Eventually the Commission on Wartime Contracting will post the full transcript of its March 29 hearing (Click here for the C-Span video) on "Managing Contractors During Iraq Drawdown." But as it has not done so yet let me offer a few excerpts from the Q&A of the hearing.
Although it may seem like this is just another problem with private military contractors, the important point to remember, as CWC co-Chair Christopher Shays says in his opening statement, is that "The government is not giving contractors adequate guidance on events, dates and requirements for them to trim or redeploy workforces appropriately."
MR. THIBAULT [CWC Co-Commissioner]: The secretary and the Army, in my perspective, are absolutely to be commended for addressing some of the short-term needs, with what may be intermediate-term solutions but nonetheless the actions to address staffing and training of the eyes and ears on the ground.
I want to get that out, on the record. The secretary has identified staffing as a priority -- no overnight solution in bringing qualified people, but that's very positive, and maybe we'll talk a little more about it.
General Pillsbury, out of those five general officers that were approved about a year ago, how many are on board?
Lt. Gen. Pillsbury [Deputy Commander, U.S. Army Materiel Command]: Sir, the -- sir, the ACC is still headed by Mr. Parsons, as you well know. But the two subordinate commands are commanded by Army brigadier generals. So two of the five right now, sir.
MR. THIBAULT: Okay. I just want to make that point, that it's been about a year. I could state and so I will state that if the Army chief of staff had a very significant priority, absolute priority -- and I realize this isn't a combat mission but this is 50 percent of the cost or more -- I would recommend that that get a little pressure.
MR. THIBAULT: Now I'd like to talk lastly, before I move elsewhere -- I think the actions you referenced in your statement about property -- I'm on -- I'm on a tangent today of efficiency and economy, because I think we're addressing a lot of the quality issues and the like, but I'm going to be talking about what kind of accountability and management of efficiency and economy -- and you mentioned property asset and equipment. Well, one of the areas that has started to come up in the last six, eight, 10 months of testimony is labor and equipment utilization, not management of the properties so much.
Certainly Defense Contract Management Agency's expertise in property, they -- and equipment, they could probably look at efficiency and economy as well as accountability, taking an inventory, being sure that it's properly moved to where it's supposed to be moved, which is critical to the warfighter in Afghanistan and everywhere else.
But I'd really like to encourage, based on the inputs that this commission's heard from many, including Mr. Fitzgerald, today, that the subject of labor and equipment utilization, you know, really take a front seat. And I'd ask you for your consideration of that. In fact, for the record, I'd ask you for your consideration and feedback, you know, in the 15-day period, on your reaction to that. And is that something that seems to make sense?
GEN. PILLSBURY: Sir, the numbers are -- if the numbers are true, and -- which I don't doubt that they are, then they're very disturbing. Certainly we do not wish to have 90 percent of the contractor maintenance capability sitting idle.
MR. HENKE [CWC Commissioner]: General Pillsbury, are you familiar with the DCAA audit report regarding KBR staffing from October 2009?
GEN. PILLSBURY: I have -- I have read that report, yes, sir.
MR. HENKE: Okay. My question for you: Your statement says, quote, "AMC is implementing its comprehensive plan to draw down our contracts and contractors efficiently and effectively," end of the quote. This DCAA audit stated that if the KBR contractor would have reduced its staffing levels to what they considered adequate, that the government could save about $193 million.
One of the statements in this -- in this report is, I think, particularly noteworthy, so I'll quote it. Quote, "We noted that KBR staffing levels had little correlation to the number of troops supported. In fact, staffing levels were slightly higher 20 months after the military significantly reduced troop levels subsequent to the troop surge in 2007, in spite of the fact that several bases closed or de-scoped," unquote.
So KBR staffing levels were up and had continued to increase until April of 2009. This -- the audit report basically says that if KBR staffing was to be reduced by what the auditors considered to be overstaffing conditions, the government could save $193 million. The point of departure for the audit was January 1st, 2010. And General Odierno has issued a requirement that contractors come down 5 percent a quarter. That number on January 1st was roughly 15,000 -- for KBR direct hires, 15,900. DCAA would tell you that that's about 3,000 more than they think that KBR needs.
What I'm surprised at is that I don't believe that the Army or AMC has responded to the
audit report. Is that your understanding as well?GEN. PILLSBURY: Mr. Commissioner, the Army Materiel Command is and will always be in support of the warfighters. So if in fact the requirement is --
MR. HENKE: But my -- sir, my question, before we go on to further inquiries, is, has the Army or Army Materiel Command responded to this report? If someone would write me a report that says you could save 193 million (dollars), I'd write him back and say I agree or disagree. So has the Army responded?
