
report the facts as they appear.
    Senator Hagel. Would this fall under the area--with all of 
the other extenuating circumstances that you have not brought 
out here, of a violation of Federal procurement law?
    Mr. Beans. I would say no, it does not.
    Senator Hagel. What about the Inspector General?
    Mr. Mosley. Well, they are required to make those 
notifications, so it is a violation, technically.
    Senator Hagel. Well, I understand that there was a 
documentation issue involved as well of documenting all of 
this.
    Mr. Mosley. In this particular case, the notifications did 
fall in the category of a violation. Now, we can talk about 
technical violations, but it was a violation.
    Senator Hagel. Well, Mr. Beans, I think you have explained 
it and I appreciate it very much.
    Mr. Beans. You're welcome.
    Senator Hagel. Let me go back to a more general question 
that we were talking about, and maybe drill in a little bit 
more precisely. And that is, as you enlarge your universe of 
interested companies to bid on USAID contracts, explain to me 
what are the prospects for contractors who do not have a 
previous relationship with USAID? Where are you going to, in 
fact, do what the Secretary and Administrator have asked you to 
do? Noble intention, but what are you doing in effect to get it 
done and to reach out for new people?
    Mr. Beans. Thank you, and it is a very good question, 
Senator. We have decided that one of the complaints that we 
were hearing from the Professional Services Council and from 
other people that had not had opportunities to win contracts, 
is that these things tend to be decided early on, because by 
the time they hear about a procurement, we have to give them at 
least 30 days to submit a proposal, and we announce it in the 
Fed Biz Ops, the Federal Business Opportunity, they say, 
somebody has already known about it, or found out about it, and 
they get an advantage of going out early.
    So we said, what we're going to do from now on, and its 
published on our Web site right now, is that we put together an 
advance procurement plan at the beginning of the year, and we 
publish that plan so that people can see everything that is 
planned from the beginning all the way through the end of the 
year.
    If there is interest in a particular area, they can contact 
the technical officer, learn as much as they can about it, and 
be prepared and on equal footing with firms that in the past 
had that type of advantage.
    I have done a number of speaking engagements and I have 
been going around trying to talk to agencies on how to get into 
USAID, particularly small business organizations and how they 
can get a leg up. We have set up our contracting procedures now 
to set aside contracts strictly for small businesses to 
compete. Small disadvantaged businesses, women-owned 
businesses, disabled veterans, we're making a sincere effort to 
do that.
    In fact, in the full and open competition Bechtel contract, 
we set aside 10 percent of all subcontracted dollars for U.S. 
small disadvantaged and women-owned firms. We also, for the 
first time, came up with language where we offered a $1 million 
incentive to any contractor that could come in with a proposal 
that met the 10 percent set aside. In other words, they came in 
and said that we're going to exceed the 10 percent. We were 
going to hold that money in abeyance, and track how well they 
had done, and if they did actually subcontract, we were going 
to hand them $1 million to encourage them to go with U.S. small 
businesses.
    We're doing a number of things to try and increase the 
number of companies that we get, to expand the base of people 
that are working with us. And if the Senator knows of any other 
suggestions, I am more than willing to listen.
    Senator Hagel. Thank you. I saw this late last year and the 
committee took a look at it, and our staff people just reminded 
me of it, this is an April 12, 2003 conference report where Mr. 
Young, Chairman of the House Appropriations Committee----
    Mr. Beans. Yes.
    Senator Hagel [continuing]. Chaired that conference and I 
note language in here that, in fact, I will read from it. 
``Request the Administrator of the U.S. Agency for 
International Development to actively seek to include 
significant participation by small, minority, and disadvantaged 
American-owned business enterprises.''
    So, not only has the Secretary and the Administrator 
thought that it was a good idea to do it, there is some 
official focus on this up here as well. And I want to go into 
another question about this. What are opportunities for rules 
governing faith-based organizations to participate? Are they 
handled the same way as any other organization would be handled 
if they are interested in participating in a contract award?
    Mr. Beans. Senator, one of the things that I have been very 
proud of about working for USAID is that we have always 
maintained a separation between the political side of the house 
and the civil servants and Foreign Service officials that have 
made the decisions on the selection. We have always been able 
to look you all in the eye, and the press in the eye, and say 
that there is a firewall between the political side and the 
civil service side, and we have made decisions accordingly.
    For the first time the faith-based organizations came in 
and they were asking if they could participate as voting 
members on the selection committees. I advised Administrator 
Natsios that I felt that was a dangerous precedent to be 
setting, to have a political person being a selecting official. 
However, we have had meetings and said it is absolutely 
imperative that we find people that are technically 
knowledgeable of this subject matter, but that are sympathetic 
to faith-based organizations and we will give them a fair shake 
during the evaluation.
    That's how we have been trying to handle it, so that we can 
still maintain that the decisions are made by civil servants as 
opposed by political influence coming into the procurement 
process which I will fight to the end.
    But we want to see a fair share and increases in this area. 
We're starting to see, and in fact, if you check the USAID 
numbers, we are very, very, very strong in our support of 
faith-based organizations. We do a good job now. We think we 
can do a better job and increase to more organizations. That's 
what we're trying to do right now on a daily basis.
    Senator Hagel. OK.
    Mr. Beans. Your other question on small, disadvantaged 
businesses, just very quickly, the personnel support contract 
that we talked about, the sole source contract. The initial 
contract that we did, the only one we did sole source, we 
required a 14 percent subcontracting plan from them. The 
primary and secondary education contract was a 100 percent 
women-owned contract that we awarded in Iraq. The local 
governance contract had a 30 percent subcontracting plan. 
Health had a 58.5 percent subcontracting plan. Economic 
governance and agriculture both had 20 percent subcontracting 
plans.
    This is something that we take very serious, and in fact, 
we actually changed the evaluation language that we put out in 
solicitations that actually help small, disadvantaged 
businesses get considered, companies that use them. I would be 
glad to present a copy to you to show you that we are changing 
the way that we do business to encourage this.
    Senator Hagel. Thank you. And if you have that there, you 
can submit it for the record later.
    Mr. Beans. Yes.
    Senator Hagel. We will include it in the record.
    Mr. Beans. OK.
    [The following information was subsequently supplied.]

    Please find wording in USAID's Iraq II Infrastructure solicitation, 
where USAID provided an added incentive for subcontracting to small 
disadvantaged firms.
    ``incentive fee for use of small disadvantaged business concerns
    In order to encourage the use of small disadvantaged businesses in 
the reconstruction of Iraq, USAID will offer additional fee in those 
cases where the contractor has utilized small disadvantaged businesses 
provided that the contractor has achieved the percentage already 
required by the contract for small business. At the completion of the 
basic contract period, if the contractor has subcontracted to small 
businesses the amount of work required by Section L.XX of the contract, 
the contractor will be eligible for an additional incentive fee for any 
subcontracting to small disadvantaged businesses beyond the contract's 
requirement.
    USAID will provide incentive fee in accordance with the following 
formula:

 
----------------------------------------------------------------------------------------------------------------
  Percent of Usage of Small Disadvantaged Businesses Beyond
                      the Required XX%                                 I60Amount of Incentive Fee Earned
----------------------------------------------------------------------------------------------------------------
Up to 2% more                                                 .02% of the Fixed Fee
Greater than 2% and up to 4%                                  .04%
Greater than 4% and up to 6%                                  .06%
Greater than 6% and up to 8%                                  .08%
Greater than 8% and up to 10%                                 .10%
Greater than 10%                                              .12%
----------------------------------------------------------------------------------------------------------------

    (Example 1. The contract required that at least 10% of the total 
estimated cost be awarded to small businesses and the contractor 
subcontracted 15% to small businesses. Out of this 15%, 7% went to 
small disadvantaged business concerns. In this case, the contractor 
would be eligible for an additional .06% as incentive fee. Example 2. 
In the event that the contractor only subcontracted 9% to small 
businesses of which 3% were small disadvantaged businesses, the 
contractor would not receive any incentive fee since the target 
percentage of 10% was not achieved).
    In the event that the fixed fee owed to the contractor during the 
contract period is less than the amount stated in Section B for that 
contract period, the calculation of incentive fee earned will be based 
upon the fixed fee amount that the contractor will actually be paid for 
that period. For example, since this is a CPFF (LOE) contract, in the 
event that the contractor only expends half of the LOE, the contractor 
is only eligible for half of the fixed fee in accordance with Section B 
of the contract. In this case, the incentive fee earned will be 
calculated on the amount of reduced fixed fee owed to the contractor 
for that period.
    Pursuant to FAR 15.404-4(c)(4)(i)(C), the fixed fee for the basic 
contract period and the incentive fee earned for that period may not 
exceed the statutory limit of 10% of total estimated cost (excluding 
fee) set forth in Section B for the basic contract period. In the 
example posed in the paragraph above, the fixed fee for that period and 
the incentive fee earned for that period may not exceed 10% of the 
prorated total estimated cost for that period.
    The same procedure will be used for each of the option periods and 
the same restrictions will apply. The calculation of incentive fee 
earned in each contract period will not be affected by the achievement 
or lack of achievement of extra incentive fee earned in the previous 
contract period(s).
    Incentive fee will be given for subcontracting to the following 
socioeconomic groups as certified and defined in FAR 52.219-1: Small 
Disadvantaged Business, Women-owned Small Business, and Veteran-Owned 
Small Business.
    What happens in the case where the contract is awarded to a small 
disadvantaged business? My suggestion would be that their status would 
qualify them as meeting the contract requirement of 10% but they would 
only receive incentive fee if they subcontract to other SDBs. If so, 
then the clause would go into effect for what they subcontract.''

