United States Government Accountability Office

GAO Testimony 

Before the Committee on Oversight and 

Government Reform, House of 

Representatives

MILITARY 

CONSTRUCTION 

Observations on 

Mismanagement of the 

Kaiserslautern Military 

Community Center 

Statement of Gregory D. Kutz, Managing Director 

Forensic Audits and Special Investigations 

Bruce A. Causseaux, Senior Level Specialist 

Forensic Audits and Special Investigations 

Terrell G. Dorn, Director 

Physical Infrastructure 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, June 28, 2007

 

GAO-07-1039T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 28, 2007

MILITARY CONSTRUCTION 

Observations on Mismanagement of the 

Highlights of GAO-07-1039T, a testimony Kaiserslautern Military Community Center 

before the Committee on Oversight and 

Government Reform, House of 

Representatives 

According to the Air Force, the 

Kaiserslautern Military Community

Center (KMCC), an over 800,000

square-foot facility, is currently the

Department of Defense’s largest 

single-facility project under 

construction. It is intended to

provide lodging, dining, shopping, 

and entertainment for thousands of

U.S. military and civilian personnel 

and their families in the 

Kaiserslautern, Germany, area. 

Initial costs for the KMCC were

estimated at about $150 million, 

with funding coming from a variety 

of appropriated and 

nonappropriated fund sources. 

The construction for the project,

which began in late 2003, was 

originally scheduled to be

completed in early 2006. 

This testimony discusses GAO

findings to date related to the

KMCC. The testimony describes 

(1) current problems facing the 

KMCC, (2) causes for identified

problems, and (3) the effect of

problems identified and their 

implications for future projects in 

Germany. 

To address our objectives, we 

interviewed officials from the U.S. 

Air Force, Army and Air Force 

Exchange Service, U.S. Army Corps 

of Engineers, and German

government. We also conducted a 

site visit and reviewed relevant

KMCC documents. We plan to 

continue our work and make 

recommendations to the Air Force

as appropriate. 

The KMCC project has encountered cost, schedule, and performance 

problems. Currently neither Landesbetrieb Liegenschafts- und 

baubetreuung’s office in Kaiserslautern (LBB-Kaiserslautern), the German 

government construction agency in charge of the project, nor the Air Force 

have a reliable estimated completion date or final cost for the project. 

Problems facing KMCC include construction flaws, vandalism of property, 

repeated work stoppages and slowdowns by contractors, and ongoing 

criminal investigations. Because of financial problems facing the project, 

the number of workers on-site has dwindled from several hundred to less 

than 50, which will likely further delay completion of the project. In 

addition, the KMCC’s multimillion dollar “green” roof is experiencing water 

leaks, and will likely require the Air Force to spend millions of dollars for its 

replacement. Below is a picture of damage caused to the building interior 

from the roof leak. 

The KMCC faced a high level of risk from its inception, which was not 

effectively mitigated by the Air Force. Increased risks included an overseas 

project controlled by LBB-Kaiserslautern with financial risks borne by the 

Air Force and its funding partners. Unfortunately, LBB-Kaiserslautern did 

not effectively manage the design and construction of the project. Rather 

than increase controls to mitigate project risks, the Air Force provided 

minimal oversight and in some cases circumvented controls to expedite the 

invoice payment process in an attempt to complete the project. 

Because this project is funded primarily with nonappropriated funds, the 

likely substantial cost increases in the project will be borne by military 

servicemembers, civilians and their families. Further, absent better Air 

Force controls, future projects may experience the same types of heightened 

risks associated with KMCC. 

www.gao.gov/cgi-bin/getrpt?GAO-07-1039T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gregory Kutz at 

(202) 512-7455 or kutzg@gao.gov or Terrell 

Dorn at (202)-512-6923 or dornt@gao.gov. 
Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to discuss our initial findings related to our 

audit of the Kaiserslautern Military Community Center (KMCC). The 

KMCC is one of many projects that were initiated at Ramstein Air Base to 

upgrade the capabilities of the base as a result of the consolidation of 

military bases in Europe. According to the Air Force, the KMCC, an 

844,000-square-foot facility, is currently the Department of Defense’s 

largest single-facility project. Funding for the project was provided from a 

variety of sources including nonappropriated funds from the Army and Air 

Force Exchange Service (AAFES) and Air Force Services Agency,1

 military 

construction appropriations, and Rhein Main Transition Program funds.2

The KMCC is intended to provide lodging, dining, shopping, and 

entertainment for over 50,000 U.S. military and civilian personnel and their 

families in the Kaiserslautern, Germany, area. The KMCC won the Air 

Force 2006 Design Award for an outstanding design concept for its 

environmentally-friendly “green” roof,3

 glass domes, and facades allowing 

maximum light into the facility, and its amenities to the Kaiserslautern 

military community. Project highlights include a 350-room visiting 

quarters, sports bar, name brand restaurant, food court, slot machines, and 

numerous retail businesses. Construction on the KMCC began in 

November 2003 and the building was planned to be completed in early 

2006. This represented an expedited schedule developed to accommodate 

the need for additional visiting quarters resources resulting from the 

closure of Rhein Main Air Base in 2005. 

 1

AAFES is a joint military activity providing merchandise and services to active duty, guard 

and reserve members, military retirees, and their families. AAFES utilizes earnings to 

improve troops’ quality of life and to support morale, welfare, and recreation programs. Air

Force Services Agency provides combat support and community service programs that 

enhance the quality of life for Air Force members and their families. Air Force Service 

Agency programs include lodging, youth programs, and sports and fitness programs

2

The closure of the Rhein Main Air base is part of the Rhein Main Transition Program 

where the United States and Germany agreed to return the base to Germany. In return, 

Germany allowed the relocation of the base’s key airlift capability to Ramstein and 

Spangdahlem Air Bases. As part of the agreement, the Federal Republic of Germany,

federal states of Rheinland-Palatinate and Hessen, city of Frankfurt, and Fraport AG 

Frankfurt Airport Services Worldwide agreed to provide funds to upgrade the facilities at 

Ramstein and Spangdahlem Air Bases, including about 14 million euros for KMCC.

