Contract Management: Contracting for Iraq Reconstruction and for Global Logistics Support
Published: 2004-06-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The General Accounting Office (GAO) discussed some of the work the it is undertaking to address various operations and rebuilding efforts in Iraq. Specifically, GAO has a body of ongoing work looking at a range of issues involving Iraq, including Iraq's transitional administrative law, efforts to restore essential services to the Iraqi people, and the effectiveness of logistics activities during Operation Iraqi Freedom, among others. Importantly, given the challenging security environment in Iraq and the various other accountability organizations involved in the oversight process, it is attempting to coordinate its engagement planning and execution with other organizations as appropriate. In this testimony it discussed (1) its report (GAO-04-605) that was released yesterday on the contract award procedures for contracts awarded in fiscal year 2003 to help rebuild Iraq and (2) its preliminary findings on the military's use of global logistics support contracts. These support contracts have emerged as important tools in providing deployed military services with a wide range of logistics services.
section_title: What GAO Found
paragraphs: With regard to the award of fiscal year 2003 Iraq reconstruction contracts, GAO found that agencies generally complied with applicable laws and regulations governing competition when using sole-source or limited competition approaches to award new contracts. However, they did not always do so when issuing task orders under existing contracts. In several instances, GAO found that contracting officers issued task orders for work that was not within the scope of the underlying contracts and which should have been awarded using competitive procedures or, because of the exigent circumstances involved, supported by a justification for other than full and open competition in accordance with legal requirements. With regard to DOD's use of global logistics support contracts, GAO found mixed results in each of the four areas it reviewed: planning, oversight, efficiency, and personnel. GAO also found that while some military commands actively looked for ways to save money, others exhibited little concern for cost considerations. Finally, shortages in personnel trained in contract management and oversight is also an issue that needs to be addressed. The report will make a number of recommendations to address these shortcomings.

section_title: Letter
paragraphs: I appreciate the opportunity to be with you today to discuss some of the  work the General Accounting Office (GAO) is undertaking to address  various operations and rebuilding efforts in Iraq. Specifically, GAO has a  body of ongoing work looking at a range of issues involving Iraq, including  Iraq’s transitional administrative law, efforts to restore essential services  to the Iraqi people, and the effectiveness of logistics activities during  Operation Iraqi Freedom, among others. Importantly, given the challenging  security environment in Iraq and the various other accountability  organizations involved in the oversight process, we are attempting to  coordinate our engagement planning and execution with other  organizations as appropriate.
Today, I would like to discuss (1) our report that we released yesterday on  the contract award procedures for contracts awarded in fiscal year 2003 to  help rebuild Iraq and (2) our preliminary findings on the military’s use of  global logistics support contracts. These support contracts have emerged  as important tools in providing deployed military services with a wide  range of logistics services.
Before I discuss our findings, I would like to briefly touch upon the scope  of these two efforts. First, given the widespread congressional interest in  ensuring that Iraq reconstruction contracts are awarded properly and  administered effectively, we initiated a review under my authority that  focused on reconstruction-related contract actions by the Department of  Defense (DOD) (primarily the U.S. Army, including the Army Corps of  Engineers), the U.S. Agency for International Development (USAID), and  the Department of State. Specifically, we judgmentally selected 25 fiscal  year 2003 contract actions, consisting of 14 new contracts awarded using  other than full and open competition and 11 task orders issued under  existing contracts. These 25 contract actions represented about 97 percent  of the nearly $3.7 billion that had been obligated for Iraqi reconstruction  through September 30, 2003. We conducted this work between May 2003  and April 2004 in accordance with generally accepted government auditing  standards.
Second, our work on the military’s use of global logistics support  contracts, initiated at the request of the Ranking Members of this  committee and the House Committee on Energy and Commerce, is one of  a series of studies we have done on the military’s use of private  contractors to support deployed forces. This work looks broadly across  each of the services and includes four contracts: (1) the Army’s Logistics  Civil Augmentation Program (LOGCAP) contract; (2) the Air Force’s  Contract Augmentation Program (AFCAP) contract; (3) the U.S. Army,  Europe’s Balkan Support Contract (BSC); and (4) the Navy’s Construction  Capabilities (CONCAP) contract. We have completed our fieldwork and  are now drafting our report, which we expect to publish this summer. In  performing our work, we examined a wide range of contract documents  and contracting guidance and met with contracting officers, contract  customers, and the contractors to gain a comprehensive understanding of  the contracts, the contract management process, and the issues related to  using these contracts. We conducted this work between August 2003 and  June 2004 in accordance with generally accepted government auditing  standards.
