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[H.A.S.C. No. 108–34]








JUNE 24, 2004

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JOEL HEFLEY, Colorado, Chairman
HOWARD P. ''BUCK'' McKEON, California
WALTER B. JONES, North Carolina
JIM RYUN, Kansas
ROBIN HAYES, North Carolina
KEN CALVERT, California
TOM COLE, Oklahoma
JOHN M. McHUGH, New York

LANE EVANS, Illinois
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GENE TAYLOR, Mississippi
VIC SNYDER, Arkansas
ROBERT A. BRADY, Pennsylvania
BARON P. HILL, Indiana
JOHN B. LARSON, Connecticut
SUSAN A. DAVIS, California
RICK LARSEN, Washington

Mary Ellen Fraser, Counsel
Diane Bowman, Staff Assistant
Danleigh Halfast, Staff Assistant



    Thursday, June 24, 2004, Contractor Support in the Department of Defense

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    Thursday, June 24, 2004



    Hefley, Hon. Joel, a Representative from Colorado, Chairman, Readiness Subcommittee

    Ortiz, Hon. Solomon P., a Representative from Texas, Ranking Member, Readiness Subcommittee


    Ballard, Tina, Deputy Assistant Secretary of the Army, (Policy and Procurement) Department of the Army

    Sambur, Hon. Marvin R., Assistant Secretary of the Air Force, (Acquisition) Department of the Air Force

    Wynne, Hon. Michael W., Under Secretary of Defense, Acquisition, Technology & Logistics (Acting) Department of Defense

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    Young, Hon. John J., Jr., Assistant Secretary of the Navy (Research, Development & Acquisition) Department of the Navy



Ballard, Tina

Sambur, Hon. Marvin R.

Wynne, Hon. Michael W.

Young, Hon. John J., Jr.


[The Documents submitted can be viewed in the hard copy.]


[The Questions and Answers can be viewed in the hard copy.]

Mr. Hefley

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Mr. Jones

Mr. Reyes

Mr. Taylor


House of Representatives,
Committee on Armed Services,
Readiness Subcommittee,
Washington, DC, Thursday, June 24, 2004.

    The subcommittee met, pursuant to call, at 10:01 a.m., in room 2118, Rayburn House Office Building, Hon. Joel Hefley (chairman of the subcommittee) presiding.


    Mr. HEFLEY. Good morning, and welcome to this morning's Readiness Subcommittee hearing on the topic of contractor support in the Department of Defense.

    The Department of Defense relies on three major workforce groups to perform its mission. First and primary is the military personnel, including active duty, reservists, and the guard. The second is the civilian workforce; and the third, of course, the focus of this hearing, is the contractor workforce. This latter group provides a significant level of effort to the Department of Defense.
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    Support or service contractors provide a myriad of services, including maintenance of weapon systems, logistics support, base operating support, linguists and operation of communication networks, to name just a few. The Department of Defense policy is to rely on the most effective mix of active, reserve, civilian and contract resources to fulfill peacetime and wartime missions.

    In fiscal year 2003, the Department procured approximately $209 billion of equipment, items and services. Of this amount, $90.5 billion was for supplies and equipment, $76.2 billion for services, $33.1 billion for research and development, and $9.2 billion for construction. The focus of the hearing will be on the range of services purchased with the $76.2 billion and the management and oversight of these services.

    Many of the questions the Members have today came to light as the use of contractors in Iraq became apparent. The subcommittee is interested in how the Department procures such services, the policy on management and oversight, and whether the Department should change some of these policies. Finally, what are the lessons learned from Iraq with respect to the use of contractors on the battlefield?

    I look forward to hearing from each of the witnesses, and now I am going to turn to Solomon Ortiz, who is my partner here, for any opening statement he might want to make.

    Mr. Ortiz.

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    Mr. ORTIZ. Thank you very much, Mr. Chairman. I join you in welcoming our distinguished panel of witnesses, and I thank you all for being here with us this morning.

    The nature of this hearing is very timely. Contractors provide valuable services to the Department of Defense. They are one leg of a tripod of manpower that includes military personnel and government employees. They maintain equipment and weapons systems, they supply our forces and deliver critical logistical capabilities, and they provide for the well being and quality of life of our servicemembers and their families at home and abroad.

    In some cases, unique skills critical to mission success reside only in the ranks of our contractors. In short, without them, large portions of our military would not function and important missions would go unaccomplished. These contractors are fine, committed Americans in every sense; and we are very grateful for their efforts.

    Still, I have some concerns about the roles contractors play in providing essential goods and services for our fighting men and women. Our readiness depends upon our ability to meet the demands of our forces during peak times and to preserve our industrial base to respond rapidly to demands during times of relative quiet.

    Contractors, by their very nature as private enterprises, are subject to the whims of the marketplace. If we unexpectedly require a key capability that has lain dormant for some time, we must be positive that it will be there when needed. There is no room for error, and I want to be clear that cost is not the only or best metric for success.
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    To that end then, I want to be sure that I understand how decisions such as how and when contractors are used in lieu of military or government employees are made and how they are supervised.

    Furthermore, there seems to be a push to contract out services that have traditionally resided in government-owned entities. The process of converting government functions to contractors is difficult. There is a potential for serious problems in the process and I would advocate a go-slow approach whenever we consider it.

    Additionally, watching the situation in Iraq develop, it is clear that the Department does not have its act completely together with regard to managing contractors. Clearly, the nature of trying to conduct business in a very difficult wartime setting is challenging, and I would not minimize the difficulties facing our people in Iraq. Still, we have cost overruns and services interrupted.

    We see clear indications that oversight is lacking; and a comprehensive plan for awarding, managing and monitoring contracts is not sufficiently in place. If this is a case study of the way the Department is organized to integrate contractors into the overall structure of the Department, then I see some reasons for concern.

    Members of the panel, I looked over the testimony and responses to our questions. Nevertheless, Mr. Chairman, I think these are issues surrounding contracting, and particularly with regards to activities in Iraq, we will not have sufficient time here today. This is why I recommend we also address these issues in a full committee hearing sometime in the near future, Mr. Chairman. And thank you for the time.
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    Mr. HEFLEY. Thank you, Mr. Ortiz.

    We have with us today the Honorable Michael Wynne, who is Under Secretary of Acquisition Technology and Logistics. I guess you are acting Under Secretary still, Mr. Wynne?

    Mr. WYNNE. I send in my dues every month, Mr. Chairman.

    Mr. HEFLEY. That is good. That is good. Well, we are delighted to have you here. And you are accompanied today by Lieutenant General C.V. Christianson, who is the Deputy Chief of Staff for G4, Department of the Army; and I don't know if you have a statement or not or if you are just here to answer questions, but whichever is fine with us.

    Also the Honorable John Young Jr., the Assistant Secretary of the Navy for Research, Development and Acquisition, from the Department of the Navy; the Honorable Marvin Sambur, Assistant Secretary of the Air Force for Acquisition; and Ms. Tina Ballard, Deputy Assistant Secretary of the Army for Policy and Procurement. And we are delighted to have each of you here.

    And let me say at the outset that your complete statements, without objection, will be made a part of the record, so if you would summarize your statements in whichever way you would like to, we will turn it over to you, Mr. Wynne.

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    Secretary WYNNE. Well, thank you very much, Mr. Chairman, Mr. Ortiz; it is good to be here. Members of the committee, I appreciate your coming. Thank you for the opportunity to discuss the role of contractors within the context of the Department of Defense.

    America's defense mission is clear. Our troops must protect America and her interests wherever and whenever they are called. This requires that our military and defense organizations use civilian contractors to allow the war fighter to concentrate on his or her core mission.