3

According to a USAFE official, for KMMC, green roof refers to an environmentally 

engineered roof whereby soil and vegetation are placed on the roof of a structure in order 

to provide a reduction in energy costs, reduce water runoff, and offset the forest area

cleared for a project. 

Page 1 GAO-07-1039T 
The activities of U.S. forces personnel in Germany are to be carried out in

accordance with the provisions of the North Atlantic Treaty Organization’s 

(NATO) Status of Forces Agreement (SOFA), the German Supplementary 

Agreement (SA) to the NATO SOFA, and the various administrative 

agreements that implement these two agreements. The KMCC, like other

military projects constructed in Germany, is governed by one such 

agreement, the Auftragsbaugrundsaetze 1975 (ABG-75) Administrative 

Agreement. ABG-75 establishes specific procedures for construction of 

military projects, including the KMCC, in Germany. AGB-75 provides that 

U.S. forces are to coordinate construction planning with the German 

government to ensure the optimum use of German design and

construction capacities. For the KMCC, the responsibility for construction 

resided with the Landesbetrieb Liegenschafts- und Baubetreuung office in

Kaiserslautern (LBB-Kaiserslautern), a German government construction 

agency. 

As requested, this testimony highlights the findings to date from our audit 

of the KMCC. Specifically, the testimony will describe (1) the current 

problems facing the KMCC, (2) the causes for identified problems, and 

(3) the effect of problems identified and their implications for future 

projects in Germany. 

To address our objectives, we conducted interviews with officials from the 

U.S. Air Force, including U.S. Air Forces in Europe (USAFE) personnel 

responsible for the KMCC project and Air Force Services Agency. In

addition, we interviewed officials from LBB-Kaiserslautern, AAFES, and 

the U.S. Army Corps of Engineers (USACE). We also obtained and 

reviewed project plans, cost estimates, and other relevant documents 

related to the design and construction of the KMCC. We physically 

inspected the KMCC and viewed the current status of the project. Our 

audit work was performed between May and June 2007 in accordance with 

generally accepted government auditing standards. 

The KMCC project has encountered cost, schedule, and performance 

problems. Factors contributing to problems facing the KMCC include 

construction flaws, vandalism of property, contractor work stoppages and 

slowdowns resulting from delays in payments, and an ongoing fraud 

investigation. Originally scheduled to be completed over a year ago,

continuing KMCC construction and financing problems are likely to delay 

its completion. In fact, problems are so severe that neither officials from 

LBB-Kaiserslautern nor the Air Force can now forecast the completion 

date of the project. Original cost estimates for the project totaled 

Summary 

Page 2 GAO-07-1039T 
approximately $150 million. However current cost estimates total 

approximately $200 million and will likely increase in the future. Cost 

increases have been compounded because of the significant appreciation 

of the euro versus the U.S. dollar since inception of the project. The KMCC 

is also experiencing numerous performance problems resulting from 

design flaws, ineffective construction management, and substandard 

workmanship. For example, the KMCC’s multimillion dollar roof is 

experiencing water leaks, which according to Air Force officials will likely 

require its replacement at a cost of millions of dollars. In addition, the Air 

Force delayed payments to some contractors because contractor invoices 

were for contracts which had already reached their contract cost ceiling. 

Because of the delay in payments, contractors drastically decreased their 

workforce from several hundred workers per day to about 50.

Finally, project management of both LBB-Kaiserslautern and the Air Force 

have experienced significant changes including: (1) replacement of LBBKaiserslautern project managers, (2) firing of LBB-Kaiserslautern’s 

construction management contractor, and (3) resignation of a senior Air 

Force civilian working on the project. In addition, several Air Force and 

LBB-Kaiserslautern personnel involved in the management of the KMCC 

are currently under investigation by Air Force Office of Special 

Investigations (AFOSI) and German police. 

The causes for the current problems facing the KMCC stem from risks 

associated with overseas construction, failures by LBB-Kaiserslautern to 

effectively perform its construction management duties, and failures by 

the Air Force to institute effective controls to mitigate project risks. 

Overseas construction projects pose additional risk due to differences in 

languages, laws, construction standards, and currency fluctuations when 

costs are denominated in the host country’s currency. Almost all U.S. 

military construction in Germany must be done within the framework of 

ABG-75. ABG-75 largely gives the German government contracting agency

control over projects and contractors while financial risks are borne by, in

this case, the Air Force and its funding partners. ABG-75 generally gives 

the German government the authority to contract and manage

construction of most U.S. facilities in Germany through what is called 

indirect contracting.4

 In addition, ABG-75 requires the U.S. government to 

 4

According to ABG-75, indirect contracting means the planning, execution, and 

administration of construction works are performed by the German government on behalf 

of the U.S. forces. 

