Prior to the war in Iraq, DOD and the U.S. government agencies responsible for the reconstruction of Iraq believed that reconstruction would take place in an environment with little threat from insurgents or terrorists. By June 2003, the security situation began to worsen, and it became clear in August 2003 with the bombing of the United Nations complex that insurgents were targeting nonmilitary targets. As the Comptroller General testified before this subcommittee in April 2006, the poor security environment continues to be a concern as insurgents demonstrate the ability to recruit, supply, and attack coalition and Iraqi security forces, and impede the development of an inclusive Iraqi government and effective Iraqi security forces. The insurgency intensified through October 2005 and has remained strong since then. According to a February 2006 testimony by the Director of National Intelligence, insurgents are using increasingly lethal improvised explosive devices and continue to adapt to coalition countermeasures. Our July 2005 report on private security providers addressed, among other things, the mission of private security providers in Iraq, the laws and guidance governing the conduct of private security providers, and the cost impact of using private security providers. The mission of private security providers is to protect government agency officials and reconstruction contractors in Iraq’s unstable security environment. Providers may be U.S. or foreign companies and their staffs are likely to be drawn from various countries, including the United States, the United Kingdom, South Africa, Nepal, Sri Lanka, or Fiji, and may include Kurds and Arabs from Iraq. Generally, private security providers provide the following services: Static security – security for housing areas and work sites, Personal security details – security for high-ranking U.S. officials, Security escorts – security for government employees, contractor employees, or others as they move through Iraq, Convoy security – security for vehicles and their occupants as they make their way into Iraq or within Iraq, and Security advice and planning. During its existence, the Coalition Provisional Authority (CPA) issued a number of orders or memoranda to regulate private security providers and their employees working in Iraq between December 2003 and June 2004. Among these are CPA order number 3, which authorized possession, use and registration of weapons used by private security providers; CPA order number 17, which stated that contractors (including private security providers) will generally be immune from the Iraqi legal process for acts performed in accordance with the terms and conditions of their contracts; and CPA Memorandum number 17, which stated that private security providers and their employees must be registered and licensed by the government of Iraq. According to the Director of the Private Security Companies Association of Iraq, as of June 1, 2006, the CPA memorandum and orders were still in effect. In September 2005, U.S. Central Command’s Staff Judge Advocate issued interim legal guidance regarding DOD’s use of private security providers in Iraq. The September 2005 guidance permitted the use of properly licensed private security providers to protect civilians, contractors, nonmilitary facilities and equipment as well as static military facilities and the military personnel and equipment within them. In January 2006, the U.S. Central Command’s Staff Judge Advocate issued additional guidance which gave commanders in Iraq the authority to use private security providers to provide security to convoys transporting military supplies and to provide personal security. Currently, DOD is using private security providers to guard facilities located within U.S. bases and installations, and may expand its use of private security providers based on the January 2006 guidance. However, it is not clear to what extent DOD plans to make use of this expanded authority. Although private security providers are generally not subject to prosecution under the Uniform Code of Military Justice in the absence of a formal declaration of war by Congress, the federal government can impose sanctions in response to acts of misconduct. For example, private security providers are subject to prosecution by the Department of Justice under applicable U.S. federal laws, to include the Military Extraterritorial Jurisdiction Act, the special maritime and territorial jurisdiction provisions of title 18 of the U.S. code, and the War Crimes Act. Despite the significant role played by private security providers in enabling reconstruction efforts to proceed, neither the Department of State, nor DOD, nor the USAID—the principal agencies responsible for Iraq reconstruction efforts—had complete data on the costs associated with using private security providers. As of December 2004, the agencies and contractors we reviewed had obligated more than $766 million for security services and equipment, and by reviewing invoices that providers of security services and equipment provided to the contractors, we found that security costs had accounted for more than 15 percent of the contract’s costs in 8 of the 15 contracts we reviewed. We cautioned, however, that our estimates did not reflect security-related costs incurred by subcontractors or lower tier suppliers, or attempt to quantify the impact of the security environment on the pace of reconstruction efforts caused by security-related work stoppages or delays or the costs associated with repairing the damage caused by the