    This relationship is not a new one. We have been relying on defense contractors since General George Washington used them as wagon drivers to haul supplies. Today, in the Middle East, contractors provide maintenance for high-tech equipment and construction services, food, water and more. Back home the contractors play a direct role in the research and development of major weapons systems, provide critical support for our military bases, from high-tech nano-engineering on classified programs, to hauling trash and providing telephone service.

    Our budget for contracting goods and services over the past five years has moved more and more toward service contracts and away from simply hard goods, as we try to combine the best elements of commercial practice. This change is a reflection of our desire to buy capabilities. When we buy capabilities, contracts that once fell under the heading of goods are now considered service contracts.

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    For example, in information technology, in the past, contracts were for the purchase of a certain number of computer terminals and a certain number of software licenses, which are considered both, in their way, goods. And we would have had to put out a new contract for computer hardware with each upgrade that came along and perhaps order up a new license. This was a very slow and expensive process that left us behind the information technology curve.

    Today, we put out a contract for access to and use of the latest and most up-to-date information technology; so it is now up to the contractor to both purchase and supply both the hardware and software, complete with licenses, that we need. This makes the former contract for goods, in fact, turn into a service contract.

    This new direction in contracting requires us to rewrite our policies to mirror this new reality. So we have developed a management structure to manage service contracts, and we put that out about two or three years ago under the aegis of Secretary Pete Aldridge in managing service contracts that came in over a certain dollar threshold.

    Next, we are developing a DOD directorate for management of contractor personnel during contingency operations to address the issues of contractor personnel management. Under this policy, we will create a single DOD directive, as recommended by the General Accounting Office last June; and we will capture the lessons learned from recent operations, frankly, building on the Army's practices that have been in place for some time.

    Second, we are working on a rule to ensure the uniform treatment of contractors who accompany a deployed force and to enable the combatant commanders to rapidly adjust to changing conditions on the battlefield through cross-communications that are required.
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    In addition to these new rules, we expect to issue new guidance soon to the DOD contracting officers for oversight of wartime contracts. Under this new governance, DOD contracting officers would have to approve the use of non-DOD contract vehicles. We think that these policies and procedures that we have learned over time are going to really help us.

    As we move forward in this ever-evolving process of contracting, let us not lose sight of the true heroism and patriotism that Mr. Ortiz had mentioned for these civilian contractors, 30 plus of whom have died in the Middle East in support of our armed forces over the past year. Their persistence, their bravery and their courage under fire should be recognized, and they are still with us, Mr. Chairman, something we are very proud of.

    We must look for ways to make this system work better so that the DOD, the contractors, and frankly all of America continue to benefit from this methodology. I very much appreciate the support that the House Armed Services Committee has given DOD. I applaud you on your recent passage of your authorization bill for this year, as well as to the war fighters that you always are quick to recommend and quick to recognize.

    I look forward to continuing to work together. I will turn it over now to my colleague, John Young, for his opening statement.

    [The prepared statement of Secretary Wynne can be viewed in the hard copy.]

    Mr. HEFLEY. Mr. Young.
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    Secretary YOUNG. Mr. Chairman, distinguished members of the subcommittee, good morning. Thank you for this opportunity to discuss the Department of the Navy's policies on contractor support for the war fighter and our practices in overseeing those contracts.

    The Navy and Marine Corps Team is unique among the services in that our mission, being expeditionary in nature, is focused on operating independently; and our operating culture is based on being able to sustain operations organically in an isolated environment with limited foreign contractor support. We are often asked to operate in areas where access may be restricted.

    Naval forces must be capable of initiating and sustaining combat operations by sea, land and air without being limited by a lack of logistics or host nation support. The Navy does not carry a large cadre of contractors aboard ship, and the Marines do not typically take contractors ashore to support their landing forces.

    Throughout the history of the naval services, we have relied to some degree on the support of contractors to effectively carry out our mission; but, historically, the Navy and Marine Corps have relied on organic capabilities to sustain operations. We acquired, stocked and distributed an inventory of spare parts, necessitating maintenance of an extended logistics supply chain. Over the past 10 to 15 years, we have been moving away from our own logistics support agent concept, using an appropriate balance of government and industry to deliver faster results and greater operational availability.
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    Presently, our industry partners are supporting our forward-deployed military forces primarily in two areas: weapons systems support and emergency construction. Our high-tech weapons systems frequently need the expertise only contractors can provide in order to keep them operating at the desired levels of performance. We contract for field technical services when these services aren't already covered by the production contract or a negotiated logistics support contract.

    The performance of the work is monitored by either the Defense Contract Management Agency or the Navy or Marine Corps end user at the site where the field technical support is performed. In either case, verification of successful performance of the work is a necessary prerequisite for contractor payment.

    For construction, the Naval Facilities Engineering Command, or NAVFAC, uses the competitively awarded Emergency Construction Capabilities, or CONCAP, contract, which provides the Navy an immediate response for construction and related engineering services in support of contingency and emergency situations.

    NAVFAC maintains the organic capability to manage and oversee all its construction work, either through its Resident Officer in Charge of Construction organization or through the assignment of a Navy technical representative in locations where ROICCs aren't available. Contractor payments are handled through this organizational structure, again, with payment authorized only after confirmation that the work has been satisfactorily completed.

    Mr. Chairman, in summary, our industry partners provide essential support when necessary to our deployed forces that enables our forces to focus on their core national defense mission. We contract with them in complete accordance with law and regulation as well as good business judgment. They have truly been effective partners in many instances, going into harm's way and providing our forces the support needed to accomplish the mission whenever and wherever needed. Thank you again for the chance to appear today.
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    [The prepared statement of Secretary Young can be viewed in the hard copy.]


    Secretary SAMBUR. Mr. Chairman, Mr. Ortiz and members of the committee, in order to give you extra time to ask us questions, I would like to just summarize my opening by making three points.

    First, our experience with contractors and contracting has been largely positive. Second, the Air Force has already recognized the growing importance of proper management and oversight of service acquisitions; and in 2002, we established what we now call the Program Executive Office for Combat Mission Support to provide oversight and management of service acquisitions of over $100 million. This particular organization has been lauded by DOD and the Inspector General. So it has been very successful.

    Third, and most importantly, we are committed to work closely with OSD and Congress to make whatever corrections are necessary.

    Thank you.

    [The prepared statement of Secretary Sambur can be viewed in the hard copy.]
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    Secretary BALLARD. Mr. Chairman, Congressman Ortiz and distinguished members of the Subcommittee on Readiness, thank you for this opportunity to report to you on the roles and missions of contractors that support the Department of Defense and the military services, specifically the United States Army.

    On May 21 of 2003, the Deputy Secretary of Defense designated the Secretary of the Army as the Department of Defense executive agent for the Office of Reconstruction and Humanitarian Assistance, later to become the Coalition Provisional Authority (CPA) in Iraq, with responsibility to provide administrative, logistics and contracting support for the relief and reconstruction for the people of Iraq.

    On January 14 of this year, the Deputy Secretary of Defense further assigned responsibility for acquisition and program management support for CPA to the Secretary of the Army to include all aspects of contracting and program management.

    Civilian contractors have become an indispensable part of our Nation's war fighting and peacekeeping capability. With this in mind, the Army has taken a number of important steps to manage our contractors in the field to ensure that they are both effective and economical. I will provide a few examples.

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    The Army is the first military service to provide a contract clause dealing with contractors accompanying the force, providing consistent guidance across all Army contracts. And the Army's continued efforts to improve management of service acquisitions, the Army Services Strategy Panel, are focused on the importance of developing and maintaining sound acquisition strategies and making smart business arrangements.

    And also, we have contracting officer representatives who are authorized to represent a contracting officer. They assist in technical monitoring or administration of a contract, and they are government employees.

    I have a deep appreciation for the courage, competence and dedication, the hard work of our contracting personnel. Their work has been and continues to be performed in accordance with proper procedures by military servicemembers and civilians who are concerned and committed to accomplishing their work under the toughest and most austere conditions.

