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[Senate Hearing 110-534]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 110-534
 
       DEPARTMENT OF DEFENSE CONTRACTING IN IRAQ AND AFGHANISTAN

=======================================================================

                                HEARING

                               before the

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 2, 2008

                               __________

         Printed for the use of the Committee on Armed Services

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                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

EDWARD M. KENNEDY, Massachusetts     JOHN McCAIN, Arizona
ROBERT C. BYRD, West Virginia        JOHN WARNER, Virginia,
JOSEPH I. LIEBERMAN, Connecticut     JAMES M. INHOFE, Oklahoma
JACK REED, Rhode Island              JEFF SESSIONS, Alabama
DANIEL K. AKAKA, Hawaii              SUSAN M. COLLINS, Maine
BILL NELSON, Florida                 SAXBY CHAMBLISS, Georgia
E. BENJAMIN NELSON, Nebraska         LINDSEY O. GRAHAM, South Carolina
EVAN BAYH, Indiana                   ELIZABETH DOLE, North Carolina
HILLARY RODHAM CLINTON, New York     JOHN CORNYN, Texas
MARK L. PRYOR, Arkansas              JOHN THUNE, South Dakota
JIM WEBB, Virginia                   MEL MARTINEZ, Florida
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi

                   Richard D. DeBobes, Staff Director

              Michael V. Kostiw, Republican Staff Director

                                 ______

            Subcommittee on Readiness and Management Support

                   DANIEL K. AKAKA, Hawaii, Chairman

ROBERT C. BYRD, West Virginia        JOHN THUNE, South Dakota
EVAN BAYH, Indiana                   JAMES M. INHOFE, Oklahoma
HILLARY RODHAM CLINTON, New York     SAXBY CHAMBLISS, Georgia
MARK L. PRYOR, Arkansas              ELIZABETH DOLE, North Carolina
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi

                                  (ii)

  

                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

       Department of Defense Contracting in Iraq and Afghanistan

                             april 2, 2008

                                                                   Page

Finley, Hon. James I., Deputy Under Secretary of Defense for 
  Acquisition and Technology.....................................     4
Bell, Hon. P. Jackson, Deputy Under Secretary of Defense for 
  Logistics and Materiel Readiness...............................    10
Thompson, LTG N. Ross, III, USA, Military Deputy to the Assistant 
  Secretary of the Army for Acquisition, Logistics, and 
  Technology; Accompanied by Jeffrey P. Parsons, Executive 
  Director, Army Contracting Command.............................    18

                                 (iii)

       DEPARTMENT OF DEFENSE CONTRACTING IN IRAQ AND AFGHANISTAN

                              ----------                              

                        WEDNESDAY, APRIL 2, 2008

                           U.S. Senate,    
                  Subcommittee on Readiness
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:35 p.m. in 
room SR-222, Russell Senate Office Building, Senator Daniel K. 
Akaka (chairman of the subcommittee) presiding.
    Committee members present: Senators Akaka, Levin, 
McCaskill, and Thune.
    Committee staff members present: Richard D. DeBobes, staff 
director; and Travis E. Smith, special assistant.
    Majority staff member present: Peter K. Levine, general 
counsel.
    Minority staff members present: Pablo E. Carrillo, minority 
investigative counsel; David M. Morriss, minority counsel; and 
Christopher J. Paul, professional staff member.
    Staff assistants present: Fletcher L. Cork, Ali Z. Pasha, 
and Benjamin L. Rubin.
    Committee members' assistants present: Bonni Berge, 
assistant to Senator Akaka; Jon Davey, assistant to Senator 
Bayh; Stephen C. Hedger, assistant to Senator McCaskill; and 
Jason Van Beek, assistant to Senator Thune.

     OPENING STATEMENT OF SENATOR DANIEL K. AKAKA, CHAIRMAN

    Senator Akaka. The Subcommittee on Readiness and Management 
Support will come to order.
    This subcommittee meets today to hear testimony regarding 
the steps taken by the Department of Defense (DOD) to implement 
the recommendations of the Gansler Commission on Army 
Expeditionary Contracting.
    This is the subcommittee's second hearing on this topic. At 
our first hearing, last December, our Army witnesses pledged to 
work quickly to implement the Gansler Commission's 
recommendations. At that time, the Assistant Secretary of the 
Army for Acquisition, Technology, and Logistics testified, 
``The Secretary of the Army, Pete Geren, has directed swift 
implementation of specific recommendations of both the 
Commission and the Task Force. For example, the Army has 
approved a two-star-level Army Contracting Command (ACC) 
organization; the Army also plans to grow the military 
contracting structure, in line with the Commission's 
recommendations, by approximately 400 soldiers, and our 
civilian contracting workforce by an additional 1,000 
professionals. We are currently addressing the need to expand, 
train, structure, and empower our contracting personnel to 
support a full range of military operations.''
    I have a particular concern about the status of our 
acquisition workforce. I share the view of the Gansler 
Commission that the root cause of our contracting problems in 
Iraq and Afghanistan is ``a culture that does not sufficiently 
value or recognize the importance of contracting, contract 
management, and contractors.'' I also agree with the Gansler 
Commission's conclusion that the Army has ``excellent, 
dedicated people, but they are understaffed, overworked, 
undertrained, undersupported, and, most important, 
undervalued.''
    It is vitally important that we work together to address 
these problems by implementing the Gansler Commission's 
recommendations for improving the size, status, and training of 
the acquisition workforce, including the recommendations that 
we add 10 new general officers for contracting positions and 
2,000 new contracting personnel to meet the needs of the Army 
alone. I look forward to working with the DOD, and the 
Department of the Army, in particular, to get this done.
    Senator Thune, you have a statement, I know, and you may 
proceed.
    Senator Thune. Thank you, Mr. Chairman.

                STATEMENT OF SENATOR JOHN THUNE

    Senator Thune. I want to thank you for holding the hearing 
today, and I want to thank our witnesses for joining us today, 
as well.
    With the recent efforts of the Gansler Commission, the Army 
Contracting Task Force, the DOD's Task Force in Contracting, 
Contract Management, and Expeditionary Operations, continuous 
work by the GAO and others, we finally seem to be getting our 
arms around how much of a problem our eviscerated acquisition 
workforce is, and what kinds of things need to be done to get 
back on track, particularly with regard to contingency 
contracting. I hope that with relevant legislation we enacted 
in our authorization bill last year, this hearing, and followup 
efforts by this committee, we help the Army and the DOD stay on 
track.
    From today's hearing, I'd like to get a particularly good 
understanding of what challenges lie ahead for the Army and DOD 
in trying to implement our legislation regarding the 
acquisition workforce and the recommendations of the Gansler 
Commission. Where the Army or the Department disagree on 
implementing any particular recommendation, I ask the witnesses 
to comment on why they disagree with the Gansler Commission's 
call for a particular solution; what alternative they propose 
that responds to the Gansler Commission's underlying concerns; 
if they agree with those concerns; and where they are in 
implementing that alternative.
    In this regard, I'd like to focus on the recommendation to 
give the Army more general officer slots to address structural 
deficiencies with the workforce and the lack of contingency 
contracting capability. Would the Army benefit from more time 
to study where those additional billets should come from?
    As I mentioned in our December hearing, support of Army 
leadership is going to be important here. So, if the Army or 
the Secretary has ideas on an interim solution, I'd like to 
hear about that.
    I also look forward to discussing the Department's position 
on the use of private security contractors (PSCs) in theater, 
and where the Department is on implementing the legislation we 
enacted last year to help improve the Department's ability to 
manage this important component of our ability to assert our 
national security interests abroad.
    Once again, I want to thank our witnesses for their time 
today. I look forward to their testimony.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you very much, Senator Thune.
    Senator McCaskill.
    Senator McCaskill. Thank you, Mr. Chairman.
    I do have to preside at 3:30, so I don't know if that's 
good news or bad news for everyone who's here today. I won't 
have as much time as I would like to go into some of the issues 
I'd like to talk about today.
    I will take just a moment, before your testimony, to 
reiterate how we're looking forward to the contracting 
commission that has become law and that will become operational 
within a few months--Senator Webb and Senator Levin and I are 
working to identify the appointees that will come from our side 
of the aisle from Congress. I know that the minority side is 
working on their representatives for the contracting 
commission. But I want to reiterate, we have a May 28 deadline 
for the appointment that must come from a recommendation of the 
DOD and the Secretary of State to the President. I want to make 
sure that I go on record today saying that I have figured out 
that government doesn't exactly do things quickly, and I'm a 
little worried that May 28 is going to be here in 10 minutes 
and we will not have the appointments from the administration. 
I know Secretary Bell has indicated that he is anxious to 
cooperate, and that DOD is anxious to cooperate with the 
contracting commission. So many of the issues we're going to 
talk about today, we will have an opportunity to really get 
into with the contracting commission, and I think it is a great 
opportunity for us, in a bipartisan way--not a ``gotcha'' 
mentality, but a bipartisan way--to address the overarching 
problems of acquisition and contract management that have 
become so very large as we've looked at this contingency 
operation.
    I thank you, Mr. Chairman, for giving me a few moments to 
say that.
    Senator Akaka. Thank you very much, Senator.
    We have on our panel today Honorable James I. Finley, 
Deputy Under Secretary of Defense for Acquisition and 
Technology; Honorable P. Jackson Bell, Deputy Under Secretary 
of Defense for Logistics and Materiel Readiness; Lieutenant 
General N. Ross Thompson III, USA, Military Deputy to the 
Assistant Secretary of the Army for Acquisition, Logistics, and 
Technology; and Jeffrey P. Parsons, the Executive Director, 
Army Contracting Command.
    Secretary Finley, will you please begin?

 STATEMENT OF HON. JAMES I. FINLEY, DEPUTY UNDER SECRETARY OF 
             DEFENSE FOR ACQUISITION AND TECHNOLOGY

    Mr. Finley. Thank you, and good afternoon.
    Senator Akaka. Good afternoon.
    Mr. Finley. Chairman Akaka, Senator Thune, and Senator 
McCaskill, I'm very pleased to be here today to address the DOD 
contracting in Iraq and Afghanistan.
    I am fully committed to acquisition excellence and the 
restoration of the confidence in our leadership for the DOD 
acquisition system, which includes contracting. Thank you for 
the opportunity to participate in today's hearing.
    The Department has stood up a task force to integrate the 
many activities associated with contracting and contract 
management for expeditionary operations. The task force is 
addressing the Commission recommendations from the report on 
Army Acquisition and Program Management in Expeditionary 
Operations, and also the associated legislative, regulatory, 
and policy recommendations, and also the steps to be taken by 
the relevant requirements of section 849 of the National 
Defense Authorization Act (NDAA) of 2008, and the acquisition 
requirements in section 807 and section 852.
    Membership of the task force is crosscutting. The task 
force includes the Joint Staff, all the Services, the Defense 
Contract Management Agency (DCMA), the Joint Contingency 
Contracting Office for Iraq and Afghanistan, the Defense 
Acquisition University, and various other elements of the 
Office of Secretary of Defense. We are assessing joint 
approaches to, one, provide command, control, and acquisition 
authority that are in alignment with checks and balances; two, 
provide scalable solutions for contract management in support 
of large and small expeditionary operations; three, provide 
training for the way we fight, factoring in the lessons learned 
for our acquisition and nonacquisition officers; four, assess 
the appropriate size and competency requirements of the 
contracting workforce; and five, take steps to shape and 
leverage the DOD acquisition workforce development fund for 
expeditionary operations.
    The Commission report on Army Acquisition and Program 
Management in Expeditionary Operations identified 40 
recommendations. Of the 40, 22 recommendations were directed to 
the Army. Lieutenant General Thompson and Mr. Parsons will 
address those 22. My focus will be on the balance, 18 DOD-level 
recommendations.
    The Department is addressing the stature, quantity, and 
career development of contracting personnel for all Services. 
The Department has reviewed pertinent personnel directives and 
issued updated guidance to support increased civilian 
deployment capability.
    Two medals for civilian employees of the DOD have been 
established. First, the Secretary of Defense Medal for the 
Defense of Freedom, established September 27, 2001, which I 
have illustrated here in front of me today, and second, the 
Secretary of Defense Medal for the Global War on Terror, 
established March 12, 2003. It's to my left here in front of 
me, as well. I'll be happy, after the hearing, to show you the 
medals and explain more details about the medals.
    The Department is assessing the appropriate number of 
general and flag officers, senior executives for contracting 
positions. In addition, the Department is conducting a 
competency assessment of the contracting workforce. The results 
of this assessment, along with an analysis of demographics and 
the workload throughput, will enable us to identify the 
appropriate need.
    This effort was initiated last year for the entire DOD 
contracting career field, and is planned for completion this 
summer.
    The Joint Contingency Contract Use Support Office, a 
concept implemented for Iraq and Afghanistan about 2 years ago, 
has provided lessons learned for our training needs for 
expeditionary contracting. The global war on terror is far more 
different than the Cold War era, especially for expeditionary 
contracting. We are making progress to train the way we fight. 
For example, the expeditionary contracting curriculum has been 
redesigned to support journeyman-level personnel. The Community 
of Practice Web Portal has been redesigned to streamline 
collection and analysis. An advanced expeditionary contracting 
training course has been developed for senior-level contracting 
personnel. Standardization and certification for an 
expeditionary contracting officer has been coordinated with all 
the Services to better understand the joint environment. Five 
programs of instruction are being developed for expeditionary 
acquisition for our Joint and Service staff schools, 
formalizing the training for the acquisition and nonacquisition 
career fields. Also, the Joint Contingency Contracting 
Handbook, which I have several examples here to share with you, 
were developed last year, and thousands of copies have been 
distributed.
    We are assessing the possibility of recommending specific 
supportive legislation actions, as well as regulatory and 
policy assistance. We will provide additional information when 
we submit our report to Congress by May 28, 2008.
    The DOD Acquisition Workforce Development Fund will help 
position the Department to more strategically address our 
acquisition workforce needs. Although the past 5 years have 
indicated top-line workforce stability, in terms of personnel, 
the workload has increased. We have a far different concept of 
operations with the global war on terror versus the Cold War. 
The preparation and planning phase to leverage this fund for 
expeditionary operations has started. Proposals from the 
components have been received and are being mapped into three 
areas of focus: one, recruitment and hiring; two, training and 
development; and, three, recognition and retention. Reviews 
with civilian and military leadership have started and are 
ongoing.
    In summary, our objective is to train the way we fight, 
participate in exercises with expeditionary contracting 
personnel, and continually integrate the lessons learned in 
this new era of the global war on terror. We will improve with 
joint scalability, integration, and synchronization of 
expeditionary contracting and program management. Alignment of 
checks and balances for decisionmaking authorities for 
expeditionary operations will be improved. Utilization of the 
Acquisition Workforce Development Fund as a resource will be 
done and will help facilitate needed change. Measurable 
progress has been made. Much more remains to be done. A plan 
for that work has been established.
    Chairman Akaka and members of the subcommittee, I will be 
pleased to address any questions you may have.
    Thank you.
    [The prepared statement of Mr. Finley follows:]

               Prepared Statement by Hon. James I. Finley

    Chairman Akaka, Senator Thune, and members of the subcommittee, I 
am pleased to come before you today to address the Department of 
Defense (DOD) contracting in Iraq and Afghanistan. I am pleased that 
Congress has focused on contracting. I am fully committed to 
acquisition excellence and the restoration of the confidence in our 
leadership in our acquisition system that includes contracting. I 
pledge to work together with you and Congress, as stewards of our 
taxpayer dollars, to provide the capability needed for our national 
security. Thank you for the opportunity to appear before you to 
participate in today's hearing.
    I will focus on the three areas outlined in your request for my 
testimony, summarized as follows:

          (1) The steps the DOD is taking to implement the 
        recommendations of the Commission on Army Acquisition and 
        Program Management in Expeditionary Operations, which released 
        its final report, ``Urgent Reform Required: Army Expeditionary 
        Contracting'' on October 31, 2007.
          (2) The Department's recommendations on legislation that may 
        be needed to implement those recommendations; and
          (3) The steps that the Department is taking to implement 
        relevant requirements of the National Defense Authorization Act 
        (NDAA) for Fiscal Year 2008, including the acquisition 
        workforce requirements in sections 807 and 852 of that Act.

    In response to all of the above areas of interest, and to implement 
the requirements of section 849 of the NDAA for Fiscal Year 2008, we 
have stood up The Task Force on Contracting and Contract Management in 
Expeditionary Operations to address the specific Commission 
recommendations and to integrate with the many other relevant areas 
that are being addressed within the DOD. Membership of this Task Force 
is cross cutting to include the Services, the Defense Contract 
Management Agency (DCMA), the Joint Staff, the Joint Contingency 
Contracting cell for Iraq/Afghanistan and various elements of the 
Office of the Secretary of Defense. The Task Force meets weekly for 
progress tracking purposes, meets periodically with the Services and 
DCMA to ensure a coordinated and consistent Department approach, and 
meets about once a month with Dr. Gansler to discuss any points of 
clarification regarding the Commission's recommendations.
    Section 849 of the NDAA for Fiscal Year 2008 directed the Secretary 
of Defense, in consultation with the Joint Chiefs of Staff, to evaluate 
the Commission's recommendations to determine the extent to which such 
recommendations are applicable to the other Armed Forces. In addition, 
section 849 requires the Secretary, not later than 120 days after 
enactment, to provide a report to the congressional defense committees 
indicating the conclusions of the evaluation and a description of the 
plans for implementing the Commission's recommendations for Armed 
Forces other than the Army. The evaluation required by section 849 is 
underway, and the report to the congressional committees is on schedule 
for submission on May 28, 2008.
    I am fully committed to address the recommendations of the report 
of the Commission on Army Acquisition and Program Management in 
Expeditionary Operations, summarized as follows:

          (1) Increase the stature, quantity, and career development of 
        military and civilian contracting personnel (especially for 
        expeditionary operations);
          (2) Restructure organization and restore responsibility to 
        facilitate contracting and contract management in expeditionary 
        and continental United States operations;
          (3) Provide training and tools for overall contracting 
        activities in expeditionary operations; and
          (4) Provide legislative, regulatory, and policy assistance to 
        enable contracting effectiveness in expeditionary operations.
          1. steps to implement the commission recommendations
    The Commission identified 40 recommendations for action. Of the 40 
recommendations, 22 are directed to the Army specifically, and you will 
hear from Lieutenant General Thompson and Mr. Parsons about the Army 
response to those recommendations. Eighteen of the 40 recommendations 
are directed to the Department for consideration and implementation. I 
will focus on those 18 DOD-level recommendations.
    The Task Force, at this time, is not in agreement with 2 of the 18 
Commission recommendations at the DOD level, summarized as follows. The 
Commission recommended that the DCMA should be responsible for all 
base, post, camp and station contracting, and that it should be 
resourced to accomplish that mission. The Task Force is developing 
alternative approaches to achieve the Commission's goal of enhanced 
post-award contract management during routine times as well as during 
times of contingency and war. The alternatives under consideration 
address the Department's concern that the Services need to be able to 
deploy in operations of all sizes; scalability of operations is 
important. Through our monthly discussions with Dr. Gansler, we believe 
he agrees we are on a path to achieving the Commission's intent. In our 
assessments of the future role and structure of the DCMA we are 
striving to ensure the most efficient, effective contract management 
support for future contingencies. The Task Force believes the 
Department should be positioned to be able to respond to the full range 
of contingencies from those requiring very little contracted effort to 
those requiring a great deal. We must have scalable processes. The Army 
and Marine Corps are making the changes they believe will enable this 
approach. The Marine Corps has completely restructured and updated its 
approach to training in support of contingency operations.
    We have issues today in service contract administration, and we are 
working to correct them in our Improvement Plan for Contract Management 
in response to the GAO High Risk Series. In addition, under the section 
813 Panel on Contracting Integrity, subcommittees on Contracting 
Integrity in a Contingent Environment and on Contract Surveillance have 
identified their initial actions for 2008 and are on track to 
accomplish them. These actions include enhanced training as well as 
leveraging best practices and lessons learned. In addition, we have 
already incorporated into the Joint Contingency Contracting Handbook 
guidance on how to run and transition a contracting office in a 
contingent environment. A newer subcommittee on Procurement Fraud 
Indicators is assessing the need for a Procurement Fraud Indicators 
handbook for acquisition personnel similar to the Inspector General 
Procurement Fraud Indicators handbook for auditors; reviewing best 
practices from existing training courses to determine the potential for 
a training module for insertion into Defense Acquisition University 
(DAU) training; and pursuing the feasibility of developing a database 
of procurement fraud indicators available on an acquisition website. We 
are ensuring that we enhance our overall contract management 
capabilities, as well as our ability to step up to the contract 
management needs of contingency environments.
    The Commission recommended increasing the stature, quantity, and 
career development of contracting personnel. We have reviewed the 
civilian personnel directives that pertain to civilian personnel 
involvement in military operations, and have issued a memorandum dated 
February 12, 2008, ``Building Increased Civilian Deployment Capacity'' 
to provide guidance and interim policy to promote opportunities for DOD 
civilians to contribute their talent to DOD's mission. This memorandum 
will be reflected in an update to DOD Instruction 1400.32 ``DOD 
Civilian workforce Contingency and Emergency Planning Guidelines and 
Procedures'' August 2008. In addition, the Department has created two 
new medals for civilian contributions to the global war on terror. One 
was established after September 11, 2001, and the other is so new that 
it was awarded for the first time on February 26, 2008.
    The Department is actively assessing and developing its position 
regarding the appropriate numbers of General and Flag Officers, and 
Senior Executive Service authorizations, for contracting positions. Our 
report to the congressional committees in response to section 849 of 
the NDAA for Fiscal Year 2008 will contain additional information on 
this subject.
    The Commission provided recommendations pertaining to 
organizational structure and responsibility to facilitate contracting 
and contract management. I just discussed our ongoing assessments 
regarding the future role of DCMA in order to ensure effective and 
efficient contract management support for future contingency 
operations. This planning is taking place in conjunction with a 
subcommittee formed under the section 813 Panel on Contracting 
Integrity with a specific focus on contract surveillance. In addition, 
the Department is considering the most effective approach to achieve an 
integrated, joint approach to contract and program management support 
for future contingencies. This effort was already underway in response 
to section 854 of the NDAA for Fiscal Year 2007. The preliminary 
concept of a Joint Contingency Contracting Support Office was 
previously reported to Congress last year in an interim report required 
by section 854. This initiative responds to congressional mandates for 
the development of capabilities for requirements definition, 
contingency program management, and contingency contract support. Our 
goal is to achieve the integration and synchronization of contract 
support across combatant commands and United States Government agencies 
to support effective program management, and to consolidate and 
incorporate lessons learned.
    The Commission provided recommendations to provide training and 
tools for overall contracting activities in expeditionary operations. 
We have made significant progress, summarized as follows:

          1. DAU has redesigned the contingency contracting curriculum 
        to improve training supporting journeyman level contingency 
        contracting operations. This will enable experienced 
        contingency contracting officers to be deployable worldwide and 
        be effective immediately upon arrival to support the mission. 
        The redesigned curriculum is synchronized with the Joint 
        Contingency Contract Handbook. It includes interactive 
        simulations, hands-on practical work, and robust capstone 
        projects; we emphasize cultural awareness and ethics training; 
        and bring in subject matter experts to provide their 
        perspective on contracting in theater.
          2. DAU is redesigning its Contingency Contracting Community 
        of Practice web-portal. The redesign will streamline the 
        collection and analysis of after-action reports.
          3. An advanced Contingency Contracting Course is also being 
        developed by DAU. This course will provide ``just in time'' 
        training to senior level contracting personnel deploying to a 
        management position.

    DAU has collaborated closely with all the Services to standardize 
the required training a contingency contracting officer must complete 
to become fully qualified/certified. This will help ensure commanders 
in the field get fully trained contingency contracting officers who 
understand the joint environment. The Army has determined the majority 
of their additional training requirements will be provided by the U.S. 
Army Logistics Management College located in Fort Lee, VA, and 
Huntsville, AL.
    As contractors on the battlefield are a reality for future 
expeditionary operations, operators outside the acquisition community 
must be trained on the role and importance of contracting, Contracting 
Officer's Representatives (CORs) and contractors in expeditionary 
operations. DOD actions to address these issues pre-date the 
Commission's Report.
    As a result of the NDAA for Fiscal Year 2007, DOD assessed 
noncontracting officer training courses and existing training 
curriculum at DOD and Service schools at all levels (basic, 
intermediate, and senior). Based on this assessment, the Department is 
developing a broad program of instruction for operational military 
leaders, both officer and enlisted, across all grades, on management of 
contractors deploying with forces.
    In addition, we are developing programs of instruction on 
contingency acquisition for our Military Departments' Staff Colleges 
and Senior Military Service and Joint Staff Schools to train, more 
formally, our senior planners and leaders on roles and responsibilities 
of planning and managing contracts and contractor personnel in forward 
areas. This training will focus all leaders on determining 
requirements, translating those requirements into statements of work 
and then overseeing work.
    In a parallel effort, the Army has instituted junior officer 
training in the proper use of contractors who accompany the force in 
support of Army contingency operations. This training covers the role 
of contractors in support of Army contingency operations, describes how 
contractors are integrated into Army operations, and explains user 
responsibilities for requesting and overseeing contract support. Thus, 
through this emphasis on oversight in training, both military leaders 
and junior officers will be educated on the important role of 
contracting, Contracting Officers, and CORs.
    With regard to increasing the number of contracting personnel, we 
are conducting a competency assessment for the entire DOD Contracting 
Career Field. We anticipate completion of the assessment this summer. 
Once we have completed the competency assessment, along with an 
analysis of our demographics and workload throughput, we will be in a 
position to provide the appropriate number of additional contracting 
personnel needed by the Department.
    The Commission recommended establishing an Expeditionary 
Contracting Manual to support the expedited processes and tempo 
necessary for procuring the support needed by our warfighters in the 
theater of operations. The Department has developed and distributed 
thousands of copies of the Joint Contingency Contracting Handbook. 
Feedback from deployed users has been outstanding--we receive requests 
for more every day! The handbook provides a consolidated source of 
information for our contingency contracting officers, and provides the 
essential information, tools, and training to meet the challenges they 
will face, regardless of mission or environment.
    This February, DAU delivered its first course to incorporate the 
handbook into formal training, and the feedback received from the 
students indicates it was an overwhelming success!
    In addition, the Department has developed a draft Expeditionary 
Contracting Policy, which provides the foundation for the Joint 
handbook. This draft policy is in coordination with all relevant 
stakeholders, and is expected to be published in May 2008.
    The Commission recommended an adequately resourced contingency 
operation transfer fund. The Department is considering the 
recommendation; however, the Department is also aware of congressional 
oversight concerns that have precluded the funding of these accounts in 
the past. The Commission also recommended that the Department ensure 
that policy and practice support intelligent funding apportionment for 
expeditionary operations. The next update of the Joint Contingency 
Contracting Handbook will clarify the pertinent guidance.

  2. the department's recommendations on any legislation that may be 
               needed to implement those recommendations
    As the Department reviews the Commission's recommendations, and 
appropriate implementation actions, we are assessing the possibility of 
recommending specific supportive legislative actions. As required by 
section 849 of the NDAA for Fiscal Year 2008, we will submit a report 
to the congressional defense committees with the results of our 
assessments by May 28, 2008, and will provide additional information at 
that time.
3. dod steps to implement relevant requirements of the ndaa for fiscal 
year 2008, including the acquisition workforce requirements in sections 
                        807 and 852 of that act
    The implementation steps we have taken for the relevant 
requirements of section 807 and section 852 of the NDAA for Fiscal Year 
2008 are summarized as follows:

          Regarding section 807, ``Inventories and Reviews of Contracts 
        for Services,'' we are working across the Department 
        establishing guidelines for the military departments and 
        Defense agencies that will identify the targeted type of 
        services, and standardize the collection of data required to 
        create an inventory of the contracted services. This statute 
        amended 10 U.S.C. Sec. 2330a, ``Procurement of services: 
        tracking of purchases,'' by directing us to not only collect 
        greater granularity of data, but to share it with the public, 
        and then conduct reviews of the contracts listed in that 
        inventory. This is a large undertaking by the Department. We 
        need to work with Congress to ensure we meet your intent. The 
        inventory should be invaluable for shaping our contractor 
        support workforce.

    Regarding section 852 of the NDAA for Fiscal Year 2008, the 
Department has begun to take steps to shape the DOD Acquisition 
Workforce Development Fund (the Fund) for targeted recruitment, 
training and retention initiatives. The 852 initiatives could 
significantly improve the Department's overall management of the 
Defense acquisition workforce, including contract management, 
contingency operations and position the Department to successfully 
sustain and appropriately size the future acquisition workforce.
    We have established partnerships within the Department and are 
working collaboratively with the DOD Comptroller's office and the 
Office of the Under Secretary for Personnel and Readiness. Additional 
implementation details on Section 852 will be in the DOD civilian human 
capital strategic plan to be delivered to Congress within the next few 
months.
    The purpose of the fund can help to ensure the Defense acquisition 
workforce has the capacity, in both personnel and skills, to properly 
perform its mission. This includes ensuring appropriate oversight of 
contractor performance and that the Department receives the best value 
when using public funds.
    We have engaged the military Services and Defense components to 
establish DOD enterprise initiatives. These efforts will position the 
Department to strategically address our acquisition workforce 
shortfalls.
    I want to thank Congress for their support of the acquisition 
workforce and the flexibilities provided for using the Fund.
                                summary
    In summary, measureable progress has been accomplished. Much work 
remains to be done. A plan for that work has been established with 
measureable criteria.
    We believe that contracting and contract management are vital 
elements of acquisition excellence. Contracting and contract management 
are an important military task for leadership and execution on a global 
basis for all situations. The Acquisition Workforce Development Fund 
can be utilized to help facilitate the strategy for the achievement of 
acquisition excellence for Expeditionary Operations.
    Mr. Chairman, I am pleased to address any questions that you may 
have for me. Thank you.

    Senator Akaka. Thank you, Secretary Finley.
    Now we'll hear from Secretary Bell.

 STATEMENT OF HON. P. JACKSON BELL, DEPUTY UNDER SECRETARY OF 
          DEFENSE FOR LOGISTICS AND MATERIEL READINESS

    Mr. Bell. Thank you, Chairman Akaka and Ranking Member 
Thune, and Senator McCaskill. Thanks again for this opportunity 
today to discuss four topics of interest to your subcommittee: 
the role of PSCs in Iraq and Afghanistan; the role of 
contractors in detainee interrogations; the status of DOD 
efforts to implement sections 861 and 862 of the 2008 NDAA; and 
the status of efforts to address gaps in legal accountability 
of PSCs in Iraq and Afghanistan.
    I've submitted detailed written testimony addressing these 
topics, which I will not be able to cover in my brief oral 
testimony today, so I request that my written testimony be 
incorporated into the record of this hearing.
    Regarding PSCs: recently, questions have arisen about the 
appropriateness of using PSCs in areas of military operations. 
As described in more detail in my written testimony, DOD 
policies governing the use of PSCs in contingency operations 
are in compliance with existing laws and regulations. These 
policies, collectively, restrict PSC authority and missions to 
defensive operations; establish firm policies, rules, and 
procedures governing their conduct and their operations; 
provide for clear government oversight to ensure that they're 
not performing either inherently governmental functions or even 
entering areas of high risk or areas of military operations; 
and, finally, of course, firmly establish legal jurisdiction 
over their conduct.
    Notwithstanding media coverage regarding PSC operations in 
Iraq, the frequency of serious incidents among DOD PSCs is 
relatively low. During the period of August 2004 through 
February 2008, a period of intense insurgency and sectarian 
violence in Iraq, more than 19,000 DOD convoy operations were 
recorded. Of those, less than three-quarters of 1 percent 
involved the use of deadly force by a DOD PSC; and then, not 
necessarily causing casualties.
    The recent execution of a memorandum of agreement between 
DOD and the Department of State (DOS) is having an even more 
disciplining effect on PSC operations there. General Petraeus 
recently reported to Secretary Gates that, ``There has been a 
67 percent reduction in graduated-force incidents involving 
contractors, and both the Government of Iraq and the Iraqi 
people have taken notice of the changes made in the operating 
procedures and in the attitudes of PSCs.''
    Regarding contractor roles in detainee interrogations, as 
we all know, detainee operations are a matter of great 
importance to the U.S. Government, as much as they are a matter 
of great sensitivity. My testimony today addresses only the 
question of DOD policies regarding the use of contractors in 
detainee interrogations.
    This role of contractors is authorized and governed by a 
number of DOD policy directives and instructions that 
specifically establish a policy framework for the use and the 
supervision of contractor personnel in detainee interrogations. 
These are covered in detail in my written testimony.
    Regarding the legal accountability of deployed contractors, 
all DOD civilian employees and DOD contractors deployed outside 
the United States in support of our military forces are legally 
accountable for their conduct under the jurisdiction of both 
the Uniform Code of Military Justice (UCMJ) and the Military 
Extraterritorial Justice Act (MEJA), as well as other statutes. 
Nonetheless, both DOD and DOS are on record about the need for 
legislation to strengthen the legal accountability of other 
U.S. Government contractor personnel deployed outside the 
United States in support of other U.S. Government missions, 
besides the DOD mission.
    Regarding the status of efforts to implement sections 861 
and 862, DOD is working actively now with the DOS and with the 
U.S. Agency for International Development (USAID) to implement, 
on schedule, the requirements of the 2008 NDAA. The Memorandum 
of Understanding (MOU), required under section 861, is already 
in draft form, and should be executed by July 1, with 
implementation targeted within the required 120 days after the 
MOU is executed.
    Regarding section 862, work is nearing completion on an 
expanded framework of regulations and reporting requirements 
relating to U.S. Government PSCs working in Iraq and 
Afghanistan.
    In closing, and a personal note, I would ask that this 
committee reconsider legislation passed in 2007, of the NDAA, 
that mandates the downgrade of the position of the Deputy Under 
Secretary of Defense for Logistics and Materiel Readiness, upon 
my leaving the position. This position has oversight of all DOD 
logistics functions, which, in 2006, represented about $162 
billion of DOD's $537 billion budget.
    Subsequent to this legislation, this position has assumed 
additional ongoing responsibilities, including leadership of 
DOD efforts to strengthen management of deployed contractors 
and negotiating and overseeing implementation of agreements 
with the DOS and USAID regarding the operations of all of our 
contractors in Iraq and Afghanistan, including, particularly, 
PSC operations in those countries.
    In the future, additional work is going to be required to 
expand this governance to other U.S. Government departments and 
agencies. The downgrade of this position sends the wrong signal 
about the importance of these areas of responsibility at the 
very time of their increasing significance to DOD and in global 
war on terror operations.
    Hopefully, this brief oral testimony and my written 
testimony will provide a useful baseline of information for 
your questions as we get into a discussion.
    Thank you.
    [The prepared statement of Mr. Bell follows:]

                    Prepared Statement by Jack Bell

    Chairman Akaka, Ranking Member Thune, and members of the committee: 
thank you for the opportunity to appear before you today to discuss 
four topics of interest to your subcommittee: the role of private 
security contractors (PSCs) in Iraq and Afghanistan; the role of 
private contractors in the interrogation of detainees in those 
conflicts; the steps the Department of Defense (DOD) is taking to 
implement sections 861 and 862 of the National Defense Authorization 
Act (NDAA) for Fiscal Year 2008; and the status of efforts to address 
gaps in the legal accountability of and jurisdiction over PSCs in Iraq 
and Afghanistan.
    Any discussion of the roles of contractors in performing private 
security services and detainee interrogations should be based on 
recognition of the historical background of and current policy 
framework governing the use of contractors in these roles.

                               BACKGROUND

    The use of civilian contractors in support of the armed forces is 
not new. Historically, contractors have been used by the U.S. 
Government and other governments to perform a variety of military 
support roles, including private security, intelligence, and 
interrogation. This practice has been so long established that 
contractors are specifically recognized in both U.S. policy and 
international agreements of longstanding relating to their status as 
prisoners of war:

         Article 50 of the U.S. Army General Order No. 100 
        (1863) states: ``Citizens who accompany an army for whatever 
        purpose . . . if captured, may be made prisoners of war. . . 
        .''
         Article 13, Annex to the Hague Convention IV (1907) 
        states: ``Individuals who follow an army without directly 
        belonging to it, such as . . . contractors, who fall into 
        enemy's hands . . . are entitled to be treated as prisoners of 
        war. . . .''
         Article 4 of the Geneva Convention Relative to the 
        Treatment of Prisoners of War (1949) states: ``Prisoners of war 
        . . . [include] persons who accompany the Armed Forces without 
        actually being members thereof, such as civilian members of 
        aircraft crews . . . supply contractors. . . .''

    Through World War II and Korea, support from the private sector was 
common, but normally performed in secure areas, since the battlefield 
was usually demarcated between secure and nonsecure areas. Contractors 
assumed key roles in the occupation phase of these conflicts--in the 
securing of peace and the reconstitution or reform of state security 
institutions.
    As the Vietnam conflict unfolded, the nature of the battlefield 
changed and the role of contractors expanded to provide construction, 
reconstruction, intelligence, and security services in nonsecure areas. 
Contractors were also key players in reconstruction, economic 
development, and development of institutional governance capabilities 
of the host nation.
    Since Vietnam, DOD has become increasingly dependent on 
contractors, both at home and when deployed, to perform critical 
support functions that are integral to the success of military 
operations, but not inherently governmental functions. Several factors 
contribute to the increased DOD reliance on contractor support:

         The shift to an All-Volunteer Military Force in the 
        1970s;
         An effort to capture a ``peace dividend'' following 
        the collapse of the Soviet Union, which led to the significant 
        reduction of United States Government military and civilian 
        forces over the last 15 years.
         Initiatives (e.g., including A-76) to transfer work 
        that could be done more cost-effectively by contractors than by 
        military forces or DOD civilians;
         The increasing technical complexity of military 
        equipment and information technology hardware and software, 
        requiring maintenance by a narrow set of in-depth, sometimes 
        proprietary technical skills that are not cost effective for 
        the military force maintain a capability to support.
         The shift from traditional equipment sustainment 
        programs to outsourced performance-based logistics programs, to 
        improve equipment readiness at lower costs.

