Military Construction: Observations on Mismanagement of the Kaiserslautern Military Community Center
Published: 2007-06-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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. 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.

section_title: Letter
paragraphs: 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, military  construction appropriations, and Rhein Main Transition Program funds.  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, 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.
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.
subsections: section_title: KMCC Currently Experiencing Substantial Cost, Schedule, and Performance Problems
paragraphs: 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. LBB- Kaiserslautern 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.
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  repair and replacement discussed later, as well as hindrance claims  associated with the project. 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.
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.
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.
Exhaust ducts: The kitchen exhaust ducts installed in the KMCC do not  comply with fire code standards established by the National Fire  Protection Association. 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.
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.
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 LBB- Kaiserslautern have been replaced. Also, JSK, the firm hired by LBB- Kaiserslautern 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 LBB- Kaiserslautern offices have been searched and documentation seized by  both AFOSI and German police in relation to these investigations.
section_title: KMCC Problems Caused by Overseas Construction Risks, LBB-Kaiserslautern Management Deficiencies, and Lack of Air Force Controls
paragraphs: 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.
subsections: section_title: Overseas Construction Risks
paragraphs: 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  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 lots 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  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.
section_title: LBB-Kaiserslautern Did Not Effectively Perform Required Duties for the KMCC
paragraphs: 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.
subsections: section_title: Flawed Project Design and Implementation
paragraphs: 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:    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  fix the problem. Figure 4 below is a picture of the flammable sealant used  in the 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 open- grid 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  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.
section_title: Ineffective Project Management
paragraphs: 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, LBB- Kaiserslautern did not carry out its requirements in the following areas:    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  to process necessary change orders as required by ABG-75. According to  Air Force officials, there are hundreds of change orders that LBB- Kaiserslautern 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, LBB- Kaiserslautern 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 LBB- Kaiserslautern 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: LBB- Kaiserslautern 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 LBB- Kaiserslautern was in September 2006 and showed a completion date of  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.
section_title: Air Force Did Not Appropriately Minimize Risks
paragraphs: 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.
subsections: section_title: Air Force Lacked Necessary Staffing and Expertise for Adequate Oversight
paragraphs: 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  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.  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 construction- funded project.
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.
section_title: Air Force Policies and Control Procedures were Inadequate
paragraphs: 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  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.  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  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.
section_title: KMCC Problems May Adversely Affect Military Members and Future Construction Projects
paragraphs: 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.
section_title: Concluding Comments
paragraphs: 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,  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.
section_title: GAO Contacts
paragraphs: 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.
section_title: Appendix I: Scope and Methodology
paragraphs: 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.
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