subsections: section_title: Compliance with Competition Requirements
paragraphs: We found that the agencies responsible for rebuilding Iraq generally  complied with applicable requirements governing competition when  awarding new reconstruction contracts in fiscal year 2003. While the  Competition in Contracting Act of 1984 requires that federal contracts be  awarded on the basis of full and open competition, the law and  implementing regulations recognize that there may be circumstances  under which full and open competition would be impracticable, such as  when contracts need to be awarded quickly to respond to unforeseen and  urgent needs or when there is only one source for the required product or  service. In such cases, agencies are given authority by law to award  contracts under limited competition or on a sole-source basis, provided  that the proposed actions are appropriately justified and approved.
We reviewed 14 new contracts that were awarded in fiscal year 2003 using  other than full and open competition: a total of 5 sole-source contracts  awarded by the Army Corps of Engineers, the Army Field Support  Command, and USAID; and 9 limited competition contracts awarded by  the Department of State, the Army Contracting Agency, and USAID. For 13  of these new contracts, agency officials adequately justified their decisions  and complied with the statutory and regulatory competition requirements.  For example, USAID officials awarded seven contracts under limited  competition and two sole-source contracts citing an exception to the  competition requirements that was provided for under the Federal  Property and Administrative Services Act. USIAD concluded that the use  of standard competitive procedures would not enable it to put in place  foreign aid programs and activities for Iraq in a timely manner. We found  that USAID’s justification and approval documentation supporting the  award of these contracts complied with applicable requirements. As I will  shortly discuss in more detail, we also found that the Army Corps of  Engineers properly justified the award of a sole-source contract to restore  Iraq’s oil infrastructure. In one case, however, the Department of State  justified and approved the use of limited competition under a unique  authority that, in our opinion, may not be a recognized exception to the  competition requirements. At the same time, State took steps to obtain  some competition by inviting offers from four firms. In addition, it is likely  that State could have justified and approved its limited competition under  recognized exceptions to the competition requirements.
With respect to issuing a task order under an existing contract, the  competition law does not require competition beyond that obtained for the  initial contract award, provided the task order does not increase the  scope of the work, period of performance, or maximum value of the  contract under which the order is issued. The scope, period, or maximum  value may be increased only by modification of the contract, and  competitive procedures are required to be used for any such increase  unless an authorized exception applies. As we noted in our report released  yesterday, determining whether work is within the scope of an existing  task order contract is primarily an issue of contract interpretation and  judgment by the contracting officer.
We found several compliance problems when agencies issued task orders  under existing contracts. Specifically, of the 11 task orders we reviewed,  7 were, in whole or part, not within scope. For example, the Defense  Contracting Command-Washington (DCC-W) improperly used a General  Services Administration (GSA) schedule contract to issue two task orders  to the Science Applications International Corporation with a combined  value of over $107 million for work that was outside the scope of the  schedule contract. One order involved developing a news media  capability—including radio and television programming and  broadcasting—in Iraq. The other required the contractor to recruit people  identified by DOD as subject matter experts, enter into subcontracts with  them, and provide them with travel and logistical support within the  United States and Iraq. The GSA schedule contract, however, was for  management, organizational, and business improvement services for  federal agencies. In our view, the statements of work for both task orders  were outside the scope of the schedule contract.
Another example of an agency issuing a task order that was outside the  scope of the underlying contract involved the Army Field Support  Command’s $1.9 million task order for contingency planning for the Iraqi  oil infrastructure mission under the LOGCAP contract with Kellogg Brown  & Root. This task order, issued in November 2002, required the contractor  to develop a plan to repair and restore Iraq’s oil infrastructure should Iraqi  forces damage or destroy it. Because the contractor was knowledgeable  about the U.S. Central Command’s planning for conducting military  operations, DOD officials determined that the contractor was uniquely  positioned to develop the contingency support plan. DOD also determined  that developing the contingency plan was within the scope of the overall  LOGCAP contract. We have concluded, however, that preparation of the  contingency support plan for this specific mission (i.e. restoring Iraq’s oil  infrastructure) was beyond the scope of the contract. Specifically, we read  the LOGCAP statement of work as providing for contingency planning  only when the execution of the mission involved is within the scope of the  contract. In this regard, all parties—including GAO and DOD—agree that  repairing Iraq’s oil infrastructure would not have been within the scope of  the LOGCAP contract. Consequently, we concluded that planning the oil  infrastructure restoration was also not within the scope of the contract.  The Army Field Support Command should have prepared a written  justification to authorize the work without competition. In light of the  exigent circumstances, such a justification was likely possible but needed  to be made and documented to comply with the law and protect the  taxpayer’s interests.