    Our contractors and contracting personnel are often the unsung heroes of any deployment. Their customers are the war fighters, the men and women who depend on them to do their jobs.

    Thank you. I look forward to your questions.

    [The prepared statement of Secretary Ballard can be viewed in the hard copy.]

    Mr. HEFLEY. Just a quick question or two, and then we will go to our Members here. What is the current policy with respect to determining what functions should or should not be performed by a contractor? And what are your criteria for determining whether it will be a no-bid contract when you do decide that this ought to be contracted out? And how extensive is no-bid contracting?
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    Mr. Wynne or whoever?

    Secretary WYNNE. Let me start by saying that we, over the years, have constructed various definitions of core versus non-core performance. We have also tried to parse it out by government versus non-government. Those two are not coequal definitions; and they have led us down a path of trying to define, during peacetime at least, what would constitute a nominally core and yet should remain the aegis of the government.

    For example, things like contracting, specifically taking ownership of the intellectual capital of how a program should be exercised while using the brute strength, if you will, of a contractor system to extend the reach of that contracting officer.

    As time goes on in wartime, we also have the efficacies of protection, i.e. at some point in time when you contract for truck drivers, as General Washington did and as we did in Iraq, many times we prohibited their flow north of the Kuwaiti-Iraqi border while we felt it was unsafe activity. As the situation changed, we then allowed civilian contractors to, in fact, drive the trucks throughout to deliver fuel, et cetera, north of the border. That has ebbed and flowed, and it is at the commander's discretion as to how he feels the services should be rendered.

    This time within the context of Iraq, we have a very interesting situation where we are restoring stable governance. We are working in concert, in contacts with the U.S. Agency for International Development (USAID) as well as some Iraqi companies. We are inviting investment from outsiders, which all tend to congeal and look the same but they are not the same. Those contractors are supporting us, as Secretary Ballard has pointed out, in fact, have clauses within their contracts making it very clear as to how their actions should be within the context of accompanying forces and also in reporting mechanisms.
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    We do, however, use performance contracting. Performance contracting means that we are asking for a certain electricity flow or a certain oil flow or a certain water delivery or tons delivered; and that means that the contractors are expected and, in fact, asked to provide whatever necessary security to accomplish that part of that mission. And they do. And that, I would tell you, is one of the harder things to consider as we go from force protection of our own forces to force protection as you might see it in contractors.

    But we have very clear definitions, and it is based on the commander's intent and the intent of the commander in the field as to what he constitutes or what he sees as his ability to have organic support versus non-organic support.

    As far as the question on no-bid, I would say that we attempt to competitively bid everything that we can. However, we have vehicles that are, in fact, in place for many of the expertise that we need; and those contracts were arrived at on a competitive basis. And so we offer to other agencies the ability to either pile on to our contracts, and they also offer us the ability to pile on to their contracts. And in that regard, we try to stay within the lines; and I think we are learning that we might need to advise the other agencies where they have contracts in place for the expertise we need. But we still need to enforce the DOD-specific regulations and rules, and I understand that that definition is being crisped up and the lessons learned are being prepared.

    Goods are not often offered, and when they are, it is justified with a justification assessment that is approved by fairly high levels within the acquisition community and the milestone decision authority. It is not taken lightly, and we do reserve the right, if you will, to take a good hard look at things. Thank you, sir.
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    Mr. HEFLEY. Thank you.

    Mr. Ortiz.

    Mr. ORTIZ. Thank you, Mr. Chairman. I think in the year 2003, the General Accounting Office recommended the Department improve its management and oversight of contractors; and they came down with some recommendations. I am pretty sure you are familiar with the recommendations they came up with. But one of the things that bothers me, and maybe you are doing it now, is that a lot of the National Guard and Reserves with special skills are being activated; and I hope that we don't have a duplication of trying to hire private contractors who have the same skills and then we are activating Reserves and National Guard.

    How do you screen them out so that we won't have any duplication, because I know that we are now heavily dependent on the National Guard and Reserves, especially on the special skills.

    Secretary WYNNE. We are, in fact, heavily dependent upon the National Guard and Reserve; and we are very proud of their accomplishments and the skills that they are in, and they train very well. That having been said, we follow the requirements coming in from the field, from the combatant commanders, when we assess whether or not we have a lack of skill sets available to us.

    Just as a simple example, stevedores, we have tremendous capability within our ranks on stevedores. However, the capacity is required to become extraordinary; we will use that as a core capability and extend their reach, if you will, by hiring civilian contractors to supplement them. That does not mean that we do not want to have a core capability in a very interesting field of stevedoring and port management within the context of the Navy; and I am sure my colleague, John Young, will ratify some of that.
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    The expertise, though, as we distribute them, we identify clear needs for capabilities, and we do examine what the capabilities are within our own force structure first. That having been said, we find ourselves lacking. In spite of our best efforts, we are finding ourselves having to convert, for example, artillerymen into military police. We know that is a significant skill that is in the Guard and Reserves; and yet it is overextended. We respect that.

    Mr. ORTIZ. So you feel there is no duplication calling people with the same MOS when they——

    Secretary WYNNE. I can't tell you, sir, but the opinion of the Department of Defense is that there is not but one or two instances of duplication. It is not intentional, and it is certainly not done with any plan in mind. It is strictly the fact that perhaps they are either going off roster or coming on roster, and the skills were needed at the time they were ordered.

    Secretary YOUNG. Mr. Ortiz, if I might, I am not sure if I understand the question completely, but if I could use an example. We are activating our Reserve component transportation units at the same time we are contracting for transportation capability. One of the reasons you will see that duplication is because we don't want to activate more transportation that we have to, and in some cases we have contracted drivers to operate Reserve component trucks that we have left in theater while we have brought the Reserve component units home.

    So if the question is do we have contracted the same skills that are activating, the answer is, yes, in many cases we are. If the next question is why are we doing that, primarily we are doing that to relieve the pressure on the Reserve components to have to continue to respond and support this long-term mission.
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    Mr. ORTIZ. And another thing that I am concerned about now, what kind of training, or once you contract them out, do you think they are adequately trained to go into harm's way? Because the soldiers, whoever they are, their MOS is to be an infantryman and to be able to fight. What about the contractors? Do you feel that they are adequately trained to go into harm's way?

    Secretary YOUNG. The initial training provided for the drivers that we used before we attacked Iraq would not have been adequate to operate in Iraq today. That training program has been changed by the contractors, number one. And number two, the philosophy that forward commanders have today is to integrate the contractors with military forces. So when the first contracted trucks were attacked as they went into Iraq about three weeks after the operation started, we changed the concept of how we would move things forward; and we integrated those trucks with our trucks by setting a separate contracted operation north which was the original plan.

    So they have modified their procedures in the theater. They have changed the training for the truck drivers themselves, the contracted drivers; but they are not trained as soldiers. There is not enough time to do that. So what our plan is, and our concept is, is to keep them integrated with the military so they work together.

    Mr. ORTIZ. Any idea how many contractors have been killed in this war, in Afghanistan and Iraq?

    Secretary WYNNE. Near as we can tell, sir, there are in excess of 50. We think that approximately two-thirds of that number have been actually killed in what would be called military style actions, and one-third probably could be registered as traffic or mishaps or non-battle-related casualties. There are an additional many dozens that have been wounded; and, I think, have all represented America very, very well.
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    Mr. ORTIZ. Thank you, Mr. Chairman.

    Mr. HEFLEY. Mr. McHugh.

    Mr. MCHUGH. Thank you, Mr. Chairman. Welcome to you all. I would like to pursue the question that the general and secretary were just alluding to with respect to Iraq specifically—and Afghanistan now that I think about it.