    As a result, the U.S. military force has been reduced from 2.1 
million in 1989 to less than 1.4 million today, and the total U.S. Army 
from 111 combat brigades to 76. As dependence on contractors has 
increased, it is now common for contractors to provide a wide variety 
of support services, and even to be embedded with our military units 
performing critical technical support functions. For example, the 
Government Accountability Office (GAO) noted in 2006 that a Stryker 
brigade typically deploys with 75 technical support contractors, in 
addition to those performing the highly technical battle damage repairs 
at forward support facilities. Similarly an Apache Battalion deploys 
with embedded contractors, whose numbers may vary due to mission 
requirements to perform support missions for them in the field.
    The history of DOD's (and its precedent organizations') use of 
civilians accompanying military forces to forward areas is shown in the 
table below.

                           CIVILIANS ACCOMPANYING THE FORCE HISTORICAL PERSPECTIVE \1\
----------------------------------------------------------------------------------------------------------------
                                                             Civilians/
                      War/Conflict                          Contractors          Military            Ratio
----------------------------------------------------------------------------------------------------------------
Revolution.............................................       (est.) 1,500              9,000         1:6 (est.)
Mexican/American.......................................       (est.) 6,000             33,000         1:6 (est.)
U.S. Civil War.........................................            200,000          1,000,000         1:5 (est.)
World War I............................................             85,000          2,000,000               1:24
World War II...........................................            734,000          5,400,000                1:7
Korean Conflict........................................            156,000            393,000              1:2.5
Vietnam Conflict.......................................             70,000            359,000                1:5
Operation Desert Shield/Storm..........................              9,000            500,000               1:55
Balkans................................................             20,000             20,000                1:1
Operation Iraqi Freedom \2\ ...........................          163,590            160,000               1:1
----------------------------------------------------------------------------------------------------------------
\1\ Source: Zamparelli, Steven J., ``Competitive Sourcing and Privatization: Contractors on the Battlefield:
  What Have We Signed Up For?'' Air Force Journal of Logistics, Volume XXIII, Number 3, p. 12.
\2\ Data addresses only DOD contractors and does not address civilians or contractors supporting other U.S.
  Government Agencies and Departments.

    At the same time, military operational tempo has increased 
significantly under the global war on terror and as a result of the 
proliferation of regional conflicts that ensued with the end of the 
stability engendered by the Cold War balance of power. From 1990 to 
2000 the U.S. Army alone has deployed troops on 36 occasions, compared 
to 10 deployments during the 40 year Cold War.
    Consistent with applicable laws and regulations defining inherently 
governmental functions, the structure of our military forces has been 
adapted to this environment. DOD identified opportunities where 
competitive sourcing of contractor support for our deployed forces 
would allow DOD to concentrate its manpower to distinctly military 
activities in support of our National Military Strategy. This focus is 
reflected in the current DOD Directive (DODD) 1100.4, ``Guidance for 
Manpower Management'' (February 12, 2005), Paragraph 3.2.4.3., which 
states, ``During a conflict, military personnel shall be assigned only 
to those tasks that directly contribute to the military effort. . . .''
    ``Military effort'' is generally defined as the inherently 
governmental function of the military force role to engage in combat--
to identify, close with, and destroy enemy or terrorist forces.

                      PRIVATE SECURITY CONTRACTORS

    Recently, questions have been raised about the ``appropriateness'' 
of using PSCs in areas of military operations. DOD's decisions to use 
PSCs (including subcontractors) are in compliance with current U.S. 
Government policy and regulations. Relevant policy direction and 
guidance on this subject are found in the following:

         Circular A-76 (amended in 2003);
         The Federal Activities Inventory Reform Act of 1998; 
        and
         The current Federal Acquisition Regulation (FAR), 
        including the recent final rule to add a new FAR Subpart 25.3, 
        which specifically governs the contracting for PSCs.

    It is significant that the final rulemaking on Subpart 25.3 
(Federal Register: February 28, 2008, Volume 73, Number 40, pages 
10943-10959) explicitly recognizes that:

         The United States Government has the authority to hire 
        security guards (i.e., PSCs) worldwide (page 10944);
         The protection of property and persons is not an 
        inherently governmental function (page 10944); Also see FAR 
        7.503 (d)(19);
         There is an important distinction between self-defense 
        and combat operations, and that individuals have an inherent 
        right of self defense (page 10943);
         PSCs are not mercenaries and are not authorized to 
        engage in offensive operations (page 10944);
         PSCs have been given a mission to protect other 
        assets/persons, and so it is important that the rule reflect 
        the broader authority of PSCs in regard to the use of deadly 
        force (page 10944);
         The standard on the use of deadly force by PSCs should 
        be when it ``reasonably appears necessary,'' a standard in DODD 
        5210.56 that applies to the [defensive] use of deadly force by 
        military security personnel (page 10944);

    DOD Instruction (DODI) 1100.22, ``Guidance for Determining 
Workforce Mix'' (issued September 22, 2006, and updated April 6, 2007) 
provides additional guidance on the strategic structuring of military, 
civilian, and contractor forces. It states that, ``the DOD may 
authorize deliberate action against another sovereign government or 
nonstate actors on behalf of the United States (i.e., the authority to 
plan, prepare and execute operations to actively seek out, close with, 
and destroy enemy forces, including the use of firepower, and other 
destructive and disruptive capabilities on the battlefield. Combat 
authorized by the U.S. Government is IG [inherently governmental]. . . 
. (Paragraph E2.1.3.). PSCs are not authorized to participate in combat 
operations.
    Other sections of DODI 1100.22 describe security operations under 
conditions that could make them inherently governmental or not 
inherently governmental, as follows:

         ``Security provided for the protection of resources 
        (people, information, equipment, supplies, et cetera) in 
        uncontrolled or unpredictable high threat environments inside 
        the continental United States or outside the continental United 
        States entails a wide range of capabilities, some of which are 
        inherently governmental and others of which are commercial. 
        Security is IG [inherently governmental] if it involves 
        unpredictable international or uncontrolled, high threat 
        situations where [military] success depends on how operations 
        are handled and there is a potential of binding the United 
        States to a course of action when alternative courses of action 
        exist.'' (Paragraph E2.1.4.1.). PSC operations and missions are 
        not of a scale to impact the overall success of the military 
        mission or to bind the United States to any course of action 
        other than the one selected by it.
         ``Security forces that operate as part of a larger, 
        totally integrated and cohesive Armed Force typically perform 
        operations that require deadly force and substantial 
        discretion.'' (Paragraph E2.1.4.1.2.). However, DOD PSCs do not 
        operate as an integral part of a larger military operation, and 
        their operations are governed by strict Rules on the Use of 
        Force (RUF) and escalation procedures on the use of force.
         ``Security operations could entail defense against a 
        military or paramilitary organization whose capabilities are so 
        sophisticated that only military forces could provide an 
        adequate defense. This includes situations where there is such 
        a likelihood of hostile fire, bombings, or chemical attacks by 
        groups using sophisticated weapons and devices that, in the 
        judgment of the military commander, the operation could evolve 
        into combat.'' (Paragraph E2.1.4.1.3.). PSCs carry out strictly 
        defensive security missions, with emphasis on attempting to 
        disengage and leave the area as soon as possible.
         ``Security operations that involve more than a 
        response to hostile attacks typically entail substantial 
        discretion and are IG.'' (Paragraph E2.1.4.1.4). Policies 
        governing PSC operations emphasize that their security mission 
        is strictly defensive in response to threatened hostile 
        attacks.
         ``A decision is not IG if it can be limited or guided 
        by existing policies, procedures, directions, orders, or other 
        guidance that identify specific ranges of acceptable decisions 
        or conduct and subject the discretionary authority to final 
        approval or regular oversight by government officials.'' 
        (Paragraph E2.1.4.1.5.). Again, PSCs operate under strictly 
        defensive RUF established by the military commander, not 
        combat-oriented Rules of Engagement.
         ``Contingency contractors may provide security 
        services for other than uniquely military functions provided 
        the geographic combatant commander:

                 ``Clearly articulates rules for the use of 
                deadly force that preclude ceding governmental control 
                and authority of IG functions to private sector 
                contractors. . . .;
                 ``Sets clear limits on the use of force . . .;
                  As indicated above, PSCs operate under clearly 
                articulated policies and rules established by the 
                geographic combatant commander and the local area 
                commander (e.g., General Petraeus).
                 Department of State and DOD are not the only 
                Government agencies to employ PSCs with the right to 
                use deadly force. For example, 10 CFR 73.50, permits 
                contract security personnel protection nuclear material 
                to use deadly force. Also, the U.S. Marshal Service 
                employs PSCs to guard prisoners being transported 
                between locations, armed and with the authority to use 
                deadly force.

    In summary, DOD's current policies are in compliance with these 
regulations and policies. Specifically:

         The mission of PSCs is strictly defensive--protecting 
        persons, facilities, places or supplies, depending on the 
        specific contract under which they operate. They are 
        specifically prohibited from engaging in combat (offensive) 
        operations.
         PSCs do not operate as part of a larger, totally 
        integrated and cohesive military force, where their actions 
        could affect the success of the military mission could be 
        adversely affected, or could bind the U.S. to a course of 
        action where alternative courses of action exist.
         All DOD PSCs in Iraq and Afghanistan are contractually 
        bound to follow the policies and rules established by the U.S. 
        Central Command (CENTCOM), MNF-I, and Commander, Joint Task 
        Force 76 commanders. These rules include specific language on 
        RUF, which are entirely defensive in nature. These rules call 
        for emphasis on avoidance of conflict and de-escalation of the 
        use of force where possible. When force is required, PSCs are 
        trained and instructed to use graduated force response-
        sequential actions which begin with nonlethal force response 
        measures to ward off an attack such as firing flares, shining 
        bright lights, or blowing horns. Only when these actions are 
        ignored, as required by the situation, do they escalate their 
        response, such as firing into the air or shooting into the 
        engine block of an approaching vehicle. Use of deadly force 
        aimed fire is authorized only as a last resort to kill or 
        disable the individual or individuals posing the threat, while 
        minimizing the possibility of casualties among innocent 
        persons.
         All U.S. Government PSC operations in Iraq are under 
        the oversight of the battle space commander to the area 
        battlespace commander, who can redirect or terminate a private 
        security operation that would enter an area of combat 
        operations, or have a high risk of either being attacked or of 
        risking causing casualties among innocent civilians. Final 
        authority for U.S. Embassy moves rests with the Chief of 
        Mission, but he will generally honor the battlespace 
        commander's recommendation. The battlespace commander also has 
        the authority to take control of any battlefield situation, 
        including one in which a PSC is being attacked or is involved 
        in an incident. Similar controls will be put in place shortly 
        for Afghanistan under section 862 of the 2008 NDAA.

    As of the end of the first quarter, fiscal year 2008 (December 31, 
2007), CENTCOM reported that there were approximately 6,467 DOD-funded 
armed PSCs in Iraq and approximately 2,745 DOD-funded armed PSCs in 
Afghanistan. The table below illustrates the distribution by 
nationality and delineates armed versus unarmed PSCs in Iraq and 
Afghanistan.

                DOD PRIVATE SECURITY CONTRACTORS IN IRAQ AND AFGHANISTAN AS OF 31 DECEMBER, 2007
----------------------------------------------------------------------------------------------------------------
                                                                                                    Local/Host
                                                       Total       U.S. Citizens   Third Country      Country
                                                                                     National        National
----------------------------------------------------------------------------------------------------------------
Total DOD PSCs in Iraq..........................           9,952             830           7,590           1,532
Armed PSCs in Iraq..............................           6,467             429           5,318             720
================================================================================================================
Total DOD PSCs in Afghanistan...................           2,998              19              30           2,949
Armed PSCs in Afghanistan.......................           2,745              16              30           2,699
----------------------------------------------------------------------------------------------------------------

    These PSCs are employed in accordance with the guidance outlined 
above as well as paragraph 6.3.5 of DOD Instruction 3020.41, 
``Contractor Personnel Authorized to Accompany the U.S. Armed Forces,'' 
October 3, 2005. This paragraph provides that contracts shall be used 
cautiously in areas where major combat operations are ongoing or 
imminent. In accordance with this paragraph, the combatant commander 
weighs the following factors when considering specific security 
contracts: where the contract security personnel will operate; the 
anticipated threat; what property or personnel is to be protected; the 
manner in which the contractor will be operating in areas of increased 
risk, including command and control, the sharing of threat information, 
and communication with forces; and the training and qualifications of 
the contract security personnel.
    In a recent audit of PSCs in Iraq, GAO noted significant 
improvements in PSC coordination and oversight and in the tracking and 
reporting of incidents when they happen. Notwithstanding media coverage 
regarding incidents involving PSCs, the frequency of serious incidents 
among DOD PSCs is low. The period of August 2004 through February 2008 
covers a period of rampant insurgency and sectarian violence in Iraq 
affecting U.S. military forces. During that time, 19,268 DOD contractor 
convoy operations were recorded. Of those, only 151 (or less than 
eight-tenths of 1 percent) involved the discharge of a firearm by a 
PSC, and not all of those involved aimed fire at an enemy combatant. 
This was in spite of the fact that during that time, 1,441 hostile 
attacks were made against those convoys. These statistics reflect a 
high degree of discipline and effective management of DOD PSCs 
operating within a strict policy framework.
    The recent execution of the Memorandum of Agreement between DOD and 
the State Department is having an even more disciplined effect on PSC 
operations in Iraq. General Petraeus recently reported to Secretary 
Gates that, ``There has been a 67 percent reduction in graduated force 
incidents involving contractors, and both the Government of Iraq and 
the Iraqi people have taken notice of the changes made in the operating 
procedures and attitudes of PSCs.''
    In recent testimony, I have discussed the potential consequences of 
any policy decision to replace PSCs in Iraq and Afghanistan with 
military forces. Using Congressional Budget Office methodology from 
their 2005 contractor study on Logistics Support for Deployed Military 
Forces, it would require the manpower equivalent of nine brigades of 
manpower to support that role. Such a requirement would be a major 
challenge for DOD to resource.

               CONTRACTOR ROLE IN DETAINEE INTERROGATIONS

    Detainee operations are a matter of great importance to the U.S. 
Government, as much as they are a matter of sensitivity. This testimony 
addresses only the question of the role of DOD contractor personnel in 
detainee interrogations.
    The role of contractors in detainee operations is governed by a 
number of DOD policy directives and instructions:

         DODD 2310.01E (September 5, 2006) specifies that,

                 ``The Under Secretary of Defense for 
                Intelligence shall exercise primary responsibility for 
                developing policy pertaining to DOD intelligence 
                interrogations, detainee debriefings, and tactical 
                questioning . . . .'' (Paragraph 5.4.1.).
                 ``All DOD contracts pursuant to which 
                contractor employees interact with detainees include a 
                requirement that such contractor employees receive 
                training regarding the international obligations and 
                laws of the United States applicable to detainee 
                operations.'' (Paragraph 5.3.1.)
                 ``The Under Secretary of Defense for 
                Acquisition, Technology, and Logistics shall ensure 
                contractor employees accompanying DOD components in 
                conducting, participating in, or supporting detainee 
                operations complete training and receive information on 
                the law, regulations, and policies applicable to 
                detention operations, and the requirements to report 
                possible, suspected, or alleged violations that arise 
                in the context of detention operations. . . .'' 
                (Paragraph 5.3.2.)

         DODD 3115.09 (November 3, 2005) states that,

                 ``The Under Secretary of Defense for 
                Intelligence shall exercise primary responsibility for 
                DOD intelligence interrogations, detainee debriefings, 
                and tactical questioning and serve as the advisor to 
                the Secretary and Deputy Secretary of Defense regarding 
                DOD intelligence interrogations policy.'' (Paragraph 
                4.1 and 4.1.1.)
                 ``A trained and certified DOD interrogator 
                shall monitor all interrogations, debriefings, and 
                other questioning conducted by non-DOD or non-U.S. 
                Government agencies or personnel.'' (Paragraph 
                3.4.4.3.)

         DODI 1100.22 (September 7, 2006) states that:

                 ``Direction and control of intelligence 
                interrogations are IG functions. This includes the 
                approval, supervision, and oversight of interrogations. 
                However, in areas where adequate security is available 
                and is expected to continue, properly trained and 
                cleared contractors may be used to draft interrogation 
                plans for government approval and conduct government-
                approved interrogations consistent with DODD 3115.09, 
                if they are properly supervised and closely monitored 
                throughout the interrogation process by sufficient 
                numbers of properly trained government officials.'' 
                (Paragraph E2.1.6.2.).

 STATUS OF LEGAL ACCOUNTABILITY JURISDICTION OVER DEPLOYED CONTRACTORS

    All DOD contractor personnel, regardless of nationality, are 
legally accountable for their conduct in complying with the DOD 
policies and regulations, as well as with the laws of the United States 
and applicable laws of the host country. This legal accountability 
proceeds from a number of statutes including:

         The Uniform Code of Military Justice, extended by 
        section 552 of the NDAA for Fiscal Year 2007 to cover all 
        contractors located outside the United States accompanying the 
        military forces in the field in contingency operations against 
        a hostile force.
         The Military Extraterritorial Justice Act provides 
        Federal criminal jurisdiction over felony-level crimes 
        committed by DOD civilian employees and contractors (except 
        host country nationals) accompanying the Armed Forces outside 
        the United States.
         Other statutes address legal accountability of U.S. 
        citizens alleged to have committed specific crimes against 
        other U.S. citizens and other criminal acts overseas.
         Coalition Provisional Authority Order #17 is a law 
        signed into effect prior to the transfer of authority to the 
        Government of Iraq in 2004 and is scheduled to expire with the 
        conclusion of the U.N. Security Council mandate of the 
        Multinational Force-Iraq (MNF-I), currently set for December 
        31, 2008,. It provides non-Iraqi contractor personnel working 
        on behalf of coalition forces (as well as those working for 
        foreign diplomatic or consular missions, or foreign 
        humanitarian aid, reconstruction or development projects) 
        immunity from Iraqi legal process for acts committed pursuant 
        to the terms and conditions of their contract. Assuming no 
        further action by the U.N. Security Council, any continuing 
        immunity after December 31, 2008, for individuals not covered 
        through other means, will have to be provided for in 
        negotiations between foreign governments and the Government of 
        Iraq. Otherwise, such contractors may be subject to Iraqi laws 
        and its criminal justice system.

    While DOD civilian employees and DOD contractors are considered to 
be legally accountable for their actions, both DOD and the State 
Department are on record about the need for legislation to strengthen 
the legal accountability of other U.S. Government contractor personnel 
deployed outside the United States.