DOD planners believed early on that issuance of this task order would  result in Kellogg Brown & Root being uniquely qualified to initially execute  the plan for restoring the Iraqi oil infrastructure, the so-called “RIO  contract.” Subsequently, the RIO contract was awarded in March 2003 to  Kellogg Brown & Root. The contracting officer’s written justification for  the sole-source contract outlined the rationale for the decision. The  justification was approved by the Army’s senior procurement executive, as  required. We reviewed the justification and approval documentation and  determined that it generally complied with applicable legal standards.  We made several recommendations to the Secretary of the Army to review  out-of-scope task orders to address outstanding issues and take  appropriate actions, as necessary. DOD generally concurred with the  recommendations and noted that it was in the process of taking corrective  actions. DOD also agreed with our recommendation that the Secretary of  Defense evaluate the lessons learned in Iraq and develop a strategy for  assuring that adequate acquisition staff and other resources can be made  available in a timely manner.
section_title: DOD’s Use of Logistics Support Contracts
paragraphs: I will now turn to discussing our ongoing work on DOD’s use of global  logistics support contracts. As I previously noted, we looked at four such  contracts, which have been used by all the military services to provide a  wide array of services, including operating dining facilities and providing  housing, in more than half a dozen countries, including Iraq, Kuwait, and  Afghanistan. In total, the estimated value of the work under the current  contracts is $12 billion, including $5.6 billion for work in Iraq through  May 2004. Before summarizing our preliminary findings, let me first make  an overall observation about the vital services that these types of contracts  provide. The contractors and the military services have, for the most part,  worked together to meet military commanders’ needs, sometimes in very  hazardous or difficult circumstances. For example, the LOGCAP contract  is providing life and logistics support to more than 165,000 soldiers and  civilians under difficult security circumstances in Iraq, Afghanistan,  Kuwait, and Djibouti, and customers told us they are generally pleased  with the service the contractor is providing. The AFCAP contractor is  providing air traffic management at air bases throughout central Asia,  supplementing scarce Air Force assets and providing needed rest for Air  Force service members who also perform this function. Using the  CONCAP contract, the Navy has constructed detainee facilities (including  a maximum security prison) at Guantanamo Bay on time and within  budget. Projects at Guantanamo have increased the safety of both the  detainees and the U.S. forces guarding them and resulted in real savings in  reduced personnel tempo. Finally, the BSC continues to provide a myriad  of high quality services to troops in Kosovo and Bosnia, and the customer  works with the contractor to identify costs savings.
Within this overall context, we found mixed results in each of the four  areas we reviewed—planning, oversight, efficiency and personnel—with  variations occurring among the four contracts and among the various  commands using them. Our report, which will be issued later this year, will  make a number of recommendations to address the shortcomings we  identified in these areas.
subsections: section_title: Planning
paragraphs: In assessing DOD’s planning, we found that some customers planned quite  well for the use of the contracts, following service guidance and including  the contractor early in planning. For example, in planning for Operation  Iraqi Freedom, U.S. Army, Europe, was tasked with supporting the  anticipated movement of troops through Turkey into Iraq, and our review  of that planning showed that the command followed applicable Army  guidance to good effect. In October 2002, the command brought  contractor personnel to its headquarters in Europe to help plan and  develop the statement of work. According to a briefing provided by  U.S. Army, Europe, contractor planners brought considerable knowledge  of contractor capabilities, limitations, and operations, and their  involvement early in the planning efforts increased understanding of the  requirements and capabilities, facilitated communication regarding the  statement of work, and enhanced mission completion.
Conversely, we found that the use of LOGCAP in Kuwait and Iraq was not  adequately planned, nor was it planned in accordance with applicable  Army guidance. Given the lack of early and adequate planning and  contractor involvement, two key ingredients needed to maximize LOGCAP  support and minimize cost—a comprehensive statement of work and early  contractor involvement—were missing. Specifically:    A plan to support the troops in Iraq was developed in May 2003, but was  not comprehensive because the contractor was not involved in the early  planning and it did not include all of the dining facilities, troop housing,  and other services that the Army has since added to the task order.  According to an official from the 101st Airborne Division, there was a lack  of detailed planning for the use of LOGCAP at the theater and division  levels for the sustainment phase of the operation. He added that Army  planners should develop a closer working relationship with the divisions  and the contractor.