    Senator Hagel. Thank you. On the point of subcontracting, 
how do you assure the quality of a subcontractor? When you let 
a big contract, Bechtel or whoever it is, how do you assure the 
quality of the subcontract? And then are there any rules of 
governing subcontractors in that you can only have so many per 
contract, or dollar figure, or other rules, or does it matter 
on subcontractors?
    Mr. Beans. Generally.
    Senator Hagel. Since my understanding is that having looked 
at some of these, and I have actually seen some in Afghanistan 
and Iraq and other areas where you have missions, the 
subcontractors in many cases are the ones who actually do the 
work and actually carry out the day-to-day functions of the 
grant award.
    Mr. Beans. Yes.
    Senator Hagel. So they are pretty important.
    Mr. Beans. They're very important. I think Iraq and 
Afghanistan kind of skew how you should really look at this, 
and a lot of that has to do with the particular situation which 
we find ourselves in Iraq and Afghanistan. They are very 
difficult places to work and require high security.
    The Bechtel contract, for example, has an objective to get 
economic growth and development going for the citizens of Iraq. 
We're trying to get in, get a government up and standing, and 
get our troops out as quickly as possible. With that in mind, 
one of the things that Ambassador Bremer is trying to do is to 
increase participation of Iraqi firms. We have hired 55,000 
Iraqis which we have working under the Bechtel contract alone 
in Iraq.
    Generally, concerning your question about how do we ensure 
subcontractors, the contracting officers before making an award 
will take a look at a subcontractor to make sure that they have 
adequate financial resources and accounting systems, and can 
report back under government reporting requirements for 
financial reporting or whatever the case may be.
    Senator Hagel. A USAID official?
    Mr. Beans. Yes, they will look at it.
    Senator Hagel. Look at the subcontractor?
    Mr. Beans. Yes. But we do not approve subcontractors. We 
have privy of contract with the prime. So we hold the prime 
contractor responsible for delivering the work. Whatever it is 
that the subcontractor----
    Senator Hagel. But you review the subcontractor?
    Mr. Beans. We review the subcontractor and we consent to 
the subcontract. We don't approve it. Because approving it 
would mean, for example, that we take responsibility while 
we're holding the prime responsible for the performance.
    Now, you asked about the number of subcontracts. Generally, 
a contractor will decide, based upon profit margins and ability 
to perform, what the right mix is of contractors with their own 
personnel so that they can still be responsible. They're going 
to be held accountable for the performance, both by myself, by 
the auditors that come in, and the IG that sees them during the 
performance. So they will usually make the call versus the 
government.
    So it would depend on the nature of what you're buying, the 
particular procurement, and the environment in which they are 
working would determine the right mix of subcontractors.
    Senator Hagel. You just noted something that is obviously 
important, and that is the dynamic of assuring as best we can 
that we are in fact helping develop the economy of these 
countries. That means putting Iraqis to work, Afghanis to work, 
and at the same time, pursuing the policy of the current 
administration, whether it is the Bush administration or the 
Clinton administration. In your oversight of the contracts, of 
the prime subcontractor, I assume there are standards for that 
as well?
    Mr. Beans. Yes.
    Senator Hagel. You just mentioned employment.
    Mr. Beans. Yes, there are.
    Senator Hagel. And I assume that the IG looks at that as 
well, when the IG goes in and looks at mission and fulfillment 
of the compliance standards and so on. Is that correct? That it 
is built into the review process, both from the contracting 
side and the IG side?
    Mr. Mosley. Yes, Mr. Chairman. In fact, that part of the 
work is just starting in both Afghanistan and in Iraq. We went 
in initially, and our emphasis was on the Kabul-Kandahar road, 
and in Iraq because of the security, we were limited in the 
amount of visits that we could take in performing our 
performance audits.
    We are now using the Agency's contracted security firm and 
we are out doing visits. And as a part of those visits, we look 
at what the subcontractors are doing. We look at the actual 
performance that they are making on those jobs as part of our 
tests and our visits. So we do those kinds of reviews.
    Senator Hagel. Thank you. Is there anything that you would 
like to add, Mr. Beans?
    Mr. Beans. No, sir.
    Senator Hagel. OK. Inspector General Mosley, you note in 
your testimony, and we have covered some of this from Mr. 
Beans' side, but this is I think a quote from your testimony, 
``that many cognizant technical officers,'' CTOs, ``are not 
adequately trained to perform their duties.'' And in your 
Standards for Success Accomplishments Report, Fiscal Year 2003, 
you note that USAID did not hold most CTOs accountable for 
performing their responsibilities and that USAID does not 
adequately evaluate their performance.
    Do these limitations then regarding CTOs represent, in your 
opinion, a major hurdle for USAID's objective of no skill gap 
deficiencies in mission critical positions?
    Mr. Mosley. Well, Mr. Chairman, as I stated, it is a 
crucial role that the CTOs perform. And when they don't have 
the adequate training it does provide a problem in making sure 
that all of the contractors are performing in the way that they 
should.
    In terms of their performance, this is a collateral duty 
with most of them, so they have work objectives and CTO duties 
are not necessarily included in those work objectives. If it is 
not in the work objectives, some of them may not pay as much 
attention to it as they should. So we're working with Agency 
management now to try to get it included in the employee work 
objectives and to make sure that their evaluations are covering 
those areas.
    In addition to that, we have talked with the Office of 
Procurement and they are working to get the training to each of 
these individuals. And there are plans in place to get this 
training provided to those contracted technical officials.
    Senator Hagel. Mr. Beans, do you want to respond to that? I 
know that you had mentioned this earlier in your comments.
    Mr. Beans. I could not agree with Everett's assessment more 
strongly. I think the Agency would be improved tremendously if 
they're better--the technical officers are able to do their 
job. I don't believe that there is adequate understanding on 
the technical side of the house that they are in fact 
procurement officials earlier on in the process than they 
believed they are. So I think Everett is completely correct in 
this area.
    Now, when I came on, I identified it to Administrator 
Natsios as one of the weakest areas that the Agency had was the 
lack of training of technical officers that were overseeing 
these contracts. To his credit, he has instituted a program 
where we now have a 2-week mandatory training program to 
receive certification. And I have, in fact, assigned--600 
people are certified CTOs in the Agency.
    Now, they can take the training and they can pass the 
course. But I believe Everett is correct that until we get it 
into their work objectives, they will not take it as seriously 
as I would like to see it taken. So this is something that I 
hope bears fruit for the Agency in the future.
    Senator Hagel. Well, Mr. Beans, I would say that it must go 
beyond just hoping. It is a pretty critical part of this.
    Mr. Beans. Yes. It is, it is.
    Senator Hagel. So, we're going to have to do more than 
hope. And the Congress will hold USAID accountable for that, 
and especially since it was brought out very clearly in the 
IG's report. As you note, you were dealing with it and you're 
going to have to deal with it, which gets me into a couple of 
other areas.
    In subcontracting, do you have any numbers on 
subcontractors that have been dismissed over the last 6 years, 
12 years, 10 years, 2 years, for non-performance or for 
whatever reason?
    Mr. Beans. I do not, Mr. Chairman.
    Senator Hagel. Would you provide that for the record?
    Mr. Beans. I certainly will.
    Senator Hagel. OK, let's go back for the last 12, 14 years. 
Let's go back to 1990.
    Mr. Beans. How many subcontractors?
    Senator Hagel. Subcontractors.
    Mr. Beans. That have been dismissed?
    Senator Hagel. Dismissed for whatever reason. Are they ever 
fired? I guess you can start with that question. Do you ever 
fire a subcontractor? I mean, I have been in business and I 
have started companies and I have had to fire subcontractors 
for a lot of reasons and I can't imagine that you haven't had 
to fire some.
    Mr. Beans. Yes. I have been in business also, and I have 
fired subcontractors.
    Senator Hagel. Yes.
    Mr. Beans. But it has normally been my responsibility and 
yours is that as a owner of a company or running a business, to 
fire the people that were not performing for us. I have got to 
go back and check whether the government has actually fired 
subcontractors. We have probably fired the prime if the 
subcontractor had a----
    Senator Hagel. Yes. But I just wanted you to provide for 
the record how that worked.
    Mr. Beans. OK. I will.
    [At the time of publication a response had not been 
received.]
    Senator Hagel. Thank you. Mr. Mosley, going back to some of 
your documents that we were looking at before the hearing, in 
the Inspector General Standards for Success Accomplishment 
Report, that document notes that USAID has not yet achieved--
these are your words, the report's words--not yet achieved a 
performance measurement process that verifies and validates the 
reliability of data in the annual reports of individual 
operating units. Would you care to explain what you mean by 
that?
    Mr. Mosley. I can't remember all of the specifics with 
that, Mr. Chairman, but I think we're talking about the problem 
of timeliness. Most of the performance reports--because of the 
systems that the Agency has--are reporting on data that is old. 
And in any fiscal year when you're making a report, you're 
making a report on the prior fiscal year, so the information is 
not necessarily up-to-date, and adequate so that corrective 
action can be taken. And I can provide additional information 
for the record.
    Senator Hagel. If you could do that, I would appreciate it.
    Mr. Mosley. Yes.
    [At the time of publication a response had not been 
received.]
    Senator Hagel. Mr. Beans, would you care to respond to 
that?
    Mr. Beans. No, comment at this point and time, Mr. 
Chairman.
    Senator Hagel. OK.
    Mr. Beans, would you describe the interagency process among 
USAID, DOD, CPA, for example, on Iraqi contracting and 
procurement? Is there an interagency relationship? Is there any 
kind of cross-fertilization CPA thinks that they need this? How 
does that work? Or does it work? Or does it matter?
    Mr. Beans. Well, there is an interagency agreement and, for 
example, tomorrow I will attend a meeting with the CPA, State 
Department and all other agencies that are in what is called 
the CPA. We have been told by the Coalition for Provisional 
Authority that we are working for the Coalition for Provisional 
Authority, which is working for Ambassador Bremer, to achieve 
the goals and objectives we have set for Iraq.
    We are in support of the CPA, and in fact, there is work 
going on now to standardize clauses and standardize language as 
much as we can, because we are working under two different sets 
of authorities, so that we reflect and all look like we are all 
working for one government. That's a good thing to do.
    There are some differences of opinion, particularly among 
State Department and USAID and DOD. However, there have not 
been anything that we have not been able to overcome at this 
point and time. It is unique in anything that I have seen since 
I have been in the Federal Government, agencies reporting to 
the CPA. The CPA has, of course, announced that it is going out 
of business in July of this year, but yet we have heard that 
there may be extensions. Yet they are working on branding for 
the CPA and other things.
    So we're still trying to figure it out. I think time is 
moving along and we are wondering if it will still be in 
existence once the embassy is stood up in that time frame, so 
there are questions in my mind. I think there are a lot of 
questions in other agencies' minds as to where we are going 
with this thing. But there is cooperation going on. We are 
trying to work together to make our instruments look as close 
as possible and cooperate where it makes sense.
    Senator Hagel. Is there any kind of formal relationship or 
informal relationship where representatives, say from CPA, DOD, 
State, USAID meet once a week, or once a month?
    Mr. Beans. Yes, there is a formal relationship and actually 
they call it the back-door CPA, because the Coalition 
Provisional Authority, of course, is run by Ambassador Bremer 
in Baghdad. This is a back office. It's headed by the 
Department of the Army. It is the lead organization that is in 
charge of it. So, yes, there is cooperation and an ongoing 
weekly meeting that we have, certainly with the procurement 
people, as to how we're going to do the contracting.
    CPA is now trying to put out a large number of these 
construction contracts. They've said that they will award soon, 
I think, 14 separate contracts for different areas of 
construction. They're working on that and the other agencies 
are working on the pieces that the CPA have said that is their 
cognizance, so there is some cooperation in work.
    Senator Hagel. Alright. Inspector General, would you have 
any comment on any of that?
    Mr. Mosley. Well, Mr. Chairman, as you know, there is a CPA 
Inspector General as well and we have had a number of meetings 
with him since he was appointed at the end of January. We have 
been able to coordinate with him as we do with GAO, so that he 
does not have to duplicate our work. Because we have been 
heavily involved in it and have performed a lot of heavy work 
of the USAID contracts, he is simply going to use our work in 
reporting for the overall government.
    Senator Hagel. All right.
    Mr. Mosley. We're helping him put those reports together. 
We're doing whatever he needs. We have also explained to him 
our commitment for opening an office there, simply because that 
IG office is supposed to go away six months after the CPA is 
disbanded, and USAID will still have contracts there and have 
work there, and we still plan to put an office there, and we 
have coordinated with him and there is no difficulty with that.
    Senator Hagel. Thank you. If you could both respond to this 
question, how exactly did USAID determine or estimate the value 
of the prime contracts awarded in Iraq? For example, the 
contract awarded to Creative Associates International, I 
understand for $157.1 million. What analysis, field work 
measure, were these cost estimates based upon? And then could 
you give me some sense of that, some examples or details?
    And then I want to take that a little further with you, Mr. 
Mosley, and then get into something you had said, and you know 
where I am going with this. In your review of Iraq contracts, 
you note that for two contracts, the level of effort initially 
estimated by USAID varied significantly from the actual needs, 
so the two are connected. And Mr. Beans, we will start with 
you.
    Mr. Beans. I found the contracting in Iraq and Afghanistan 
to be different than anything that I have ever dealt with in 
procurement. And generally what I expect is if I were to write 
a statement of objectives or scope of work, I would put it out, 
and industry would tell me how much it would cost them to do 
that particular piece of work.
    Iraq and Afghanistan was different. We had a situation 
there where not one agency was putting out a scope of work, but 
a number of agencies were involved in the decisionmaking 
process as to what was to be done. If you remember, we had an 
original person that was in there. I am embarrassed I have 
forgotten his name, General----
    Mr. Mosley. Jay Garner.
    Mr. Beans. Yes. Jay Garner.
    Senator Hagel. Garner.
    Mr. Beans. Jay Garner came in with a certain set of 
objectives and he wanted certain things done. We were working 
along those assumptions when all of a sudden Ambassador Bremer 
came in, and said, cease and desist, I would like to take a 
look before I do things. So that normal ways of doing business 
where you put out a scope of work and ask for a certain 
proposal, that is what usually determines whether something is 
fair. There's competition among the private sector for a piece 
of work as to how much they can do it for, and that usually is 
the driving thing as to the fairness of costs.
    In this particular case, we were getting plugged figure 
numbers in some cases. They would say you have $170 million--
I'm using this as an example, please--to do a certain action, 
whatever that may be. So we would tell the contractor that we 
were going out with very broad scopes of work, because the 
actual work was being determined by task orders with the 
approval of the CPA and Ambassador Bremer in-country. So, we 
knew we wanted them to work let's say on economic growth and 
development. They wanted them to do micro- and macroeconomics, 
and do a whole bunch of things. But we did not know from 
Washington what they were going to do until Bremer decided, and 
he could change his mind on a daily basis. If a bomb blew up 
somewhere and hit a power station, that was his highest 
priority and he would move resources in that direction.
    So what we did is we basically set up a guesstimate amount 
of money of what we thought would be needed. And we knew that 
we may have to subtract money, if they didn't achieve that. Or, 
what we found in most cases was that they were able to spend 
the money and they needed more money than we originally had.
    So it didn't work the way I am used to. Some of the 
Inspector General's findings were absolutely true. We would 
normally have a government estimate broken down in detail as to 
how much we thought something would cost and we would compare 
that with industries' when they came in. When you are told that 
you have $600 million to do a job and you based something on 
that very broad scope of work and the next day you're told you 
have $900 million, it doesn't work the way you would normally 
expect.
    I understand the IG writing what they did. I think that 
they are absolutely correct. However, in this situation and I 
am not sure that there wasn't anything wrong with this, nobody 
knew exactly what was needed in Iraq when the bombs were still 
going off. We didn't know what would be destroyed, what would 
need to be fixed, or what infrastructure that would be 
destroyed. So, it was really a guesstimate at first.
    I think now we're getting much more realistic estimates on 
the second round, and that is why we're going full and open 
competition as to what really is needed. But at first, I 
understand the people not knowing and not being able to tie it 
down as much as we would like.
    Senator Hagel. Thank you.
    Mr. Mosley.
    Mr. Mosley. Mr. Chairman, I don't know how much I can say 
about this, though. As I was growing up as a kid in 
Mississippi, my Mom always told me, when you come in and fess 
up that you did it wrong, and you're going to do it better next 
time, she wasn't going to punish me.
    Senator Hagel. And you always did exactly what your Mother 
told you.
    Mr. Mosley. And I did what she told me.
    So, I don't know what I need to say about this other than 
what we were looking for with the documentation. When we come 
in and the documentation justifies a certain amount and the 
contract is issued at such an exorbitant amount above that, we 
are looking for how do you get to that amount, and we were not 
able to find that, so that was what we were reporting.
    Senator Hagel. So what is the follow-up? What are we doing 
now actually to fix this? You mentioned a couple of things on 
contracting process and so on, but from the Inspector General 
point of view, what's the follow-up?
    Mr. Mosley. Well, from my perspective, we made a 
recommendation that they go back and take a look at the 
contract, and look at what the actual need is versus what was 
out there as a level of work that was going to be performed, 
and they are in a process of doing that review now. We have 
actually sent a couple of follow-ups and we're trying to get 
together right now with Mr. Beans to see what is going to 
happen. They have made a commitment that this will be done 
before any extensions of that contract are given. And I think 
those are to be done within 1 year after the contract was 
issued and that is April or May, as I recall.
    Senator Hagel. OK. Thank you.
    Mr. Beans. Mr. Chairman?
    Senator Hagel. Yes.
    Mr. Beans. Just one more comment.
    Senator Hagel. Sure.
    Mr. Beans. When we were talking about these sums of money, 
and they were large sums of money, multimillion dollar 
contracts, these were basically ceilings that were set up for 
the CPA. Like I said, I don't know that anybody could have 
predicted out of the blocks how much it would cost to do 
education, or primary and secondary education in Iraq, before 
we went in and saw what was going on. So we set up mechanisms 
with ceilings not to be exceeded, where based on the CPA's 
needs they would make the determination. They were almost 
vehicles that they could use on an as-needed basis. Now, as it 
turned out, all of those vehicles are being used, and all of 
the areas that we selected, are areas that needed to be 
addressed.
    So I am not sure anybody would have done differently under 
the circumstances that this took place, and I have never had to 
go in and try to do procurement in a war zone quite like this. 
I did work in the West Bank and Gaza during the Intifada, where 
it was very difficult to do work. I thought that was the most 
difficult thing that I had ever seen. Iraq and Afghanistan just 
upped it a little more.
    Senator Hagel. Yes.
    Mr. Beans. I never seen anything quite like this.
    Mr. Mosley. Mr. Chairman, one of the other things that we 
will be doing, I might add, as we do our performance work, we 
will actually take a look at what money was spent as a part of 
these contracts, and assure that it was spent on resources and 
other things that needed to be done in that contract and no 
excess funds were expended.
    Senator Hagel. Thank you.
    Gentlemen, I greatly appreciate once again your coming up 
here and the time that you have taken with the panel. You have 
been very helpful.
    We will leave the record open for a couple of days. I may 
have colleagues who have questions. If you could address those 
and get those back to us in writing, and I may have some follow 
up questions as well. Mr. Mosley, Mr. Beans, is there anything 
else that you would like to get on the record before you 
escape?
    Mr. Beans. No, I like the latter recommendation. I would 
just like to thank you very much for the opportunity to come up 
and talk to you. I really appreciated it.
    Senator Hagel. Well, we appreciated all of the good work 
you and your Agency does. Give your colleagues our thanks as 
well. Mr. Mosley, always good to see a Meridian, Mississippi 
man. And to the audience, Mr. Mosley and my wife are from the 
same hometown, so she sends her regards.
    Mr. Mosley. Thank you, Mr. Chairman.
    Senator Hagel. Thank you.
    Mr. Beans. I wondered why you got such an easy ride here.
    Mr. Mosley. No. Actually his wife and I are----
    Senator Hagel. Do you want to stay for another hour, Mr. 
Beans?
    If we could get the second panel up and again, thank you 
gentlemen.
    Gentlemen, welcome, again. As you recall, I noted the three 
of you and your positions, and I once again thank you for 
taking your time in presenting testimony today in an area that 
is complicated and uncertain and, as we all know, dangerous, so 
thank you.
    Mr. Barton, you were probably just a baby when your father 
used to bring you up and put you on the chairman's knee, I 
would imagine, so we're glad that you're back. And to the other 
two panelists, thank you for your expertise and for your 
willingness to come up and share some of your thoughts.
    In the order of the agenda, I will ask each of you to 
present a statement. If you care to summarize that statement 
that's fine. As I noted before, each of your statements in 
their completion will be included for the record. So let me 
begin with, well let me start with you, Mr. Barton.