  STATUS OF EFFORTS TO IMPLEMENT SECTIONS 861 AND 862 OF THE 2008 NDAA

    DOD has launched a number of significant initiatives to strengthen 
the management of DOD contractors accompanying deployed military 
forces. Also, we are currently implementing a Memorandum of Agreement 
with the State Department signed on December 5, 2007, to strengthen the 
coordination of DOD and State PSC operations in Iraq. We are now 
working actively with the State Department and the U.S. Agency for 
International Development (USAID) to address the requirements of 
sections 861 and 862 of the NDAA for Fiscal Year 2008. Sections 861 
requires the establishment of a Memorandum of Understanding (MOU) among 
DOD, the State Department, and USAID, to cover all contracts being 
implemented in Iraq and Afghanistan, and all contractors and contractor 
personnel there. In addition, Section 861 requires the establishment of 
a comprehensive data base of contract and contractor personnel data, 
available on an online basis to appropriate legislative branch 
committees and the GAO.
    Progress is well underway regarding the drafting of an MOU 
responsive to the requirements of section 861, and there should be no 
problem in executing such an MOU by the deadline on July 1, 2008. The 
more difficult challenge will be the establishment of the data bases 
required under section 861 to provide the multi-disciplinary data bank 
required to be put in place. Efforts have already been launched to 
define the software and system requirements to support this 
requirement, with a view towards compliance with the requirement to 
implement the provisions of the MOU within 120 days of its execution.
    Similarly, work is underway to implement the provisions of section 
862 of the NDAA for Fiscal Year 2008. In this section, Congress has 
acknowledged the use of PSCs, and has prescribed specific requirements 
for their oversight in a declared combat operation. It requires the 
Secretary of Defense, in coordination with the Secretary of State, to 
prescribe regulations governing the policies, procedures, and 
operational control of PSCs under contract to DOD, the State 
Department, and USAID for work in Iraq and Afghanistan. In several 
ways, these regulations will be much broader than the currently 
effective MOA between DOD and the State Department relating to the 
coordination of PSC operations in Iraq. Nonetheless, major elements of 
the MOA will form the core of the regulations currently being drafted 
to comply with section 862.
    In closing, I would like to highlight the fact that the DOD, the 
GAO, the Office of Management and Budget, the Congressional Budget 
Office, and the Congressional Research Service have continuously 
reviewed the expanded use of PSCs, the potential for their performance 
of inherently governmental functions, and the appropriateness and 
manner in which they are employed.
    Hopefully, this testimony provides a documentary baseline of the 
four topics I was asked to address at this hearing. I will be happy to 
answer any questions you have regarding the policy framework regarding 
contractors in these areas of concern and interest. Thank you.

    Senator Akaka. Thank you very much, Secretary Bell.
    General Thompson?

STATEMENT OF LTG N. ROSS THOMPSON III, USA, MILITARY DEPUTY TO 
THE ASSISTANT SECRETARY OF THE ARMY FOR ACQUISITION, LOGISTICS, 
 AND TECHNOLOGY; ACCOMPANIED BY JEFFREY P. PARSONS, EXECUTIVE 
               DIRECTOR, ARMY CONTRACTING COMMAND

    General Thompson. Chairman Akaka, Senator Thune, Senator 
McCaskill, thank you for the opportunity to appear before you 
again today on the Army's contracting operations in Iraq and 
Afghanistan.
    Since our last report to you, and in keeping with the 
recommendations of the Gansler Commission, Secretary of the 
Army Pete Geren directed the realignment of the Army 
Contracting Agency to the Army Materiel Command and the 
establishment of the Army Contracting Command Provisional. We 
stood up this organization on March 13 of this year. With me 
today is Jeff Parsons, our first Executive Director of the new 
Army Contracting Command Provisional. We have a joint written 
statement that I respectfully request also be made a part of 
the record for today's hearing.
    I would like to take this opportunity to thank the 
committee and the committee leadership for your unwavering 
support to the men and women in uniform.
    Mr. Chairman, the Secretary of the Army created the Special 
Commission on Contracting, led by Dr. Jacques Gansler, to look 
at the long-term strategic view of the Army's acquisition and 
contracting system in support of expeditionary operations. The 
Army Contracting Task Force, which I co-chaired with Ms. Condon 
of the Army Materiel Command, was formed to review current 
contracting operations and take immediate actions, where 
necessary.
    The Gansler Commission's four key recommendations for 
improvement are consistent with the Army Contracting Task 
Force's findings. The Army is making steady progress in 
addressing the structural weaknesses and the shortcomings 
identified, and we continue to work very closely with the 
Office of the Secretary of Defense (OSD) and our sister 
Services on the way forward. It is clear that achieving our 
objective will require resources, time, and a sustained 
leadership focus. Our written statement outlines the major 
actions that we've taken to date, which include accelerating 
plans to set up the contracting structure recommended by the 
Commission and increasing the size of the contracting workforce 
in the Army.
    As a result of the ongoing operations in southwest Asia, 
the Army has increased its focus on contingency contracting. Up 
until a year ago, we didn't have a defined structure to support 
expeditionary operations or to support the modular Army. We 
have now established a contingency contracting structure that 
consists of contracting support brigades, contingency 
contracting battalions, and four-person contingency contracting 
teams. We are beginning to fill those with trained military 
contracting officers and noncommissioned officers (NCOs): the 4 
brigades, the 6 battalions, and the 121 teams that we've 
already established. Since we last met, we've looked at the 
size of that structure, and we plan on expanding that by adding 
3 brigades, 5 battalions, and 51 teams to the work that we had 
already done.
    A critically important issue is the size, the structure, 
and the training of both the military and the civilian 
contracting workforce. The acquisition workforce has declined 
significantly in the last decade, but the workload and the 
number of dollars associated with that workload have increased 
significantly. The Army has never fought in an extended 
conflict that required such reliance on contractor support.
    We are addressing the need to expand, train, structure, and 
empower our contracting personnel to support the full range of 
military operations. We are developing a detailed contracting 
campaign plan to implement the necessary changes to 
contracting, and looking at changes in doctrine, organization, 
training, materiel, and leadership.
    This is going to require the Army, OSD, administration, and 
Congress to work together to make the systemic fixes needed for 
contracting to be a government core competency.
    Mr. Chairman, this concludes my opening remarks, and Mr. 
Parsons's, and I look forward to your questions.
    [The joint prepared statement of General Thompson and Mr. 
Parsons follows:]

Joint Prepared Statement by LTG N. Ross Thompson III, USA, and Jeffery 
                               P. Parsons

                              INTRODUCTION

    Thank you for this opportunity to report to you again on the U.S. 
Army's comprehensive, ongoing efforts to ensure policies and procedures 
are in place for all joint, expeditionary contracting operations in 
Iraq, Afghanistan, and Kuwait, and to better prepare the Army for 
acquisition and logistical support of future combat operations. In this 
statement, we address the: (1) work of the Army Contracting Task Force; 
(2) the steps that the Army is taking to implement the recommendations 
of the Commission on Army Acquisition and Program Management in 
Expeditionary Operations, which released its final report, ``Urgent 
Reform Required: Army Expeditionary Contracting,'' on October 31, 2007; 
and (3) the steps that the Army is taking to implement relevant 
requirements of the National Defense Authorization Act (NDAA) for 
Fiscal Year 2008, including the acquisition workforce requirements in 
sections 807 and 852 of that Act.
    We are grateful for the wisdom, guidance, and strong support that 
you and other Members of Congress have shown for our efforts. Our goal 
is to be good stewards of the resources provided by Congress and to 
free human and financial resources for higher priority operational 
needs.
    As background, Secretary of the Army Pete Geren chartered the 
Commission on Army Acquisition and Program Management in Expeditionary 
Operations chaired by Dr. Jacques Gansler, the former Under Secretary 
of Defense for Acquisition, Technology, and Logistics. The Gansler 
Commission provided an independent, long-term, strategic assessment of 
the Army's acquisition and contracting system--and its ability to 
support expeditionary operations and sustained high operational demand 
in an era of persistent conflict. To complement the work of the 
Commission, the Army Contracting Task Force was established to review 
current contracting operations and take immediate action where 
appropriate. The recommendations of the Commission were consistent with 
the findings of the Task Force. We are currently addressing structural 
weaknesses and shortcomings identified, with a view to improving both 
current and future expeditionary contracting operations. We are 
committed to finishing the development and then implementing an Army-
wide contracting campaign plan to improve doctrine, organization, 
training, leadership, materiel, personnel, and facilities. Achieving 
this objective will require resources, time, and sustained leadership 
focus. The contracting campaign plan will continue the initiatives 
already underway in the Army.
    Since our last report to you, Secretary Geren has directed the 
realignment of the U.S. Army Contracting Agency to the U.S. Army 
Materiel Command (AMC) and the establishment of the U.S. Army 
Contracting Command (ACC) (Provisional) under AMC. The ACC 
(Provisional) stand-up ceremony on March 13, 2008 is in keeping with 
the Gansler Commission's second recommendation--to restructure Army 
contracting organizations and restore responsibility to better 
facilitate contracting and contract management in expeditionary and 
U.S.-based operations. The ACC, whose first Executive Director, Jeff 
Parsons, will testify before this committee, is a two-star level 
command with two one-star level subordinate commands--an Expeditionary 
Contracting Command and an Installation Contracting Command.
    Before we continue, we would also like to publicly thank Deputy 
Secretary of Defense Gordon England for presenting on February 26, 
2008, the first Armed Forces Civilian Service Medals (AFCSM) for 
service in Iraq. As a result of the Gansler Commission's 
recommendations on contracting effectiveness, the Department of Defense 
(DOD) reviewed its regulations/policy with regard to the AFCSM and 
agreed to make this honor available for DOD civilians involved in 
direct support of expeditionary operations. This was a policy change 
and no legislation was required.

                GANSLER COMMISSION IMPLEMENTATION UPDATE

    The Commission made four overarching recommendations to ensure the 
success of future expeditionary operations: (1) increase the stature, 
quantity, and career development of military and civilian contracting 
personnel, particularly for expeditionary operations; (2) restructure 
organization and restore responsibility to facilitate contracting and 
contract management; (3) provide training and tools for overall 
contracting activities in expeditionary operations; and (4) obtain 
legislative, regulatory, and policy assistance to enable contracting 
effectiveness in expeditionary operations.
    Secretary Geren directed the establishment of an Army Contracting 
Campaign Plan under the acting Under Secretary of the Army to ensure 
that the Gansler Commission's findings and recommendations are 
implemented as quickly as possible without the loss of any momentum. We 
are making steady progress in this area.
    With regard to the first recommendation to increase the stature, 
quantity, and career development of the Army's contracting personnel, 
we have a number of initiatives underway. We now have a contingency 
contracting structure that consists of Contracting Support Brigades, 
Contingency Contracting Battalions, and four-person Contingency 
Contracting Teams. Each Contracting Support Brigade is commanded by a 
Colonel who assists the Army Service Component Commander (ASCC), a 
three-star commander, in his contracting support--by planning and 
coordinating contracting operations in a theater. These brigades 
oversee Contingency Contracting Battalions and teams--Active, Reserve, 
and National Guard--in executing the ASCC's contracting support plan. 
The contracting brigades, battalions, and teams are being activated and 
will eventually total 7 brigades, 11 battalions, 18 senior contingency 
contracting teams, and 153 contingency contracting teams. These 
brigades, battalions, and teams will coordinate and integrate their 
plans with Army Field Support Brigades. These two new brigade designs 
support the Army modular force in the development of a single, fully 
integrated planning cell to provide quick response, command, and 
control of acquisition, logistics, and technology activities needed to 
support and enable the full spectrum of operations.
    The Army plans to grow our military contracting structure in the 
Active Force as well as our civilian contracting workforce. We realize 
the need for members of the military to begin their acquisition careers 
earlier. Plans are underway to move the accession point for military 
officers 2 to 3 years earlier, immediately following their Branch 
qualification at the Captain level (normally at the 4- to 5-year mark 
in their development). For noncommissioned officers, the accession 
point will occur upon achieving the rank of staff sergeant. We have 
implemented a policy stating that military members will not deploy 
during their first year in contracting. This will help ensure the 
requisite training is accomplished prior to deploying on an 
expeditionary contracting mission. Lastly, the Army is formally 
interviewing units as they return from theater to capture 
``expeditionary contracting'' lessons learned and incorporate the 
findings into doctrine, training guides, and user handbooks.
    With regard to the second recommendation to restructure 
organization and restore responsibility, as stated in our introduction, 
we established the ACC on March 13, 2008. This new command will 
leverage contracting assets across AMC and will better prepare us to 
support expeditionary operations. The one-star Expeditionary 
Contracting Command will be a deployable Headquarters, enabling the 
proper oversight and structure for extended conflicts. In addition, 
regarding the recommendation to establish a Chief of Contracting for 
the U.S. Army Corps of Engineers (USACE) headed by a one-star and 
supported by a deputy from the Senior Executive Service, the USACE is 
developing a concept plan, and we are working with them to complete, 
publish, and implement this plan.
    Concerning recommendation three to provide training and tools, the 
Army is assessing opportunities to improve contingency contracting 
training at our Combined Training Centers. In addition, we are 
expanding the mission of the Battle Command Training Program by 
including acquisition professionals to train brigade, division, and 
corps organizations. We are also evaluating ways to incorporate 
contractor training into all military exercises. At present, 12 
professional military education courses have new or enhanced 
operational contract support subject matter, and we have put in place 
an intensive training and management program for our Contracting Office 
Representatives (CORs). In addition, all Army CORs must complete the 
Defense Acquisition University's on-line continuous learning module, 
``COR with a Mission Focus,'' prior to appointment. For example, since 
October 1, 2007, 190 CORs have been trained in Kuwait. All contracts 
awarded now by the Kuwait Contracting Office have a trained COR 
performing surveillance.
    To improve our contingency contracting training and doctrine, we 
have taken several actions. We are taking a set of concrete steps which 
include: (1) working with the Joint community on the final draft of 
Joint Publication 4-10, Operational Contract Support, (2) distributing 
the recently released Joint Contingency Contracting Handbook, (3) 
developing Field Manual 4-10, Commanders Guide to Contracting and 
Contractor Management and Field Manual Interim 4-93.42, Contract 
Support Brigade; (4) accelerating efforts to enhance leader education 
in contracting and contractor management; (5) re-examining the training 
curriculum and timing for all newly accessed acquisition officers and 
civilians; and (6) re-examining the accession point for contracting 
officers and noncommissioned officers into the Army Acquisition Corps. 
In addition, we are evaluating solutions to develop and field a Virtual 
Contracting Enterprise to provide electronic, web-based tools to enable 
total visibility and analysis of the full scope of our entire 
contracting mission.
    The Department is actively assessing and developing its position 
regarding the appropriate numbers of General and Flag Officers and 
Senior Executive Service authorizations for contracting positions. Our 
report to the congressional committees in response to section 849 of 
the NDAA for Fiscal Year 2008 will contain additional information on 
this subject.
    As the Department reviews the Commission's recommendations and 
appropriate implementation actions we are assessing the possibility of 
recommending specific supportive legislative actions. As required by 
section 849 of the NDAA for Fiscal Year 2008, we will submit a report 
to the congressional defense committees with the results of our 
assessments by May 28, 2008, and will provide additional information at 
that time.

                   ARMY CONTRACTING TASK FORCE UPDATE

    The Task Force was directed to implement reforms and corrections 
immediately to correct deficiencies specifically identified in Kuwait, 
which have already resulted in significant improvements in contracting 
operations. Several new leaders are now in place, along with new 
internal control processes for effective checks and balances.
    A systematic review of Kuwait contract files from fiscal year 2003 
to fiscal year 2006 was directed to identify issues that weren't 
already being addressed by an ongoing investigation by either the U.S. 
Army Audit Agency (AAA) or the U.S. Army Criminal Investigation Command 
(CID). A 10-person military team deployed to Kuwait and completed a 
review of 339 contracts under $25,000. The team found poor contract 
documentation, referred several contracts to AAA and CID for additional 
analysis, and documented ``lessons learned'' for future expeditionary 
contracting support.
    The review of contracting actions over $25,000 is almost complete 
at the U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command in Warren, MI. Roughly 90 boxes of contract 
files were sent there from Kuwait. The review of 319 contracts is 
complete. Several of these contracts have been referred to AAA and CID 
for further analysis. The team specifically recommended improvements in 
the areas of source selection procedures, lease versus buy analyses, 
performance-based contracting research, and solicitation and contract 
review processes. The TACOM team is also reviewing financial data to 
ensure appropriate disbursements and accounting of payments.
    Work continues with the orderly transfer of existing and future 
major contract actions from Kuwait to the U.S. Army Sustainment Command 
(ASC) at Rock Island, IL, a subordinate command under AMC. ASC 
established a dedicated 12-member team, supported by legal 
professionals, charged to assist in resolving a number of claim 
actions, definitizing unpriced actions, and negotiating new contracts 
for requirements in ways that will result in significant cost avoidance 
or savings. The leasing of nontactical vehicles was renegotiated with 
an estimated savings of $36.6 million over a 3-year period.
    Several other initiatives designed to enhance contracting support 
for contingency operations are underway. The Army established a team to 
examine our contingency contracting force design and determined the 
need to add 3 additional contracting support brigades, 5 additional 
contingency contracting battalions, 3 additional senior contingency 
contracting teams, and 48 additional contingency contracting teams. 
These were included in the totals on page four.
    The Army Contracting Task Force final report was completed on March 
17, 2008, and has been presented to the Secretary of the Army for his 
review and consideration. The details in the report will be included in 
the Section 849 of the NDAA for Fiscal Year 2008 report to Congress.

                         ACQUISITION WORKFORCE

    We would like to discuss the steps the Army is taking to implement 
sections 807 and 852 of the NDAA for Fiscal Year 2008, and briefly 
highlight section 851. The Army has implemented a contractor inventory 
system as referenced in section 807. In 2002, the DOD Business 
Initiative Council approved the Army as the DOD pilot to test a 
contractor manpower and cost reporting process, designed to provide 
better visibility over the labor and costs associated with the contract 
workforce and the missions supported by that workforce. The Contractor 
Manpower Reporting system was implemented in March 2005. With this 
process already in place, we will work closely with DOD to define, 
refine, and implement the contractor inventory requirements of section 
807.
    The Army is actively engaged in helping to shape DOD's response to 
the NDAA for Fiscal Year 2008, section 851 which requires a separate 
section on the Defense acquisition workforce in the DOD Human Capital 
Strategic Plan. This plan is directly linked to implementation of NDAA 
for Fiscal Year 2008 section 852. In supporting this effort, the Army 
is taking aggressive action to review its existing workforce 
development programs and define opportunities to improve the Army's 
acquisition workforce. Section 852 requires that DOD address 
acquisition workforce needs in three separate areas: recruitment, 
training, and retention.
    A joint acquisition workforce group composed of the military 
Services and Defense agencies have met to facilitate the 
prioritization. These joint meetings have facilitated the 
prioritization and funding strategy in order to determine best value 
investment for the DOD acquisition workforce. Although some of the 
initiatives represent Service-specific programs, pilots, or 
opportunities, the proposed initiatives in many cases represent best 
practices from among the Services and those that have potential for 
enterprise across DOD. The details and merits of these and other 
initiatives will be presented to the Service Acquisition Executives in 
the near future as we move to final recommendations and decisions on 
how best to execute the Defense Acquisition Workforce Development Fund.
    Over the next few weeks, we will jointly discuss and analyze all 
Section 852 initiatives to determine the best enterprise solutions for 
our recruitment, training, and retention challenges. This has been a 
very robust process, and when the funding is provided, DOD and the 
Services will be poised to implement the highest priority solutions in 
a way that optimizes DOD results. The Army appreciates the 
opportunities that section 852 will provide our workforce. These 
programs will help ensure a well-trained and educated workforce, 
focused on providing the soldier with world-class capabilities.