insurgency on work previously completed. In January 2006, the State Department reported to Congress that direct and indirect costs of security represented 16 to 22 percent of the overall cost of major infrastructure reconstruction projects. DOD officials acknowledged, however, that the estimate may not have accounted for all security costs and that different methodologies and methods were used to prepare the estimate. Given the expectation of a relatively benign environment that would require only a minimal level of security, such costs undoubtedly diverted resources and contributed to decisions to cancel or reduce the scope of some projects. In our view, the absence of reliable data in an area critical to supporting U.S. efforts, limited the agencies’ ability to assess the impact of and manage security costs on future reconstruction efforts. Consequently, we recommended in our July 2005 report that agencies develop a means to track and account for security costs to develop more accurate budget estimates. In early June 2006, the State Department issued a procurement information bulletin in response to our recommendation. The Department noted that DOD, USAID and the State Department had agreed to include requirements for reconstruction contractors to report all costs for private security supplies and services that the contractor or any subcontractor may have to acquire necessary for the successful performance of the contract. For example, for all future contracts where performance or delivery takes place in Iraq, contractors are required to include in their proposal an estimate of all costs expected to be incurred by the contractor, or any tier of subcontractor, for private security goods or services that the contractor or subcontractor obtained as part of contract performance. The contractors will be required to report similar information when submitting invoices for payment for goods and services provided. If fully implemented, such an approach should provide the Department with a clearer picture on the impact of security costs on reconstruction contracts. Despite improvements in coordination between private security providers and the U.S military, military officials we met with in Iraq in May 2006 and those who recently returned from Iraq said that coordination continues to be a problem. Coordination between the U.S. military and private security providers evolved from an informal coordination based on personal relationships to a more structured, although voluntary, mechanism—the ROC. U.S. military and contractor officials we spoke with prior to issuing our July 2005 report had indicated that coordination had improved. While the ROC has helped improve coordination between the military and security providers, military officials we spoke to during our May 2006 visit to Iraq and representatives from the 3rd Infantry Division remain concerned about coordination. Officials from the 3rd Infantry Division, who were located in Baghdad from January 2005 to January 2006, told us that (1) they had a difficult time working and interfacing with private security providers during their deployment because they had no means to communicate with the private security providers, (2) they were unfamiliar with the ROC, and (3) private security providers frequently entered their battle space without notifying the division. Military officials we spoke with stated that private security providers should be required to coordinate with the military. Several U.S. military officers whom we interviewed who served in Iraq said that they had a responsibility to aid contractors who need assistance. If private security providers do not coordinate their movements with military units, it places both the U.S. military and the private security providers at risk. Also, with better coordination, private security providers would be informed of areas that were unsafe and either change their route or delay the movement. At the time we issued our report in July 2005, incidents of U.S. military shooting at private security providers were a concern. During the 5-month period of January through May 2005, the ROC received reports of 20 friendly-fire incidents. It is likely that the number of actual incidents during that time period was higher since some providers told us they stopped reporting these types of incidents. For the 12-month period, from June 1, 2005 to June 1, 2006, 12 incidents were reported to the ROC. We spoke with the Director of the Private Security Company Association of Iraq about these incidents, among other things. He said that he believes the decrease in such incidents is the result of better enforcement of the rules of engagement by the U.S. military. In addition to better enforcement of the rules of engagement, which require that U.S. troops determine whether a person’s intent is hostile before the military uses deadly force, the director of the ROC believed that our 2005 report led to increased awareness of the issue. We recommended in 2005 that the Secretary of Defense develop a training package for units deploying to Iraq to improve coordination between the U.S. military and private security providers. The training package would include information on the ROC, typical private security provider operating procedures, and any guidance or procedures developed by Multi-national Force-Iraq (MNF-I) or Multi-national Corps-Iraq (MNC-I) applicable to private security providers. Although the Department of Defense agreed with our recommendation and tasked the Joint Staff to develop the training package, no action had been taken.