STATEMENT OF FREDERICK D. BARTON, CO-DIRECTOR OF POST-CONFLICT 
RECONSTRUCTION PROGRAMS, CENTER FOR STRATEGIC AND INTERNATIONAL 
                            STUDIES

    Mr. Barton. Thank you, Senator Hagel. It is a pleasure and 
thank you to your staff and to Senator Sarbanes and staff for 
this invitation today.
    This is a subject that really matters to me because when I 
was working at USAID, I recognized how important these 
procedures were to doing our job; to the kind of creativity 
that we wanted to bring to the programs, to the relationships 
that we had with our partners; to our performance in the field; 
and to the image of the Agency in the United States Government 
and to its taxpayers. I have recognized the importance of this 
issue and value that you and your staff have taken it on as 
being worthy of your attention. It certainly is.
    My remarks focus on three broad recommendations that you 
have touched on.
    In the past 10 years I have had a chance to work in over 20 
of these post-conflict or conflict-prone zones. I find them to 
be a place which is a fair test, but a place where you have to 
be pretty entrepreneurial if you're going to be at all 
successful. And clearly our overall efforts in most of these 
places have not been successful to this time, which is one 
reason that many of us are so pleased that the full committee 
is taking on the broader structural issues in hearings next 
week.
    The three broad recommendations are: first, that we expand 
the range of choices in partners. The second, that we open up 
the process. And third, that we make the system easy to use.
    First, we need more partners because the jobs in 
Afghanistan and Iraq are just too big. They are by virtually 
every measure, 10 times larger than anything we have done in 
any of the other post-conflict places in the last decade, so it 
is clearly going to require an all hands on deck approach. 
There is no way that we're going to achieve the kinds of 
ambitions that have been put forth, whether you take the more 
modest ambitions of some members of the administration, or the 
more euphoric of others, without having extra help.
    It is important to applaud the efforts of Tim Beans and to 
encourage them to move to the next level.
    This can be done by pre-competing and pre-qualifying a 
large pool of organizations, both private and non-profits, with 
a special emphasis on difficult subject areas such as public 
safety and justice teams, demobilization and reintegration of 
combatants, and mass communications. These are issues that come 
up every time and we don't have any preparation.
    We found when I was at USAID that we were able to set up a 
mechanism which was derived from indefinite quantity contracts. 
We developed something called the SWIFT mechanism that allowed 
us to pre-compete contracts, so when the moment of truth came 
we could be in the field in 4 to 5 weeks. That needs to be done 
on a much broader basis throughout the organization. Otherwise, 
we're going to continue to get stuck with some of the 
weaknesses that you have seen.
    And I also believe that a hybrid experiment needs to be 
taking place where we don't just pre-compete contracts, but we 
do the same for grants so that we gain the benefits of the PVO, 
the non-profit community. When you go to a place like 
Afghanistan, the NGOs are all over, yet they have been pretty 
well shut-out of the non-humanitarian activity. Why would you 
want to shut anybody out in this kind of case? It's just too 
big and too tough.
    I would also suggest that we should beware of large 
contracts. They are not necessarily quicker in the field, they 
do lead to greater cost overruns, and they do reduce 
competition. It's clear when you have a contract that is larger 
than a company's entire annual revenues that they are going to 
take second and third thoughts about whether they should go 
after that piece of work. That creates a self-selecting process 
which is going to reduce the number of players. And again, I 
think we want to break these things up into bite-sized pieces.
    But our contracting procedures are so complicated in many 
cases that when you have a program officer considering 10 
contracts or one, they will always say, I think that I'll go in 
once.
    You asked the question about large projects. When we were 
in Iraq last summer, we happened to visit the Basra water 
project, and I noticed in one of the budget proposals, in the 
supplemental, that it had been priced at $250 million.
    Now, when I was visiting there, you could have said $3 
million or you could have said $500 million. I am not an 
expert, but it was really hard to figure out how anybody was 
going to settle on a number. And you could see the kind of 
drive-by assessment, that was likely to take place. So, that 
kind of thing happens.
    But the other problem with big contracts is they often 
times don't fit the context. These places are fragile, there is 
going to be sabotage, there are a lot of problems. One big 
target makes you more vulnerable. Does not reach as many 
people, and has less potential.
    What you are trying to do in these places is to get an 
overladen plane headed in the right direction and then hope 
that it hits just the right bump at the right point in the 
runway so that it eventually takes off. Building a pyramid one-
third of the way down the runway will cause an accident. That 
is what is happening in these cases.
    The second large recommendation is open up the process. The 
people that I have talked to inside the agencies felt that the 
secrecy, closed meetings, and security procedures were 
excessive. Many of those appeared to have been inflicted upon 
the Agency from without, but nonetheless it did cut into its 
credibility. Secrecy isn't consistent with the values of 
USAID's programs and cause embarrassment.
    Gaining the public's confidence, as Everett and Tim were 
describing before, would benefit from expanding the use of 
concurrent audits, spot checks and peer reviews of ongoing 
work. We used these in Bosnia and Haiti, everywhere there was a 
fast developing and expensive program with political 
sensitivity. Concurrent audits helped managers to know what was 
wrong right away rather than having to slap their hands 2 years 
after the program, which has little value.
    More could be done but we should be careful about expanding 
the IG and management, because already these are large and 
growing parts of the Agency. In Washington by far the largest 
part of the Agency is the management bureau. In the long run we 
want an USAID that is defined by its programming not its 
procedures.
    Finally, the third general area is to make the system 
easier to use. There are a number of suggestions that have 
already been made, and I won't repeat those. We do need to 
decentralize the work and place the contract officers in each 
bureau and office.
    We have heard, and I think Mark will talk about this as 
well, that there are significant vacancies in the procurement 
office. That has pretty much been the case, at least for the 
past 10 years. There were huge vacancies, around 35 percent, 
but they were all in the part of the office that was actually 
doing the contract review work.
    Having contract officers in the offices they are working in 
increases the esprit de corps. There is always a question of 
whether you need an arm's-length relationship. I think that the 
professionalism provides that and there are a lot of other 
checks as well. But I believe that being inside these offices 
and how the people are delegated is critical to their buying 
into the procedure.
    You want to empower. I believe we should empower more 
people with decisionmaking authority. Mission directors used to 
be able to have the warrants and sign off on purchases up to, I 
think it was a million dollars at that time. One mission 
director made the mistake of getting into a conflict of 
interest situation, and from that experience, the system was 
changed. I believe that if you're getting paid $125,000 in the 
U.S. Government, you should be able to handle the 
responsibility of spending up to a million dollars, and we can 
find you if you don't. There are lots of ways of inflicting 
punishment in that case.
    Decentralizing authority frees up decisionmaking. If it is 
east to make smaller contracting decisions the outlook creative 
programming improves.
    We also need to expand the stand-by talent pool. It is 
possible to identify people beforehand, to have security 
clearances in place and to negotiate contracts.
    Part of that is to simplify the existing contracts. A a 
personal services contract was a 40-page document. I used to 
say to our contracting official, how long do you think that 
Michael Jordan's contract is with the Bulls, and how much more 
complicated could this be? Training has been raised and I think 
we can do a lot more with that.
    I believe in making these changes because I believe that if 
we streamline and enact innovative changes in the procurement 
process, that the relevance and the impact of USAID's work 
would increase and give the Agency a chance to be a true global 
leader.
    Thank you very much.
    [The prepared statement of Mr. Barton follows:]

               Prepared Statement of Frederick D. Barton

    Senator Hagel and Senator Sarbanes, thank you for the invitation to 
address this important issue. The acquisition and assistance policies 
of USAID have a direct impact on trust in government, the effectiveness 
of the Agency's work, decisions of its employees and its private and 
non-profit partners, and on its future ability to provide global 
leadership.
    Over the past few decades there have been dozens of internal reform 
studies, most of which were disregarded. It is my understanding that 
Andrew Natsios, Tim Beans and their team are making real progress. 
Certainly USAID's speed and responsiveness in the Iraq and Afghanistan 
crises are commendable. Other significant steps include the use of the 
Internet and greater transparency, training of people throughout the 
Agency, and most importantly an open and responsive way of dealing with 
others.
    My intent is to point out three policy suggestions with specific 
steps that should be considered, and where possible, cite examples from 
Iraq and Afghanistan. Post conflict reconstruction work requires a 
clear sense of direction, sensitivity to scale and context, catalytic 
and tangible progress, speed and agility, and the full engagement of 
local people. It is a good, tough testing ground for innovative 
approaches and practices.
    The three policy recommendations for USAID are:

    (1) Expand the range of choices and partners. The challenges are 
already too great to be handled by a few. As we approach ever-larger 
transitions, it is imperative that we find ways to improve the 
preparation for this sensitive work, the number of organizations to 
partner with, and the speed to the market. This could be done in the 
following ways:

   Pre-compete and pre-qualify a large pool of organizations 
        (private and non-profit) with a special emphasis on difficult 
        subject areas such as: public safety and justice teams, 
        demobilization and reintegration of combatants, and mass 
        communications. The SWIFT mechanism in OTI is a good example 
        and allowed for 4-5 week conceptualization to implementation in 
        Iraq.

   Develop a hybrid experiment, somewhere between a contract, a 
        cooperative agreement and a grant. This new instrument should 
        define a job, challenge the market to respond and allow a range 
        of private and PVO competitors. The debate between control and 
        collaboration needs to be redefined. Some of the natural 
        advantages that NGOs offered in Afghanistan, including existing 
        knowledge, field staffs, and the ability to leverage other 
        funds, were lost because of the absence of this kind of choice.

   Consider the direct use of foreign firms in order to broaden 
        the pool of talent and skills. Foreign subcontractors did most 
        of the work on the Kabul to Kandahar road project in 
        Afghanistan. In both Iraq and Afghanistan, it has been 
        difficult to staff operations or keep people, witness the 58% 
        fulfillment rate at CPA headquarters in Baghdad.

   Beware the use of large contracts. While they seem to offer 
        the convenience of one-stop-shopping, single, large contracts 
        are not necessarily quicker in the field, lead to greater cost 
        overruns, and reduce competition. Some of the Iraq RFPs were 
        larger than the annual gross revenues of many would-be bidders. 
        That produced a consolidation for bidding that eliminated any 
        competition. If the contracting was less arduous, the work 
        could have more easily been broken into geographic zones or 
        other more digestible pieces, and enlarged the market place. In 
        Afghanistan there are only a handful of contractors.

    (2) Open up the process. USAID and the work it is trying to do is 
ill served by secrecy, closed meetings, and excessive security. As the 
U.S. prepared for the war in Iraq and tens of thousands of soldiers 
were visibly sent to the region, most post combat planning was kept 
secret--as if it might tip off war plans. Administration policy delayed 
preparations, such as contracts and grants, and information was not 
shared. The results harmed the eventual programs and projects and built 
distrust. Several steps would help in the future:

   Resist the temptation to classify. Bringing assistance to a 
        nation should always be seen as an act of public friendship. If 
        the program does not pass that test, it is in the wrong place. 
        I have not heard of any USAID initiative in Iraq or Afghanistan 
        that benefited from this approach.

   Expand the use of concurrent audits, spot checks and peer 
        reviews of ongoing work. These audits, that take place during 
        the operation of a program, are helpful to program managers and 
        USAID partners by reporting on performance, management 
        problems, and the appropriateness of a contract. As such, they 
        allow midcourse corrections. Their use on mega projects, such 
        as the Afghan road building, has been positive.

   Encourage the development of an entrepreneurial class of 
        people at USAID and reward wise risk taking. The skill sets 
        that are needed in Afghanistan and Iraq are creativity, 
        flexibility, and proximity to the people. As the U.S. military 
        has shown with their civil affairs and ``hearts and minds'' 
        work, it is necessary to be able to make small things happen on 
        a regular basis. Congress should encourage the use of waivers 
        and special authorities within USAID, streamline reporting, and 
        avoid excessive criticism to advance this difficult cultural 
        change. Mission Directors in emergency places should be able to 
        invoke the same rules as the Office of Foreign Disaster 
        Assistance for those parts of the USAID program that could have 
        a direct benefit on the situation. For its part, USAID should 
        be less defensive about its shortcomings.

   Put together a simple study of harmful earmarks and 
        restrictions. There is a chronic complaint within USAID about 
        this issue. A five-page memo detailing 10-25 earmarks, with a 
        paragraph explaining their effect on operations should be 
        prepared for this Subcommittee.

   Make clear the difficulty of working in the new security 
        environment. In Iraq, we visited with dedicated USAID employees 
        and partners who were operating in dangerous settings. Many who 
        work in Afghanistan feel that conditions have grown more 
        dangerous, with work in the South slowing down into a shrinking 
        area. While others have the responsibility for public safety, 
        it is the central challenge of both places and has a huge 
        impact on costs, meeting deadlines, and the ability to recruit 
        the necessary talent.

    (3) Make the system easier to use. Tim Beans and his team are 
making real progress, yet there are more opportunities to address this 
chronic problem. USAID is not the Department of Defense and would 
benefit from an assistance and acquisition approach that has its own 
identity. Program people need to be freed up to do the work, as opposed 
to managing paperwork or making decisions based on the difficulty of 
contractual implementation. The following improvements would help:

   Decentralize most work and place contract officers in each 
        bureau and office. Where these people have been co-located, 
        they are part of a team and enjoy greater job satisfaction. 
        This is how Missions and some offices with a need to be 
        responsive work--it should be replicated.

   Encourage the Beans initiative to develop a cadre of Foreign 
        Service contracting officers. Connecting contracting officials 
        to the Agency's work, where they can enjoy the same rewards and 
        incentives of their USAID colleagues, is an excellent way to 
        address high turnover rates.

   Empower more people with decision-making authority and 
        responsibility by increasing the use of purchasing warrants to 
        Office and Mission directors. There was a time when the 
        authority to approve up to $1 million existed--that should be 
        returned and increased, once a brief training module is 
        completed. Recent delegations of Personal Services Contractor 
        (PSC) authorities, small grants and purchase orders are an 
        important step in the right direction.

   Expand the standby pool of talent. Offices that have 
        developed ``bullpens'' of people who are ready to go in an 
        emergency are among the most responsive in the Agency. That 
        needs to be expanded by building rosters of capable people who 
        have received security clearances and have pre-negotiated 
        contracts and encouraging partners to do the same.

   Simplify existing contracts. While much of the language is 
        boilerplate, there is still a tendency to make things more 
        complex than necessary. PSCs should receive lump sum payments 
        for their non-work expenses saving all parties time and 
        complications. In light of the great value that they bring to 
        the organization, health insurance coverage should be arranged.

   Increase the number of well-trained program managers. For 
        most of the first two years in Afghanistan, a single, talented 
        officer oversaw the entire USAID portfolio. The organization is 
        lacking a sufficient core of people who know programming.