Task orders were frequently revised. These revisions generated a  significant amount of rework for the contractor and the contracting  officers. Additionally, time spent reviewing revisions to the task orders is  time that is not available for other oversight activities. While operational  considerations may have driven some of these changes, we believe others  were more likely to have resulted from ineffective planning. For example,  the task order supporting the troops in Iraq was revised 7 times in less  than 1 year. Frequent revisions have not been limited to this task order.  Task order 27, which provides support to U.S troops in Kuwait (estimated  value of $426 million as of May 2004), was changed 18 times between  September 2002 and December 2003, including 5 changes in one month,  some on consecutive days. As of May 11, 2004, the contracting office,  DCMA, and the contractor had processed more than 176 modifications to  LOGCAP task orders.
section_title: Contract Oversight
paragraphs: In some cases, we found that contract oversight processes were in place  and functioning well. For example, the Defense Contract Management  Agency (DCMA) had principal oversight responsibility for the LOGCAP  and AFCAP contracts and the BSC, and DCMA generally provided good  overall contract oversight, although we found some examples where it  could have improved its performance. For example:    Effective oversight of the diverse functions performed under the contracts  requires government personnel with knowledge and expertise in these  specific areas. DCMA contract administrators are contracting  professionals, but many have limited knowledge of field operations. In  these situations, DCMA normally uses contracting officer’s technical  representatives. Contracting officer’s technical representatives are  customers who have been designated by their units and appointed and  trained by the administrative contracting officer. They provide technical  oversight of the contractor’s performance. We found that DCMA had not  appointed these representatives at all major sites in Iraq. Officials at the  101st Airborne Division, for example, told us that they had no contracting  officer’s technical representatives during their year in Iraq, even though  the division used LOGCAP services extensively.
For task orders executed in southwest Asia, the AFCAP procuring  contracting officer delegated the property administration responsibility to  DCMA administrative contracting officers. However, contract  administrators in southwest Asia did not ensure that the contractor had  established and maintained a property control system to track items  acquired under the contract. In addition, DCMA contracting officers in  southwest Asia did not have a system in place to document what the  contractor was procuring in support of AFCAP task orders and what was  being turned over to the Air Force. As a result, as of April 2004, neither  DCMA nor the Air Force could account for approximately $2 million worth  of tools and construction equipment purchased through the AFCAP  contract.
An important element of contract administration is the definitizing of task  orders, that is, reaching agreement with the contractor on the terms,  specifications, or price of services to be delivered. All of the contracts  included in our review were cost-plus award fee contracts. These  contracts allow the contractor to be reimbursed for reasonable, allowable,  and allocable costs incurred to the extent prescribed by the contract and  provide financial incentives based on performance. Cost-plus award fee  contracts allow the government to evaluate a contractor’s performance  according to specified criteria and to grant an award amount within  designated parameters. Award fees can serve as a valuable tool to help  control program risk and encourage excellence in contract performance.  To reap the advantages that cost-plus award fee contracts offer, the  government must implement an effective award fee process. Any delays in  definitizing task orders, however, make cost-control incentives in these  award fee contracts less effective as a cost control tool since there is less  work remaining to be accomplished and therefore less costs to be  controlled by the contractor.
While we found that AFCAP and BSC task orders were definitized quickly,  and CONCAP task orders do not require definitization since the terms,  specifications, and price are agreed to before work begins, we also found  that many LOGCAP task orders remain undefinitized for months, and  sometimes more than a year, after they were due to be completed and  after billions of dollars of work had been completed. Because task orders  have not been definitized, LOGCAP contracting personnel have not  conducted an award fee board. I would like to note, however, that this  condition is not limited to the LOGCAP contract. We stated in our report  released yesterday that the Army Corps of Engineers has yet to definitize  its March 2003 contract to rebuild Iraq’s oil infrastructure or one of its  contracts to rebuild Iraq’s electrical infrastructure and recommended that  the undefinitized contracts and task orders be definitized as soon as  possible. DOD agreed with this recommendation and identified a number  of steps being taken to do so.