    Obviously, these are ongoing missions, but one of the things we all try to do when you are engaged in those kinds of events is to learn some lessons and to modify your procedures as you go along. General Christianson mentioned in the Army's case how you are now integrating trucking contractors in with military convoys. That is certainly one lesson learned. But I am curious, have we made any other adjustments, any surprises to the good or not so good that have caused you to operate your contracting procedures a little bit differently because of what you encountered in either of those theaters?

    Secretary WYNNE. One thing that I would say is the Army had both a field manual and a series of contract clauses that they applied from day one into contracts, not knowing what the security situation would, in fact, be in either of those theaters. We all postulated, as you know, that they would be getting better on a quicker pace.

    So we embarked on reconstruction activities that were more than the skill level that we have in our armed forces would allow us. We are, in fact, in every case, from operations through reconstruction, through the operation of the coalition provisional authority, by the way, putting together lessons learned teams to bring those things back. We also have heard from folks we sent over there who are in the IG and the GAO and are working with those lessons learned teams.
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    One of the feedbacks from that is maybe we need to take and build upon the Army's situation for and on behalf of the total DOD, be it Navy, Army, Marine Corps, perhaps even the National Guard, and the Air Force. So that, I would say, is something I think is going to come back to be positive.

    The other thing we found out is that—and Clausewitz said it best, when the first bullet whizzes by, strategic plans become all tactical. So we are actually fostering a far better approach to capturing contract activities with contingency-based contracting rules and contingency-based contracting to provide big reachback to the United States or to some other command structure to help these people document their activities and make sure that we have traceability throughout the process.

    We sent a whole team over there to assist with that process; and the other thing we are doing is we have now a distribution operations center which is theater based, which now tracks goods, if you will, through the system to their receiving unit to avoid the replication of ordering, trying to make sure that we don't overburden the transportation problem that the Army already has. I think I would turn to my colleague from the Army and see if there is anything else.

    Secretary BALLARD. In the Army, we have been collecting several lessons learned associated with this mission. We have sent teams in, as Mr. Wynne indicated, to look at how we have executed the contracts on the ground, brought those lessons learned back. Additionally, we have formed a team of folks in the Army who are looking at how we will execute contingency missions in the future, from how we embed contracting personnel with the units to how we execute contingency missions like this one in the future.
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    Mr. MCHUGH. I appreciate that. It feels as though it is a work in progress, which I guess is fully understandable.

    Rather than pursuing that any further, let me just quickly go over to Secretary Young. Mr. Secretary, you mentioned in your written testimony about the husbanding contracts that the Navy maintains at ports that you may or may not visit so that you don't have to establish a continual Navy presence there. I am assuming, but I shouldn't do that, these contracts are generally contracts given to foreign businesses or do you contract out at such an extent that U.S. firms go to wherever you may be going in anticipation of your arrival?

    Secretary YOUNG. I can add some additional detail to the record; but, in general, those are longer term contracts competitively awarded, and U.S. firms do vie, because of the duration, to come and provide those services, the husbanding services.

    Mr. MCHUGH. So they would be there on a permanent basis?

    Secretary YOUNG. Well, they are contracts put in place in typical ports of call. They are not necessary in ports of call that may be the location for contingency operations.

    Mr. MCHUGH. Well, the reason I am asking is because you say, ''In lieu of establishing organic Navy presence in every port, we might need to visit . . .,'' but what I am hearing you say is these are generally at places where you do have regular ports of call.
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    Secretary YOUNG. Yes.

    Mr. MCHUGH. Okay. That clears it up. Thank you very much.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Mr. Reyes.

    Dr. Snyder.

    Dr. SNYDER. Thank you, Mr. Chairman.

    Mr. Secretary, Secretary Wynne, I wanted to ask you about what kind of problems you have had. I have looked through the opening statements and I think they give an overview of the work that you do, but I don't think they outline very well any potential problems that you are having that perhaps Congress could help with or that the American people would be interested in. Could you just tick off for me please the 5 or 8 or 10 problems with contracts you have had?

    Secretary WYNNE. I think they are all pretty much subject to a Defense Contract Audit Agency (DCAA) audit and sometimes Inspector General activity, and they are fairly well publicized. In fact, we have become sort of targets in the press, if you will, for that purpose.

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    That having been said, none of the audits have been closed, and many times I have looked and I asked for best practice because you kind of have to ask the question, what is the difference between a cost question, for example, or payments questioned between domestic contracts and contracts in contingency zones like Iraq and Afghanistan? Because what I am trying to do is reach for a standard that I can cohere to.

    Dr. SNYDER. Mr. Secretary, I only have limited time. Could you just give me some examples of areas where you have had problems with contracting?

    Secretary WYNNE. I don't know that I have had problems. The Army is reporting absolute appreciation for the Logistics Civilian Augmentation Program (LOGCAP) contract that has recently been questioned by the DCAA. The oil is in fact flowing extraordinarily well on behalf of all the folks at Haliburton.

    Dr. SNYDER. Well, let me pose it as a hypothetical question. Let's suppose that you had a bad actor, a bad contractor. What is your recourse? Is it the False Claims Act?

    Secretary WYNNE. We have first recourse through their contract. We also have recourse through criminal activity if it has to do with fraud. They are subject to U.S. law, and the False Claims Act applies across the board.

    Dr. SNYDER. Over the last year and a half or since the beginning of the Iraq war, have we had any criminal charges or False Claim Act charges made against the contractor?
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    Secretary WYNNE. We have had allegations, none proven thus far. They are all subject to criminal review and the IG has not reported. And as I mentioned, the——

    Dr. SNYDER. So no criminal charges and no false claims.

    Secretary WYNNE. There have also been false claims alleged through the Defense Contract Audit Agency, but none of those audits have been concluded conclusively; and it is within our context and our system that everybody gets a fair hearing.

    Dr. SNYDER. And I agree with that.

    Secretary Ballard, in your statement, if I am reading the numbers right, the Army's had 2,800 contracts supporting Iraq, totaling $11.7 billion and 65 personnel. Now, tell me what those 65 personnel do? I mean it seems like 65 personnel, if I divide that up, that is one person, I would assume, managing a tremendous amount of money. And is 65 personnel monitoring $11.7 billion in support of Iraq sufficient, given, I would think, just the logistics of figuring out how to keep a phone line open? Is that sufficient to manage that kind of volume of money in what I think would be a fairly free wielding environment, in terms of watching out for the $11.7 billion taxpayer dollars?

    Secretary BALLARD. Sir, part of our strategy has been to keep the footprint forward in Iraq small because of the volatile environment and the security circumstances there. So 65 people forward are actually leveraging the entire acquisition workforce in the rear, not just of the Army but also of the Navy and the Air Force, whom we rely upon to support us in these contract actions as well. So that is how we are able to execute that particular mission.
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    Dr. SNYDER. Well, I am not sure that that answers the question of a concerned taxpayer who wants to know who is watching out for the $11.7 billion from your statement that are in Iraq. I mean, the Little Rock Police Force is certainly substantially bigger than 65 personnel; and that is a much smaller geographic area. Maybe I am not understanding what these 65 personnel are doing or supposed to do.

    Secretary BALLARD. In addition to the 65 personnel that are in our contract office in Iraq, we have Defense Contract Management Agency (DCMA) Iraq, we have DCA auditors who are also forward, the CPA IG, the DOD IG, and the GAO. There are several activities who are forward who are helping us both oversee these contracts as well as administer and manage these contracts, in addition to leveraging the rear to oversee these contracts.

    Dr. SNYDER. Mr. Chairman, may I ask one more question?

    If you see a press report that—Secretary Wynne, let me address you. If you see a press report, and they come out every once in a while, or you get an email from one of the troops, which happens to us, that says, ''We saw this,'' or let's suppose you have a press report that makes allegations of fraud or waste or a problem. How do you respond to that?