Page 3 GAO-07-1039T 
pay the German government construction agency a percentage fee based 

on the cost of the contract.5

 As a result, German government construction 

agencies do not have an incentive to control costs because each dollar 

increase in the project costs results in increased fees for the German 

government construction agents.6

In addition, LBB-Kaiserslautern did not effectively manage the KMCC 

project. The failures included LBB-Kaiserslautern’s inability to maintain 

and implement a valid, updated construction schedule and to effectively 

coordinate work between multiple contractors. LBB-Kaiserslautern, and 

its architect-engineer contractor JSK, also did not adequately design the 

project prior to construction. Because of the poor design, Air Force 

officials estimate that millions of dollars of changes and rework were 

necessary as of June 2007. For example, the Air Force noted in the design

review phase that KMCC’s kitchen exhaust ducts as designed did not meet

U.S. fire safety standards. However, because the Air Force design 

comment was not incorporated by LBB-Kaiserslautern, hundreds of 

thousands of dollars of rework on the KMCC’s exhaust ducts will be 

necessary. In addition, LBB-Kaiserslautern acknowledged that it was 

vastly understaffed to effectively manage a project the size of the KMCC. 

This understaffing resulted in LBB-Kaiserslautern being unable to process 

the large number of change orders that arose from the project. According

to Air Force officials, this resulted in work related to more than 400 

contract changes being billed to the Air Force without supporting 

documentation.7

Despite the high risks surrounding the KMCC, Air Force officials failed to 

institute effective management oversight and controls in order to mitigate 

the high risk from the project. Had LBB-Kaiserslautern done an effective 

job of managing the project, the lack of Air Force controls would have 

been mitigated. Unfortunately, as stated above, LBB-Kaiserslautern did not 

 5

Thus, the total cost for the KMCC is the cost of the contracts that the German government

construction agent negotiated with contractors for constructing the building plus the fee

for the German government construction agent. 

6

LBB-Kaiserslautern for the KMCC is reimbursed 5.6 percent of the total cost of the project 

as its fee for managing the construction on behalf of the U.S. forces. 

7

The 400 contract changes refer to changes in the project that were approved by LBBKaiserslautern, but have not been submitted to the Air Force. The extent of documentation 

provided to the Air Force justifying the need for the changes has been limited to a one-line 

description. Although requested, LBB-Kaiserslautern did not provide any additional 

documentation to us to substantiate the existence or justification for these changes. 

Page 4 GAO-07-1039T 
manage the project effectively and therefore increased the importance of 

effective Air Force controls. Normally the Air Force hires USACE to 

oversee projects in Germany to provide assurance that construction, 

procurement, and financial controls are in place and U.S. interests are 

protected. However, for the KMCC, the Air Force elected not to use 

USACE,8

 and subsequently did not institute sufficient controls of their own 

to mitigate the project risks. The Air Force did not have sufficient staffing 

to oversee the project, given its complexity. According to Air Force 

officials, they initially had about 8 personnel on the project but have 

recently increased staff to 17 personnel. However, the Air Force still does 

not have experts, such as contracting officers or certifying officials, on-site 

to provide assurance that all requirements of the contract are met. As a 

result, the Air Force did not properly review many invoices prior to 

payment—tasks that a contracting officer or certifying official would be 

expected to perform. In addition, because of internal demands to complete 

the project on an expedited basis to accommodate needs rising from the 

closure of Rhein Main Air Base, the Air Force instituted processes that 

circumvent its main controls for monitoring costs associated with the 

project. Although ABG-75 allows all U.S. forces the right to reject invoices

for which the contract or change order were not previously approved, Air 

Force project management instructed its staff to approve invoices that 

included items listed on certain change orders that had not been submitted 

to or approved by the Air Force. In addition, the Air Force instructed its 

staff to approve invoices where quantity limitations specified in the 

contracts were exceeded as long as LBB-Kaiserslautern provided a form 

letter stating the price was fair and the work was necessary. Therefore, 

despite risks associated with the KMCC, the Air Force elected to reduce 

controls instead of increasing their oversight of the project. 

Cost increases and schedule delays will most significantly affect AAFES 

and the Air Force Services Agency, the primary funding sources for the 

project. For example, according to an AAFES official, recent estimates by 

AAFES, the largest contributor to the KMCC, forecast its portion of the 

total KMCC cost will end up doubling its original cost estimate. As a result, 

the reduction in AAFES return on investment from the KMCC caused by 

escalating costs may reduce profits and thus may diminish future funding 

of morale, welfare, and recreational activities for U.S. service members. In 

 8

Air Force officials stated that they did not use USACE because of the limited amount of 

military construction funds associated with the KMCC project and additional costs 

associated with using USACE. 

Page 5 GAO-07-1039T 
addition, as a result of the higher KMCC costs, AAFES and the Air Force 

Services Agency are also likely to have less funding for their other planned 

capital projects, such as the construction or renovation of their stores. 

Also, because of the delay in the completion of the visiting quarters 

portion of the KMCC, which was needed to accommodate the additional 

quarters requirements arising from the closure of Rhein Main Air Base, 

service members in transit to and from other locations, such as Iraq and 

Afghanistan, may also be forced to stay off-base, at additional cost to the 

government. Finally, Air Force officials estimate there is at least 

$400 million in additional operations and maintenance projects and 

military construction projects planned in Germany over the next 5 fiscal

years. Absent better Air Force controls, these projects may experience the 

same types of heightened risks associated with KMCC. 

The KMCC currently faces significant cost, schedule, and performance 

problems, and it is unclear as to when the project will be completed and at 

what cost. Despite being originally scheduled to open in early 2006, neither 

LBB-Kaiserslautern nor the Air Force can estimate a completion date for 

the project because of the widespread construction management 

problems. In addition, estimated costs associated with the KMCC have 

already exceeded original estimates and will continue to grow. LBBKaiserslautern mismanagement has caused numerous problems with the 

KMCC. Examples include poor designs, substandard workmanship on key 

building components, and a significant reduction in the number of workers 

on-site. Furthermore, there may be fraud within the project, which is 

supported by the fact that there are ongoing criminal and civil 

investigations by AFOSI and German police. 