    It is my feeling that USAID needs to be seen as a trusted 
organization that is making wise programming choices. The procurement 
process has a great influence on the fulfillment of its mission.
    If USAID streamlines and enacts innovative changes to its 
procurement process, the relevance and impact of its work will 
increase, and will further highlight its position as a global leader.
    Your larger Committee is addressing other larger issues of 
structural weaknesses in the way the U.S. government prepares for post 
conflict reconstruction next week. CSIS' president, John Hamre, will be 
one of your witnesses and will bring forward some of the major 
recommendations we have been working on for the past few years. We hope 
that you will make real progress on the toughest issues: who is in 
charge of the overall reconstruction effort, if there is any standby 
funding, and how we shall achieve public safety in the aftermath of 
war.
    Thank you.

    Senator Hagel. Mr. Barton, thank you as always.
    Dr. Burman.

    STATEMENT OF DR. ALLAN V. BURMAN, PRESIDENT, JEFFERSON 
   SOLUTIONS, DIVISION OF THE JEFFERSON CONSULTING GROUP, LLC

    Dr. Burman. Thank you very much, Mr. Chairman. I am pleased 
to be here this afternoon as well. I am president of Jefferson 
Solutions, which is the government division of the Jefferson 
Consulting Group, and we provide acquisition and change 
management consulting services to a lot of Federal agencies, 
mainly trying to get agencies to focus on business outcomes and 
performance. I do have a formal statement that I would like to 
submit for the record and just summarize my remarks.
    In addition to providing those kinds of consulting 
services, we have done reviews of Agency contracting 
operations. We have done this at HUD, we have done this at 
Education, VA, Energy, and in 2002 we did the same kind of 
study for USAID. At that time, Mark Ward was the Procurement 
Executive, Tim Beans was his Deputy, and we talked to this 
gentleman over here as well as part of the interview process in 
that effort. I am a former Procurement Administrator for the 
Federal Government. I have spent many years at OMB. I was 
Acting under President Reagan, and I was confirmed by this body 
under President Bush, and then held on by President Clinton. So 
I spent a lot of time dealing with government-wide acquisition 
issues and policies.
    Now the committee has asked me to look at USAID's 
procurement process; address lessons learned from Afghanistan 
and Iraq; discuss some of the oversight practices regarding 
subcontracting; and then provide some recommendations as Rick 
has done on what improvements might be in order.
    I think basically though, to preface those remarks, there 
are a few elements that are absolutely essential in any kind of 
procurement or acquisition environment. Operations ought to be 
transparent, and the bidding process understandable and 
regularized. The selection process should be fair and free from 
bias, or conflicts of interest. Competition should be the norm 
and a firm should be able to find out if they didn't win, why, 
and be able to redress grievances where they have them.
    There are thousands of pages of Federal acquisition 
regulations, but when you come right down to it, that is really 
the essence of what you're looking for to have these systems 
work properly. So I say you could apply that test to Iraq, or 
you could apply it to Commerce, or SBA or anybody else.
    There are some other important elements for an effective 
procurement process as well. Have the agencies really figured 
out and defined what it is that they want and have a plan to 
see that they have gotten it? And do they have enough 
experienced and knowledgeable staff to do that work? And, today 
I think that is even more critical when you look at how the 
Federal Government does its business. I mean, so many agencies 
are relying upon contractors to get its mission done, and I 
think that applies to USAID as well.
    So, questions that would be asked: Is the staff trained in 
that oversight role? Do they even see it as their 
responsibility? And I think that there is some questions in 
that regard. I think people still have the mentality about how 
we did these things, and now it is a different role, we are 
overseeing them, and that is a different set of skill sets. And 
probably most important is a program and procurement staff 
working closely together to see that contractors are focused on 
it and achieve performance goals.
    As I mentioned to you, we did a review in 2002 on the 
headquarters procurement and assistance operations. Craig 
Durkin, who used to head procurement at HUD, was part of that 
process with us. Steve Kelman, who succeeded me as the 
Procurement Administrator for the Federal Government was also 
part of that team.
    We looked at a lot of documents, interviewed quite a few 
people, talked about interactions, talked with professional 
services counsel folks, and came up with a number of 
recommendations to streamline and improve the process. But I 
think the key finding that we had was that there really needs 
to be a full partnership between the procurement folks and the 
program staff throughout this acquisition process.
    Frequently when things go wrong you look at the procurement 
side, but in many cases it is the program people who are 
deciding what the Agency is going to get, what it needs. They 
write the statements of work, and they monitor the contractor's 
performance. And so, it's absolutely critical that they 
understand themselves to be part of this acquisition team, and 
acquisition process. And we talked about CTOs. These are the 
cognizant technical officers that you were talking about with 
Mr. Mosley and Mr. Beans.
    Frequently, people tend to criticize the front end of the 
process, the awarding business, have we done it right? All too 
infrequently, they pay attention to the back end of the 
process, are we really getting what we're supposed to be 
getting? And have we figured out a way up front to know that 
we're going to be getting that? So I would say that questions 
for both Afghanistan and Iraq are, who is monitoring contractor 
performance? Are they trained to perform this role, and what 
performance measures are in place to see that this work is 
being done effectively?
    You raised some of those questions earlier today and I 
think those are very good questions to be asking folks. And Tim 
talked a bit about how many people they have as cognizant 
technical officers in Iraq. There are not very many people to 
be doing that kind of role. And I think that as the funding 
goes up these issues can only get worse, so I say it is a 
critical issue for the committee to pay attention to.
    There is another kind of oversight issue that I think also 
makes some sense to pay attention to, and that is what system 
is in place to keep track of what is being bought and brought 
into the country, and is there an accountability, property 
accountability system there and do we have logisticians and 
people to see what is being done.
    Regarding lessons learned, you have talked a little bit 
about that, and I won't spend a lot of time talking about the 
award process. There are rules in both the Federal Acquisition 
Regulations and in USAID's own rules that allow them to do 
limited competition. Obviously, it would be better to go full 
and open if you can do it. I think the circumstances required 
them to move more quickly.
    Obviously, if you do have one of these, what Tim referred 
to as IQCs or indefinite quantity contracts in place where you 
have already gone through a competition, and you have people 
there and you have selected them already, it makes a lot of 
sense to say, OK, we just compete it among that group to be 
able to get somebody on board quickly.
    In fact, I was working with the Energy Department last year 
because we were trying to deal with a question of getting 
fossil fuel plants built in the former Soviet Union so that 
some plutonium reactors, three plutonium reactors could be 
closed down. And we used a defense threat reduction agency 
vehicle for Energy in order to get that capability and get it 
done, quick, and Energy decided to do that.
    You also use a best-value process because different firms 
bring different things to the table, and so you can't say, 
well, let's go tell everybody to do the same thing and go low 
price. USAID uses civil servants to do those evaluations and I 
think that is done reasonably well as well.
    And I think that as you go into the process, as people have 
a better sense of what the requirements are going to be over 
time, that you're probably going to be getting more competition 
and a better ability to use that competition.
    The other problem that I see here is, who is writing the 
statements of work and do they know how to write them? And do 
they get them to contracting officers who can use them or do 
they get sent back? And so is there some effective help there 
to see that the process is working well so that you can put 
performance matrices in place and be able to monitor how things 
are going? Recognizing that there are lots of security and 
other issues here that you have to deal with, even in spite of 
that, I think acquisition planning, risk mitigation strategies, 
all of these things still make sense for someone to do.
    Another area that you asked us to talk about was 
subcontractor management. I know that USAID has really relied 
on the prime to do most of that work, particularly with the big 
Bechtel contract. Clearly there are clauses that flow down to 
subcontractors and they have to follow them, like can USAID can 
go in and inspect subcontractor work, review their costs, that 
kind of thing.
    But as Tim mentioned, you try to maintain privity of 
contract with the prime so that you don't get in the system of 
telling the prime how to have the subcontractor do something 
and then later on be held responsible for their failure to 
perform as supposed to holding the prime responsible. That is 
the kind of issue that you run into in that process.
    That doesn't mean that you couldn't put very good 
incentives or targets in those contract awards that say how 
much subcontracting that you want to be done, and including a 
lot of incentives on how to go about that process. So I would 
say that's really the technique on subcontracting as opposed to 
trying to micro-manage the prime or the subcontractor in doing 
the job.
    So in summary then, Mr. Chairman, you had asked for a set 
of recommendations. I would say, ensure that the procurement 
and program offices work closely together in developing 
statements of work and carrying out the monitoring of 
procurements. Use these IQCs, these indefinite quantity 
contracts, as appropriate, but try to make competition the case 
every time. Be as open as possible on the procedures to be 
followed on bidding. Make sure that well-trained cognizant 
technical officers are available. Establish a good property 
accounting system. Use performance-based methods as well as 
incentives to focus the contractor on both business outcomes 
and subcontractor management. And develop an effective 
reporting and documentation system.
    That's kind of a long laundry list, but I think that all of 
those things would help to make this whole process work more 
effectively in the future. And again, I was very impressed with 
the USAID staff when we did our review. I thought that they 
were very dedicated folks, and in all trying to make this 
operation be as successful as possible.
    That concludes my prepared remarks. I would be pleased to 
take any questions.
    [The prepared statement of Dr. Burman follows:]

               Prepared Statement of Dr. Allan V. Burman

    Mr. Chairman and Members of the Committee, my name is Allan Burman 
and I am President of Jefferson Solutions, the government division of 
Jefferson Consulting Group, LLC. Solutions provides acquisition and 
change management consulting services to many Federal departments and 
agencies, including the Departments of Defense, Commerce, Energy, and 
Education as well as the Small Business Administration, the General 
Services Administration and the Internal Revenue Service. Much of our 
support includes assisting agencies in defining the outcomes they are 
seeking from private sector contracts and in developing performance 
measures and quality assurance plans for them to monitor and assess 
contractor performance.
    We have also conducted management reviews of agency contracting 
operations, including those at HUD, Education, the Department of 
Veterans' Affairs, the Energy Efficiency and Renewable Energy Office of 
the Department of Energy and in 2002 the headquarters acquisition and 
financial assistance operations of the United States Agency for 
International Development (USAID).
    Prior to joining the Jefferson Group in 1994, I served as 
Administrator for Federal Procurement Policy in the Office of 
Management and Budget. I was Acting Administrator under President 
Reagan, confirmed by the Senate under President Bush and held on in 
that post under President Clinton. As Administrator I initiated 
numerous procurement reforms, including policies that favored the use 
of performance-based contracting for acquiring services and assessing a 
firm's past performance in determining its acceptability for future 
awards. The Committee has asked me to do the following:

   Reflect on the USAID contracting and procurement process,

   Address lessons learned from Afghanistan and Iraq,

   Discuss what oversight and accountability practices are in 
        place regarding subcontracting, and,

   Provide specific recommendations for improving USAID 
        procurement and contracting practices.

    Let me preface my review of these areas with the comment that there 
are some elements that are fundamental to any sound acquisition system.

   Operations should be sufficiently transparent, and the 
        bidding process understandable and regularized,

   The selection process should be fair and free from bias and 
        conflicts of interest,

   Competition should be the norm, and

   Firms should be able to find out if they didn't win, why, 
        and have some means for redressing grievances.