    Secretary WYNNE. The first thing that I do, sir, is contact the Inspector General to make sure that we can get the claim. It doesn't rest very long on my desk. If there is an allegation of fraud, I think it is incumbent upon me to further investigate it and not let it rest.

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    I will say that in the one instance of the LOGCAP contract, I think the extent of the application of that contract got beyond the Kellog, Brown & Root (KBR) and Haliburton management structure; and I know they have beefed that up quite a bit over the course of the time they have been there. I mean they are learning the lessons as well as we have. But any allegation that comes to my desk, sir, I immediately refer.

    The other thing that happens is that on a major cost question, we do withhold payment to protect the American taxpayer. So we take action that may run a little counter, if you will, to everybody gets a fair hearing, but, in fact, brings up short because we do defend our auditors as well.

    Mr. MCHUGH. Thank you, Mr. Chairman, for your indulgence.

    Mr. HEFLEY. Mr. Reyes?

    Mr. REYES. Thank you, Mr. Chairman. I apologize for having to leave. I have another meeting going on at the same time. And I don't know if this was asked but the question I have, essentially, CPA Order 17 is a status of forces agreement, and provides immunity from Iraqi laws for U.S. forces and officials as well as for contractors and their employees. Unfortunately, however, it remains unclear to Special Agent in Charge (SAIC) as to whether that order will be legally defensible when on the 30th of June the CPA is dissolved and sovereignty is turned over to the interim Iraqi government.

    Two questions: What is the status of forces agreement with respect to Iraq? And, second, if it is not finalized by midweek next week when the actual transfer of power occurs, what kind of a position will we leave U.S. contractors to face the potential risks in Iraq?
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    Secretary WYNNE. Can I start on that, sir, and maybe——

    Mr. REYES. Sure, absolutely.

    Secretary WYNNE [continuing]. And maybe turn to my colleague, Secretary Ballard? The status of forces agreement that was in place through CPA number 17 has been negotiated with the interim government so that it will be in effect, if you will, on 12:01, on the 30th of June, or the 1st of July. Following that time, we are then subject to the same, trade craft and state craft that our embassy has managed in Afghanistan and other places where our forces are, which normally I think is a maintenance of agreed to activities.

    So we don't forecast there will be tremendous change. That does not say that there won't be some pressure on the interim government to do something, but I think right now all the indications are they are going to live up to their agreements.

    Secretary BALLARD. On March 8, Iraqi governing council established transitional administrative law in Iraq; and in that law it states that the orders written and established by Ambassador Bremer will continue to have full force in effect after June 30. So it is our interpretation then that CPA Order 17 continues to apply after June 30 in accordance with that transitional administrative law.

    Mr. REYES. If there are no more comments, one issue that I have not received a response from, and this is predicated from concerns that have been expressed to me by sometimes parents and sometimes spouses of contractors that are actually working in Iraq for Brown and Root or Haliburton largely in those convoys. Are they allowed now to carry weapons, because based on the questions that I have been asked, the general consensus is that contractor employees in those situations are prohibited from being armed because of, I guess, violation of Iraqi law?
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    Secretary WYNNE. Actually, I believe that it is up to the component commander as to whether he sees the necessity for being armed. However, you should be aware that many of the contracts call for security of their personnel; and the contractor, therefore, can turn to a security-providing group to assist them. But to my knowledge, there are some times that we have restricted contractors from carrying weapons dominantly when we have our soldiers right next to them and we don't want any undue fratricide.

    Let me turn to Secretary Ballard.

    Secretary BALLARD. The combatant commanders make the determination as to whether or not contractors can carry weapons. It is my understanding that, based on the information you have here at this time, the combatant commanders are reviewing that policy specifically in relation to convoys.

    Mr. REYES. They are reviewing that policy?

    Secretary BALLARD. Yes, sir.

    Mr. REYES. Well, you know, that policy has been under review now—because we had General Meyer here well over a month ago, I guess. And that was the response then. How long do you anticipate the review process to take place?

    And I say that with all due respect because mothers, fathers, and children continue to ask what our policy is, because those convoys are one of the most dangerous types of jobs that those contractors are doing; and, again, they are not allowed to carry weapons, presumably because there is an armed guard or armed vehicles escorting that convoy. However, when they get attacked and it starts hitting the fan, they are powerless to find any way of defending themselves; and it is a real issue and concern for their families back here in the U.S. So do we have any idea how long this is going to be under review?
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    Secretary BALLARD. The length of the review, sir, I would like to take for the record and get back to you when that will be completed.

    Mr. REYES. Okay.

    Secretary YOUNG. Mr. Congressman, you have raised a very, very difficult and tough challenge for the folks who are forward in the theater. The original contracts that we had in place before the attack prohibited the carrying of any weapons. As we went into this and the contractors, not just the operators of vehicles but other contractors, became at risk, how we try to protect them became the preeminent concern.

    And as I mentioned earlier—I think you stepped out—but the concept today is that we integrate those contracted drivers, in the case of convoys, with military escorts as well as military vehicles, so you have a mixed environment. Right now, the current situation, I believe, is as you stated. The contractors in convoys who are operating do not carry weapons. They are integrated with military trucks and military escorts to be able to defend themselves.

    The second issue you got to is if something happens and they are being attacked by small arms and are unable to defend themselves is exactly the issue the forward commanders are trying to deal with today. It gets back to the earlier question that was asked on what is the status of a contractor with regard to the Iraqi government with regard to are they part of a military force or are they civilians operating in another country?

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    So it is a difficult issue, and I think that is driving some of the time that is needed to review this policy. But I can guarantee you that there is no commander forward who is neglecting their duties in trying to protect everybody who is part of the U.S. forces.

    Mr. REYES. Oh, sure. And, believe me, that was an assumption that I made, and I have been to Iraq four times, and I have seen nothing to indicate that there is anybody derelict in that. But the simple matter is that they don't know when they are going to get hit, and sometimes when they get hit they get hit with overwhelming force, and they take out trucks, and people are vulnerable. I mean we can't guarantee protection to everyone, but certainly it would be helpful if they had a way—I know if I was driving a truck and got attacked, I would sure feel maybe not safer but at least a little better about having an M–16 or a 45 or something that I could shoot back at somebody trying to level off with a RPG (rocket power grenade) or something like that. So that is important.

    The last thing is, Secretary Ballard, when can I anticipate that you will get back to us with the answer that you took for the record?

    Secretary BALLARD. As soon as possible, sir.

    Mr. REYES. Thank you.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Mr. Reyes, I think you raised a very important line of questioning here. The 20/20 Program has a segment called, ''Give Me a Break,'' and I think this would be a good subject for ''Give Me a Break.'' Evidently, our contractors are the only people in Iraq that aren't armed. Everybody is armed in Iraq, and we are taking it under advisement. We have been looking at it for months on end, and I wish you would get back to us with some definitive answer to this and some explanation of why in the world we would have people, civilian or not, there without some means of defending themselves. It just boggles my mind.
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    Ms. Davis.

    Ms. DAVIS OF CALIFORNIA. Thank you, Mr. Chairman. Perhaps I could just follow up on that for a second. Are our military providing force protection, essentially, for contractors? And I think what you are talking about are contractors who are there in support of the military, basically. Is that correct?

    Secretary YOUNG. That is correct. My experience over there has been primarily in logistics contract support, so all of the folks that we had contracted were providing direct support to military operations, either driving trucks, providing services on installations, providing other kinds of support for logistics across both Iraq and Kuwait and in Afghanistan.

    Ms. DAVIS OF CALIFORNIA. What about other contracts, though, are we also providing force protection for contracts that are let by the CPA?

    Secretary YOUNG. I should defer, I think, to Tina for that.

    Secretary BALLARD. No, we are not. The contracts require that the contractors provide their own security. In that regard, they provide security for their staff, their workforce, their sites, any of their bed-down areas and their own convoys.