                               CONCLUSION

    As stewards of American taxpayers' dollars, the Army is improving 
its structure and capacity to manage contracts to better support 
expeditionary operations and improve overall contractor performance.
    Expeditionary military operations in Iraq and Afghanistan have 
placed extraordinary demands on our contracting system and the people 
who make it work. As stated before, the vast majority of our military 
and civilian contracting personnel perform well in tough, austere 
conditions. We know that the success of our warfighters and those who 
lead them is linked directly to the success of our contracting 
workforce, and we are working hard to ensure that contracting is a core 
competency within the Army. We are also working hard to change the 
culture in the Army to one that recognizes the critical and complex 
role of contracting as a core competency. The Army's focus on 
contracting is not just for contracting professionals. Warfighters set 
requirements and help manage contract execution, and they must be 
totally involved in their part of the contracting process.
    The commitment of our contracting professionals and to our 
contracting professionals must be 100 percent. They must stay focused 
on supporting the warfighter, and inspire the confidence of the 
American people. This will not be easy; it will take time, but getting 
it done is essential. We cannot and will not fail--our warfighters and 
our taxpayers deserve no less.

    Senator Akaka. Thank you very much, General.
    Now I'd like to give my opening time to Senator McCaskill 
for your questions.
    Senator McCaskill. Thank you very much. I really appreciate 
it.
    Obviously, we have serious challenges, and I do appreciate 
the testimony of all of you today. I think everyone is working 
hard to implement the Gansler recommendations and the 
contracting task force recommendations, and I do think some 
progress is being made. But, obviously, in the management of 
acquisitions and the ongoing management of contracts, we still 
have great challenges.
    I have reviewed a very lengthy article that was written in 
the New York Times on March 27, and, I have to tell you, I feel 
sick to my stomach about a munitions contract that we entered 
into with a 22-year-old man with a record of carrying a fake 
identification (ID) so he could drink, and became the head of 
his company when he was 18 years old. We've done $200 million a 
year in business with him, and this stuff is coming from old 
Communist-bloc countries, and a lot of this ammunition is, in 
fact, 40 years old and unreliable, and it's not been tested. 
Have any of you read this article? Are you familiar with this 
AEY case? [No response.]
    It's just mind-boggling to me how somebody like this gets 
this contract, and how we have a contract to supply munitions 
that doesn't require the same kind of standards that we would 
require for our military or from the North Atlantic Treaty 
Organization. Whoever would like to tackle that, as to how we 
entered into a $200-million-a-year contract for munitions to 
supply the Afghan Army that is working on our behalf, and paid 
with taxpayer dollars, and to the Iraqis, without any kind of 
minimum standards or testing; I just have to figure out how 
that happened.
    General Thompson. Ma'am, we have looked at that article, 
and the examination of that contractor and that contractor 
performance way predated the article. There's been about a 7-
month look at that contractor and his performance.
    There is an ongoing investigation. That contractor was 
suspended from contractor work with the U.S. Government. That 
suspension happened about the day the article was published, 
but the investigation that led to that formal suspension 
action, which is a very deliberate process, had been ongoing 
for months.
    The contract was properly let. It followed all the proper 
procedures. The DCMA evaluated that contractor for past 
performance and financial solvency before the contract was let. 
The requirement in that contract was for commercial ammunition 
in order to be used by the Afghan forces, and the requirement 
did not have the same specifications that we have for our 
military ammunition. They did meet the commercial standards.
    The basis for the contractor suspension is what's under 
investigation right now, because it appears that he did make a 
false claim that the ammunition that he provided came from a 
certain source, when, in fact, it was Chinese-manufactured 
ammunition. So what you have here is a case, I think, of a 
contractor that was not performing, and is not performing. 
Therefore, we are taking the proper procedures in order to 
remedy that.
    Senator McCaskill. I'm curious why, if you say proper 
procedures were employed, who made the decision that there was 
no quality assurance standards to cover packaging, storage, 
testing, or transport? That wasn't an important part to the 
contract? Who would have made that decision?
    Mr. Parsons. Ma'am, I'm very familiar with the contract on 
that, as well. As General Thompson said, when that ammunition 
was purchased, it's considered what they call ``nonstandard 
ammunition,'' so we don't buy that to the same standards that 
we do our military ammunition.
    Senator McCaskill. But, why? Who makes that decision, that 
you don't buy it to the same standards? That's what I want to 
find out. Who makes the decision that the ammunition that we 
are sending to the Afghan Army to fight terrorists for us in a 
dangerous situation doesn't have to have the same standards as 
our American military?
    Mr. Parsons. You raise a good point, and that is one of the 
things that we are addressing with the Joint Munitions Command 
now, which was responsible for that requirement, to go back and 
understand, why is it that the requirements for that ammunition 
did not meet the same standards that we use for our own U.S. 
ammunition? A lot of this ammunition is bought from former 
Soviet-bloc countries. It's, like I said, nonstandard 
ammunition. It's used in AK-47s and those types of weapons. 
But, you raise a very good point. We're taking a very hard look 
at a lot of our foreign military sales (FMS) procurements, 
where we're buying nonstandard equipment, and to address your 
exact position there, that we ought to be looking at the 
requirements and what we are buying.
    Senator McCaskill. I want to try to figure out who's 
responsible, because somebody needs to be held accountable for 
this situation. The past performance was rated as 
``excellent.'' This is a 22-year-old that had no prior 
contracting experience. Now, who decided that their past 
performance was ``excellent,'' and on the basis of what? Does 
anyone know?
    General Thompson. Ma'am, when we let a contract with 
somebody, we use the DCMA to evaluate both past performance and 
the financial solvency, and that was the process that was used 
in this particular case.
    Senator McCaskill. I'm going to follow up on this, but I 
want to drill down on this, and I want to figure out where in 
the--when you sit here and you want things to get better, it's 
very hard to pinpoint who is the person that's responsible for 
these mistakes. This contract was a terrible mistake. I assume 
half of what I read in the newspaper is wrong, and the other 
half may be slanted, but if you just sweep away a lot of the 
factual information that's in this article, and look at it, 
this contract was a mistake, and somebody has to be responsible 
for this mistake. It's not good enough to say, ``Well, the fact 
that he was only 22, and he was providing hundreds of millions 
of dollars worth of munitions,'' and he was dealing with 
somebody in one country that we had to be called by their 
embassy to say the guy had been in black-market munitions.
    General Thompson. Ma'am, like Mr. Parsons and I both have 
said, we are looking at all the circumstances surrounding that 
contract and that contractor, not just this individual 
contract, but any other contracts that individual's had. When 
we get all the facts out on the table, then we'll be able to 
determine what mistakes were made, and by whom.
    I, like you--there's always another side of a story, and 
I'm not defending this contractor, in any way, shape, or form. 
I'm just saying, I want to get all the facts on the table. 
What's reported in the press, either in this article or others, 
is not necessarily all the facts, and we are determined to get 
to the bottom of it, and get all the issues out on the table, 
and then we will use the legal mechanisms that we have, and the 
contracting policy venues that we have, and I assure you, we'll 
make the proper decisions, and people will take appropriate 
action, across the board, whether in the government or outside 
the government.
    Senator McCaskill. I will follow up with some more specific 
questions about that arms contractor, because I do think that 
there are some more specific questions that I hope you guys get 
to the bottom of as it relates to that contract.
    I'm not going to have time to go into my other two 
questions, but I will just tell you, I will direct those 
questions to you, too.
    The first one is on Kellogg Brown and Root (KBR), the 
policy that we've decided it's okay to allow a contractor to 
use an offshore account to avoid Medicare and Social Security 
and unemployment taxes. We have 10,000 Americans working for 
KBR that have no Medicare payments being made, and they have no 
unemployment compensation insurance, and they have no Social 
Security payments being made. There's a post office box in the 
Cayman Islands somewhere that's taking care of all that, so 
that none of those responsibilities are met by KBR. I'm not 
saying that what has happened is illegal, but I will ask for 
you all to respond in writing as to whether you think this is a 
good thing for us to be doing. If it's not, what help do you 
need from us, in terms of laws, to make sure that it's illegal? 
Because it's offensive.
    Then the final thing is jurisdiction. Secretary Bell we 
talked, in a previous hearing, about jurisdiction for criminal 
acts by contractors. I know there has been some regulations, 
the guidelines that came out in that regard since the last time 
we spoke, but I want to make sure that anybody who's working 
with taxpayer money in a foreign place is held accountable if 
they're raping people or committing any other kinds of crimes. 
We have to make sure that our laws apply to them, regardless of 
whether they are actually physically in the United States or 
not. So I will have some followup questions on that, also.
    I apologize that I have to leave and won't be here for 
another round of questions. Senator Akaka, I really appreciate 
your giving me a chance to ask those questions before I have to 
go preside.
    Senator Akaka. Thank you, Senator McCaskill.
    Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    Mr. Parsons, I understand that one attractive aspect of the 
ACC concept is the ability to surge expeditionary contracting 
support capability to the field through the use of contracting 
support brigades. Now, given the current shortage in the 
acquisition workforce, where will ACC get the bodies, in terms 
of workforce, to acquire this surge capability, and how many 
total people in the workforce do you think the ACC will need, 
at the end of the day, to provide that surge capability?
    Mr. Parsons. Sir, you do raise a good point about the 
ability to bring additional people into the workforce rapidly. 
One of the things that we're doing, and especially General 
Thompson has done already on the military side, is to look at 
moving--General Thompson has directed that the accession point 
for our officers and our NCOs into contracting be moved to the 
left, so that we can start assessing more officers--junior 
officers and NCOs into the contracting workforce, so that we 
can get them into these contingency contracting teams and 
battalions and brigades, to get the training that they need.
    On the civilian side, we're working closely with a lot of 
universities on establishing programs with them that will allow 
us to hire new graduates into the civilian side of the 
contracting workforce rather quickly.
    Where we really are challenged is hiring experienced 
contracting personnel. Across the Federal Government, there is 
a huge demand for contracting subject-matter experts, whether 
it's the homeland security, other sister Services--Air Force, 
Navy--and we are very challenged in being able to try to hire 
experienced personnel. So, our goal, while we're trying to 
provide incentives, like entitlements for permanent change of 
station to civilians to come join us that have experience, 
we're really targeting the college graduates, to try to bring 
them on quickly.
    What this new contracting command will do for us, though, 
is, now, by bringing 72 percent of all the contracting assets 
across the Army into one command, we'll now be able to surge 
across that command, looking for the type of expertise and 
talent that we need to support an expeditionary operation.
    So, these contracting support brigades, while they're 
small, we will be able to tap into other parts of the ACC to 
help facilitate them.
    A good example of that right now is in Kuwait. We've been 
challenged in being able to track trained civilians into 
Kuwait. We have a new contracting support brigade commander 
there, Colonel Bass, who has made a lot of improvements, and he 
has added additional personnel to his staff. But, we've also 
created what we call a ``reachback capability'' at one of our 
major acquisition centers, and we're performing an awful lot of 
the contracting now for Kuwait out of the contracting office in 
Rock Island, where we had some subject-matter experts that can 
perform that function.
    So, we're looking across the current command to see how 
best we can surge; but, the big challenge, as you point out, 
will be bringing the new people onboard to staff this up.
    Senator Thune. To the ACC, when do you expect to achieve 
initial operating capability (IOC)? What exactly does that mean 
to the Army Contracting Command?
    Mr. Parsons. To date--as we said, we activated the new 
command on March 13. It's a provisional status, so we are in 
the process of building the command. We've requested the 
additional resources we need that are--from the Army--that we 
need for the command. I don't expect to be in an IOC, beyond 
where we are today, with supporting installations and 
supporting expeditionary contracting, until October 1 of this 
year. That's when we will bring the rest of the pieces of this 
command together and start bringing people onboard. I don't 
expect that we'll be fully operational and capable until the 
following year.
    What we've given the Department is a 3-year plan to bring 
both the military and the civilians onboard, and expect to have 
them through their--what we call level-two certification 
training within that 3-year period of time. That'll also give 
us a year or 2 to start getting a lot of these people training.
    But, there is no short-term fix. As I said, it's a 3-year 
plan before we expect that we'll be fully operational.
    Senator Thune. Secretary Bell, your written testimony lays 
out the statutory and regulatory framework for the use of 
private contractors and the distinction that prohibits private 
contractors from carrying out inherently governmental 
functions. There are those who have argued that the line 
between what is an inherently governmental function, and what 
is not, is not as clear as it should be. The distinction may be 
particularly difficult to maintain in a high-risk environment, 
where PSCs could reasonably be expected to face circumstances 
requiring the use of deadly force to protect the people or 
property covered by their contract.
    In response to those who say that private security 
contracts should be replaced by uniformed military forces, your 
written statement indicates such a policy would require the 
manpower equivalent of nine additional brigades of combat 
troops. Do existing policy guidance and oversight by 
battlefield commanders prevent PSCs from conducting inherently 
governmental functions, even in high-risk environments, or is 
this an area that needs more work?
    Mr. Bell. I think, as you're pointing out, Senator Thune, 
there are two aspects to effective management of contractors. 
One is to have an adequate policy framework that sets the 
boundaries for acceptable missions and acceptable conduct; the 
other part is oversight of the activity in the field.
    We believe that we have an adequate policy framework that 
sufficiently demarks between the capabilities that are allowed 
under the rules of law and the regulations, and those that are 
permissible. There is a challenge, which we have been working 
on, of implementing the effective supervision in the field. 
We've been working on that, very focused, in the last 6 months, 
and we've made significant improvements in internal DOD 
management of operations in theater, as well as as a result of 
the MOA with the DOS, that General Petraeus has referred to in 
his letter to Secretary Gates.
    Having said that, we believe that continuing emphasis on 
this, particularly now that military commanders have UCMJ 
authority over contractors in the field, is going to be another 
step in improving the effective oversight, in terms of their 
conduct and their permissible behavior.
    It is an area that requires focus, and one that we are 
continuing to emphasize in our work in CENTCOM, both in Iraq 
and Afghanistan.
    Senator Thune. What policies, regulations, and coordination 
steps would ensure that PSCs working for a department or agency 
outside the DOD do not negatively impact the DOD's combat 
missions or counterinsurgency operations?
    Mr. Bell. As I indicated, both in my written testimony and 
my oral testimony, Senator Thune, we believe, and we're on 
record, as is the DOS, that legislative action is required in 
order to establish clear-cut accountability for contractors 
supporting other U.S. Government missions outside the United 
States. There are several suggestions about the approaches to 
that.
    Our concern is that, as we work through whatever the issues 
are, there is a sense of urgency that that accountability needs 
to be established. It is the opinion of our legal people that 
that requires legislation in order to accomplish that.
    In addition, as you may know, the current legislation on 
the books, even under the 2008 NDAA, does not address the 
capability of the DOD and the DOS to have oversight of other 
U.S. Government agency PSC operations outside the United 
States. We believe that it's a significant step forward to 
extend this coverage for DOD, DOS, and USAID. But, a better 
approach would be to expand that to all U.S. Government--those 
regulations, those rules and procedures, to all U.S. Government 
agencies.
    The additional question to be addressed, at some point down 
the road, is the activities of PSCs who are there working for 
private sector companies. To the extent that we have a 
sovereign state in place that has jurisdiction over those, they 
have that authority over them. To the extent that we have a 
Coalition Provisional Authority type of situation, at some 
point in the future, where we're exercising sovereign powers, 
there is the question of, how do you exercise the authority of 
that? Again, the focus of the 2008 NDAA is strictly on 
governance for DOD, DOS, and USAID.
    Senator Thune. What would be the impact on DOD of a change 
in the law that required uniformed military forces to perform 
the roles currently conducted by PSCs in high-risk 
environments, such as Iraq and Afghanistan?
    Mr. Bell. As you indicated in your earlier comments, 
Senator, using the Congressional Budget Office methodology for 
the number of PSCs that we have, it would take the equivalent 
of nine combat brigades worth of military personnel to perform 
that function. We have approximately 9,000 armed security 
contractors working for DOD alone in those two countries, and 
that would be the equivalent requirement, which would require 
not only the deployment of personnel, but, obviously, extensive 
training the particular skill requirements for personal 
security.
    Senator Thune. Is it the DOD's intention to have all of the 
articles of the UCMJ apply to civilians under their guidance, 
or just a few?
    Mr. Bell. Sir, it is not. General Petraeus and I have 
discussed this at some length; his view is obviously to put the 
greatest emphasis on criminal conduct. There are a number of 
aspects of the UCMJ that have to do with things that 
essentially do not relate to civilian personnel, and he plans 
to take a very conservative, but firm, approach regarding 
criminal conduct.
    Senator Thune. I see my time's expired, Mr. Chairman.
    Senator Akaka. Yes. We'll have a second round.
    The Gansler Commission report recommended the establishment 
of, ``A core set of 10 additional general officers for 
contracting positions,'' 5 of them in the Army, and 5 of them 
in joint positions.
    Now, General Thompson, at our last hearing you testified 
that you personally agree with this recommendation and, at that 
time, said, ``I think you will see the Army reflect its support 
of that in the very near term.'' Is the Army still on track to 
establish the new general officer positions recommended by the 
Gansler Commission?
    General Thompson. Senator, the Army has evaluated that, and 
we've passed our recommendation to OSD, and--both on the 
general officers and also the other legislative recommendations 
that were made in the Gansler Commission report. It's my 
understanding that OSD is close to finishing, or has finished, 
their evaluation, as well. I don't know where that is inside of 
the administration. But, the Army did finish their evaluation 
and gave their recommendations to OSD several weeks ago.
    Senator Akaka. Secretary Finley, what is the position of 
DOD on the need for 10 new general officer positions in the 
contracting field, with particular attention to the 5 joint 
positions?
    Mr. Finley. Mr. Chairman, I believe we would depend on the 
Army leadership to know their business better than us. What 
we're looking at is, not only the Army, but we're looking at 
the crosscutting requirements for leadership and the pipeline 
of all the workforce that supports that leadership, including 
the flag officer and the general officer population.
    We have not made a determination whether or not five 
general officer joint positions is the right number. We have 
tasked the Air Force and the Navy for their positions on all of 
the Gansler recommendations that address the Army, and we have 
received those reports back from both Services, reflecting 
their respective positions and recommendations.
    We are in the process of digesting all that information. We 
will be proceeding with some due diligence to understand their 
positions and their recommendations. In parallel, we are still 
conducting the competency model for contracting, which goes 
from entry-level to flag-level personnel, which we expect to be 
completed by this summer. But, by May 28, when we are required 
to report back to Congress, we do expect to bring some closure 
as to what our recommendations will be for the Army and joint 
general officer/flag officers requirements.
    Senator Akaka. Secretary Finley and General Thompson, do 
you believe that legislation is needed to authorize these new 
general officer positions, or can the Department establish the 
new positions within its existing authorization?
    General Thompson. Sir, from the standpoint of the current 
legislation that authorizes a fixed number of general officers 
in the Army, the position that I have taken in the acquisition 
corps as to the recommendation is that this needs to be 
additive to the current Army ceiling on general officers. For 
us to be able to look at existing positions, which are all 
critically important, senior-level positions, and downgrade 
those positions to something less than a flag officer in order 
to staff the contracting general officer, would not be helpful 
to the Army. So, to the extent that there's a growth in the 
total number of authorizations allowed to the Army, that would 
have to be handled by legislation. But, again, that's something 
that has to go both through the OSD and the Office of 
Management and Budget administration review process; and our 
commitment, internally with the DOD, is to have that process 
completed by the time we turn in the report on the 28th.
    Senator Akaka. Secretary Finley?
    Mr. Finley. I believe that one of the debate issues is how 
to best handle any changes in top line on the number of general 
officers/flag officers. That discussion is ongoing in the 
Department. We have raised those issues for discussion--not for 
decision yet, but for discussion--for situation awareness of 
our military and our civilian leadership.
    I expect there are many different views. There are, I would 
say, pragmatic matters where we are with general officers 
today, in terms of the quotas that have been set, and where we 
are in actuality against those quotas. There are also matters 
of how many of our quotas are filled with joint billets, and 
how they're consumed and allocated across the different parts 
of the Services. All of this has to come together, from my 
perspective, from a strategic point of view, as to how we have 
to change the way we're going to fight the global war on 
terror. Fundamentally, this gets into the roles, the missions, 
the concept of operations, and what kind of a pipeline of 
military personnel/civilian personnel will we have in 
contracting management for the future, as we look ahead.
    So, my perspective is, this is part of the debate. We have 
not made decisions. There are people who believe we should come 
forward and increase the top line. Other people believe we 
should take it out of hide and start to reconfigure the way we 
are organized, the way we are structured.
    We are having that discussion, as General Thompson 
reflected. I do believe we will bring this to some form of 
conclusion before the report comes out on May 28.
    Senator Akaka. The Gansler Commission report states that 
``The number and expertise of the military contracting 
professionals must be significantly increased,'' to address the 
problems we have experienced in theater.
    General Thompson, at the last hearing, you testified that 
the Army endorsed the Gansler Commission recommendation to grow 
the military contracting workforce by 400 and to grow the 
civilian contracting workforce in the Army by about 1,000. Are 
those proposed increases still on track?
    General Thompson. Sir, the military increase is on track. 
The standup of the ACC, our internal process to look at all of 
the actions that need to be taken, is in the form of a concept 
plan. We have about 16 concept plans across the Army right now 
that all address growth in the contracting structure or 
adjustments to the contracting structure to some degree. We 
have all of those 16 plans under review right now, but we still 
think the number of the civilians that need to increase is 
somewhere in the 800-to-1,000 range. Then the question's going 
to be putting the money against them.
    But, the critical thing, as Mr. Parsons indicated in his 
answer to Senator Thune's question, is, you have to get started 
on hiring the right people, and we need to begin that almost 
right away. So, from my perspective, the quicker we get this 
thing resourced, and the quicker we reach out to the colleges 
and the universities and the population to begin to attract the 
right people into this career field, the quicker we're going to 
be able to address the long-term systemic issues. Because, like 
anything else, it takes people, and it takes good people, if 
you want to make systemic fixes.
    Senator Akaka. Secretary Finley, I understand that the 
military Services have resisted the recommendations to increase 
the DCMA workforce by 600. Can you explain what action the 
Department is taking to implement this recommendation?
    Mr. Finley. Mr. Chairman, I believe what the Services have 
resisted, including the Army, is the Gansler Commission 
characterization that all post/base campaign contracting 
efforts go under the auspices of DCMA. In DOD, we fundamentally 
agree with that position, that we believe that's not an 
appropriate move or recommendation. But, in discussions and 
followup discussions--and we meet with Dr. Gansler about every 
2 or 3 weeks; we meet with principals of the Commission almost 
on a weekly basis--understanding the intent of that 
recommendation, that DCMA would have global post/base campaign 
responsibility would be an enormous change in the headcount for 
DCMA, and we believe it is a fundamental role and mission of 
the military to conduct that business.
    At this point in our discussions between Dr. Gansler and 
myself, the intent and where we are at in trying to evaluate 
alternative approaches as to how to conduct expeditionary 
operations between the military/civilian service, expeditionary 
contracting activity, I believe we are very close in terms of 
what we believe needs to be done.
    So, I think that this is part of the process we're going 
through to better understand the complications as to how we're 
going to fight the fight, and train for the fight, in the era 
of the global war on terror. It is very, very different. It 
needs to be scalable for big operations, as well as small 
operations. We're going through some alternative approaches, 
sharing that with the Services, sharing that with the Joint 
Staff, sharing that with the combatant commands, as to how does 
this make sense? Because this is a cultural change as to how 
we'll fight the fight. The headcount that would go along with 
that, and where that would belong, has had pushback from 
everybody.
    In the Army's case, my personal opinion is, where they're 
at and where they're headed, I fundamentally believe, is in the 
right direction. But, the actual numbers, I believe, is still 
up to them, not up to OSD. We will support them, if that's what 
they believe has to be done to make the Army do its role and 
mission. That would be my perspective, sir.
    General Thompson. Senator, if I can add just a brief 
comment to what Secretary Finley said, the current workforce 
that does the contract management on the Army posts and camps, 
we don't believe needs to transfer to DCMA. We are putting our 
arms around the workforce that does that today, and 
understanding how many people there are, and what functions 
they perform.
    We do think there is a role for DCMA. DCMA's role, 
fundamentally, for the DOD, is a quality assurance role for 
weapons-systems contracts in plants and factories. That is a 
big mission shift for them to be the Service contract 
management on posts, camps, and stations, but they do have a 
core competency in quality assurance on contract management, so 
there is a linkage between what DCMA can do and what the 
Services do for themselves in the posts, camps, and stations. 
The key issue, to me, really is having a trained workforce that 
is prepared to go on deployments to be able to provide that 
post, camp, and station contract management. Those are mostly a 
civilian workforce, so we're working that with OSD and the 
other Services, on what that proper balance is between DCMA and 
the Services.
    Senator Akaka. Thank you very much.
    Mr. Parsons. Sir, I'd just like to add, real quickly, too, 
that the concept plan that we had submitted as part of the ACC 
does build in some additional resources to start performing 
some of these quality assurance functions that we believe will 
be needed to enhance our ability to do contractor management. 
As General Thompson said, the piece that we're still wrestling 
with is, do we need additional subject-matter experts at the 
installations that will be trained in performing contract 
management functions, whether it's food services, 
transportation services, laundry services. So, that's the piece 
that we're still working on. But, we have built into this 
concept plan the actual requirement for quality assurance 
representatives that will oversee and train, work with DCMA in 
building up these contracting officer representatives.
    Senator Akaka. Let me call on Senator Levin for any remarks 
or questions, and he will be followed by Senator Thune.
    Senator Levin.
    Senator Levin. Thank you very much, Chairman Akaka.
    I want to go to a question that I believe Senator Thune 
raised, which is the question of the private security 
contractors.
    I guess, Secretary Bell, this question really is for you. 
Do you believe that PSCs in Iraq perform security operations, 
``in highly hazardous public areas where the risks are 
uncertain''?
    Mr. Bell. I'm sorry, is the question as to whether I 
believe that's an inherently governmental function?
    Senator Levin. No.
    Mr. Bell. What is the question?
    Senator Levin. I'll get to that in a moment. My question 
is, do you believe the PSCs in Iraq perform security operations 
in ``highly hazardous public areas where the risks are 
uncertain''?
    Mr. Bell. Actually, the way they are managed is that the 
military commander has the discretion to make the decision as 
to whether the areas in which they would operate would 
represent either a high risk of enemy encounter or even 
interfere with military operations. He has the authority to 
redirect any convoy operation away from those areas that he 
assumes to be high risk.
    Senator Levin. He has the authority to do it. Is there a 
statement in that direction, that they will not be performing 
security operations in highly hazardous public areas where the 
risks are uncertain?
    Mr. Bell. There is direction for them, in terms of 
approving the missions in advance, regarding where they're 
allowed to go and during what times they're allowed to go 
there. They are allowed, as any PSC operation, under military 
authority, to defend themselves in the event that they are 
attacked.
    Senator Levin. Do the commanders have authority--do they 
have discretion to permit the contractors to perform their 
operations in highly hazardous public areas? Do they have the 
authority to allow it?
    Mr. Bell. I don't know that I can answer that question.
    Senator Levin. Why not?
    Mr. Bell. I believe that's a matter of command decision, 
and that would be something you probably should ask General 
Petraeus.
    Senator Levin. I can ask General Petraeus, but my question 
is the other side of the coin. Do they have authority, then, to 
allow the contractors to operate in those hazardous public 
areas?
    Mr. Bell. I would assume, if they have the authority to 
make the decision, they would have the authority to do that. 
The direction in the policy is that they not do that. So, I 
would assume the authority does not exist.
    Senator Levin. The authority is the direction that they not 
perform in highly hazardous areas, or is it simply a matter of 
giving authority to the commander to prohibit them from 
operating in those areas?
    Mr. Bell. The commander has the authority to make that 
decision.
    Senator Levin. All right. I think you are obviously 
familiar with what I'm driving at here, which is the DOD 
manpower-mix criteria, which says that security operations that 
are performed in highly hazardous public areas where the risks 
are uncertain could require deadly force that is more likely to 
be initiated by U.S. forces than occur in self-defense, as an 
example of where there is a governmental function being 
performed. It's clear you're familiar with the language that 
I'm talking about.
    Mr. Bell. I'm quite familiar, as I'm sure you are, sir. 
This is a complex document. It's 56 pages of instructions. It 
describes a number of generalized conditions under which 
security functions would be inherently governmental, and it 
describes other conditions under which it would not be 
inherently governmental. Specifically, in paragraph 2.1.4.1.4, 
it specifically describes the conditions under which the 
military commander is authorized to have PSCs functioning in a 
defensive role. The DOD's position is that we comply with those 
requirements, as well as requirements elsewhere in regulations.
    Senator Levin. Part of that paragraph, though, also reads, 
does it not, that ``security operations that are performed in 
highly hazardous public areas where the risks are uncertain'' 
is an example of a governmental function?
    Mr. Bell. As I said, it's a complex document, and that's 
the reason there's specific language in the document defining 
the conditions under which it is not inherently governmental to 
have PSCs perform those functions.
    Senator Levin. I also, did I not, correctly read the part 
where they give an example where it is inherently governmental?
    Mr. Bell. I believe you did, sir.
    Senator Levin. All right.
    Now, what about interrogation of detainees. Is it true that 
in the 2005 document about the use of contractors in 
interrogating prisoners of war, terrorists, and criminals, that 
``the handling of these people cannot be transferred to the 
private sector to contractors who are beyond the reach of 
controls otherwise applicable to government personnel''? Did I 
accurately read from the 2005 document--before we get to 2006, 
did I accurately read from the 2005 document?
    Mr. Bell. Not having seen the 2005 document, my 
understanding from your counsel is that you are reading that 
accurately.
    Senator Levin. All right. If I did read that accurately, is 
it true that we did have contractors, prior to 2006, when they 
were authorized to engage in detainee interrogation, that, 
prior to that, they were not authorized to engage in detainee 
interrogation?
    Mr. Bell. I'm sorry, but I don't have qualified knowledge 
of that.
    Senator Levin. Is there anyone here that does? [No 
response.]
    Okay. Do you want to answer that, then, for the record? 
Would you give us, Secretary Bell, an answer for the record?
    [The information referred to follows:]