    These are not very complicated requirements, but they are the sort 
of things I recommended when we worked with the Organization for 
Economic Cooperation and Development to help the emerging democracies 
of central and eastern Europe move from ``state orders'' to a market 
system. And they are the essence of the multi-thousand page Federal 
Acquisition Regulations of our own government. In many ways these are 
the tests that should be applied to any contracting operation, whether 
by USAID in Iraq or the Small Business Administration in Washington, 
DC.
    Coupled with these factors is the need for agencies to effectively 
define the results they seek from contractor support and to develop a 
contract management plan to see those results are achieved. And who is 
involved in carrying out that process is equally important to the 
success of any contracting effort. It is in this area that many 
agencies face challenges.
    Effective oversight is even more critical today, when we see how 
much of agencies' mission accomplishment is dependent on contractor 
support. This need is particularly true of those agencies created in 
the last 30 years or so, including Energy, Education, EPA and NASA. 
Well over half of their funding and for Energy around 90 percent goes 
to contractor support. If the agency has not done a good job of 
defining its needs and desired results, then how can it expect to 
accomplish its mission? Where once there was an expectation that agency 
program and technical staff would perform the work, today their 
responsibility is in overseeing what is done. The question here is, are 
they skilled and trained in carrying out that management and oversight 
role? Do they even see that as their role? Are the program, technical 
and acquisition staff working in partnership to ensure contractors are 
focused on and achieve performance goals? These questions can be asked 
of USAID as well.
             the usaid contracting and procurement process
    In 2002 Solutions conducted a review of USAID headquarters 
procurement functions, including the award and administration of grants 
and cooperative agreements. Key participants with me in the review 
included Craig Durkin, a Vice President with Solutions who recently 
directed the contracting and procurement operations of HUD and Steve 
Kelman, a Professor at Harvard's Kennedy School who succeeded me as 
Procurement Administrator. As part of this process we reviewed an array 
of files and documents, interviewed some 50 individuals and developed a 
number of conclusions about USAID operations as well as suggestions for 
improvement. While this effort preceded the war, I believe that many of 
our findings remain relevant today.
    We found a staff of very dedicated, hardworking people and 
leadership that was looking to improve how they did business. We made a 
number of suggestions to help streamline and improve their acquisition 
process. These involved developing customer service standards, 
delegating some workload out of the procurement offices, and getting 
better technology to help them get their work accomplished. However, 
the key findings of our review reflected the general comment I noted 
above. That is, effective contracting requires a full partnership 
between procurement and originating office or program staff.
    We tend to focus on the procurement office when we see contracts 
being poorly designed or run, but in fact originating program offices, 
those that are responsible for the efforts being funded, have a very 
key role to play in this process. As such, they should clearly be 
perceived and see themselves as part of the acquisition workforce of 
the agency. However, only the Department of Defense tends to have this 
more expansive view of their acquisition workforce. Defense recognizes 
that engineers who define requirements or logisticians who support the 
effort or project managers who oversee contractor performance are all 
critical to the success of any acquisition and as such need to be well 
trained in these responsibilities. The General Accounting Office in 
October 2003 drafted an evaluation framework for improving the 
procurement function. They list partnering between program and 
procurement offices and providing adequate acquisition training to 
program and field office staff as critical success factors.
    For USAID the originating offices have the responsibility to 
determine what is to be acquired or supported, are responsible for 
writing sound, results-oriented statements of work and monitor the 
contractor or recipient's performance. In our review, we suggested that 
originating officer acquisition roles be redefined to focus on 
performance and results and that the jobs of program personnel working 
on contract management be reoriented to reflect this new management 
emphasis. We also recommended that the procurement function be elevated 
and its Director placed on a par with other key USAID managers.
    All too frequently critics focus on the award process and ignore 
the contract management aspects of the effort. It is appropriate to 
assess for both Afghanistan and Iraq who is monitoring contractor 
performance, whether they are trained to perform this role and what set 
of performance parameters have been established to see that work is 
being properly and effectively carried out.
    While USAID has a limited number of contracting officers on site 
for their Iraq projects, their contractor oversight capability is 
severely limited. And as AID funds expand with contracts such as the 
$680 million awarded to Bechtel National, Inc. in April 2003, this 
concern can only increase. USAID's Chief Procurement Counsel cites this 
Bechtel award as ``the largest single direct contract awarded by USAID 
in its 42-year history,'' pointing out that it ``is thought to be the 
largest single nonmilitary foreign aid contract to be awarded since the 
Marshall Plan that rebuilt Europe after World War II.'' So a good 
question for the Committee is, who's minding the store?
    There is another element to this monitoring process as well. Given 
the huge increase in funds to acquire goods and services, what type of 
system is in place to keep track of what is being purchased and being 
brought into the country? Is there an effective property accountability 
system in place to monitor these buys and logisticians there to track 
them?
                            lessons learned
    Some have raised questions about USAID's use of limited competition 
in acquiring contracted support, suggesting that full and open 
competition as defined in 1984's Competition in Contracting Act should 
be used in every case. However, both the Federal Acquisition Regulation 
and USAID's own regulations allow limited competition or even no 
competition in certain cases. Frankly, many agencies use the General 
Services Administration schedules program or let tasks against 
contracts that have already been competed and awarded as ways to meet 
agency needs much more quickly than through a full and open competition 
process.
    USAID refers to these multiple award contracts as IQC's or 
Indefinite Quantity Contracts. For example, in April 2003 it used an 
IQC in awarding a task order for the monitoring and evaluation of 
USAID/Iraq's technical assistance portfolio. All contractors are 
originally given a full and open chance to bid on these IQC awards. 
However, tasks are ultimately competed only among those who essentially 
become pre-qualified through the award of the IQC contract. Firms on 
these lists have already demonstrated an ability to meet the general 
requirement the agency has established. Given the exigencies and 
uncertainties early on regarding Iraq it is not unreasonable to take 
advantage of these provisions. That is not to say where rules are in 
place on how these types of procurements are to be conducted, it is 
acceptable to ignore them.
    Contracting today practically demands a ``best value'' evaluation 
scheme, since agencies are looking for solutions to their problems and 
different firms bring different approaches for meeting their needs. 
Under virtually all circumstances, then, agencies will need to make 
judgments on which firm offers the best answer to the agencies problem. 
In many cases, teams of civil servants perform this evaluation role. 
This is the practice followed by USAID. Having that kind of selection 
process goes a long way to making sure that the process is fair and 
impartial.
    Last year, I served as a member of a small Team of Independent 
Professionals to assist the Department of Energy in developing an 
acquisition strategy for acquiring contractor support. This requirement 
was to build fossil fuel plants in the Russian Federation. The Team 
learned that the Defense Threat Reduction Agency had recently undergone 
a full and open competition and as a result awarded contracts to five 
prime contractors each with multiple subcontractors. Part of the basis 
for winning an award was that each had experience in contracting 
overseas. The Team recommended that Energy employ the Economy Act to 
use this existing Defense Department multiple award vehicle and compete 
the requirement among the five awardees as opposed to initiating a new 
full and open competition. The selection process was quick and 
effective, and getting these fossil fuel plants built will allow the 
Russians to shut down three Chernobyl style plutonium reactors in 
Siberia that much sooner.
    Clearly as both the Department of Defense and USAID have gotten a 
better understanding of requirements and agency roles and missions, the 
options to broaden competition increase. It is easy in hindsight to say 
that all of these responsibilities should have been carefully laid out 
in advance but that is not a very practical suggestion.
    Another question for the Committee is who is preparing the 
statements of work for these services. I can envisage many problems 
where work statements are poorly laid out and contracting staff will 
reject them. Is there someone helping to make this part of the process 
more effective? And is anyone developing performance metrics to be 
placed in these awards and ways to measure whether the contractor is 
accomplishing them? A major reason for moving toward performance-based 
contracts is to shift risk from the government to the contractor and 
also to get both parties to focus on business outcomes, while offering 
the contractor an opportunity to innovate in accomplishing the mission. 
Of course, security concerns and other uncertainties in Afghanistan and 
Iraq make it much more difficult for companies to sign up to fixed 
price performance-based awards. But that does not mean that acquisition 
strategies, risk mitigation plans and business outcomes should not 
still be important elements in defining what the government is looking 
to acquire.
                        subcontractor management
    In the case of the large Bechtel contract for all types of 
infrastructure projects cited above, USAID has made it clear that it is 
relying on the prime contractor for all aspects of subcontractor 
management. However there are clauses that flow down to the 
subcontractor that for example would allow USAID to inspect 
subcontractor work or to review their incurred costs. Other clauses 
that apply to the prime also frequently flow down, such as 
Organizational Conflict of Interest provisions or requirements to use 
U.S. Flag Carriers.
    Generally, however, the government seeks to maintain privity of 
contract with the prime contractor, since the prime bears ultimate 
responsibility for all the work performed on the contract. The more 
that the government interferes in that relationship between the prime 
and the subcontractor, the more it opens itself to charges that it and 
not the prime contractor should be held accountable for a 
subcontractor's failure to perform.
    On the other hand, USAID can in its contract specify subcontracting 
targets as, for example, the proportion of work to be conducted by 
small or disadvantaged businesses. Moreover, it can place clear 
incentives and disincentives in the contract to align the contractor's 
efforts with the agency's goals. While agencies may require percentages 
of work to be done by small businesses, my experience is that they 
frequently fail to monitor the prime's performance in this regard. 
Rather than micromanaging the prime contractor, an alternative approach 
would be for USAID to develop performance-based requirements along 
these lines to see that its subcontracting goals are accomplished.
            recommendations for improving usaid contracting
    In summary, I would propose the following as specific 
recommendations for improving USAID contracting operations:

   Ensure the procurement and originating offices work in close 
        partnership in developing statements of work and in carrying 
        out and monitoring procurements,

   Continue to use IQC's as appropriate for awarding Iraq 
        contracts while using every effort to see that competition 
        exists on every procurement,

   Be as open as possible on the procedures to be followed on 
        bidding for USAID work and develop regularized procedures for 
        all types of contracting actions,

   Ensure that an adequate number of Cognizant Technical 
        Officers are available to oversee contractor performance and 
        see that they are sufficiently trained to carry out these 
        important contract oversight activities,

   Establish a property accounting system that focuses on all 
        the goods being purchased and brought into the country,

   Use performance-based methods as well as incentives to focus 
        the contractor on both business outcomes as well as on 
        subcontractor management, and

   Develop an effective reporting and documentation system for 
        monitoring contract performance.

    As needs become clearer and the process for prioritizing those 
needs more established, then it is also critical to lay out a long 
range acquisition plan so that all parties can be thinking through in 
advance the best way to meet these needs and how to allocate the 
limited resources available for these purposes. Finally, seeing that 
USAID has adequate resources and trained staff to put in place these 
recommendations is essential to creating the effective acquisition 
process that the Committee and the Administration is seeking.
    Mr. Chairman, this concludes my prepared remarks. I would be 
pleased to answer any questions you or other members of the Committee 
might have.

    Senator Hagel. Mr. Stevenson.

   STATEMENT OF MARCUS L. STEVENSON, DIRECTOR OF GRANTS AND 
                 CONTRACTS, THE URBAN INSTITUTE

    Mr. Stevenson. Thank you, Senator Hagel, and thank you for 
the invitation to discuss these important issues. I likewise 
have a written statement for the record that I would like to be 
entered and I will try to just paraphrase from it rather than 
take a lot of time.
    To some extent, listening to some of this, I have been gone 
from the Agency since July of 2001, and I was with USAID for 21 
years. And I frankly feel like I know the procurement system as 
well as anyone, because I started as a GS-9 contract 
specialist, and at the end of my career, I was the Senior 
Procurement Executive. So I worked in Washington, DC for about 
6 years in the 1980s and then I went into the Foreign Service, 
and I was in Asia and Latin America until I competed for the 
job as the Director of the Office of Procurement in 1994. And 
for 2 years I held that position, and then I was appointed to 
Senior Procurement Executive from 1994, 1996 through 2001.
    And unfortunately, I have been following this and I 
obviously get a lot of calls from both colleagues inside the 
Agency and contractors with whom I worked with for many years 
in asking me my opinion on this stuff. And when I sit here and 
hear some of the recommendations and some of the problems, it 
reminds me a little bit of the movie, Groundhog Day, because I 
can tell you that USAID probably has one of the most studied 
procurement systems in the Federal Government, going back over 
20 years ago.
    And, unfortunately, the findings are redundant. It is 
always about the same four things. One is, not enough 
contracting people, a lack of procurement planning, a lack of 
training for cognizant technical officers, and a very slow-to-
react budgeting system, and by that I mean, once they get their 
appropriation, getting the money to the operating units, and 
that inhibits implementation also.
    So, it is very disconcerting. And then what happens is that 
when you find yourself in a situation, and when I was a 
procurement executive, we had Bosnia, we had Hurricane Mitch, 
we had Kosovo. But none of those were of the magnitude of what 
we're dealing with now, or what you're dealing with right now. 
And I think and I honestly believe in my mind that when the 
situation occurred in Iraq after the war, that had the senior 
management came to me and told me what they wanted to do, I 
honestly believe I would have told them that we don't have the 
resources to do that.
    The Agency does not do construction contracting. They 
haven't done that kind of work in years on a magnitude--but 
never done it on a magnitude. We used to have fairly large 
construction projects overseas, but we used what we called 
host-country contracts, which is a methodology where the units 
of the host country do the contracting and we oversee it. 
That's very prevalent in Egypt and has been for many years. But 
to expect the Office of Procurement to take on construction or 
capital development projects of this magnitude, they simply 
don't have people who were hired with these skill sets. Our 
Agency is primarily a provider of technical assistance and 
that's what the basis on what the people were hired and the 
skill sets that they had to provide. As I say in my written 
testimony, of course, they will do anything that they can, and 
the best job that they can to move forward. But, I would be 
very curious and I would ask you if you checked when the 
Coalition for Provisional Authority gears up to do their 
construction contracts, it would be interesting to see the 
manpower and types of people they use to award and administer 
those contracts versus the resources that USAID has. And I can 
tell you that it will dwarf what USAID has.
    I mean, listening to Tim talk, and I know that he has a lot 
of concerns, and Tim is an excellent director and a good 
leader, but, if I was a procurement executive today, and I knew 
that in Afghanistan with a program of approximately $1 million 
I had one contracting officer there, it would make me very 
nervous. And especially given the situation, as I understand 
it, from the security aspect, monitoring on these contracts is 
very difficult, because they can't get out to the places that 
they need to get out to do the type of monitoring, which is 
really key to what Allan said, because Allan, frankly, is a 
guru on performance-based contracting. He was a real leader on 
this when he was an OFPP.
    And that is why it is even more important you have 
statements of work and they are defined by outputs that you 
judge success as opposed to inputs, because very, very many 
people in the Government and especially in USAID, like to 
manage inputs as opposed to outputs and the whole concept of 
performance-based contracts is to define the output that you're 
expecting. Compete those outputs, and you will have a variety 
of people who want to do things differently. The key is you 
evaluate those and then you evaluate them on what they deliver 
as opposed to what the inputs are. So really, I think that 
USAID finds itself in a situation where they are being and 
trying to do things that they are not equipped to do, as far as 
just the skill sets.
    As far the staffing, the last time I checked, OP was down 
to about 120 people. It hit its peak in the 1990s when I was 
the Procurement Executive, and, we had what was called the OMB 
SWAT Team Report. And in the late 1980s, again things like this 
were happening at USAID to the point that the then-
administration, the Bush administration, convened a SWAT team 
and it included people from OMB, and it included people from 
AIG, and included people from USAID itself, and it was a 
combined team. And they did a report that basically listed what 
they think needed to be done to improve USAID, and a large part 
of that had to do with the procurement process.
    And again, it was you don't have enough contracting 
officers, your CTOs are not well-trained, you don't do 
procurement planning, and basically, your budget system is 
broken. It doesn't get money to the operating units and so it 
has been rather redundant.
    To give you an idea of a workload, when I was there in the 
late 1990s, we were doing comparisons with other agencies to 
see how much work does an USAID contracting officer have versus 
one at the Department of Energy or something like that, and 
there were bases for getting that information, the Federal 
Procurement Database shows how much actions. And we discovered 
that the USAID contract specialists had a workload of two to 
four times his or her colleague in other agencies. And you 
know, it has to be a lot worse now with Iraq and Afghanistan 
and things like the HIV Initiative.
    So, basically, what happened was is that we took the OMB 
SWA Team Report when I came in, and it became like a piece to 
work from as to how do we improve it. We had very strong senior 
management backing. I was able to immediately, within a year 
when I came out, I was given permission to hire 45 new contract 
specialists. We ramped up and we did recruiting on college 
campuses and so forth, and other things and we were able to 
bring those people on in about a year. So we went from 130 
people to 175 approximately. And we were able to stay there for 
about a year or two and the situation was very good then. The 
contracting officers felt like they had adequate staff to do 
the job. The senior management, and what I mean by that is the 
senior administrator and his senior managers, were backing us 
on getting training started, and the importance is that 
everybody played a role in the procurement process.
    As Allan said, a lot of people think that it is just the 
contracts officer, but everybody plays a role in that. You 
know, USAID is a contracting Agency and they don't implement 
anything themselves. They depend upon contractors and grantees 
to do it. So, I would think that most people, at least in the 
Office of Procurement would agree, it was a good time and 
probably the best time to head. But what is happening now is 
that you have a sliding scale and essentially they are back 
down to, you know, a relatively very slow----
    Senator Hagel. Well, speaking of a sliding scale, I don't 
know what this means. Bertie are you tired? Do you want to go 
home or what?
    I promise that you will be out by 6 p.m., Bertie if you 
will give us a little more light, if you can. If we don't pay 
our bills, you know, we're dead around here. Go ahead. I am 
sorry about that.
    [There was a slight power interruption.]
    Mr. Stevenson. And on a couple of other things, I very much 
agree with something that Rick mentioned. When I saw the 
amounts of these contracts, they're monstrous. And sometimes 
they were awarding contract value to equal the annual revenues 
of a company. I mean, I find that a little bit, and I don't 
want to use the word insane, but smaller is better, especially 
if USAID was going to do it. And the magnitude of these, and I 
don't see how in the world there can be, I know that everybody 
is trying their hardest, but the oversight has to be extremely 
difficult. And the money being spent.
    And what is also unusual about these, and I understand to a 
certain extent, because of the situation, that these large 
construction contracts which are known as cost plus fixed fee. 
That's pretty unusual in construction contracting. It is 
usually some type of fixed price. Again, focusing on outputs, a 
cost plus fixed fee means that they basically get all of their 
costs reimbursed and so they have zero to very little cost risk 
and they get a profit on all of that.
    And when you consider the value of these contracts when 
these people are getting danger pay of like 50 percent, for 
insurance, the war risk insurance costs sometimes up to 100 
percent of salaries. And then the firms get all of their 
overheads and fees on this, there is basically no cost risk to 
them.
    Again, I understand that they are--probably didn't want to 
undertake any cost risks as they didn't know the situation, but 
that begs the problem again about what did we know versus what 
we didn't know as far as how we were going to do things. There 
is a process in the Federal Government I am sure that Allan is 
familiar with and there are a couple of Executive orders. One 
was issued in 1982 by President Reagan and there was a 
subsequent one issued in 1994 by President Clinton, and that 
the Agency Procurement Executive, there was criteria 
established by OMB as to what an agency has to have in an 
acceptable procurement system, and each agency is required to 
develop a subset of that and manage by that.
    And every year, and I checked before I came up here, the 
Executive order is still applicable, the Procurement Executive 
is to do an assessment of the system, and he is to advise the 
Administrator or the head of the agency, how the system stacks 
up against the criteria. And it hits a lot of things that we 
are talking about here, you know, staffing, training and so 
forth.
    The year that I retired, in 2000, and I did one of these 
each year, as a Procurement Executive, and I was sending up 
some warning signals that things were, what were in my mind, 
deteriorating. And in the year of 2000, my report for the first 
time in the history of USAID, going back in USAID, I told the 
Administrator that I was unable to attest to the system and I 
wrote a very detailed memo as to why, and a lot of the things, 
the problems that they are having right now, existed then.
    So, in many ways it comes down to a brave decision, if you 
will, by senior management, because it really comes down to 
money. USAID has an operating budget, an OE budget. I don't 
know what it is exactly now, but it is between $500 and $600 
million, I would imagine. And you have to make choices. And in 
those days, then the Administrator made a choice that he was 
willing to put that kind of money towards additional people and 
resources and training, at the expense of something else, 
because you have to.
    But, given what is going on and given the fact of the--
looks like this is going to go on for sometime, we are always 
going to have the surges. Like we said, Hurricane Mitch, 
Bosnia, Kosovo, it is always going to be there. It has been, 
you know, going back for years, earthquakes and so forth. But 
at that modest to actually vulnerable staffing level, they 
barely can take care of the work that they have day-to-day, and 
they have no surge capacity.
    And so I would read the last part of my thing. I am looking 
at the future and I think that a decision should be made to 
staff up the Agency's procurement function across the Agency, 
but most immediately within the Office of Procurement, at a 
level that allows sufficiency and accuracy. By staff up, I mean 
recruit and employ bonafide and qualified GS and FS contract 
specialists for the long term, and not utilize a patchwork of 
personnel service contractors and temporary use of overseas 
Foreign Service nationals on a continual ad hoc basis.
    The procurement system and the function is vital to USAID, 
perhaps more so than many in the Agency realize. If you say to 
the chiefs that they are reasonably staffed and trained in 
procurement functions, and sustains it, they will be in a 
better position to deal with the surges like The Hague, like 
they currently face, and they will have professionals who are 
better trained for the type of contracts that they are being 
asked to put in place. Also, support functions like policy, 
evaluation and audit will be in a position to better support 
the operation staff.
    Thank you.
    [The prepared statement of Mr. Stevenson follows:]