section_title: Economy and Efficiency
paragraphs: We again found mixed results in evaluating the attention to economy and  efficiency in the use of contracts. In some cases, we saw military  commands actively looking for ways to save money in the contracts. For  example, U.S. Army, Europe, reported savings of approximately  $200 million under the BSC by reducing labor costs, by reducing services,  and by closing or downsizing camps that were no longer needed. The  $200 million is almost 10 percent of the current contract ceiling price of  $2.098 billion. In addition to these savings, U.S. Army, Europe, routinely  sends in teams of auditors from its internal review group to review  practices and to make recommendations to improve economy and  efficiency. In others, however, most notably the LOGCAP contract in Iraq  and Kuwait, we saw very little concern for cost considerations. It was not  until December 2003, for example, that the Army instructed commands to  look for ways to economize on the use of this contract. Similarly, we found  that the Air Force did not always select the most economical and efficient  method to obtain services. It used the AFCAP contract to supply  commodities for its heavy construction squadrons, although use of the  contract to procure and deliver commodity supplies required that the Air  Force pay the contractor’s costs plus an additional award fee. Air Force  officials said that they used AFCAP because not enough contracting and  finance personnel were deployed to buy materials quickly or in large  quantities. AFCAP program managers have recognized that the use of a  cost-plus award fee contract to buy commodities may not be the most  cost-effective method and said that the next version of the contract may  allow for either firm-fixed prices or cost-plus fixed fee procurements for  commodity purchases.
section_title: Personnel and Training
paragraphs: We found that shortages of personnel have also made contract oversight  difficult. For example, while DCMA has deployed contracting officers to  several countries throughout southwest and central Asia and the Balkans  to provide on-site contract administration, DCMA officials believe that  additional resources are needed to effectively support the LOGCAP and  AFCAP contracts. Administrative contracting officers in Iraq, for example,  have been overwhelmed with their duties as a result of the expanding  scope of some of the task orders. Additionally, some Army and Air Force  personnel with oversight responsibilities did not receive the training  necessary to effectively accomplish their jobs. Finally, we found that  military units receiving services from the contracts generally lacked a  comprehensive understanding of their contract roles and responsibilities.  For example, commanders did not understand the part they played in  establishing task order requirements, nor did they fully understand the  level of support required by the contractors.
section_title: Concluding Observations
paragraphs: In conclusion, Mr. Chairman, the United States, along with its coalition  partners and various international organizations and donors, has  undertaken an enormously complex, costly, and challenging effort to  rebuild Iraq in an unstable security environment. At the early stages of  these efforts, agency procurement officials were confronted with little  advance warning on which to plan and execute competitive procurement  actions, an urgent need to begin reconstruction efforts quickly, and  uncertainty as to the magnitude and term of work required. Their actions,  in large part, reflected proper use of the flexibilities provided under  procurement laws and regulations to award new contracts using other  than full and open competitive procedures.
With respect to several task orders issued under existing contracts,  however, some agency officials overstepped the latitude provided by  competition laws by ordering work outside the scope of the underlying  contracts. This work should have been separately competed, or justified  and approved at the required official level for performance by the existing  contractor. Importantly, given the war in Iraq, the urgent need for  reconstruction efforts, and the latitude allowed by the competition law,  these task orders reasonably could have been supported by justifications  for other than full and open competition.
Logistics support contracts have developed into a useful tool for the  military services to quickly obtain needed support for troops deployed to  trouble spots around the world. Because of the nature of these contracts,  however—that is, cost-plus award fee contracts—they require significant  government oversight to make sure they are meeting needs in the most  economic and efficient way possible in each circumstance. While the  military services are learning how to use these contracts well, in many  cases the services are still not achieving the most cost-effective  performance and are not adequately learning and applying the lessons of  previous deployments. Because of the military’s continuing and growing  reliance on these contracting vehicles, it is important that improvements  be made and that oversight be strengthened.
Mr. Chairman and Members of the committee, this concludes my  statement. I will be happy to answer any question you may have.
section_title: Contact and Acknowledgment
paragraphs: For further information, please contact Neal P. Curtin at (757) 552-8111 or  curtinn@gao.gov or William T. Woods at (202) 512-4841 or  woodsw@gao.gov. Individuals making key contributions to this statement  include Robert Ackley, Ridge Bowman, Carole Coffey, Laura G. Czohara,  Gary Delaney, Timothy J. DiNapoli, George M. Duncan, Glenn D. Furbish,  C. David Groves, John Heere, Chad Holmes, Oscar W. Mardis, Kenneth E.  Patton, Ron Salo, Steven Sternlieb, Matthew W. Ullengren, John Van  Schaik, Adam Vodraska, Cheryl A. Weissman, and Tim Wilson.
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