    The Department of Defense (DOD) experienced a shortage of 
interrogators during the onset of Operation Enduring Freedom, and the 
shortage continued into Operation Iraqi Freedom. The Department 
contracted for qualified, experienced civilian contractor employees to 
address this shortfall while the Army aggressively sought to recruit 
and train a larger government interrogator force. It appears that those 
responsible for acquiring these contract interrogators in 2003 and 2004 
were unaware of the DOD Manpower Mix Criteria that were in effect at 
the time. These criteria provided: ``How enemy prisoners of war, 
terrorists, and criminals are treated when captured, in transit, 
confined, and interrogated during or in the aftermath of hostilities, 
entails the discretionary exercise of government authority. Their 
handling, as well as decisions concerning how they are to be treated, 
cannot be transferred to the private sector to contractors who are 
beyond the reach of controls otherwise applicable to government 
personnel.''
    The August 2004 Fay-Jones-Kearn investigation of intelligence and 
detention activities at Abu Ghraib noted that there was a lack of Army 
policy regarding the use of contract interrogators. In response to this 
Fay-Jones-Kearn finding, Headquarters, Department of the Army, G-2, 
published guidance on February 15, 2005, addressing contract 
interrogator selection, employment criteria, training, validation, and 
disqualification. The memo continues in force today.
    In addition, DOD Directive 3115.09, which establishes DOD policy on 
intelligence interrogations, is being updated to reflect current DOD 
policy on the limited but necessary role that contract interrogators 
may play under the proper supervision and close monitoring of 
Government officials throughout the interrogation process.