               Prepared Statement of Marcus L. Stevenson

    Good afternoon and thank you for inviting me to discuss issues 
related to USAID contracting policies and operations. As a former 
Senior Procurement Executive for USAID I believe, I have some relevant 
knowledge of the Agency's inter-workings and I hope I can contribute 
input that will help generate improvements.
    First and foremost I would like to state that I fully support the 
procurement professional staff both in Washington, DC and in the 
overseas missions. I worked with them for 21 years up until July of 
2001. These people are unsung heroes in USAID accomplishments. They are 
often overworked and under-staffed, yet they do their best to deliver. 
It was my experience that their ethics are beyond reproach. I believe 
when it concerns USAID that any rumors about contracts being 
``steered'' are just that, with no substance. In my entire career with 
USAID spanning both Republican and Democratic administrations I was 
never once directed nor was it suggested that I sign a contract I was 
not comfortable with in terms of that the award would otherwise have 
been improper.
    The preceding being stated, I do have concerns about the present 
state of affairs and about USAID's ability to effectively award, 
administer and monitor contracts of the magnitude associated with Iraq 
and Afghanistan, in addition to the ``normal'' annual workload. What 
concerns me is again, the lack of adequate staff as well as the lack of 
expertise in construction type contracting. Capital development/
construction type contracts have not been the forte of USAID 
contracting professionals for a number of years and the staff hired 
from the 1990's to present, to the best of my knowledge, do not have 
those skill sets. When one combines a staff shortage with that of 
lacking skills, it points towards vulnerability. Again, the procurement 
professionals will do their best to deliver but when one is overworked 
and lacking the necessary skills, it sets the groundwork for potential 
mistakes. Had I been the Procurement Executive at the time the Office 
of Procurement was tasked with negotiating and entering these 
contracts, I seriously believe I may very well have advised the Agency 
senior management that perhaps DOD would have been a better alternative 
given their staffing and infrastructure in this area. I remain in 
contact with many USAID staff members as well as with the contractor 
community and the aforementioned comments are reflective of some of the 
feedback I have received.
    The USAID procurement system has been studied and reviewed numerous 
times for the last 20 years and the findings are redundant. The agency 
is understaffed in terms of contracting officers and specialists, there 
is a serious lack of procurement planning, training for cognizant 
technical officers is not sufficient and budget allocation and 
distribution is extremely slow in channeling funds to operating units.
    In the 1990s we did a comparison of the average workload of a USAID 
contract specialist versus their peers at agencies like DOE, Department 
of Agriculture, HHS and others and we discovered that the USAID 
specialist had 2 to 4 times the workload of those at the other 
agencies. I would expect the situation is worse now than it was then.
    In the late 1980's, there as a comprehensive review of USAID led by 
OMB and the resultant report was known as the ``OMB Swat Team Report''. 
During the 1990's that report was used as a guide in addressing a 
number of enhancements and reforms. This included a decision to hire 
approximately 45 additional contract specialists that brought the 
Office of Procurement to its highest strength ever, of approximately 
175 personnel. Additionally, during this same period, actions, 
statements and attitudes of the Agency senior management made it clear 
agency-wide that: (1) the procurement life cycle encompasses all 
offices of the agency; (2) that successful procurement requires highly 
qualified and well trained Contracting Officers (COs), Cognizant 
Technical Officers (CTOs), and Heads of Contract Activities (HCAs); and 
(3) that successful procurement systems and practices are critical to 
achieving the results of the Agency. This powerful combination of 
relatively simple fixes caused morale in the Office of Procurement to 
reach a peak. Supervisors had sufficient staff to get the job done and 
support functions such as evaluations of operating units overseas and 
the audit function were operating efficiently and had the support of 
Agency senior management and buy-in from the technical offices on the 
importance of understanding their role in the procurement function.
    Unfortunately, in my opinion, the situation since then has 
seriously eroded. The current permanent staffing level in the Office of 
Procurement is only approximately 120 personnel yet with the addition 
of contracting for Iraq and Afghanistan along with special programs 
like the AIDS Initiative, the workload has increased dramatically. 
Again, these type situations create the potential for vulnerabilities, 
not to mention stress and overworked procurement professionals. I do 
not believe it to be sustainable.
    In looking at the future I think a decision should be made to 
``staff up'' the Agency's procurement function across the Agency--but 
most immediately within the Office of Procurement--at a level that 
allows efficiency and accuracy. By ``staff up'' I mean recruit and 
employ bonafide and qualified GS and FS contract specialists for the 
long term and not utilize a patchwork of personal service contractors 
and temporary use of overseas foreign service nationals on a continual 
ad-hoc basis. The procurement function is vital to USAID, perhaps more 
so than many within the Agency realize. If USAID achieves a reasonably 
staffed and trained procurement function and sustains it, they will be 
in a better position to deal with ``surges'' like those they currently 
face and they will have professionals who are better trained for the 
type contracts they are being asked to put in place. Also, support 
functions like policy, evaluation and audit would be in a position to 
better support the operations staff.

    Senator Hagel. Mr. Stevenson, thank you. Gentlemen, all 
three of your statements are really excellent and I appreciate 
you each summarizing the statements. And I will see that your 
statements get wide distribution, especially within USAID. And 
we may even give them a quiz on it.
    But I am particularly struck by the three statements for a 
number of reasons, but mainly because you focused in on the 
areas that need the most significant attention for the long 
term and they are responsible recommendations that are very 
important. And, you each recognize what a big job USAID has to 
do and you have noted that, and some of you have been part of 
it, as Mr. Stevenson for 20 years. So you all understand what 
we're dealing with here, so your statements are very helpful. 
Very helpful to this committee, and I would think very helpful 
to USAID, because they know that the spirit in which they were 
given was the right spirit.
    Since I have promised Bertie to be out of here by 6:00, we 
have 15 minutes and what I would like to do is maybe get some 
questions in here. And in what we cannot finish, if it would be 
acceptable, I would like to submit to the three of you, and in 
your spare time, maybe you could give a little attention to 
them, because we do value what you think, and your expertise 
and experiences are very important at an important time.
    Dr. Burman, let me begin with you. Would you care to 
describe in greater detail the recommendations that are in your 
statement as well as you touched upon some of these in your 
summary, recommendations as to how we can strengthen the 
partnership between procurement and originating office staff?
    Now, I got into a little bit of that, as you know, in the 
question and answer, and I am not only internally within USAID, 
but the multi-office department areas of responsibilities, 
specifically I mentioned DOD, and CPA, Department of State. But 
if you could round out a little bit, Dr. Burman, what you were 
talking about here?
    Dr. Burman. I think, frequently, you see in the civilian 
agencies, so it is not unique to USAID, a kind of over-the-
transom mentality. It is the technical folks, program folks 
deciding what they want and then throwing something over to the 
procurement shop and saying, hey can you get this for us? When 
really what ought to be happening is they ought to be working 
together right up front in the process.
    Now, Rick mentioned co-location as a possibility where you 
have procurement people in offices with the program staff and 
developing relationships. And frankly that's what happens 
frequently out in field for U.S. civilian agencies, or overseas 
for USAID, where people are sitting next to one another, 
they're talking to one another all the time, and they are 
working with one another all the time. So that is a kind of 
informal process to make that work better.
    Some of the more formal measures are the ones that the 
Inspector General mentioned, saying that if you are a contract 
technical officer, people are going to be concerned about 
whether you know what your role really is, and they are going 
to evaluate you on that as something other than just a 
collateral duty or a minor role. I mean, we see that, from our 
perspective, as a very major function for the Agency because 
they aren't doing the work. They are looking at somebody else 
who is doing it and they have to make an assessment if they are 
doing it right, are they getting the right thing.
    So it is absolutely, in our view, critical to the Agency 
that folks who are doing that job ought to be perceived by the 
Agency as performing a very strategic function. And they ought 
to have performance measurement skills to do that. But I think 
those would be some of the suggestions to make that work more 
effectively and bring folks together in a shared mission 
environment.
    Senator Hagel. Thank you. Mr. Stevenson, you got into your 
summary, and it is noted in your written testimony here, the 
procurement contracting process, lack of adequate staff, all 
three of you have actually touched upon this to some extent, 
lack of expertise in the construction-type contracting. You 
note, and again I think that all three of you have made similar 
statements to vulnerability that resides in that lack of 
expertise, especially for the long term, as you, again all 
three have mentioned.
    What in your opinion has been the negative repercussions so 
far of this deficiency in our contracting policies, 
specifically in Iraq and in Afghanistan?
    Mr. Stevenson. Well, I can't speak first-hand since I 
wasn't a part of the process, but the fact is that if you have 
someone who is reviewing statements of work and negotiating 
costs for large construction projects, and they don't have a 
background in that area, that's a speciality area in 
contracting, and just like technical assistance. And I would be 
concerned of how much we're paying for something versus how 
much we should be paying for something.
    And especially when you're talking about a cost plus fixed 
fee, you know, the contractor is under zero to little costs. 
They certainly have physical risks in these places. But when 
you talk about cost risks, they really don't have any. 
Basically, they are allowed to work until they use up all the 
money, and if the job is not done, essentially they either have 
to stop work or they get more money, putting it very flatly.
    And when you asked your question earlier as to how many 
subs have been fired, or even how many primes will be fired, 
that's going to be a very difficult number for Tim to come up 
with. But I can tell you that there are not many cases in USAID 
of what we call a termination for default. Essentially what 
that means is it is a provision under regulations.
    And it's a little biting, but there used to be an old 
saying in USAID years ago, that a project officer never met a 
project that he didn't like, or that a few million dollars 
couldn't make better.
    So USAID does not have a good history of cutting things off 
when they are not working. And that's just, again, the nature, 
you know. But from the standpoint again of the construction 
contracting, my concern would be that people were looking at 
costs.
    I can give you almost a quote that one of the very large 
companies officials told me. They called me up and said, their 
scope of work was meaningless, and the budget had no cost 
reality. Now this is a good firm and they are probably doing 
good things and doing their best, but having a statement of 
work that is meaningless kind of means that we are just feeling 
our way along. But as a taxpayer we are feeling our way along 
spending tens of millions of dollars, and are we spending tens 
of millions to do something that we have got to turn here and 
go back and do something else if that didn't work.
    I am not criticizing the people that are trying to do it, 
but it just shows that I have my personal opinion about Iraq, 
and that is maybe we went too big, too quick. And I think Rick 
has a good point about these large monstrous contracts. How do 
you manage those as opposed to smaller-scale operations that 
you can judge results much better, and you can manage much 
tighter, and that you can much better oversight on?
    Senator Hagel. Thank you. Mr. Barton, how many CTOs, IGs do 
you believe, a general ballpark, that should be in Iraq, in 
Afghanistan. I mean, I know that you listened to the Inspector 
General and what Tim said, particularly the Inspector General 
saying, in Afghanistan, for example, I don't need anybody there 
as I work out of the other missions.
    What are your thoughts about those individual officers, in 
those two particular countries, Iraq and Afghanistan?
    Mr. Barton. I am not sure that I can really answer your 
question very skillfully because I don't really have a clear 
sense. I found that the Inspector General's visits to our 
programs were adequate, that we did not have to have somebody 
in-country to get the benefit of their concurrent audits. They 
could come in and they could spend 4 week, 6 weeks, 8 weeks 
looking at our program and it was perfectly satisfactory. They 
weren't going to get that much smarter being there everyday.
    There is a very real problem in Afghanistan because of the 
number of slots, in terms of security provided, and beds at the 
residence, and what not. So all of those issues really get in 
the way. But what I heard as I prepared for this meeting today 
and in talking to people is that we probably have about half 
the skilled people that we need in terms of the programming 
people who really understand this stuff, and are available. And 
then we have about half as many people out there as we should 
have. So we're probably at the 25 percent level. That's, 
obviously a gross generalization but----
    Senator Hagel. You're talking specifically about the CTOs?
    Mr. Barton. Yes, CTOs.
    Senator Hagel. Yes.
    Mr. Barton. And I think the Inspector General comes through 
and kind of looks for things, is generally either called in by 
the programming people, or called in by somebody who has a 
complaint. So, I am not sure that the presence there; though 
you do pick something up by kicking around.
    Senator Hagel. As all three of you have been around a long 
time in this business, but, Mr. Barton, explain if you will, 
maybe your experiences in interagency coordination. It rolls 
back a little bit to the previous question that I asked. And I 
asked the USAID people especially, how do you deal with these 
kinds of interagency issues? Any recommendations specifically 
in that area?
    Mr. Barton. Well.
    Senator Hagel. If you could hang on for just a moment.
    [Pause.]
    Senator Hagel. All right.
    Mr. Barton. The one that I would make on the interagency is 
that we got off to a bad start. The whole process of preparing 
for the post-conflict period was kept so secret and people who 
went to meetings were told that they couldn't even go back to 
their agency and tell people what was going on. So the only way 
the people in the Agency knew what was going on is if they had 
a leak from one of their own people telling them what had 
happened at the meeting in preparation.
    And the argument was always put forward was, well, we don't 
want to make it too clear that we are going to war, and this 
was at a time every day in the newspapers tens of thousand of 
soldiers were being sent to, essentially, the region. So, it 
was just a complete disconnect between the reality of what was 
happening and some kind of national security mode that people 
got into.
    And I think that when you start that way, then you are 
constantly, constantly playing catch up. You're always behind. 
And yesterday's good decision is not necessarily today's good 
decision. And so, we have seen that pretty much for the whole 
year. And I think it held up on this area as well.
    These folks need to be prepared. There are things that can 
be done and the Agency hasn't typically done it. The Agency has 
generally been in the 6 month to 14 month time-frame for 
turning around a contract. For Iraq, they moved things much 
more quickly and I think they deserve credit for that. They 
could create the capacity to do it, but that hasn't been the 
traditional mode.
    The Agency really has to think where we're going to be 
doing these kinds of things, we have been for the last decade, 
these are not aberrant experiences. This is the way that life 
is going to be, and really readjust to it.
    Senator Hagel. Yes.
    Mr. Barton. DOD doesn't look a lot better here.
    Senator Hagel. Yes, I understand. Gentlemen, thank you. I 
wish we had another 2 hours and we may well ask you to come 
back, because we intend to do a follow up hearing, and we would 
like to get you back and engage.
    Again, I thank you for your statements. I will ask if it is 
OK, with the three of you, if I could submit some additional 
questions to all of you. I had some other areas that I wanted 
to get into, but because the time is late, we will adjourn.
    We're always grateful for your service, gentlemen. Thank 
you very much.
    [Whereupon, at 5:58 p.m. the subcommittee adjourned, to 
reconvene subject to the call of the Chair.]