    Mrs. DAVIS OF CALIFORNIA. And you are saying under no circumstances that you know of are they providing that security, that force protection?
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    Secretary BALLARD. No. It was very clear in all of our contract solicitations and meetings with industry that the contractors were responsible, in the case of construction, for providing their own security.

    Ms. DAVIS OF CALIFORNIA. Thank you. I appreciate that.

    Secretary Wynne—and thank you all very much for being here. I wanted to just go back to a few of your written comments. On page 6, you mentioned that the new guidelines are being written, some lessons learned, et cetera; and we were just talking about when the guidelines perhaps for carrying weapons might be available. When do you anticipate the guidelines that you are now writing, as I read this, will be done?

    Secretary WYNNE. Well, that is a two-part question. The combatant commanders have authority over the policies relative to carrying weapons in their zone; and we defer to them. So the reason that Secretary Ballard was not clear on when that guidance would be completed is because it is really not in our lane. I mean we are in acquisition and can foster proper contract activity, make sure that people coordinate with the combatant commanders so everybody knows who is who; and that they have done.

    Ms. DAVIS OF CALIFORNIA. What about the other issues, though?

    Secretary WYNNE. The other issue is more of a coming lessons learned extending, if you will, the Army current practices, asking them if there is a best practice that they have and whether the Navy has a best practice through the contracts that they have laid so that we can consolidate to a single. That could take the better part of this year to conclude.
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    Ms. DAVIS OF CALIFORNIA. And in the meantime, then, I understand that there are ongoing policies——

    Secretary WYNNE. Yes, ma'am, there sure are.

    Ms. DAVIS OF CALIFORNIA [continuing]. Which are in place.

    Secretary WYNNE. And each of the services has, in fact, policies in place relative to service contracts, whether they are in a combat zone or not in a combat zone.

    Ms. DAVIS OF CALIFORNIA. You also, though, talked about the DOD procurement regulations not having a standardized approach——

    Secretary WYNNE. Right.

    Ms. DAVIS OF CALIFORNIA [continuing]. And, therefore, you are relying on individual contractors to have that. How do you asses then what their standardized approach is?

    Secretary WYNNE. We have a whole collection of standardized clauses that we have used over time. And as one of our new clauses becomes widely spread and used, then we will consolidate that to a specific section, I think it is Section M, of the contracting practices where it becomes what the contractors refered to as a boilerplate clause.
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    In this particular instance, I think each contractor would like to be treated in a fashion that best supports them; and thus far, we have not arrived at a standard clause, so we negotiate from a template, and the template is provided really by the policies and practices that we have.

    I would also tell you that, by and large, they are very similar, and one—

    Ms. DAVIS OF CALIFORNIA. What would be a red flag?

    Secretary WYNNE. One of the examples right now is the insurance premium that we are paying; and it is very prohibitive for small business to get insurance the way we are doing it, because we are buying insurance through the contracts, essentially asking them to go buy insurance.

    We found out that there is a best practice going on actually right next door in the USAID agency where they went out and negotiated an insurance premium from competing insurance companies; and now all the contractors buy insurance, if you will, from them. It saves a tremendous amount of money because the pool is larger.

    I know that the Army is running a pilot program right now to see whether or not that particular thing could benefit us, and I would say that is an example of one where right now we do not have a standard clause. I think we may get to, with the pilot program's results, to a standard clause.
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    Ms. DAVIS OF CALIFORNIA. Thank you.

    Did you want to comment on that, red flags in terms of these contracts, what it is that you would question, you would ask people to modify their contracts?

    Secretary BALLARD. As Secretary Wynne indicated and I indicated in my oral statement, we have found that we do need to have standards. That is why we created the ''Contractors Accompanying the Force Provision.'' In addition to that, in the Army, to create some standard approach to how we work with contractors on the battlefield, we do have a field manual; we have an Army reg that governs how we work with contractors on the battlefield; and, actually, we define the roles of the contractors, describe the relationships between the contractors and the combatant commanders. So we have things in place that the Army follows.

    Ms. DAVIS OF CALIFORNIA. Could you comment on salaries? Obviously, these companies are trying to make money on the contracts, and so they have to determine how much they are going to pay their personnel; but what role do you play in that in looking at those, whether it is comparing to domestic, and obviously there are additional costs and certainly liabilities. But how does that work?

    Secretary WYNNE. I can tell you that from what I have heard and what I know about supplying personnel, you have to provide a rationale for all of the money that you are going to spend on specific, usually classes of individuals. In service contracts, we attempt to use it by skill level, because we do not want to necessarily tell people what skills they need.
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    Many times, as a result of the Congressional support, we have gone to performance-based logistics, whereby we will have the contractor actually rely on a certain standard approach. In other words, it will take so many construction engineers, so many designers, so many stevedores, so many truck drivers to do that job. After that point, we have a standard measure against that contract, and we have a risk premium for war zones; we have a risk premium, if you will, for the insurance, and that all stacks up.

    Then we follow through with the Defense Contract Audit Agency against some actuals, if you will. When they actually begin to have people flowing into theater, we can then go back and trace just how much is being paid to that individual to make sure that the alleged or the negotiated rates are very similar to the rates being paid. Sometimes higher, sometimes lower, and that corrective action is put into the next, if you will, rate review that we go on to.

    And as far as using performance-based contracts, we contract, for example, to get electricity flowing. If it takes 100 people, that is great; if it takes 1,000 people, that is the way that goes. And we pay sometimes based on the estimate. The situation sometimes changes, as we all know that it has. If it is fixed price, it is fairly painful for the contractor; if it is a cost-plus, then we will go in and we will fully audit all those folks that he has used to make that happen. We make the mission.

    And by the way, not just American contractors are involved here. There are many foreign contractors and there are a multitude of Iraqi contractors that are also in this mix.

    Ms. DAVIS OF CALIFORNIA. I was going to ask if the new policies would raise the——
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    Mr. HEFLEY. Ms. Davis, you are out of time here, so—

    Ms. DAVIS OF CALIFORNIA. I know. Mr. Chairman, I was just taking your time to continue. I appreciate that, Mr. Chairman. Will the new contracts have any higher threshold for use of Iraqi personnel?

    Secretary WYNNE. We actually have encouraged them, because that is the way we want to create Iraqi commerce and business over time. And so we have encouraged the use of Iraqi companies. We have also, by the way, encouraged the use of American small business, which is why we want to make sure that we don't inhibit them from coming by charging them so much.

    Mrs. DAVIS OF CALIFORNIA. Thank you very much, Mr. Chairman.

    Mr. HEFLEY. Mr. Hayes.

    Mr. HAYES. Thank you, Mr. Chairman, and I appreciate the opportunity in having this hearing. I particularly appreciate the nature and the spirit of the questions that our friends on the other side of the aisle have asked. I think it is very important.

    Secretary Wynne and Young, I enjoyed our time together when we honored Chairman Young the other night; and we are still working on that Navy base for Fort Bragg, Secretary Young.

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    My question for you is this: Contracting is vitally important in Iraq, and I am a highway contractor in real life, and I have to bid on projects. There is some certainty when I bid on items as to transportation costs, workmen's comp, these kinds of things that determine—would you all spend a little time—I think the public needs to know how uniquely challenging it is, particularly with the need for timing and speed in Iraq, we have a lot of negotiated as opposed to bid contracts. Talk about the challenges of coming up with a contract that you can live with and also the challenges that you have monitoring that.

    Secretary WYNNE. I can start. I think Secretary Ballard probably has a little closer experience. As we construct a contract, it is based on a need expressed by the combatant commander in a region; and we try to adhere very closely to that aspect. If you think about it, the Corps of Engineers lets about $6 billion of contracts a year; we are talking about $18 billion in one region of the country, plus there are normal contracting experiences going on. So the folks who express the stress that may be on the contracting activity are to be praised, because there is, in fact, stress on the contracting activity.