KMCC Currently 

Experiencing 

Substantial Cost, 

Schedule, and 

Performance 

Problems 

The latest official design schedule completed by LBB-Kaiserslautern and 

provided to the Air Force in September 2006 indicated that the KMCC 

would be completed by April 2007. However, during our visit to the KMCC 

in May 2007, LBB-Kaiserslautern and Air Force officials stated that key

milestone dates from the most recent design schedule had obviously 

slipped. In fact, neither LBB-Kaiserslautern nor Air Force officials could 

provide a new estimated project completion date during our audit of the 

project. Also, both LBB-Kaiserslautern and the Air Force provided us 

current cost estimates of about $200 million, which have already exceeded 

the original estimate of about $150 million. We found that these cost 

estimates did not include substantial costs related to the expected roof 

Page 6 GAO-07-1039T 
repair and replacement discussed later, as well as hindrance claims 

associated with the project.9

 Furthermore, the Air Force contract with 

LBB-Kaiserslautern is denominated in euros and therefore the U.S. cost 

equivalent varies with the exchange rate. For example, the original cost 

estimate of about $150 million was developed in 2003 when 1 dollar was 

able to purchase significantly more in euros than 1 dollar can currently 

purchase. Figure 1 below shows the trend in the strengthening of the euro 

against the U.S. dollar over the past several years. 

Figure 1: Currency Exchange Rates for Euros since 2003 

The schedule delays associated with the KMCC have compounded cost 

problems because of the appreciation of the euro versus the U.S. dollar. 

Given the substantial costs associated with repairs to the roof, schedule 

delays, and potential hindrance claims by contractors, assuming currency 

rates remain higher than they were for the original project budget, the 

appreciation of euros versus the U.S. dollar compounds the effect of cost 

overruns on this project.

 9

Hindrance claims refer to claims against the United States for additional costs contractors

incurred due to interruption of contractor work. 

Page 7 GAO-07-1039T 
Since the start of construction in 2003, the KMCC has experienced 

numerous problems including poor design, substandard workmanship, 

poor coordination of the different contractors, and a reduction of workers 

on the site. Some of the more notable problems associated with this 

project include the following: 

• Roof: The roof is experiencing water leaks causing considerable damage

to the walls and the floors of the complex. According to Air Force officials, 

since the contractor responsible for roof construction went bankrupt, 

KMCC funding sources from the United States (AAFES, Air Force Services 

Agency, and Military Construction funds) will likely be used to pay the 

estimated millions of dollars in costs required to repair or replace the 

entire roof along with any internal damage. Figure 2 shows some damage 

in the KMCC resulting from the leak in its roof. 

Figure 2: KMCC Damage from Leaks in Roof

Page 8 GAO-07-1039T 
• Exhaust ducts: The kitchen exhaust ducts installed in the KMCC do not 

comply with fire code standards established by the National Fire 

Protection Association.10 According to Air Force officials, it will take 

several months to make the exhaust ducts compliant with the fire codes at

a cost of hundreds of thousands of dollars. 

• Bathroom faucets: Design plans called for some of the bathroom faucets 

in the KMCC to be automatic where water would turn on when a motion 

sensor indicated the presence of a person. However faucets and walls 

were installed prior to the electrical contractor installing wires needed to 

power the automated faucets. 

• Vandalism: In April 2006, vandalism occurred in over 200 rooms inside 

the KMCC. The cost to repair damage caused by the vandalism is 

estimated to be over $1 million. To make matters worse, as shown in 

figure 3, due to poor project coordination, a German contractor installed 

light fixtures on top of the vandalized walls. These lights will need to be 

removed to enable wall repairs to be made and then reinstalled. 

 10National Fire Protection Association 96: Standards for Ventilation Control and Fire 

Protection of Commercial Cooking Operations. 

Page 9 GAO-07-1039T 
Figure 3: Light Fixture Installed on Top of Vandalized Wall 

• Reduction of construction workers: In the past several months, the 

KMCC has faced a drastic reduction of the number of workers on-site. 

LBB-Kaiserslautern officials attributed this decrease to slow payment for 

services and reduced payment amounts from the Air Force due to 

increased scrutiny of invoices by the Air Force. The Air Force has delayed

the payments to certain contractors because the total amount of charges 

billed to the Air Force has already risen to the contract cost ceiling for the 

specific contractor. Therefore, the Air Force has been unable to pay those 

contractors for work performed without a contract change order to 

increase the contract ceiling. As a result, many of the contractors either 

reduced the number of workers or have quit working altogether on the 

project. Prior to September 2006, the number of workers on the site was 

normally several hundred. Currently, the number of workers on the site is 

routinely less than 50. 

Page 10 GAO-07-1039T 
In addition to the construction problems faced by the KMCC, there have

been a number of personnel who have been removed or have resigned 

from the project. In the past year, project management officials from LBBKaiserslautern have been replaced. Also, JSK, the firm hired by LBBKaiserslautern to manage the KMCC, was fired. Finally, a senior Air Force 

civilian in charge of the project resigned from the position and left the Air 

Force in 2006. On top of those personnel changes, both the AFOSI and the 

German Police have ongoing investigations into the project. The 

investigations span a variety of issues, both criminal and civil, including

the investigations of Air Force project management officials as well as 

German government officials. In the past year, both Air Force and LBBKaiserslautern offices have been searched and documentation seized by 

both AFOSI and German police in relation to these investigations. 