                              ----------                              

             ADDITIONAL QUESTIONS SUBMITTED FOR THE RECORD

   Responses of Hon. Everett L. Mosley, Inspector General, USAID, to 
  Additional Questions for the Record Submitted by Senator Richard G. 
                                 Lugar

         U.S. Agency for International Development,
                               Office of Inspector General,
                                    Washington, DC, March 22, 2004.

Hon. Richard G. Lugar,
United States Senate,
SH-306 Hart Senate Office Building,
Washington, DC.

Re: February 25, 2004, Senate Foreign Relations Committee, Subcommittee 
on International Economic Policy, Export, and Trade Promotion Hearing 
on USAID Contracting Practices

    Dear Senator Lugar:

    Attached are answers to your questions for the record following the 
February 25, 2004 hearing on USAID Contracting Practices held by the 
Senate Foreign Relations Committee, Subcommittee on International 
Economic Policy, Export and Trade Promotion. Please note that we are 
answering only those questions that apply to the OIG. USAID management 
will provide a separate response to the other questions.
    Please do not hesitate to contact me if you would like any 
additional information.
            Sincerely,
                                         Everett L. Mosley,
                                                 Inspector General.

    Question 4. As Halliburton, an experienced international 
contractor, continues to find problems with respect to its Iraq 
contracts, how can we be sure that these are not going on with Bechtel 
or Louis Berger? What detection or prevention mechanisms are there to 
assure us of this? If they are internal to the company, are they 
visible to the CTO or to the IG?

    Answer. The problems experienced with Halliburton were disclosed by 
the Defense Contract Audit Agency (DCAA) during audits that it was 
conducting at the request of the Department of Defense. Since the 
beginning of the Iraq program and long before the problems with 
Halliburton were discovered, USAID/OIG has used DCAA to audit the 
incurred costs charged by the 10 prime contractors implementing the 
USAID/Iraq program.
    Because of the size of the Bechtel contracts, we also engaged DCAA 
to perform three additional audits to examine Bechtel's accounting 
system that is being used in Iraq, the subcontracting processes 
employed by Bechtel in Iraq, and the billing system used by Bechtel in 
Iraq. Since the first series of audits of Bechtel by DCAA, Bechtel has 
received an additional contract worth $1.8 billion. Once arrangements 
have been completed with DCAA, USAID/OIG plans another series of audits 
of the new Bechtel contract.
    Shortly after USAID awarded the major contract to Louis Berger for 
rehabilitating the Kabul-Kandahar highway in Afghanistan (under the 
Rehabilitation of Economic Facilities and Services Program), the OIG 
sent its Regional Inspector General located in Manila to Kabul to 
perform a preliminary risk assessment of the USAID program and develop 
an audit strategy.
    Following this initial work, the OIG developed a strategy involving 
a concurrent financial audit program and performance audit activities. 
A series of concurrent financial audits performed by contracted 
accounting firms are underway. The first of the financial audits on 
Louis Berger, issued January 23, 2004, covered about $1.2 million in 
costs of which about $29,000 was questioned.
    As regards performance audit activities, the OIG issued an 
information report on the progress of the Kabul-Kandahar highway 
(Review of the Road Project Financed by USAID/Afghanistan's 
Rehabilitation of Economic Facilities and Services (REFS) Program, RIG/
Manila Memorandum 04-002, dated November 13, 2003). While mentioning 
both project management successes and problems that had caused and 
might continue to delay the project, the report noted that, as of 
November 1, 2003, contractor reports showed that 222 of the 389 
kilometers of the Kabul-Kandahar highway had been paved and that USAID 
expected that the entire 389 kilometers would be paved with one layer 
of asphalt by December 31, 2003. USAID subsequently reported that this 
was accomplished. The report also noted that Louis Berger had not 
updated its implementation plan to reflect planned actions to December 
2003 or beyond. The report recommended that USAID/Afghanistan require 
Louis Berger to maintain a detailed, updated implementation plan for 
its activities under the REFS contract.
    The OIG started a second review of the REFS program in January 2004 
to determine if the road reconstruction activities are on schedule to 
meet planned outputs.

    Question 5. How do you audit grants?

    Answer. The OIG is responsible for overseeing the financial audits 
of grantees in accordance with the Single Audit Act and Office of 
Management and Budget (OMB) Circular A-133.
    The OIG provides oversight of these audit activities, ensuring that 
audits are conducted in accordance with appropriate quality standards, 
thereby enhancing accountability over USAID contractors and grantees. 
In addition, in accordance with provisions in USAID grant agreements, 
the OIG reviews audit reports of foreign organizations that receive 
USAID funds. The OIG further enhances accountability over grantees by 
providing training in U.S. government cost principles and periodically 
conducting quality control reviews of audits performed by non-Federal 
auditors.
U.S.-Based Grantees
    U.S.-based nonprofit organizations (grantees) receive significant 
USAID funds to implement development programs overseas. As required by 
OMB Circular A-133, ``Audits of States, Local Governments, and Non-
Profit Organizations,'' non-Federal auditors perform annual financial 
audits of USAID grantees that spend over $500,000 of Federal funds 
annually. These auditors are required to identify (1) reportable 
conditions involving major programs, (2) material noncompliance with 
laws and regulations, (3) known fraud and abuse affecting a Federal 
award, (4) known questioned costs above $10,000, (5) misrepresentations 
of the status of prior audit findings, and (6) the reasons why the 
auditor's report on compliance for major programs is other than 
unqualified.
    The OIG provides oversight for the non-Federal auditors performing 
these audits and reviews non-Federal audits to determine whether 
auditors prepared audit reports in accordance with Circular A-133 
reporting requirements and generally accepted government-auditing 
standards issued by the Comptroller of the United States. The OIG also 
conducts quality control reviews to determine whether the underlying 
audits complied with Circular A-133 audit requirements. In some 
instances, the OIG contracts with the Defense Contract Audit Agency 
(DCAA) to perform specialized financial audits of U.S-based grantees.
Foreign-Based Grantees
    OMB Circular A-133 does not apply to foreign-based grantees. 
However, given the high-risk environment in which USAID operates 
overseas, USAID has extended similar audit requirements to its foreign-
based grantees through standard provisions included in grants, 
cooperative agreements, and contracts and through the Guidelines for 
Financial Audits Contracted by Foreign Recipients issued by the OIG.
    Audits are required for all foreign nonprofit organizations that 
spend $300,000 or more in USAID funding during their fiscal year. USAID 
may also require financial audits of nonprofit organizations that fall 
below the $300,000 threshold; The OIG performs desk reviews on all 
audit reports for compliance with the Guidelines for Financial Audits 
Contracted by Foreign Recipients. The OIG also conducts quality control 
reviews for a sample of completed audits to determine whether the non-
Federal audit firm complied with auditing standards.
    In addition to financial audit coverage of grants, the OIG 
routinely conducts performance audits of selected programs implemented 
by grantees to determine if the programs are accomplishing their 
intended objectives.

                                 ______
                                 

Responses of Timothy Beans, Director, Office of Procurement, USAID, to 
  Additional Questions for the Record Submitted by Senator Richard G. 
                                 Lugar

    Question 1. Is the contract mechanism under which you operate 
flexible enough to respond to emergent needs in an environment such as 
Iraq and Afghanistan.

    Answer. USAID contractually operates under the Federal Acquisition 
Regulations (FAR) and Agency for International Development Acquisition 
Regulations (AIDAR). The federal procurement regulations are based on 
the principle of full and open competition and receiving the best value 
for taxpayer dollars. It is a policy which is principled, logical, and 
works in most situations.
    The war in Iraq and Afghanistan presented unique challenges to our 
acquisition approach. The planning usually associated with a government 
acquisition did not exist for most of these actions. Once the war 
started, contracts were needed almost immediately in order to begin 
restoring order to the various countries and to rebuild the damaged 
infrastructure. With the troops advancing on Baghdad so rapidly, we 
were told that, if contracts were not in place shortly after they take 
the country, American lives would be in danger. Procurements that 
generally take six or more months to complete were being requested in 
less than half that time. We did not have the luxury of being able to 
do a full and open competition and were forced to do a ``limited 
competition.'' The USAID Administrator had the authority to approve 
this approach and appropriately used it to protect American lives. 
``Limited competition'' is run like a full and open competition except 
you do not have time to announce the procurement publicly.

    Question 2. In Iraq, the CPA has set up a Program Management Office 
structure, which serves as a pass through for USAID contracts. What 
purpose does this serve practically speaking and in terms of 
efficiencies and overall effect on programs? Will this change when 
sovereignty is transferred and a more conventional USAID mission is 
established?

    Answer. I believe the establishment of the Program Management 
Office (PMO) by the Coalition Provisional Authority (CPA) is an attempt 
to make sure that there are efficiencies in the way each Agency is 
undertaking the rebuilding effort. It remains to be seen if this 
organizational structure will be able to fully achieve its goal, but 
certainly the idea of having one body coordinate agency efforts so as 
to avoid duplication is a good concept.
    I would envision that the CPA will eventually disappear as we move 
toward Iraqi independence and we establish an Embassy in Iraq. At that 
point, the State Department will probably assume the lead, and USAID 
will establish a separate mission. Once that is accomplished, USAID 
would be free to pursue its established strategic objectives for the 
country based on approved funding from Congress and with concurrence 
from the Ambassador.

    Question 3. In Iraq, the PMO has yet to sign a single contract, 
which makes USAID's 12 contracts, and primarily Bechtel, Ambassador 
Bremer's prime tool. As we wait to fill the rest of the contracts, do 
we not have more priority projects waiting in the wings? Why not fill 
the $1.8 billion contract with task orders?

    Answer. USAID was the first Agency in the Federal Government to get 
a majority of contracts awarded to support the Iraq war effort under 
the initial supplemental. We also were the first Agency to award a $1.8 
billion reconstruction contract so Ambassador Bremer would be able to 
continue the important work of fixing the Iraqi infrastructure. DOD has 
been working hard to award a number of construction contracts covering 
specific sectors. I understand that they are making progress. However, 
the Bechtel contract is available to Ambassador Bremer, and he can 
write task orders against this vehicle so as not to slow down the 
reconstruction effort.

    Question 4. As Halliburton, an experienced international 
contractor, continues to find problems with respect to its Iraq 
contracts, how can we be sure that these are not going on with Bechtel 
and Louis Berger? What detection or prevention mechanisms are there to 
assure us of this? If they are internal to the company, are they 
visible to the CTO or to the IG?

    Answer. Bechtel and Louis Berger have, fortunately to date, not had 
the severity of problems we have seen with Halliburton. However, one of 
the most difficult tasks to undertake is doing construction in an area 
of continuing hostilities. Even though both contractors have had no 
major problems so far, it is an area we need to monitor closely to make 
sure our desired results are being achieved.
    Under normal contracting procedures, construction similar to that 
being performed by both Bechtel and Louis Berger would be overseen by a 
USAID Contracting Technical Officer (CTO) on a daily basis. We are 
attempting to get to the construction sites, but the continuing 
violence has made it impossible to be on site each day. That is why it 
is important that lines of communication be maintained and that we talk 
with the contractors daily about their progress.

    Question 5. How do USAID's contracting procedures differ from 
grants? How do you oversee grants and do you audit them? How do you 
measure their effectiveness?

    Answer. Basically, we follow similar procedures in awarding 
contracts and grants. We seek organizations interested in providing 
services in an area we need, we evaluate proposals against announced 
evaluation criteria, and we award accordingly. However, the purpose of 
the two instruments is very different. The government will use a 
contract when it wants something specifically. The government can 
``control'' the contractor in that it can change requirements based on 
its needs and wants. A grant, on the other hand, is basically the 
government's support to an objective it considers worthy of funding. In 
a grant, we are choosing to support the grantee's program. A grant is 
often referred to as a gift to the organization. That being said, we do 
often specify what results we are seeking, and a grantee working in 
that area will submit a grant request to meet some specific need that 
we have articulated. The real difference between the two documents is 
the amount of control we need or want to have under the contractual 
arrangement.
    Both a contract and a grant generally require an audit be performed 
upon completion of the work. A contractor is audited annually under 
generally accepted accounting procedures as set for in the FAR. 
Grantees are required to do an A-133 audit if they receive over 
$500,000 in any one year.
    The Inspector General (IG) is responsible for the quality of the 
audit and will review grantees for compliance.

                                 ______
                                 

Responses of Frederick D. Barton, Senior Adviser, Center for Strategic 
   and International Studies, to Additional Questions for the Record 
                 Submitted by Senator Richard G. Lugar

    Question 1. What changes would you recommend to make better use of 
U.S. foreign assistance dollars implemented by USAID and OTI? Are the 
changes regulatory or legislative? If, as you stated in the hearing, 
these are not new recommendations, why have they not been enacted?