    There are two sides here. One is you must come up with a contract vehicle that induces competition and induces people to actually want to perform on behalf of the American soldier in this condition and on behalf of our national goals and objectives. That having been said, we are very hard to do business with. We have within our context and contracts very stringent rules, regulations, and follow-up audit rights that are rarely granted in any commercial activity.

    So we have induced commercial forums to help us, and many times these construction companies do not often do business with the Department of Defense under a cost-type scheme. When they find out what the follow up is, usually and in the case of even somebody as experienced as KBR, they find their accounting systems to be a little bit wanting as it flows down to subcontractors.
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    In the case of Iraq, one of the most daunting features is cash payments. They have no banking system, so we don't write checks. As a result, a lot of contracts, especially at the sub-sub level, are cash payments to get the job done.

    That having been said, it requires a certain accounting, and our accountants love to—I mean we and our auditors are used to following up with specific rationale for an expenditure of money across the board. And many times in the heat of the zone they are trying to get a job done; you may not have exactly the kind of rationale that pleases a general auditor, and they get to look at it, if you will, under a little bit less trying circumstances than it may have been issued in the first place.

    We are actually doing pretty good by rolling up these lessons learned and presenting them in forums to the major contractors that continue to be willing to do business with us; and I think it is getting better and better.

    I mentioned before that I reached for a standard. Now, this isn't something I can probably rely on for the future, but when I first asked the question, I was told that in America we question about 3.2 percent of our contract costs; and over in Iraq, we are questioning about 5 percent. Well, against the different standards that apply, I found that to be not an unreasonable risk premium, if you will, but something we had to work on because we would like those standards to be the same, frankly, and so we are working on that.

    Mr. HAYES. Anybody else like to comment?

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    Secretary Ballard.

    Secretary BALLARD. Some of the challenges that we have dealt with are the volatility of the environment and the nature of the work that has to be performed. When we did, for example, the solicitations for the construction contract, this was a full and open contract solicitation, and we received 88 bids. We were very pleased to receive 88; but when you consider the breadth of opportunity for offers, 88 is relatively a small number.

    We believe that is because the number of contractors who are capable of performing and have the financial solvency to perform and the willingness to go into this environment is very small. And so it is challenging to have contractors who will go into this environment, have the capability to perform in this environment.

    Also, the nature of the work is construction, and we all know if we have built anything, that construction has some challenges in it. So there is the staging of the construction projects that also comes into play. That is a challenge. The requirements in the environment are challenging as to how we will do what work, in what order and in what location. So all those things drive the way that we have structured our contracts and the nature of the contracts.

    Secretary WYNNE. If I could follow on one thing, and that is since you are in construction, we use British standards. Iraqis are familiar with British standards of construction; and so we enforce British standards, not because we don't have American standards, we do, but they are so familiar with British standards, that when we sent out our quality people, they actually go out with British standards for construction completion. And we do do that.
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    Mr. HAYES. Thanks for your answers. They have been very, very helpful.

    And thank you, Mr. Chairman. I just hope the Iraqis don't have an Internal Revenue Service because cash is necessary, as you say.

    Mr. HEFLEY. Mr. Larson?

    Mr. LARSON OF CONNECTICUT. Thank you, Chairman Hefley, and thank the panelists for your service to the country and your testimony before the panel here today. I have just a brief statement and then four questions that are a concern of mine as they relate to oversight and the awarding of contracts.

    Mr. Wynne, it is my understanding that the U.S. Army Corps of Engineers has primary responsibility for the entire reconstruction effort in Iraq, which, of course, is likely to result in billions of dollars of contracts with hundreds of thousands of Iraqis and foreign nationals under the employ of United States-funded contractors.

    Furthermore, it is my understanding that the Army Corps is contemplating sole sourcing insurance contracts under what they call a two-year pilot program. I am very concerned that such an effort would severely distort the insurance marketplace, resulting in the other insurance companies now in the marketplace leaving that marketplace.

    Additionally, using the term, ''pilot program,'' I believe misrepresents the huge scope the Army Corps' effort at the risk of liability and having one insurer manage potentially thousands of claims in a very volatile area. I also understand that the pilot program would not only cover contractors in Iraq but would also cover all Army Corps' contracts worldwide.
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    My colleague in the Senate, the senior senator from my home state, Senator Dodd, along with 4 other senators and over 107 representatives, have requested a study by the GAO on insurance issues in Iraq. I also understand that the CPA Inspector General is conducting its own study of insurance coverage for contract employees in Iraq.

    My four questions are as follows: Wouldn't the DOD want the benefit of reviewing the GAO and the CPA's findings in consultation with Department of Labor, the insurance industry, insurance brokers, and other interested parties before proceeding with a formal request for proposal (RFP) for a centrally managed, defense-based insurance program?

    Second question, I understand that the DOD intends to move forward and sole source contract all data base administrations (DBA) for DOD employees in Iraq. The question is why would the DOD move forward and award a sole source provider for this insurance before Congress, the Department of Labor, which administers the defense-based insurance program, and DOD have had an opportunity to review the GAO findings?

    Third, perhaps I have missed the conclusive study that DOD has conducted to determine that sole sourcing defense-based insurance for all contractors in Iraq is the right thing to do for the U.S. Government, the American taxpayers; and what other alternatives has the DOD explored to address the perceived problems with insurance for its contractors there before going to a sole source contract?

    And, finally, does DOD understand the long-term risk to the government in going with a sole source award for a complex insurance line with a long tail exposure? I am told 90 percent of the claims do not develop for at least 7 years. If you could respond.
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    Secretary WYNNE. First of all, I have a very limited knowledge of the specifics of the pilot program that is being done; however, we get emails like you all say you get emails, and one of the things that we have found anecdotally is sometimes a ten times difference in premium paid between what USAID contractors pay under their contracts and what they have to pay under our contracts. This is extraordinarily daunting to the small business community who wants to come in and play but doesn't have a significant enough pool to leverage the insurance contractors.

    So we are leaning toward that way, but I can ask the folks who are doing the pilot program to specifically respond to your question; and we will take that one for the record.

    Mr. LARSON OF CONNECTICUT. Well, I guess my first question is will they—I mean is DOD going to proceed with this before the GAO report and before the CPA's recommendations come back?

    Secretary WYNNE. I don't see any reason that we should not proceed with a pilot program. It is not a sole source award, as you said, it is a competitive award done by tens or hundreds of insurance companies, because they all do reinsurance. You were correct in your assessment that a single provider might process the claims, but the claims will be no less daunting than any automotive insurance company in the United States, which, by the way, takes care of a tremendous number of claimants. So I don't see how this distorts the insurance policy to conduct a premium or a small pilot within the Army to find out whether or not—and supply information, by the way, to a GAO study.
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    That having been said, we are concerned about anything that might distort the market; and so we run a pilot program to determine whether it does or not. I don't think there is—right now, before the GAO study is done, there is no intention to extend this across Army. This is a pilot program that will run for two years.

    The folks at Labor, are endorsing the USAID approach to securing insurance, and well they should, if you will. We are looking at that in a cooperative basis, not on a confrontational basis. But that having been said, sir, I will try to make sure that you get a more complete answer from the people who are promoting the pilot program.

    Mr. LARSON OF CONNECTICUT. Who is promoting the pilot program?

    Secretary WYNNE. I believe it is being done through the U.S. Corps of Engineers.

    Mr. LARSON OF CONNECTICUT. So the U.S. Corps of Engineers is promoting this program, even though Congress has gone out and 4 senators and 107 members have signed on to get information before they proceed with the pilot. Is that correct?

    Secretary WYNNE. Again, we see no reason to stop a pilot program. That is where we really—from an innovative contracting posture—that is where we really get solid information as to whether to expand it or whether, as you would like to do, restrict it.