Current problems facing the KMCC have been caused by the additional 

risks associated with overseas construction, project management 

deficiencies by LBB-Kaiserslautern, and the Air Force’s lack of effective 

controls to mitigate project risks. Guidelines set forth in ABG-75 add risk

to the contract management process for U.S. forces construction in 

Germany. In addition, during the design and construction of the KMCC, 

the German government construction agent, LBB-Kaiserslautern, did not 

effectively carry out its project design and construction management 

duties. Finally, the Air Force failed to recognize risks associated with the 

KMCC and develop control procedures to minimize project risks. Because 

the most significant control that the United States can exercise over 

construction projects in Germany is financial control, the Air Force should 

have increased the project oversight controls to identify any invalid, 

unsupported, or inaccurate costs before money was spent. Instead, the Air 

Force did not have basic oversight and in some cases has circumvented 

controls in order to expedite payments. 

The KMCC presented increased risk from the beginning because U.S. 

forces are not in direct control of construction projects in Germany. Under 

the terms of ABG-75, most U.S. military construction projects are required 

to be executed by German government construction agencies, in this case

LBB-Kaiserslautern, in accordance with German laws. This includes all 

contractual authority for design, bid tender and award, project execution, 

construction supervision, and inspection for all military projects within 

Germany. As such, the German government construction agency contracts 

directly with the design and construction companies responsible for a 

given project. As a result, the United States is required to work through 

KMCC Problems 

Caused by Overseas 

Construction Risks, 

LBB-Kaiserslautern 

Management 

Deficiencies, and 

Lack of Air Force 

Controls

Overseas Construction 

Risks 

Page 11 GAO-07-1039T 
this indirect contracting method, and does not have any direct legal 

relationship with the contractors for construction projects that are to be 

built on their behalf. 

According to Air Force officials, because ABG-75 gives the German 

government such broad powers in the construction of military projects, 

the United States has limited influence on how construction projects are 

built. For example, Air Force officials stated that they were initially 

resistant to use a trade lots11 acquisition strategy for the construction of 

the KMCC because of the complexity involved with coordinating and 

managing the contractors associated with this strategy. Air Force officials 

stated that they relented to German government demands for trade lots 

after it was pointed out that the method of contracting was clearly within 

the German government’s prerogative under ABG-75. ABG-75 stipulates 

that the U.S. government pay German government construction agencies 

(e.g., LBB-Kaiserslautern) between 5 and 7 percent of the project cost for 

administering the contract regardless of the total project costs with no 

incentives for early completion. As a result, no incentive exists to 

minimize costs or encourage early completion. 

Despite additional risks associated with ABG-75, U.S. forces do have some 

leverage in managing construction projects in Germany. Specifically, 

under ABG-75, the United States is granted the authority to approve 

designs and provide prior consent to any modifications to the construction 

contract (also known as “change orders”) that affect the scope, quality, or

cost of the project. Any excess costs must be approved in advance by U.S.

forces, and the forces are not liable for costs proved to be the fault of 

German officials or contractors. Thus, U.S. forces do have the “power of 

the purse” which can be used to pay only for costs within the scope of the 

contract. According to Air Force officials, the Air Force has the ability to 

cut off funding for its projects. However, since the projects are needed for 

base operations, such a step would only be used as a last resort. 

Finally, general risks associated with overseas construction projects add 

to an already risky situation. Increased complexities of overseas projects 

include differences in languages, culture, construction laws, safety 

regulations, and exposure to changes in currency exchange rates. Changes

 11The use of trade lot contracts refers to the practice of contracting directly with individual 

companies for specific sections of work on a larger project instead of contracting with one 

general contractor who then subcontracts out the specific tasks. 

Page 12 GAO-07-1039T 
in currency exchange rates can pose a significant risk when project costs 

must be paid in the host country’s currency, especially when projects take

substantially longer to complete than originally planned. Despite risks 

associated with overseas construction, the Air Force did not institute 

sufficient controls to manage the project. 

During the design and construction of the KMCC, LBB-Kaiserslautern did 

not effectively carry out its project design and construction management 

duties. LBB-Kaiserslautern’s deficiencies in these areas have contributed 

to additional costs, schedule delays, and increased financial risk to the 

U.S. government for the KMCC project. 

The design of the KMCC was inadequate and resulted in numerous 

instances of rework costing millions of dollars to fix. LBB-Kaiserslautern 

hired an architect-engineer firm, JSK, to draft plans for the KMCC, and 

subsequently contracted with JSK to be the construction manager. 

According to Air Force and AAFES officials, numerous design flaws were 

identified by the Air Force in the initial design review of the KMCC and 

were communicated to both LBB-Kaiserslautern and JSK. However, 

according to these U.S. officials, neither LBB-Kaiserslautern nor JSK 

incorporated many of their comments into the final design, which later 

resulted in additional work and costs. Air Force officials stated that, as of 

June 2007, they have identified millions of dollars of additional work 

required because of identifiable design flaws, which the Air Force plans to

pay for in order to keep construction work moving forward. 

The following are some examples of design and construction flaws for the 

KMCC project: 

LBB-Kaiserslautern Did 

Not Effectively Perform 

Required Duties for the 

KMCC 

Flawed Project Design and 

Implementation 

• Exhaust ducts: During review of the initial KMCC design, Air Force 

identified and commented to LBB-Kaiserslautern and JSK that the exhaust 

ducts used in the restaurant kitchens did not meet U.S. fire safety 

standards. However, LBB-Kaiserslautern and JSK failed to ensure the 

change was addressed by contractors responsible for duct construction. 

As a result, the exhaust ducts installed at the KMCC were not compliant 

with U.S. fire safety standards. In addition, when we toured the KMCC, an 

Air Force official showed us the material used to seal the exhaust ducts. 

According to the official, this material was flammable and, as such, posed 

a safety risk when hot gasses are vented through the exhaust ducts. 