    Answer. Brief: Both regulatory and legislative changes are needed. 
Many of the problems are driven by USAID habits, but there are 
legislative impediments also. Congress can help with both by 
recognizing the huge inherent risks and by encouraging USAID to be more 
agile. Change has been resisted by bureaucratic fiefdoms, an internal 
defensive mindset, and scapegoating of USAID.
    In politically charged places, foreign assistance must be seen as 
``venture capital'': catalytic and high risk. To be effective, the aid 
must be delivered with speed, flexibility and a high level of reliance 
on the judgment of field program people. Opportunities must be seized 
as they present themselves, which often requires day to day 
adjustments. Encouraging changes in local practices is more important 
than the actual projects in many cases (the new school may not be as 
important as the community group that comes together to plan the 
project, volunteers labor, and handles the decision making and funds in 
a transparent way).
    Few of these practices are common in USAID, though OTI and OFDA are 
frequent exceptions.
    Plodding budget and contracting processes combined with a culture 
that is worried about making mistakes and prefers to avoid politics, 
produces a timidity in programming.
    Much of this is bolstered by internal USAID practices, habits, and 
regulations. The vast majority of USAID has preferred to pursue 
business as usual vs. taking on the venture capital role that is 
required in the conflict prone world. Some of this is reinforced by 
Congressional earmarks, mandates, and a seeming under appreciation of 
the risks involved in the work.
    Changes could include: removing legislative obstacles that impede 
operations (ask USAID to provide a list of the top ten); creating 
larger pools of funds that have notwithstanding authorities; 
encouraging the use of these special authorities (program managers do 
not do this much now); two year funding with carryovers (no end of the 
year rushes and greater liquidity); more frequent informal and open 
exchanges with the Hill, including field program managers; new methods 
of measurement that are tied to political change; and the ability to 
supplement staff with international hires, strategic partnerships with 
the UN and others, and short term employment.
    Much does not need legislation but clarifying legislative intent 
might spur progress and break through some of the resistance which is 
strong within USAID and most bureaucracies.
    Congress could give USAID a clear signal that it wants the 
organization to be a center of innovation and risk, that it can be a 
leader in addressing conflict issues, and that it is looking for 
dramatic changes (and experiments) in the next five year period. I 
believe that conflict related work should be a significant part of 
USAID's portfolio (perhaps 50% with 1,000 people dedicated to this 
work), and that the practices of the conflict related work will have a 
salutary effect on the rest of USAID.

    Question 2. To what extent are the lessons learned from Iraq and 
Afghanistan unique to these environments.

    Answer. Brief: We are moving from a series of micro state collapses 
towards larger cases, such as Pakistan. Our U.S. and global 
institutions are barely capable of dealing with an East Timor. Iraq and 
Afghanistan have shown the systemic weaknesses, in defense, diplomacy, 
intelligence, justice and foreign assistance. These are not unique to 
the present circumstances.
    Iraq and Afghanistan are larger in every sense, from territory, 
population, level of U.S. commitment and amounts of funding, and that 
enormity highlights many of the weaknesses mentioned above. USAID has 
broken through some of its traditional practices in order to be quicker 
and more agile, but at the end of the day it is handicapped by its lack 
of a deep-seated commitment to this kind of work and inhospitable ways.
    What is most unique about Iraq and Afghanistan is the expectation 
that civilian work can be conducted when security is still so 
unsettled. USAID should be faster and more responsive and a ``post-
bullet'' program. It is now being asked to take physical risks that go 
beyond the venture capital model.

                                 ______
                                 

 Responses of Marcus L. Stevenson, The Urban Institute, to Additional 
     Questions for the Record Submitted by Senator Richard G. Lugar

    Question 1. What changes would you recommend to make better use of 
U.S. foreign assistance dollars implemented by USAID and OTI? Are the 
changes regulatory or legislative? If, as you stated in the hearing, 
these are not new recommendations, why have they not been enacted?

    Answer. The chronic and redundant problems of 1) understaffing 
staffing of contracting professionals; 2) lack of training for 
cognizant technical officers (CTOs); 3) a budget allocation and 
distribution that does not provide timely funding to operating units 
and; 4) lack of procurement planning have been addressed individually 
at different points in time over the years, but except for a sustained 
5 year period between 1994 and 1999 when procurement reform was 
supported and sustained by agency senior management, the aforementioned 
problems have continued to exist. In my opinion this results from the 
fact that many within the agency cannot come to grips with the fact 
that the agency is a procurer and grants maker as opposed to an 
implementer. By this I mean that the USG employees of USAID do not 
directly implement projects/programs. They oversee the use contractors 
and grantees. However, the agency is still structured in terms of 
staffing composition, more or less, like it was in the 1970s when it 
directly implemented projects/programs. The agency should accordingly 
reinvent itself and structure itself more as a business management 
entity. If this was accomplished it could probably operate with less 
staff, if they are the right kind and provide better oversight of its 
project/programs. I do not believe any regulatory or legislative 
changes are necessary as the authority to make necessary changes 
already exist.

    Question 2. To what extent are the lessons learned from Iraq and 
Afghanistan unique to these environments?

    Answer. The only uniqueness is the size of the various procurements 
and in the case of Bechtel, the type of contract. I believe the major 
problem was the lack of transparency and lack of competition in many 
cases. Frankly, I and a number of other procurement professionals 
believe the agency could have been much more transparent and inclusive 
and as a result, the procurements could have been more effective from a 
technical aspect and more cost effective as well. In my opinion the 
contracts were too much too soon. There should have initially been 
smaller short term contracts to ascertain the ``on the ground'' 
situation and then more comprehensive and longer term contracts could 
have been developed, competed and awarded. What we are seeing and 
hearing about with the DOD contracts must certainly also be the case 
with the USAID contracts, to some extent. In USAID's case I do not 
believe there could have been accurate cost realism when the contracts 
were awarded and I subsequently believe that the award amounts and 
expenditures were excessive. Also, day to day monitoring is likely no 
where near what it should be due to the combination of lack of staff 
and dangerous conditions in the field. Add to this the fact that the 
prime contractors have awarded large numbers of subcontracts to third 
country firms and one has a recipe for potential abuse in terms of 
inflated payments for work/services possibly not received or of 
inferior quality.

                                 ______
                                 

     Responses of Hon. Everett Mosley and Timothy Beans, USAID, to 
  Additional Questions for the Record Submitted by Senator Chuck Hagel

    Question 1. Since 1990, how many primary contractors and sub-
contractors have been terminated or fired from USAID contracts for non-
performance? To clarify, we request that this number exclude any 
``changing of chief party'' actions.

    Answer. While it is difficult to get an exact number (we have 
identified seven contractors going back to 1997 so far), the Agency has 
terminated contractors for default. This is when the contractor, 
through its lack of technical progress in accordance with the term of 
the contract, or a situation where it has been found to be in violation 
of the law, is terminated for its own default. This would not be the 
case with a subcontractor since we hold the prime contractor totally 
responsible for performance. If a subcontractor was not performing 
well, the prime contractor would be held accountable. Prime contractors 
may let a subcontractor go for poor performance, but USAID would not be 
responsible for that decision. If the prime were to retain a 
subcontractor that was not performing, we would hold the prime 
responsible, and it could lead to the prime being terminated.

    Question 2. Mr. Beans, in his testimony, described the process of 
estimating the value of contracts for the first phase Iraq 
reconstruction contracts. Describe in greater detail the specific 
methodology that was used to arrive at the contract value amounts for 
the reconstruction contracts.

    Answer. USAID's phase I Iraq reconstruction contracts were prepared 
as part of a broader U.S. Government contingency planning effort. This 
process was undertaken before a decision had been made by the U.S. 
Government on the initiation of combat operations. As part of the U.S. 
interagency planning process, USAID determined what specific 
accomplishments and deliverables were to be achieved with possible 
reconstruction assistance. As with all preparation for solicitations, 
USAID utilized standard techniques to prepare the government estimates 
for each contract. USAID utilized lessons learned from other conflict 
environments, particularly Afghanistan, the Balkans, Colombia, El 
Salvador, and Angola, to assess the parameters for implementation and 
to determine likely levels of effort. For example, with respect to 
preparing the contract for strengthening local government institutions 
and processes, USAID anticipated that significant technical assistance 
would need to be provided to various local administrations and interim 
representative bodies within each of Iraq's 18 governorates; this fed 
into an estimate of the appropriate number of international and local 
personnel with specific technical skills that may be required for the 
contract. With respect to the economic governance program, USAID 
reviewed the implementation requirements for currency conversion within 
Afghanistan and the investments that were required in transforming the 
economic policies and processes within the former Soviet Union to help 
shape the government estimate for that contract. USAID recognized that 
the environment in any post-conflict situation can be highly fluid and, 
therefore, sought to maximize flexibility as well within its 
reconstruction contracts to respond to unanticipated requirements.

    Question 3. Mr. Mosley testified that the OIG review of the first 
phase Bechtel contract in Iraq indicated that for this contract . . .  
``USAID did not provide one offeror with timely notification that an 
award had been made and did not provide timely debriefings to three 
unsuccessful offerors . . .'' which resulted in USAID being in ``non 
compliance with acquisition regulations.'' Mr. Beans testified that the 
Procurement Office did not see this as a violation of Federal 
Procurement Rules, but that it was a difference of interpretation with 
the OIG. How does USAID respond to what the OIG determines as a 
violation of Federal Procurement Rules as merely a difference of 
opinion?

    Answer. After additional review of Section 15.503, Notifications to 
unsuccessful offerors, I do believe that we were technically in non-
compliance with the acquisition regulations. We should have officially 
notified the non-selected offeror within three days that they were not 
selected. The intent of the regulation is to allow companies to know 
who was selected for award, the number of offerors solicited, the 
number of proposals received, the name of the company receiving the 
award, and the contract price.
    The reason I felt this was a rather insignificant finding was that 
virtually all of this information required to be provided was front 
page news throughout the country the day after the award. In fact, it 
was on most major news broadcasts, including CNN. The information is 
required to be provided so the government can be as open and 
transparent as possible and let companies that have spent money bidding 
on government contracts know in a timely manner that they are no longer 
in consideration for award. In this case, the only other contractor in 
the competitive range could not have known about the award, the dollar 
value of the procurement, and who else had submitted proposals. This 
information was being discussed in the paper and the press. We should 
have notified the non-selected contractor in writing within three days 
as required by the Federal Acquisition Regulations. Therefore, the 
finding is correct.
    I would like to point out that we did provide both a written and 
oral debriefing to the non-selected contractor to make sure they were 
satisfied that we followed proper procedures and that the award was 
made in strict accordance to the evaluation criteria listed in the 
initial request for proposal. As I believe I stated in my testimony, 
the Agency has not received a single protest of any procurement awarded 
by USAID in support of our efforts in Iraq.

    Question 4. Please provide specific plans, policies, and procedures 
for USAID to reach out to . . . ``small, minority, and disadvantaged 
American companies'' . . . as raised by the House of Representatives in 
the April 2003 Congressional Conference Report for the first Iraq 
supplemental, ``Marketing Emergency Wartime Supplemental Appropriations 
for the Fiscal Year 2003, and for Other Purposes'' (Report 108-76).

    Answer. I have personally appeared as an advocate for small and 
small disadvantaged businesses at numerous gatherings throughout the 
Washington area. I have also spoken to a large group of woman-owned 
businesses on how best to secure contract work in Iraq. Along with our 
Office of Small and Disadvantaged Businesses, we sponsored a day-long 
meeting for small businesses at the Washington Grand Hyatt Hotel. We 
will be participating in a special conference for small business 
sponsored by the Bechtel Corporation in late March as well as a one day 
conference in Philadelphia on April 22, 2004 sponsored by the Small 
Business Administration.
    During the awarding of contracts under the first supplemental, we 
required small and small disadvantaged contracting plans in six of the 
first nine contracts we awarded as set forth below:

          Personnel Support, 14%
          Primary and Secondary Education, 30% (note: a 100% woman-
        owned business)
          Local Governance, 30%
          Health, 58.5%
          Economic Governance, 21%
          Agriculture, 20%

    We did not require subcontracting plans in the initial Bechtel 
contract for infrastructure because the push from the leadership in 
Iraq was to get Iraqi firms back to work for security considerations 
and to stimulate economic growth. The airport and seaport contracts 
were smaller and were dealing with specific, urgent tasks, and we did 
not feel there were appropriate opportunities to include plans in these 
contracts. However, we are very proud of our efforts in encouraging 
small business opportunities throughout our work in Iraq.

                                 ______
                                 

 Response of Timothy Beans, Director, Office of Procurement, USAID, to 
    an Additional Question for the Record Submitted by Senator Paul 
                                Sarbanes

    Question 1. I understand that NGOs have been almost completely shut 
out of USAID's Afghanistan reconstruction effort. What was the reason 
for this decision? Who made the decision? Don't NGOs offer valuable 
services and experiences that can benefit USAID's mission in 
Afghanistan?

    Answer. Because of their extensive network and experience in 
Afghanistan, nongovernmental organizations (NGOs), both international 
and Afghan, have played and will continue to play a critical role in 
USAID's programs in Afghanistan.
    NGOs are, or will, receive nearly $200 million in USAID assistance, 
including approximately $114 million in current grants or contracts and 
an additional $84.7 million in planned grants.
    Because of the limited staffing in Afghanistan and the need for 
rapid, mass impact, the USAID mission has had to move away from grant 
mechanisms, the preferred contracting option of NGOs, to contracts.
    Contracts enable USAID to manage more actively the reconstruction 
programs, both in specifying results to be achieved and demanding 
reporting on impact, and to ensure a significantly larger scale of 
impact than small-scale NGO grants allow.
    NGOs active in Afghanistan were invited to bid on these contracts 
and were encouraged to form consortia with other groups that are 
willing to manage a contract.
    To ensure that USAID's programs can continue to benefit from the 
NGOs' experience in Afghanistan, virtually all the contracts include 
NGO sub-grant programs. Below is a summary of NGO involvement in the 
major contracts:

   Health: The prime contractor is an NGO, Management Sciences 
        for Health (MSH). Under this program, sub-grants totaling over 
        $37 million have been awarded to 24 NGOs (7 U.S., 10 Afghan, 7 
        international), and an additional $37 million is planned.
   Education: Eight NGOs (1 U.S., 5 Afghan, 2 international) 
        are part of a USAID-funded consortium led by Creative 
        Associates, an 8(a), woman-owned firm.
   Agriculture: Twenty-four NGOs are receiving sub-grants (7 
        U.S., 10 Afghan, 7 international) from a U.S. contractor.
   Economic Governance: Three U.S. NGOs have received funding.
   Infrastructure: NGOs are being used to do both site 
        assessments as well as construction monitoring for schools and 
        clinics.
   Democracy and Governance: Four U.S. NGOs--the Asia 
        Foundation, International Republican Institute, National 
        Democratic Institute, and International Foundation for 
        Electoral Systems--are the primary implementing partners of 
        these programs, including the just concluded constitutional 
        Loya Jirga and the upcoming elections.

                                 
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