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    Mr. LARSON OF CONNECTICUT. Even if it means risking skewing the whole marketplace?

    Secretary WYNNE. Again, I don't believe that the pilot program will have any impact on this huge insurance market that we have. And, besides that, there are, I think, sufficient competitors out there that are willing to take in to perform. I think there is some fear that they will lose their leverage over a small pool of small business people, and perhaps their premiums will go down; but I see that benefiting the American taxpayer.

    Mr. LARSON OF CONNECTICUT. Thank you, sir, and I thank the chairman.

    Mr. HEFLEY. Mr. Taylor.

    Mr. TAYLOR. Thank you, Mr. Chairman, and I thank the gentlemen for sticking around.

    A couple quick questions. Have we had any contractors who are either the victims or the cause of friendly fire incidents in the most recent conflict in Iraq and Afghanistan?

    Secretary WYNNE. I would have to take that one for the record. I don't know. I did try to find out the number of killed in military action or not killed in military action. I didn't ask for a category like that, I am sorry.

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    Mr. TAYLOR. General, would you have any knowledge of that?

    Secretary YOUNG. No. I, during my time over there, have no knowledge of that, but we need to take that for the record and get that back to you.

    Mr. TAYLOR. If a contractor, and this falls into the worst-case scenario, but let's say a contractor gets over there and does something he shouldn't, he robs someone, he rapes a woman, he murders someone other than in the line of duty. To whom is he responsible? Is he under U.S. law? Is he under Iraqi law? Who is the enforcer should this happen? I am not saying that it has happened.

    Secretary WYNNE. I think I might ask—perhaps, again, take that one for the record. Let me tell you what I know from my own personal experience, and that is that Iraq is no different than Afghanistan. Afghanistan, by the way, is no different than Japan in all of the husbanding contracts in all of the countries around. We have status of forces agreement, as you well know, sir—

    Mr. TAYLOR. Government contractors.

    Secretary WYNNE. Government contractors. And the status of forces agreement extends to those government contractors throughout wherever we are. There is a question, which I think is a valid concern that we think we have attributed, which is what is the status of the agreement post-June 30 as far as prior, and we think that the CPA has reached a solid agreement to extend those privileges. I do not know, for example, what is the status of USAID—
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    Mr. TAYLOR. If I may, let's say you hire someone from Washington, D.C. or Bay St. Louis, Mississippi. As they report to or are on their way to Iraq, are they given instructions telling them under what laws they are going to be bound, what court system they are going to be liable to should something wrong happen?

    Secretary WYNNE. I have not seen the orientation program that individual contractors use. The contractor—yes, sir.

    Mr. TAYLOR. Okay. Again, they are contractors, at the end of the day, to the United States government. They may be working for Mr. Smith instead of Secretary Wynne, but at the end of the day who's paying the bill is the United States government, the citizens of the United States. What are the rules that we are giving these folks? I would like to know what that is.

    Secretary BALLARD. Sir?

    Mr. TAYLOR. Yes, ma'am.

    Secretary BALLARD. We do have the Military Extraterritorial Jurisdiction Act of 2000, which provides Federal criminal jurisdiction for U.S. contractors performing overseas. This applies to the prime contractors and the subcontractors at any tier.

    Mr. TAYLOR. Okay. Are they made aware of this? Is the individual truck driver, is the individual security guard who is hired, is the individual welder who we send over there, is he made aware on the way over there that, ''These are the rules we expect you to live by?''
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    Secretary BALLARD. I would like to take that question for the record.

    Mr. TAYLOR. Okay. On one of my trips to the hospital, I encountered an American of Iraqi descent who is a multiple amputee. I don't know the circumstances, but he was badly wounded as a contractor. What requirements, if any, do we as a Nation place on a big company that is hiring this person to provide health care? That person at the moment was being taken care of at one of our military hospitals. Does it become our Nation's obligation; will that person be entitled to Veterans' Administration benefits?

    I think that is one of the unknown costs. I am often told that contractors save us money. All I am asking, without making accusations, is are we really comparing apples to apples? We know if a GI becomes a paraplegic or an amputee, we know that we are going to try to fit them with some sort of artificial limb. We know we are going to take care of them the rest of their lives, that is a given.

    My question is do our contractors provide the same level of confidence for their employees or do we as a Nation end up footing the bill because the contractor sees them through the minimum amount of assistance and then, in effect, goes into the winds and maybe Medicaid will help them, maybe Medicare will help them, maybe they happen to be fire service and the Veterans' Administration will pick them up. But I have a feeling we end up getting the bill either way as a Nation; and I am wondering if, again, when people are telling me all of the savings by using the contractors, if that is figured in.

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    And, last, since I do see my red light, in the case of Colombia where a contractor's plane either failed or was shot down, depending on which side of the story you want to believe; but contractors were clearly captured by the FARC (revolutionary armed forces of Columbia) and are still in the FARC's captivity, do we as a Nation require of that contractor, again, the company, not the individual, that that individual's family continues to be paid as long as he is held captive or does the company strike the individual from the roll and the family, Where we, in effect, sent this dad down there to do our Nation's bidding, are they left high and dry?

    Secretary WYNNE. To be comprehensive in my response, I think I need to take that for the record. I would only add to the thoughts on insurance that were raised earlier, I am sure that is a concern, because each company now negotiates its own, if you will, policy with insurance companies. I think that is one of the things we would actually like to standardize in our policies to make sure that they are taken care of to the maximum extent possible.

    Mr. TAYLOR. But you have not done that yet.

    Secretary WYNNE. As far as I know, sir. I will just have to get back to you. I mean it seems the appropriate thing to do, and I am sure that every one of our contractors has taken the appropriate thing to do; but I am not going to swear to it here. I would rather come back with the specifics on the record for you, because I think your question has tremendous merit and very much more cause for concern than I could give it here.

    Mr. TAYLOR. Okay. I understand that and I appreciate that; but in the case of the contract employee in Colombia, he has been in the captivity of the FARC since a year ago February, if my memory serves me. Is his family still being compensated or have they taken the attitude that, ''Well, he is not flying for us, so we won't pay him?''
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    Secretary WYNNE. Again, I would have to take that for the record to answer you very specifically on that instance, because I am just frankly not familiar. I do know that every day we get concerned about American citizens no matter where they are in the world.

    Mr. TAYLOR. Okay. I would certainly appreciate an answer to both of those questions in the shortest amount of time practical.

    Secretary WYNNE. Yes, sir.

    Mr. TAYLOR. Thank you, Mr. Chairman.

    Mr. HEFLEY. Mr. Evans.

    Mr. EVANS. Thank you, Mr. Chairman. Under the pilot program for contract security guards at Army installations, the Wackenhut Corporation has been providing security for numerous installations in the set to increase its presence under phase three of this program. Department of Energy's Inspector General revealed in January that this same corporation has severely cheated on anti-terrorism drills at the Y–12 Weapons Complex in Oak Ridge, Tennessee. I have also been apprised that the company's security labs have retaliated against whistle blowers at both nuclear weapons plants and power plants.

    I ask you, is this the kind of company we should be keeping entrusted with the guarding of sensitive DOD facilities? What is being done to ensure the highest standards?
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    Secretary WYNNE. Sir, I am going to take that for the record because of the breadth of the question. That having been said, the standards are very clearly stated in any contract that they must measure up to; and we have contracting officer technical representatives to enforce those standards. But I want to be clear about the specific instance since you referenced a specific company and a specific location. I think it would be more appropriate to make sure that you got a comprehensive response.

    Mr. EVANS. Thank you.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you very much, and thank the panel for being with us today. We appreciate your presence, and the committee stands adjourned.

    Secretary WYNNE. Thank you, sir.

    [Whereupon, at 11:28 a.m., the subcommittee was adjourned.]