Because of the poor design of the exhaust ducts, the Air Force has 

recently approved a change order for hundreds of thousands of dollars to 

Page 13 GAO-07-1039T 
fix the problem. Figure 4 below is a picture of the flammable sealant used 

in the kitchen exhaust ducts. 

Figure 4: Flammable Sealant Inappropriately Used in Kitchen Exhaust Ducts 

• Retail space ceiling: The design of the ceiling in the AAFES retail area 

was not adequate to support light fixtures. The design detailed an opengrid suspended ceiling (not fitted with tiles) with light fixtures fitted into 

some of the openings. However, during installation, workers discovered 

that the ceiling grid was not strong enough to support the light fixtures. 

Ceiling tiles stabilize the grid to keep it from shifting, so omitting the tiles 

weakened the grid to the point where the light fixtures could not be 

supported. As a result of this design error, a contract change was 

necessary in order to provide additional steel supports for the ceiling grid. 

• Escalator/escalator pit: Poor design and construction coordination 

caused problems with installation of the building’s escalator. The escalator

pit was initially built as part of the contract to construct the building’s 

concrete floor. A subsequent contract was issued for installation of the 

escalator itself. However, the contract specifications for the escalator 

installation did not sufficiently detail the size and location of the escalator

Page 14 GAO-07-1039T 
pit, and the escalator provided by the contractor did not fit in the 

previously-built pit. As a result, rework was necessary to build a new pit in

the proper location. 

LBB-Kaiserslautern did not effectively manage the KMCC project. Instead

of using a general contractor who would be contractually responsible to 

build the project, LBB-Kaiserslautern attempted to execute the project by

managing more than 30 separate trade lot contracts by itself. Each trade 

lot contractor was only responsible for its section of work, and no one 

party, other than LBB-Kaiserslautern, was responsible for the overall 

completion of the project. In addition, the LBB-Kaiserslautern’s decision to 

use trade lot contracts also meant that LBB-Kaiserslautern would be 

required to properly coordinate the effort of all the contractors, adequately 

staff the project, and appropriately monitor construction schedule and 

costs, so that work could progress. As described below, LBBKaiserslautern did not carry out its requirements in the following areas: 

Ineffective Project 

Management 

• Poor project coordination: LBB-Kaiserslautern did not effectively 

coordinate the work of the more than 30 construction contractors on-site. 

This resulted in inefficiencies in construction as well as damage to 

finished work. For example, one contractor responsible for installing a tile 

floor was forced to delay work while the contractor responsible for 

installing the ceiling finished work over the area where the floor was to be 

installed. In another case, the contractor responsible for laying the paving 

stones outside the building was allowed to finish its work before major 

exterior construction was completed. This resulted in damage to the 

paving stones when heavy cranes were subsequently used on top of the 

stones to install exterior bracing to the building. 

• Inadequate staffing: In our interviews, LBB-Kaiserslautern officials told 

us that their office was understaffed. LBB-Kaiserslautern officials stated 

that this lack of staffing hindered LBB-Kaiserslautern’s ability to provide 

assurance that the project design was adequate and improve contractor 

coordination discussed previously. In part, as a result of the above listed

design and coordination problems, numerous contract change orders were 

necessary. Again, the lack of staffing hindered LBB-Kaiserslautern’s ability 

Page 15 GAO-07-1039T 
to process necessary change orders as required by ABG-75.12 According to 

Air Force officials, there are hundreds of change orders that LBBKaiserslautern has approved, yet has not submitted documentation to the 

United States for approval. Many of these change orders also had 

corresponding invoices submitted and certified by LBB-Kaiserslautern that 

the Air Force subsequently paid. LBB-Kaiserslautern was only able to

provide us a listing of the change orders involved. This was far less than 

the detailed specifications required for review by the Air Force prior to the 

approval of the change and payment.

Air Force officials also stated that this failure to process change orders 

was a major problem because this processing serves as the basis for 

increasing the obligation authority for the contract. In addition, LBBKaiserslautern officials stated they had approved the work for most of 

these change orders and thus the contractors performed the work and 

were expecting payment. According to Air Force officials, in some cases 

when the Air Force refused to make payment on the unapproved changes, 

contractors halted work and sent notices to the LBB-Kaiserslautern that 

they would be liable for any costs associated with delays in payment. In 

many cases, the Air Force chose to reduce controls and make payments on 

these items despite not having appropriate change order documents in an 

attempt to keep the work on the project progressing. 

The lack of staff also hindered LBB-Kaiserslautern’s ability to sufficiently 

monitor the quality of the contractors work. For example, as stated 

previously, the KMCC roof is leaking substantially because LBBKaiserslautern did not properly monitor the contractor’s work. Because of 

this, the Air Force is facing potentially millions of dollars in additional 

costs to replace the poorly built roof.

• Unreliable construction schedule and cost estimates: LBBKaiserslautern is responsible for providing the Air Force with up-to-date 

detailed construction schedules and cost estimates. According to Air 

Force officials, the latest official construction schedule provided by LBBKaiserslautern was in September 2006 and showed a completion date of 

 12During normal construction work done under the ABG-75 agreement, contractors perform

work as specified in the original contract. When changes to the original contract are

necessary, U.S. forces are to be given advance notice of any change and must give their 

approval before work can begin. This notice and approval process would be accomplished

by LBB-Kaiserslautern through development of a contract change order document which 

specifies the details of the change, cost, and other related information. Once documents

are approved by the U.S. forces, work can be initiated. 

