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95–264 PDF 2004

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

COMMITTEE ON FOREIGN RELATIONS

RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska

LINCOLN CHAFEE, Rhode Island

GEORGE ALLEN, Virginia

SAM BROWNBACK, Kansas

MICHAEL B. ENZI, Wyoming

GEORGE V. VOINOVICH, Ohio

LAMAR ALEXANDER, Tennessee

NORM COLEMAN, Minnesota

JOHN E. SUNUNU, New Hampshire

JOSEPH R. BIDEN, JR., Delaware

PAUL S. SARBANES, Maryland

CHRISTOPHER J. DODD, Connecticut

JOHN F. KERRY, Massachusetts

RUSSELL D. FEINGOLD, Wisconsin

BARBARA BOXER, California

BILL NELSON, Florida

JOHN D. ROCKEFELLER IV, West 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

MICHAEL B. ENZI, Wyoming

LAMAR ALEXANDER, Tennessee

NORM COLEMAN, Minnesota

PAUL S. SARBANES, Maryland

JOHN D. ROCKEFELLER IV, West Virginia

JON S. CORZINE, New Jersey

CHRISTOPHER J. DODD, Connecticut

(II)

CONTENTS

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)

(1)

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

2

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.

3

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 KabulKandahar 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 covVerDate 11-MAY-2000 13:09 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 95264 SFORELA1 PsN: SFORELA1
4

erage 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 vulVerDate 11-MAY-2000 13:09 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 95264 SFORELA1 PsN: SFORELA1
5

nerability. 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 closeout 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.

6

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.

7

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

8

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

9

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 con- tracting 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.’’

10

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 standalone 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

11

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.

12

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.

13

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?

14

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

15

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 dayto-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

16

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, lowcost 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?

17

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 peoVerDate 11-MAY-2000 13:09 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 95264 SFORELA1 PsN: SFORELA1
18

ple? 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.

19

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.

20

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 prosVerDate 11-MAY-2000 13:09 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 95264 SFORELA1 PsN: SFORELA1
21

pects 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.’’

22

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.

23

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% Amount 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

24

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

25

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.

26

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.

27

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

28

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

29

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,

30

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 followups 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 asneeded 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.

31

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.

32

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 postconflict 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.

33

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 nonprofit 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.

34

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.

35

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

36

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.

37

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.

38

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

39

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

40

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 welltrained 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.

41

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

42

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

43

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.

44

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

45

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

46

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.

47

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

48

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

49

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

50

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

51

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?

52

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

53

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.

54

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.

55

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 ConVerDate 11-MAY-2000 13:09 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6621 95264 SFORELA1 PsN: SFORELA1
56

tracting 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.

57

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

58

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

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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.

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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 USAIDfunded 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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