    Senator Levin. Before I arrived, Mr. Secretary, you made 
the statement that section 862 of last year's NDAA, which is 
the PSC provision, applies only to the DOD, DOS, and USAID, and 
that the application to other government entities is needed. 
862 does apply to all government agencies.
    Mr. Bell. Good. Pleased to hear that.
    Senator Levin. I'm pleased you're pleased. But, I think, 
then, that we would expect that that's the way it will be 
implemented, because there is no loophole, such as the one you 
described.
    Thank you. I'll go back and forth. I have a few more 
questions, but if there's others that have questions, I've 
taken more than my time, probably.
    Senator Akaka. Thank you, Senator Levin.
    Senator Thune.
    Senator Thune. Secretary Bell, I want to come back to this 
question of the legal framework that would govern a command 
response to any suspected illegal activity and the March 10 
guidelines that the Secretary of Defense issued to commanders 
on the exercise of the UCMJ authority during those contingency 
operations. Basically, the guidelines provide that, whenever an 
offense allegedly committed by a civilian violates Federal 
criminal law, the DOD has to notify the Department of Justice 
(DOJ) and give it 14 days, unless extended, to decide whether 
it's going to prosecute the case. In the interim, DOD has the 
authority to investigate, make arrests, and continue to address 
the immediate impact of the alleged criminal act.
    As a threshold matter, what is the Department's opinion 
about the applicability of the UCMJ to all civilian DOD 
employees and contractors?
    Mr. Bell. Our view is that all DOD contractors and 
civilians who are accompanying military forces in the field--is 
the way the legislation reads, which we interpret to be in 
contingency operations--are subject to the UCMJ.
    Senator Thune. I guess the followup question then is, does 
that guidance reflect dissatisfaction or constitutional 
concerns about applying the UCMJ to civilians?
    Mr. Bell. Because the MEJA law is well-established, I 
believe there is a preference to use that law, because it has 
been tested in the courts. Obviously, the legislation relating 
to the application of UCMJ is a new law that has not been 
tested in the courts. So there is some natural preference to 
give the DOJ the opportunity to prosecute under MEJA.
    Senator Thune. So, the DOD, at least at this point, absent 
that opportunity to test it in the courts, believes that MEJA 
provides a sounder basis for bringing justice to DOD civilian 
employees?
    Mr. Bell. I don't believe that's the judgment, no, sir. I 
believe that we have full confidence in the ability of UCMJ to 
be applied equitably to contractors and DOD civilians. I think 
the concern is whether there is some basis on which the 
legislation might be constitutionally challenged, as opposed to 
being applicable for enforcement.
    Senator Thune. Okay. I guess the other question has to do 
with the Federal Bureau of Investigation (FBI), which doesn't 
currently have sufficient capability or an organizational 
structure outside the States to support prosecutions in a way 
that would effectively implement the DOD guidance. Does that--
given the lack of that capability by the FBI, except in, maybe, 
what are very egregious cases--suggest that the DOJ is likely 
going to decline to prosecute, and, in most cases, going to 
cede prosecution of a given case to DOD?
    Mr. Bell. As a practical matter, the difficulty, we 
believe, in the DOJ taking the case, is that they actually have 
to get the U.S. Attorneys office in the location of last 
residence of the alleged criminal to agree to take the case to 
prosecute it. That means that if the individual last left 
Boise, ID, on his way to Iraq, where he committed a crime, that 
the U.S. Attorney for the area in Boise, ID, would have to 
agree to take the case/all other considerations, in terms of 
his caseload, the availability of his people, his familiarity 
with military operations, his familiarity with Iraq, would all 
be considerations that might cause him or her to agree to take 
the case, or not.
    So, while we give them that preference, and we've limited 
it to 14 days, by agreement with the DOJ, because if they make 
a decision not to take that case, then we believe we should 
proceed to a speedy investigation and indictment, if it's so 
called for.
    Senator Thune. Would that be the outcome that the DOD had 
intended? It looks like it gives you the constitutional 
protection of giving DOJ the right of first refusal to 
prosecute, but ultimately, DOD is going to end up with most of 
those cases, it would appear.
    Mr. Bell. We're certainly prepared for that. In the 
discussions I had when we discussed this in September, when I 
was over in Iraq, we discussed with General Petraeus and his 
staff judge advocate what some of the staffing implications 
would be for both investigators, as well as attorneys and 
paralegals, which they are prepared to support in moving ahead 
with UCMJ.
    Senator Thune. Mr. Parsons, the Army Contracting Task 
Force, found among other things, that post-award contract 
management was inadequate, and referred to, in particular, the 
failure to appoint and train contracting officer 
representatives. What actions will the ACC undertake to help 
assure that, one, an adequate number of contracting officer 
representatives will be retained to provide post-award contract 
management support for expeditionary operations, and, two, that 
those contract operating representatives will be sufficiently 
trained to provide that support?
    Mr. Parsons. Sir, we've already taken a number of actions. 
As I mentioned earlier, the concept plan that we have 
submitted--for the ACC--actually establishes what we call 
``quality assurance representative'' positions. These 
individuals are experts in quality control and quality 
management. We are going to be assigning them the 
responsibility of ensuring that contracting officer 
representatives are, one, appointed for each contract; two, are 
trained; and, three, are actually performing their duties. We 
already have initiated this in Kuwait, where we've trained over 
200 additional contracting officer representatives. Every 
contract in Kuwait now has an assigned and trained contracting 
officer representative. Now what we're doing is actually going 
out and evaluating how well they're performing those duties. 
So, we're going to take that model and start applying that 
across the Department of the Army.
    The other thing that we have been doing is working very 
closely with the Combined Armed Support Command, which is part 
of TRADOC, the Training Doctrine Command, and they are 
developing additional contracting officer representative 
courses that are now being taught to all the logistics officers 
and logistics NCOs. Many of the pre-command courses now are 
giving the contracting officer representative training in it, 
as well.
    General Thompson. Sir, if I can add to that, just a minute. 
We have evaluated, not just the contracting courses, but also 
the content for the nonacquisition personnel, to make sure they 
recognize the importance of contracting. The operating part of 
the Army, not the contracting workforce, has an inherent 
responsibility--and this gets back to the Gansler Commission 
recommendation, to recognize they have a role in contracting. 
Their role is helping define that requirement. What do they 
want? When do they want it? How much? Then, on the back end of 
the contract, they have a significant role in appointing 
contracting officer representatives. These are not professional 
contracting individuals--military, civilian--these are the 
Sergeant Thompsons or the Captain Thompsons or the Lieutenant 
Thompsons out there, that are there to see that the product or 
service that we contracted for is properly delivered and is the 
right product or service.
    So this is part of a culture change in the operating part 
of the Army, that we need to get them to understand and accept, 
and we are actively adjusting all the course content, all the 
way up to the general officer level. The Chief of Staff of the 
Army has me, personally, talking to the general officer classes 
now about the importance of their role in contract requirements 
and in contact management, and part of that is appointing the 
right number and the right people to do the contracting officer 
representative tasks.
    Senator Thune. Mr. Finley, what will Acquisition, 
Technology, and Logistics (AT&L) do, if anything, to support 
what the Army's trying to do to develop this critical post-
award contract management capability?
    Mr. Finley. Senator Thune, AT&L will be extremely 
integrated and support not only the Army, but, from a best of 
best practices, we will take all the good things that the Army 
is doing, and we will factor that in with the efforts that are 
already ongoing, which, to a large extent, have been 
coordinated with the Army, the Air Force, and the Navy, but we 
are resetting, restructuring, implementing new coursework for 
all levels--acquisition, contracting, as well as 
nonacquisition, noncontracting personnel--geared toward the 
global war on terror environment that we're now in.
    To a large extent, a lot of that work has been done. We 
have the ability to have people tap in on the Internet, when 
they're in theater, and come into our library of capabilities 
and training. I believe we're on the right track.
    We have a lot of work to do, though, to get this to the 
next level of effectiveness to fight the fight, train the way 
we fight, and get this expeditionary training done more as a 
part of our normal way doing business in our training commands, 
if you will, than make it the exception.
    Senator Thune. You do see the need, though, to strengthen 
that capability across the other Services as well.
    Mr. Finley. Absolutely.
    General Thompson. Sir, the Defense Acquisition University 
that reports to Mr. Finley and Secretary Young has strengthened 
their coursework, and they do have an online course for 
contracting officer representative, and we continue to upgrade 
the content of that course with the lessons learned. It's a 
requirement for the Army Contracting Office Representatives 
(CORs) to take that online course, and then we have the 
additional training that we put them through now with the 
direct help that they get with the quality assurance 
representatives.
    Senator Thune. Okay.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you, Senator Thune.
    Section 852 of the NDAA for Fiscal Year 2008 established an 
Acquisition Workforce Development Fund. Substantial amounts of 
money are supposed to be transferred to that fund, beginning 
this summer.
    Secretary Finley, can you describe the steps that the 
Department is taking to ensure that this money is spent in a 
sound manner to address deficiencies in DOD's acquisition 
workforce?
    Mr. Finley. Yes, Mr. Chairman. We have solicited proposals 
from all the components in DOD for their recommendations on how 
to address this Acquisition Development Fund. Those proposals 
have been received. We have over 80 proposals that we have 
received, and we have binned those into the different 
categories of training, retention, recruitment, hiring, and so 
on.
    The efforts are to see how we fund this. There's many ways 
the Department can look to fund this--basically, what's been 
authorized, but not appropriated. We have met with the 
Comptroller's Office to provide us some alternatives on how to 
implement some of the funding scenarios that have been 
identified for going forward.
    We have met with all the Services. We have integrated in 
with the various other organizations in OSD to start and 
communicate the fund, and the approach. We're taking a very 
strategic approach on this. Again, the global war on terror is 
very different than the Cold War. This is not a personnel 
account that needs to be tapped into, it's more of a strategic 
account for addressing some pockets of areas that we feel need 
attention.
    My personal concern on this is, this is a lot of money. 
This needs the oversight and the checks and balances to assure 
ourselves that we're spending the taxpayers' money wisely.
    I'm not fast to spend, but I am fast with a sense of 
urgency to determine where the proposals have come in, where 
they best fit, where are the gaps in these proposals that have 
come in, that we have missed the needs, if you will. That comes 
about by having a discussion and reflection with the Services 
and the Joint Staff and the members of OSD to say, ``Here's 
what we have, here's where we're headed.'' This needs to be 
reflected in our human-capital strategic-planning process for 
DOD, as well as AT&L. It's receiving a very high level of 
attention from me, personally.
    Senator Akaka. General Thompson and Mr. Parsons, is the 
Army taking steps to evaluate its need for this funding and the 
way in which you could use it to address deficiencies in your 
acquisition workforce?
    General Thompson. Yes, sir, we definitely are. The working 
group with the Services in the different staff elements of OSD 
have been tightly linked in this. We are just a couple of weeks 
away from taking the recommendations on those 80 proposals 
forward to the service acquisition executives to make some 
decisions. With me today is my senior person that does all of 
the workforce planning and initiatives for the Army, and he 
spent a significant amount of his time over the last couple of 
months helping to develop those proposals and prioritize them 
from the Army's perspective, leveraging what we already do. So, 
like Secretary Finley said, we're looking, not to duplicate 
what we already do, from the standpoint of recruitment, 
training, and retention--we're looking at where are there gaps 
today, and where are additional resources, and what do we get 
with those additional resources?
    Mr. Parsons. Sir, I'd just like to add--and it gets to the 
point that Senator Thune raised earlier. In order to get this 
contracting command the additional resources, we definitely are 
going to need to take advantage of some of the programs that 
are being considered in the area of recruitment and retention. 
A lot of interest has been expressed about increasing the 
number of interns, and looking at student loan repayment 
opportunities. These are all things that the team is taking a 
look at, in trying to prioritize and figure out how we 
distribute that.
    Senator Akaka. Secretary Finley, General Thompson, and Mr. 
Parsons, a related provision to section 852, section 807 of the 
NDAA for Fiscal Year 2008 requires DOD to develop inventories 
and review functions currently performed by contractors. The 
idea is that you can't effectively manage your workforce, 
including your contractor workforce, unless you know what they 
are and what they aren't doing. This provision is a counterpart 
to the Federal Activities Inventory Reform Act, which already 
requires similar inventories of functions performed by 
government personnel.
    Can you tell us what steps the Department is taking to 
implement the requirements of Section 807?
    Secretary Finley?
    Mr. Finley. Yes, sir. Section 807, for us, represents a 
major effort to implement. There are parts of section 807 that 
have already been well underway, in terms of trying to 
understand acquisition services and address acquisition 
services, which is a substantial part of the overall budget. 
We've already implemented policy in this respect, but it's the 
implementation of this policy that's going to need to be 
executed. I would see opportunities, for example, from the 852, 
to leverage a fast start in the area of the 807, to get us 
going.
    The fundamental challenge, though, is that this kind of 
activity--be it interns or other hiring of people--to jumpstart 
some shortfalls, which is, I think, excellent for the short-
term, but for the longer-term, this has to be POM'd into our 
planning for the DOD. That's where some of the planning 
activity right now needs to come together, from the strategic 
planning point of view, as to how we are, in fact, going to 
make this happen. My personal recommendation is that we start 
making this happen in the POM-10 cycle.
    So, we envision that the 807 is a work in progress that 
needs to be further defined, further understood. How will we 
meet the requirements of this, from a strategic planning point 
of view and going forward? So, we don't just shoot from the 
hip, we don't have a knee-jerk reaction. We have addressed this 
from an acquisition-of-services point of view over the past 18 
months, and we have policy out there, but we are going to need 
to do far more work now for implementation.
    General Thompson. Sir, from an Army perspective, before 
section 807 was made part of the law, the previous Army 
Secretary really recognized the need to get our arms around the 
total workforce, to include the contractors, and he required 
much to the chagrin of many people that had to do the 
reporting, for us to count noses on the contractor manpower 
equivalents. We've been doing that for a number of years, and 
have a pretty thorough process in place right now to do that.
    We also are now looking at those things that are really 
inherently governmental, and looking at the business-case 
analysis and insourcing things that we are currently, in many 
cases, using contractors for. If it's an enduring function and 
it's inherently governmental, it should be a government 
employee who's doing that.
    Just on my own staff, I use one example where we have 11 
different support contracts. We've now consolidated them into 
one. The next step to that is taking about 50 of those contract 
employees and insourcing the appropriate number to be 
government civilians, Army civilians, because it's enduring 
functions that we're having contractors perform. That kind of 
activity is going on across the Army, and that's part of what I 
use as an example when I educate the senior leaders, that they 
need to be doing that in their organizations, as well.
    Senator Akaka. Mr. Parsons?
    Mr. Parsons. I'll just add to that, sir, that what we are 
finding now with our contracting people, as a way of enforcing 
that, is to make sure that all contract services have been 
reviewed by a commander and determined to be necessary with 
addressing these issues, like whether it's an enduring service. 
So, our contracting folks will not execute a contract for 
contract services unless approval has been in there by the 
commander. So, we have a very disciplined process to where we 
now start focusing on contract services and how we ought to be 
executing it.
    General Thompson. Inside the direct-report organizations 
that come to me, all of those approvals for contract services 
come to me to be signed off on. I assure you, I ask some very 
hard questions.
    Senator Akaka. Thank you.
    Senator Levin.
    Senator Levin. Thank you, Mr. Chairman.
    A few weeks ago, the Boston Globe reported that KBR employs 
about 10,000 Americans in Iraq through subsidiaries in the 
Cayman Islands. These subsidiaries are shell corporations, they 
have no function other than to taxes. A KBR spokesman 
acknowledged that these subsidiaries were created to enable the 
company to avoid paying Social Security and Medicare taxes, as 
well as State unemployment taxes. I know that Senator McCaskill 
raised this question, but I'd like to pursue it with you, 
Secretary Finley, a little bit more thoroughly than she had an 
opportunity to do.
    Now, the tax savings are passed along to DOD, but the 
workers of KBR suffer, and KBR gains a competitive advantage 
over companies that pay their taxes. I don't think it's the 
intent of the Internal Revenue Code that companies be able to 
form shell corporations, wholly-owned subsidiaries and tax 
havens, and then avoid paying Medicare taxes and Social 
Security taxes. That cannot be the purpose of the Internal 
Revenue Code.
    The article in the Boston Globe reports that the DOD has 
known about KBR's avoidance of taxes since at least 2004, when 
the issue was flagged in DCAA audit reports.
    So, Secretary Finley, let me start with you. Does it 
concern you that 10,000 Americans working in Iraq are not going 
to have unemployment benefits and will receive less money from 
Social Security when they retire because of KBR's activities in 
the Caymans?
    Mr. Finley. Yes, sir.
    Senator Levin. What is the Department doing about it?
    Mr. Finley. I'm not familiar with the details, Senator 
Levin. I would have to take the question for the record, and 
would be more than happy to get back to you on the details of 
what the DOD is doing.
    [The information referred to follows:]

    There is no prohibition on the use of foreign subsidiaries by 
defense contractors. Under section 3121 of title 26, U.S.C., commonly 
referred to as the Internal Revenue Code, a company is not subject to 
Federal Insurance Contributions Act (FICA) taxes, if the services are 
performed outside of the United States by a United States citizen or 
resident who is an employee of a foreign company or subsidiary. Payment 
of FICA taxes is a requirement of U.S. tax law, rather than contract 
law or regulation. Accordingly, we do not consult the Internal Revenue 
Service on this subject.

    Senator Levin. Do you know whether the DOD has ever 
consulted with the IRS on this subject?
    Mr. Finley. No, sir, I do not.
    Senator Levin. Now, there's a contract going on now, a 
competition for LOGCAP IV, which is a follow-on to the contract 
that KBR currently holds, and KBR is one of the companies 
that's competing for the follow-on contract. Are you familiar 
with the competition that's going on now for LOGCAP IV, 
Secretary Finley?
    Mr. Finley. I do not have a detailed familiarity with that 
contract.
    Senator Levin. Okay. By the way, General Thompson, are you 
familiar with this issue?
    General Thompson. On the LOGCAP IV?
    Senator Levin. Yes.
    General Thompson. I'll let Mr. Parsons address that.
    Senator Levin. Okay, fine. Sure.
    Mr. Parsons. Sir, the LOGCAP IV has been under re-
evaluation, based on the Government Accountability Office (GAO) 
decision that the protests that were filed by the two 
unsuccessful offers were sustainable. So, that process is 
underway. The evaluation has been taking place for a number of 
months. Beyond that, I can't really address the specifics on 
this exact issue on the offshore and the impact on that 
evaluation.
    Senator Levin. Putting aside the impact on the evaluation 
of a particular contract--and I can understand the reluctance 
to get into the details of a competition--but, in general, are 
you troubled, Mr. Parsons, by what I've described?
    Does it trouble you, that we have 10,000 Americans working 
in Iraq who lose their unemployment compensation while they're 
there because the company that is operating in Iraq has created 
a phony subsidiary in the Caymans, a total shell corporation, 
paper corporation, with no purpose other than to avoid taxes? 
Is that something which, at least on its surface, would trouble 
you?
    Mr. Parsons. Sir, I'm not real familiar with the issue. I 
do know enough that there is nothing that prohibits it in law 
or regulation. I'll have to defer to the DOD on this, because I 
really believe it's a broader policy issue than at my level or 
at the Army level.
    Senator Levin. Do you know whether the IRS has ever been 
consulted as to whether or not this is an appropriate way to 
avoid taxes?
    Mr. Parsons. I have no knowledge of that, sir.
    Senator Levin. General, would you know anything about this 
issue?
    General Thompson. No, sir, I have no knowledge of that 
either.
    Senator Levin. Okay. Either Mr. Parsons, then, or Secretary 
Finley, would you get back to the subcommittee with answers to 
the questions?
    [The information referred to follows:]

    Mr. Finley. There is no general prohibition on the use of foreign 
affiliates by defense contractors. Under section 3121, title 26, 
U.S.C., which is part of the Internal Revenue Code, an American 
employer, while not required, may elect to have the insurance system 
established by title II of the Social Security Act extended to services 
performed outside of the United States by a citizen or resident of the 
United States who is an employee of the American employer's foreign 
affiliate. By statute, the decision to extend coverage in such cases 
rests with the American employer. We have not consulted the Internal 
Revenue Service on this subject.
    General Thompson. There is no prohibition on the use of foreign 
subsidiaries by defense contractors. Under section 3121 of title 26, 
U.S.C., commonly referred to as the Internal Revenue Code, a company is 
not subject to Federal Insurance Contributions Act (FICA) taxes, if the 
services are performed outside of the United States by a United States 
citizen or resident who is an employee of a foreign company or 
subsidiary. Payment of FICA taxes is a requirement of U.S. tax law, 
rather than contract law or regulation. Accordingly, we do not consult 
the Internal Revenue Service on this subject.

    Senator Levin. I'm glad to hear that Secretary Finley's 
troubled by it, because I think Americans in these families 
that these workers are in would surely directly be troubled by 
it. It's easy to say, ``DOD benefits, because their contract 
can go for less; because they're not paying taxes that they 
should be paying.'' That's an easy out for all the employees of 
the DOD. Maybe the DOD ought to stop paying taxes on all of its 
employees, or all contractors' employees, so that contractors 
can bid lower, because they're not paying taxes on their 
employees. We wouldn't tolerate that for 1 minute for a 
contractor that's operating in the United States, and I'm not 
sure we should. I don't think we should tolerate it for a 
contractor who's hiring American citizens overseas.
    So I guess, Secretary Finley, maybe I should put this 
responsibility on you. I'm not sure whether you or Mr. Parsons 
is the right person to give us an answer for the record, has 
the Department consulted with the IRS on this issue? What's the 
IRS's response been? Whether or not the Department is 
considering including in its specifications for contracts 
requirements that American employees working abroad have their 
Medicare and their other payroll taxes deducted--would you get 
back to us, Mr. Secretary?
    Mr. Finley. Yes, sir. I'd be happy to.
    [The information referred to follows:]

    There is no prohibition on the use of foreign subsidiaries by 
defense contractors. Under section 3121 of title 26, U.S.C., commonly 
referred to as the Internal Revenue Code, a company is not subject to 
Federal Insurance Contributions Act (FICA) taxes, if the services are 
performed outside of the United States by a United States citizen or 
resident who is an employee of a foreign company or subsidiary. Payment 
of FICA taxes is a requirement of U.S. tax law, rather than contract 
law or regulation. Accordingly, we do not consult the Internal Revenue 
Service on this subject. The clauses and provisions in our contracts 
relate to contract performance; we do not contractually require our 
contractors to comply with unrelated laws and regulations. In addition 
to payment of FICA taxes, related payroll taxes are also a requirement 
of U.S. tax law. Any requirement for a foreign company or subsidiary to 
pay FICA taxes and related payroll taxes must come from a change to the 
tax law and not by incorporating a clause in our contracts.

    Senator Levin. Thank you.
    Thank you very much, Mr. Chairman.
    Senator Akaka. Thank you, Senator Levin.
    Senator Thune.
    Senator Thune. Mr. Chairman, I don't have any further 
questions. I appreciate our panel being here, and thank you.
    Senator Akaka. Let me ask one question, here, before we 
adjourn.
    The Gansler Commission reported extensively on the 
inadequacies of contract management in Iraq, explaining that 
``After the contract is awarded, there are no resources trained 
to monitor and ensure that the contract is performing and 
providing the services needed by the warfighter.''
    I understand that the Army is trying to address this 
problem by shifting existing contract oversight resources to 
Iraq. However, the Army and other DOD components have long had 
a shortage of trained, experienced, and qualified personnel to 
perform needed oversight on service contracts here in the 
United States. For example, in March 2005, GAO reported that 
the Army failed to even assign contract surveillance personnel 
to 13 of 30 contracts reviewed. In October 2005, the DOD 
Inspector General (IG) reported that only one-third of 23 
contracts reviewed contained adequate contract surveillance 
plans, and 14 had no surveillance plans at all. In 2006 and 
2007, the IG reported that DOD failed to perform adequate 
contract surveillance on 23 of 24 task orders awarded through 
the Department of the Interior; 15 of 61 task orders awarded 
through the Department of the Treasury; and 54 of 56 task 
orders awarded to the General Services Administration.
    Secretary Finley, General Thompson, and Mr. Parsons, what 
steps are the DOD and Department of Army taking to address 
shortcomings in the surveillance of service contracts and 
ensure that you have the workforce you need to ensure that the 
Department gets the performance that it pays for?
    Mr. Finley?
    Mr. Finley. Mr. Chairman, I'm not familiar with the 
specific statistics that you have cited, but the efforts 
underway involve a review of our contracting competencies for 
all of the DOD. It's an effort that we started last year, and 
it's an effort that we expect will be completed by this summer. 
Within that construct, I would expect that the surveillance 
plans and the effectiveness of our oversight in those 
surveillance plans will be addressed from a contractual 
contract management point of view.
    So, I'll be happy to take the question for the record and 
outline for you what work we have left to do.
    [The information referred to follows:]

    Since early 2007, the Army's acquisition policy for services valued 
greater than $2,500 requires contracting officers to appoint certified 
Contracting Officer's Representatives (CORs) in writing before contract 
performance begins, identify properly trained CORs for all existing 
service contracts, and ensure that a Government Quality Assurance 
Surveillance Plan is prepared and implemented in service contracts. In 
January 2007, the Army partnered with the Defense Acquisition 
University to provide training in COR responsibilities. To date, they 
have trained more than 6,500 Army personnel to be CORs. As documented 
in the Army's response to the Gansler Commission Report, the Army has 
realigned the Army Contracting Agency (ACA) under the Army Material 
Command (AMC) and established the U.S. Army Contracting Command (ACC) 
to centrally manage all contracting activities. The ACC will contain 
subordinate elements designed to address those challenges identified in 
the past and develop and lead way ahead solutions. The Expeditionary 
Contracting Command (ECC), an ACC subordinate command, is designed to 
provide effective and agile expeditionary contracting capability across 
the full spectrum of military operations. The ECC will standardize 
operations and provide oversight of contracting activities to ensure 
contract compliance. Within the ECC, subordinate commanders are 
responsible for making available various training necessary to ensure 
mission readiness and success. The Installation Contracting Command 
(ICC), another ACC subordinate command, will provide the pre- and post-
award contracting support to Army installations worldwide. The ICC will 
provide hands-on contracting training and experience for Army 
contingency contracting personnel, provide reach-back support to 
deployed personnel and units, and examine and assess contract 
management at the installation level. Section 813 of Public Law 109-364 
directed the Secretary of Defense to establish a ``Panel on Contracting 
Integrity.'' This Panel identified contract surveillance as an area of 
vulnerability that could lead to fraud, waste, and abuse. CORs are a 
critical element to manage this vulnerability. As such, the Panel 
initiated several actions to improve contract surveillance, as detailed 
in the Panel's 2007 Report to Congress. The Panel also recommended 
policy changes. One would require contracting officers to designate 
CORs prior to contract award, rather than prior to commencement of 
contract performance. Another would reinforce the COR's 
responsibilities and compel requiring activities to affirm that 
performance of COR functions be addressed as part of their annual 
performance assessment. Additionally, the Panel established a 
Sufficient Contract Surveillance Work Group to develop a DOD standard 
for COR functions, responsibilities, and certification.