Page 16 GAO-07-1039T 
March 2007 for the visiting quarters and April 2007 for the mall portion of

the KMCC. During our visit in May 2007, LBB-Kaiserslautern officials 

stated that they do not have a current construction schedule or completion 

date established for the project. Despite the lack of an estimated 

completion date, LBB-Kaiserslautern officials had developed an estimate 

of the total KMCC cost at completion. This estimate currently projects that 

costs will be higher than original estimates of approximately $150 million. 

According to LBB-Kaiserslautern officials, this cost estimate does not 

include certain expected costs, which we consider significant. For 

example, as stated earlier, the roof on the facility is continually leaking 

and likely will need to be replaced. Air Force and AAFES officials estimate 

that the cost to replace the roof will be in the millions of dollars. In 

addition to roof estimates, there are additional costs associated with 

hindrance claims that were not included in the cost estimate. In fact, in 

May of 2007, LBB-Kaiserslautern officials stated they received a single 

claim for several million dollars, which has not been substantiated, from 

just one of the more than 30 contractors. Finally, LBB-Kaiserslautern cost 

estimates do not include adjustments for future cost increases on existing 

contracts. Although past experience on this project has shown that many 

of the contract amounts have increased due to change orders or quantity 

increases, LBB-Kaiserslautern did not include any estimates for these 

expected future increases. 

The Air Force did not incorporate sufficient controls to minimize the 

significant project risks involved with the KMCC. Control deficiencies 

included inadequate staffing, poor policies, and a lack of effective control 

processes in place. By not utilizing controls that were available to them 

through the ABG-75 agreement, the Air Force has given up any leverage it 

had on keeping project costs within budget. These control weaknesses 

contributed to schedule and performance problems without a sufficient 

reaction from the Air Force. In addition, after problems were identified, 

the Air Force did not take appropriate corrective actions. 

Air Force officials did not have adequate staff with appropriate expertise 

needed to oversee the KMCC. In 2002, the Air Force elected not to use the 

USACE as the servicing agent for the KMCC project. According to the Air

Force officials, they were not required to use the USACE on this project 

because only a small percentage of the KMCC funds were based on 

appropriated military construction funding. However, in foregoing USACE 

oversight, the Air Force did not establish adequate staffing or contracting

and construction management expertise needed for a project as complex 

as the KMCC. According to Air Force officials, at the inception of the 

Air Force Did Not 

Appropriately Minimize 

Risks 

Air Force Lacked Necessary 

Staffing and Expertise for 

Adequate Oversight 

Page 17 GAO-07-1039T 
project, there were approximately eight full time personnel assigned to the 

KMCC from the Air Force. In addition, the limited number of Air Force 

staff did not have adequate expertise in the areas of contracting or 

construction management. As of May 2007, no contracting officers or 

certifying officials have been assigned to the KMCC. 13 These experts are 

trained and certified to obligate and spend funds on behalf of the U.S. 

government and would typically be found in any military constructionfunded project.14

As a result of the lack of staffing with adequate contracting and 

construction management expertise, many invoices came into the Air 

Force office, overwhelming the ability of the staff to adequately review 

invoices prior to payment. According to Air Force officials, no invoices 

were disputed prior to September 2006. However, after September 2006 

when significant problems with the KMCC were recognized, some staffing 

improvements were made. For example, the Air Force increased the 

number of personnel to approximately 17 full time personnel currently on

site, because it became apparent that they did not have sufficient 

personnel to conduct adequate reviews of invoices. Since the increase in 

staff, the Air Force has been able to review invoices more thoroughly, and 

according to Air Force officials, the percentage of recent invoices disputed

increased to 75 percent.

The Air Force did not have adequate policies and control procedures in 

place for the management of the KMCC. At the beginning of the project, 

project management officers lacked a standard operating procedure to 

follow. According to Air Force officials, the only written process in place 

was a simple one-page process flow chart to delineate how the entire 

process was supposed to work. Since the recognition of numerous 

problems associated with the KMCC, the Air Force has instituted 

additional control procedures, such as increased invoice reviews, but has 

not formalized those procedures into a written operating procedure. 

We were unable to determine if there were any specific procedures in 

place prior to September 2006. However, the project schedule slippage and 

Air Force Policies and Control 

Procedures were Inadequate 

 13For example, a German national employed by the Air Force has been obligating and 

expensing millions of dollars spent on the KMCC. This official is neither a contracting 

officer nor a certifying official but rather what the Air Force calls their ABG-75 specialist. 

14According to a USACE official, the USACE makes it a standard practice to have a 

contracting officer involved in all of their projects. 

Page 18 GAO-07-1039T 
lack of disputes of invoices by the Air Force indicates that the controls in

place were not fully effective. When we asked the Air Force officials about 

control procedures in place prior to September 2006, several officials, who 

were working on the project during the time in question, stated they were 

unable to answer questions based on advice from their legal counsel. The 

same officials who declined to answer questions stated that the project 

was under investigation by AFOSI. In addition, a senior Air Force civilian

on the project prior to September 2006 had resigned and was therefore 

unable to answer questions. Without written procedures or explanations 

from Air Force staff, we could not determine what controls, if any, existed 

prior to September 2006.

In September 2006, Air Force officials recognized that significant problems 

faced the project. One problem specifically recognized was that numerous 

payments were made on invoices for work that had been billed on the 400 

contract changes, which lacked documentation and had not been 

previously approved by the Air Force. Upon this recognition, the Air Force 

attempted to institute controls going forward. For example, the Air Force 

instituted a closer review of invoices to identify items that were billed but 

were not approved by the United States through change orders. However, 

under pressure to keep the project moving forward to completion, the Air 

Force subsequently relinquished much of this control by expediting the 

payment of invoices upon receipt from LBB-Kaiserslautern including 

charges for unapproved work. Examples of the relaxing of these controls 

include: 

• paying invoices submitted after September 2006 on work billed to the Air 

Force related to the 400 contract changes which had not been submitted 

by LBB-Kaiserslautern, and 

• approving invoices even though the line item quantities greatly exceed 

contracted amounts. 

The Air Force stated the decision to relax the controls was made so that 

construction proceeded as expeditiously as possible on the KMCC.15

Despite the removal of these controls, the number of workers on-site has 

still decreased significantly. In addition, Air Force officials stated that they 

viewed these payments on unapproved work as “partial payments” of 

 15The Air Force continues to look for ways to relax controls to expedite payment. For 

example, the Air Force is studying whether to approve change orders based on contractor’s

initial offer instead of negotiated amount, as is typically required. 

Page 19 GAO-07-1039T 
expenses, and that any disputes in payments could be recouped upon 

project completion. However, we have reported in the past that such “pay

and chase” strategies are not effective and increase risks substantially to 

recover the unapproved amounts. The Air Force was unable to provide 

any examples were the United States had successfully recouped

overpayments in German courts. 

The substantial schedule and cost overruns of the KMCC may affect

military personnel and have major implications for future projects in 

Germany. The effects of these cost increases are likely to be shouldered by 

our men and women in the military. AAFES, the largest financial 

contributor to the KMCC, has stated that cost overruns have reduced the

return of investment (e.g., the amount of profit they plan to receive from 

the project). As a result, AAFES and Air Force Services Agency funding of

morale, welfare, and recreational activities for U.S. military members may 

be reduced. In addition, the escalation in costs may also affect the ability 

of AAFES and the Air Force Services Agency to finance future capital 

projects from its nonappropriated funds. Further, because of the delay in

the completion of the visiting quarters portion of the KMCC, service 

members on travel to other locations, including Iraq and Afghanistan, may 

have to stay off-base. In addition to the inconvenience that this places on 

service members, the Department of Defense—and thus taxpayers—must 

fund the additional cost of any required temporary lodging off-base, which

the Air Force estimates to be approximately $10,000 per day or $300,000

per month. 

In addition to the effect on military members and their families, the 

current Air Force project management weaknesses may have implications 

for future Air Force construction in Germany. The Air Force planned 

construction within the Federal Republic of Germany for the next 5 fiscal

years totals more than $400 million. These construction projects include 

small operations and maintenance projects (such as school renovations 

and road repairs) and major military construction projects (such as a 

$50 million clinic and a $50 million base exchange and commissary). 

Absent better Air Force controls, these projects may experience the same 

types of heightened risks associated with KMCC. 

Although one of the major problems with KMCC related to ineffective 

project management by LBB-Kaiserslautern, the Air Force did not 

effectively institute oversight to mitigate the high-risk nature of the entire 

project. By the time the Air Force started making an attempt at oversight,

KMCC Problems May 

Adversely Affect 

Military Members and 

Future Construction 

Projects

Concluding 

Comments 

Page 20 GAO-07-1039T 
the project was already several months past the original construction 

deadline of early 2006. With mounting problems including contractors 

walking off the job, the Air Force faces the dilemma of instituting controls 

far too late in the process and further extending the completion of the 

project versus paying whatever it costs to get the job done as quickly as 

possible. The likely substantial cost overruns and potential years of 

schedule slippage will negatively affect morale, welfare, and recreation 

programs for DOD service members, civilians, and their families for years.

The Air Force needs to seriously consider substantial changes in oversight 

management capabilities for the hundreds of millions of dollars of planned 

construction projects planned in Germany over the next several years. 

Mr. Chairman and Members of the committee, this concludes our 

statement. We would be pleased to answer any questions that you or other 

members of the committee may have at this time. 

For further information about this testimony, please contact Gregory Kutz 

at (202) 512-7455 or kutzg@gao.gov or Terrell Dorn at (202) 512-6293 or 

dornt@gao.gov. Contacts points for our Offices of Congressional Relations 

and Public Affairs may be found on the last page of this testimony. 

GAO Contacts 

Page 21 GAO-07-1039T 
Page 22 GAO-07-1039T 

Appendix I: Scope and Methodology 

To assess the current problems facing Kaiserslautern Military Community

Center (KMCC), we interviewed agency officials from the Air Force at 

Ramstein Air Force Base in Germany. We physically inspected the KMCC 

facility with an Air Force project manager and documented construction 

problems. We also reviewed financial records and statements in the form 

of contracts, change orders, and invoices to the extent that they were 

available. 

To examine the effect the Auftragsbaugrundsaetze 1975 (ABG-75) had on

the management of the KMCC project, we reviewed the ABG-75 

agreement, which outlines construction requirements for U.S. forces 

stationed in Germany. In addition, we conducted interviews with officials 

from the Air Force, Landesbetrieb Liegenschafts- und Baubetreuung (LBB) 

the German government construction agency, and the U.S. Army Corps of 

Engineers. 

In order to determine the management weaknesses of LBB and the Air 

Force, we interviewed officials from both organizations, conducted 

interviews with other organizations affected by the KMCC project 

including the Air Force Office of Special Investigations (AFOSI), Air Force 

Audit Agency, Air Force Services Agency, and the Army and Air Force 

Exchange Service. We also reviewed applicable Department of Defense 

Financial Management Regulations as well as the National Fire Protection 

Association standards. 

To assess the effect that control weaknesses found in the KMCC project 

could have on future the Air Force projects in Germany, we obtained 

information from the Air Force on future construction plans in Germany. 

We also interviewed Air Force officials to determine what changes in 

processes had been made that would affect future construction projects.

We performed our audit work from May 2007 through June 2007. Audit 

work was conducted in accordance with generally accepted government 

auditing standards. 

(192247) 
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