    Senator Akaka. General Thompson?
    General Thompson. Sir, like Dr. Finley, I'm not familiar 
with the specific examples cited in the GAO and the audit 
reports, but, from a broader perspective, we do have an Army 
policy now that we are enforcing that all service contracts 
over $2,500 have an appointed COR. The example that Mr. Parsons 
gave you earlier, about the shortfall that we found in Kuwait, 
and now, in Kuwait, in particular, we've assigned a COR to 
every contract, I do know that about 100 DCMA personnel have 
been sent in the last couple of months to Iraq to increase the 
contract management ability of the Joint Contracting Command in 
Iraq, and there is an additional number of personnel--and I'm 
not sure of the exact number--that will deploy over there once 
we identify them and get them ready. So, this is something that 
we are systemically addressing across the board.
    Sir, if I could just take one opportunity--I made a 
statement earlier, to a question that was asked by Senator 
McCaskill about the AEY ammo contract and the role of DCMA. 
DCMA did conduct a pre-award survey for that contract, but the 
past-performance award was something that was done by the Army 
Source Selection Authority. The actions of the Army Source 
Selection Authority on that contract are part of what we're 
reviewing. So, I just want to make sure that I made that 
correction for the record, publicly, because I didn't want to 
have a misstatement for the record.
    Senator Akaka. Thank you very much. That certainly will be 
recorded.
    Mr. Parsons?
    Mr. Parsons. Sir, I'd just like to amplify on the 
contracting-officer-representative discussion, that in addition 
to this additional training that we are providing CORs, we've 
developed a new training course at the Combined Armed Support 
Command to focus on preparing performance work statements for 
service contracts. Part of that training now teaches the 
individuals how to prepare a quality assurance surveillance 
plan. We are instructing our contracting personnel that, for 
every service contract that they issue, that that quality 
assurance surveillance plan must be a part of the contract 
surveillance in the post-award activity.
    So, again, a lot of this is training the nonacquisition 
people on their role in contractor management and contract 
management; we're developing as many new courses as we can to 
get them additional training and better educated.
    Senator Akaka. Okay.
    I thank you all very much for your part in this--your 
testimony and your responses in this hearing on contracting in 
Iraq and Afghanistan. I look forward to working with all of you 
to continue to try to improve our programs, wherever they are. 
It's a huge operation here, but we want to do the best we can 
to help our military be the best that they can, as well.
    With that, I thank you, again. This hearing is adjourned.
    [Questions for the record with answers supplied follow:]

               Questions Submitted by Senator Carl Levin

                         MANPOWER MIX CRITERIA

    1. Senator Levin. Secretary Bell, the 2005 version of the 
Department of Defense's (DOD) Manpower Mix Criteria defined the 
confinement, interrogation, treatment, and actions relating to enemy 
Prisoners of War (POWs), terrorists, and criminals as inherently 
governmental functions. Paragraph E1.2.2.5 of the 2005 Manpower Mix 
Criteria states:

          ``How enemy POWs, terrorists, and criminals are treated when 
        captured, in transit, confined, and interrogated during or in 
        the aftermath of hostilities entails the discretionary exercise 
        of government authority. Their handling as well as decisions 
        concerning how they are to be treated cannot be transferred to 
        the private sector to contractors who are beyond the reach of 
        controls otherwise applicable to government personnel.''

    In 2006, this language was revised to add a new paragraph 
authorizing contractor employees to conduct interrogations ``if they 
are properly supervised and closely monitored throughout the 
interrogation process by sufficient numbers of properly trained 
government officials.''
    Is it your understanding that DOD was in compliance with the 2005 
version of the Manpower Mix Criteria at the time that it was in effect?
    Mr. Bell. The DOD experienced a shortage of interrogators during 
the onset of Operation Enduring Freedom, and the shortage continued 
into Operation Iraqi Freedom. The Department contracted for qualified, 
experienced civilian contractor employees to address this shortfall 
while the Army aggressively sought to recruit and train a larger 
Government interrogator force. It appears that those responsible for 
acquiring these contract interrogators in 2003 and 2004 were unaware of 
the DOD Manpower Mix Criteria that were in effect at the time. To 
prevent this from happening again, DOD Directive 3115.09, which 
establishes DOD policy on intelligence interrogations, is being updated 
to reflect current DOD policy on the limited but necessary role 
contract interrogators may play under the proper supervision and close 
monitoring of Government officials throughout the interrogation 
process.

    2. Senator Levin. Secretary Bell, can you explain why the Manpower 
Mix Criteria was modified to authorize contractor employees to conduct 
interrogations?
    Mr. Bell. In late 2005, the DOD intelligence components asked for 
clarification on how contractors could be used to support DOD 
interrogations. They believed that they could utilize contractor 
personnel in a support role and still retain control of all inherently 
governmental (IG) responsibilities. The Department concluded that there 
were certain functions that could be performed by contractors provided 
that the contractors were properly trained and cleared and the 
Department retained final approval authority for all products produced 
by the contractor and maintained constant oversight and control of all 
services provided by the contractor.
    Initially, the 2005 Manpower Mix Criteria stated that direction and 
ultimate control of defense missions, functions, and operations, to 
include intelligence and counterintelligence operations, and 
interrogations were IG responsibilities. Paragraph E1.2.2.5 of the 
Manpower Mix Criteria stated that ``how enemy POWs, terrorists, and 
criminals are treated when captured, in transit, confined, and 
interrogated during or in the aftermath of hostilities entails the 
discretionary exercise of government authority. Their handling as well 
as decisions concerning how they are to be treated cannot be 
transferred to the private sector to contractors who are beyond the 
reach of controls otherwise applicable to government personnel.''
    In late 2005, this guidance was revised to specifically include 
``civilian internees retained persons, other detainees.'' Paragraph 
E2.1.8.2 of the Criteria still stated that ``direction and control of 
intelligence interrogations, to include approval, supervision, and 
oversight of interrogations are IG activities.'' Paragraph E2.1.8.2 
also stated that ``performance of those aspects of an interrogation 
that entail substantial discretion are IG.'' However, paragraph E2.1.8 
revised the policy to state that ``responsibility for their handling as 
well as decisions concerning how they are treated cannot be transferred 
to the private sector to contractors who are beyond the reach of 
controls otherwise applicable to government personnel.'' Paragraph 
E2.1.8.2 also stated that ``in areas where adequate security is 
available and is expected to continue, properly trained and cleared 
contractors may be used to draft interrogation plans for government 
approval and conduct government approved interrogations if properly 
supervised and closely monitored throughout the interrogation process 
by sufficient numbers of properly trained government officials as 
prescribed in OUSD (Intelligence) approved procedures.''
    These changes are consistent with the May 29, 2003, Office of 
Management and Budget Circular No. A-76 (Revised). Section B.1.c of 
Attachment A of the Circular states that an activity may be provided by 
a contractor provided that ``the contractor does not have the authority 
to decide a course of action, but is tasked to develop options or 
implement a course of action with agency oversight.'' Section B.1.b. of 
Attachment A states that an action is not IG if the decisionmaking is 
``limited or guided by existing policies, procedures, directions, 
orders, and other guidance that: (1) identify specific ranges of 
acceptable decisions or conduct; and (2) subject the discretionary 
authority to final approval or regular oversight by agency officials.''

    3. Senator Levin. Secretary Bell, is it your understanding that DOD 
has sufficient qualified government personnel to ``properly supervise 
and closely monitor'' contract interrogators throughout the 
interrogation process?
    Mr. Bell. Yes, the Department believes it has sufficient qualified 
government personnel to properly supervise and closely monitor contract 
interrogators throughout the interrogation process.

    4. Senator Levin. Secretary Bell, if DOD has sufficient qualified 
government personnel to supervise and monitor all interrogations, why 
don't those government personnel conduct the interrogations themselves?
    Mr. Bell. The DOD normally conducts interrogations with pairs of 
interrogators. If a contract interrogator is used, he or she is paired 
with a DOD civilian or military interrogator, thus fulfilling the 
monitoring requirement. Additionally, all interrogations are subject to 
remote monitoring by live video feed, which makes it possible to 
monitor multiple interrogations at the same time.

                  CONTRACTORS AND FOREIGN SUBSIDIARIES

    5. Senator Levin. Secretary Finley, at the hearing, I asked you 
about an article in which the Boston Globe reported that Kellogg Brown 
& Root, Inc. (KBR) employs more than 21,000 workers in Iraq, including 
about 10,500 Americans, through subsidiaries in the Cayman Islands, 
which appear to exist largely on paper. A KBR spokesman acknowledged 
that these subsidiaries were created to enable the company to avoid 
paying Social Security and Medicare taxes, as well as State 
unemployment taxes. You agreed that this seems inappropriate.
    Has the DOD informed the Internal Revenue Service (IRS) of KBR's 
actions to avoid the payment of Social Security and Medicare taxes, so 
that the IRS can determine whether those actions are legal? If so, what 
position has the IRS taken on this issue?
    Mr. Finley. In response to this question, we conferred with the 
IRS. The IRS confirmed that under section 3121 of title 26, U.S.C., 
commonly referred to as the Internal Revenue Code (IRC), a company is 
not subject to Federal Insurance Contributions Act (FICA) taxes if the 
services are performed outside of the United States by a United States 
citizen (or resident) who is an employee of a foreign company or 
subsidiary. Because the workers at KBR's subsidiaries are employees of 
a foreign company performing work outside the United States, KBR 
believes payroll taxes such as FICA are not required under the IRC. The 
IRS would not comment on the legality of KBR's practice because to do 
so would involve the disclosure of taxpayer return information, which 
is confidential and can only be disclosed in narrowly prescribed 
circumstances under section 6103 of title 26, U.S.C.

    6. Senator Levin. Secretary Finley, does the DOD believe that 
legislation would be needed to preclude contractors from obtaining a 
competitive advantage by using foreign subsidiaries to avoid the 
payment of Social Security and Medicare taxes? If so, has the DOD 
proposed such legislation? Would the DOD support such legislation?
    Mr. Finley. Payment of FICA taxes and related payroll taxes is a 
requirement of U.S. tax law, not contract law or regulation. As such 
legislative proposals to change the tax law would come from the 
Department of the Treasury. The DOD would support any legislation that 
is in the best interest of the United States.
                                 ______
                                 
            Questions Submitted by Senator Claire McCaskill

                   MUNITIONS CONTRACT FOR AFGHANISTAN

    7. Senator McCaskill. Lieutenant General Thompson, on March 27, the 
New York Times reported that in January 2007 the Army awarded a Federal 
contract worth nearly $300 million to AEY, Inc., making them the main 
supplier of munitions to Afghanistan's army and police forces. At the 
time the contract was awarded, the company's president was 21 years old 
and the company had little substantive procurement experience, 
especially as it relates to a contract of such magnitude. Past 
contracts with AEY had been much smaller, and according to two 
officials involved in contracting in Iraq, AEY's performance on even 
those smaller contracts was troubling. These officials stated that AEY 
was not reliable and ``if they did come through, they did after many 
excuses.'' AEY has not performed as expected under the January 2007 
contract. The company has provided ammunition that is in some cases 
over 40 years old and in decomposing packaging. Some of the ammunition 
arrived in such poor condition that it was not used.
    At the hearing I was informed that before AEY was awarded the 
contract its bid went through all the normal procurement procedures of 
both the Army and DOD. It seems to me the fact that normal procedures 
were followed and AEY was still awarded the contract indicates a flaw 
in how the Army is evaluating potential contractors. Furthermore, it 
was stated to me that the Army has been reviewing the AEY contract for 
the past 7 months, but when I asked which office or person was 
responsible for awarding this important contract to an immature, and 
ultimately unsuitable company, I was not able to get an answer.
    Can you tell me whose office was ultimately responsible for signing 
off on the January 2007 AEY contract to supply munitions to the 
Afghans?
    General Thompson. Headquarters, United States Army Sustainment 
Command (ASC), Acquisition Center, 1 Rock Island, Rock Island, IL 
61299-6500. ASC was acting as the contracting office for the Joint 
Munitions Command, the Army's command responsible for ammunition 
procurement.
    The total dollars awarded to AEY is $154 million. This amount 
represents the total value of all delivery orders issued against the 
contract.
    Past performance was evaluated and responses regarding AEY's 
performance were positive. AEY had performed under a similar contract 
for nonstandard ammunition and weapons with a not-to-exceed price of 
$300 million with the Joint Contracting Command-Iraq/Afghanistan (JCC-
I/A).
    The Afghanistan National Army and National Police did not identify 
or specify an age requirement for the nonstandard ammunition.
    The solicitation was issued on a full and open competition basis 
for a 2-year requirements contract for nonstandard ammunition. This 
procurement action called for a best value award, which included the 
evaluation of past performance, price, and small business utilization. 
AEY was determined to be the best value. A pre-award survey was 
requested and completed by Defense Contract Management Agency (DCMA) 
with support from Defense Contract Audit Agency, which reviewed AEY's 
financial capability, accounting system, and transportation 
capabilities. The DCMA report recommended full award. The Excluded 
Parties List was also checked prior to award and neither AEY nor any 
company affiliate was listed as being suspended or debarred.

    8. Senator McCaskill. Lieutenant General Thompson, you stated that 
in awarding this contract, AEY's past experience and reputation were 
considered. Can you tell me specifically which of AEY's past contracts 
indicated they were capable of delivering on a contract of the 
magnitude and importance of the January 2007 contract?
    General Thompson. The past performance criteria evaluated was On-
time Delivery, Quality, System Integrator, and International Movement. 
Past performance surveys were issued by the evaluators who received the 
following information regarding AEY:

          AEY was awarded an Indefinite Delivery, Indefinite Quantity 
        (IDIQ) (Contract W914NS-05-D-9012) issued by the JCC-I/A on 
        March 15, 2005, for the same and similar ammunition items and 
        associated weapons and components (various nonstandard 
        ammunition items and other weapon items and components). The 
        maximum potential value of this contract was not to exceed $300 
        million or, if multiple awards were made, the aggregate total 
        would not exceed $300 million. JCC-I/A's Multi-National 
        Security Transition Command-Iraq Support Division provided past 
        performance information regarding Delivery Order 0004 for the 
        supply and air delivery of 21 different nonstandard ammunition 
        items, to include small caliber, shot shell, anti-tank, 
        fragment grenade, 40mm ammunition, and the associated weapon 
        components and systems. The input provided showed that 
        deliveries were made within the contract schedule and that AEY 
        performed satisfactorily against the contract requirements. 
        Under two other contracts, AEY performed as subcontractor for 
        other prime contractors. Positive feedback was returned 
        indicating no performance issues.

    These contracts were evaluated using a past performance criterion 
that addressed the magnitude and relevancy of anticipated contract 
requirements. Based on all of the information we received prior to the 
AEY contract award, all indication was that the ASC contract would be 
similar to the contracts previously performed by AEY.

    9. Senator McCaskill. Lieutenant General Thompson, what was the 
specific value of each AEY contract that was used to rate their past 
performance?
    General Thompson. The specific dollar values of the contracts that 
were evaluated for AEY's past performance are as follows:

          a. JCC-I/A Contract No. W914NS-05-D-9012. The contract was an 
        IDIQ Contract for various types of nonstandard ammunition, 
        conventional ammunition, weapons, and components. It had a not-
        to-exceed dollar value of $300 million.
          b. AEY's other two contracts are as a subcontractor for 
        private companies valued at approximately $2 million.

    10. Senator McCaskill. Lieutenant General Thompson, please describe 
how these contracts were related to ammunition and delivery.
    General Thompson. These contracts were similar to the procurement 
in question. They also were evaluated using past performance as an 
evaluation criterion, and they called for the delivery of the same or 
similar nonstandard ammunition items and other weapons and components 
with deliveries from an outside continental United States (OCONUS) 
location into other OCONUS locations.

    11. Senator McCaskill. Lieutenant General Thompson, you stated that 
the Army has been reviewing the AEY contract for the past 7 months. 
Please tell me what, if any, problems the Army has identified in its 
procurement process that allowed AEY to be able to receive a contract 
they seem incapable of performing? Has the Army taken any steps to 
correct these problems in its procurement process? If yes, please 
describe the changes in detail.
    General Thompson. The Army places the safety of U.S. and allied 
soldiers as a priority in the global war on terror. As a result of our 
concern with the subject AEY contract, we are conducting a thorough 
review to ensure our Afghan allies are provided with good quality 
ammunition, and to ensure the soundness of the processes the Army uses 
to acquire supplies for its allies. As an Army, we continually assess 
how we are meeting the needs of our customers and ensuring that we are 
improving our business practices. As a result of our review so far into 
this matter, we recognize that changes need to be made in our 
acquisition of nonstandard ammunition. We have already made changes to 
our packaging requirements for nonstandard ammunition and will ensure 
that we cite appropriate international packaging and quality standards 
as the applicable U.S. standard and hold our contractors to that 
standard. We also have chartered a team of subject matter experts to 
better define the quality standards necessary for future nonstandard 
ammunition requirements, how and where the ammunition should be 
inspected, and the best DOD agency to accomplish these inspections.

    12. Senator McCaskill. Lieutenant General Thompson, Defense 
Criminal Investigative Services and Immigration and Customs Enforcement 
initiated an investigation into AEY in October 2005 in order to look at 
issues dealing with violations of the Arms Export Control Act. Which, 
if any, contracting or auditing agencies were notified? How were they 
notified?
    General Thompson. Based on direction from the Department of 
Justice, questions relating to investigations need to be addressed to 
the various investigative agencies.

    13. Senator McCaskill. Lieutenant General Thompson, was AEY awarded 
any other contracts while under audit?
    General Thompson. AEY did receive a number of other contract awards 
from other contracting activities across DOD and from other Federal 
agencies such as the Department of State.

    [Whereupon, at 4:18 p.m., the subcommittee adjourned.]

                                 
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