GEN. PILLSBURY: I will take that for the record. I don't know if we had responded exactly to it.
MR. HENKE: You -- yeah.
GEN. PILLSBURY: I know that we're actions to draw down --
MR. HENKE: Okay. So you don't know if you've responded to it.
Mr. Fitzgerald, has the Army responded formally to this report?
MR. FITZGERALD [Director, Defense Contract Audit Agency]: Sir, if you mean formally in writing --
MR. HENKE: Yeah.
MR. FITZGERALD: -- no.
MR. HENKE: Okay.
MR. FITZGERALD: We have had conversations, and they have expressed some concern about certain aspects of the report, but they have not responded formally.
MR. HENKE: General, since the Army hasn't responded to the audit, could you do that here?
GEN. PILLSBURY: Again, sir, the drawdown in Iraq is apace. Given the DCAA audit and the fact that General Odierno has said that we would draw down by 5 percent, the actions that are -- I believe that are ongoing are prudent.
Now I am not an auditor. I am an operational logistician. And requirements in a flowing battlefield, in a flowing theater, especially one that is drawing down, are very, very difficult to put your arms around.
So I would say to you, sir, that I will take this for the record, and get back to you with a written response from AMC on what our actions are for the audit. But I will tell you, sir, the situations on the ground are somewhat fluid, as you well know.
MR. HENKE: I appreciate that entirely. But you're telling me that AMC has a comprehensive plan to draw down contracts and contractors, and the single-biggest contractor in theater in KBR, with 15,000 direct hires and 35,000 other people. I would think, if an auditor would tell you there's a chance to save $193 million --
GEN. PILLSBURY: Right.
MR. HENKE: -- that someone in the system would feel compelled to respond. I'm disappointed that the Army has not. We had the LOGCAP program manager up here before the commission in November; asked him his response. The report was just out. So this is not new material. In fact, the point of the audit is that the savings are going, going, gone. They were - if the Army had acted, the savings could have been achieved. But since the Army, or the DOD, hasn't responded, the savings are effectively gone.
So my question to you, sir, is, who is responsible for cost efficiency, for cost awareness
of expensive contracts in theater?GEN. PILLSBURY: The Army Materiel Command leadership is, as you well know. The contract oversight, we depend on our partners at DCMA and DCAA. We have, as I alluded to in my statement, contracting- officer representatives. We have 06 deputy director for LOGCAP oversight in theater.
MR. HENKE: Right.
GEN. PILLSBURY: Mr. Loehrl and his team are providing that reach-back support for them.
And I believe, sir, that we're on the path to gain the efficiencies that you're talking
about.Now, the 193 million (dollars), going, going, gone -- sir, like I said, I will get back to
you on record for what we're doing about that 193 million.
MR. TIEFER [CWC Commissioner]: Mr. Fitzgerald, your statement discussed your March 26th audit. Of the four exhibits that are being made public here -- and we had limited copies, so they've been distributed -- the first, which is Exhibit 1, is your March 26th audit, which was newly issued, I understand, Friday, and is being publicly addressed here for the first time.
It tells KBR to make $21 million in cost savings in the CLSS function of LOGCAP in Iraq, which includes repairs and maintenance, such as the motor pool.
What did you find about KBR's charging on underutilized labor in this area? Is it proper?
MR. FITZGERALD: We saw -- based on our analysis, from January '09 through July '09 - and I do want to add that the Defense Contract Management Agency requested that we look at this -- that we saw an average utilization of the labor force providing that function of about 10.1 percent, average utilization, and never during that period of time did it ever exceed 15 percent.
Clearly, based on those percentages, we thought there was efficiencies to be had there,
and our 21 million (dollars) is really based on looking forward having the Army and KBR work together to address this issue and projecting from May 2010 to the end of the calendar year, if this issue was addressed, we could potentially avoid $21 million worth of cost.MR. TIEFER: Yeah. Thank you.
As I understand from your -- from that audit report, after you -- after you studied the first six months of 2009, to squeeze down this -- what was going on, which is -- it's basically idleness, for which the government is being charged. As I understand, a Defense Department goal would be 85 percent use, and instead KBR is making 10 percent or at most 16 percent use, which sort of translates into KBR is charging the government for a 12-hour day and its people are actually doing work that amounts to less than two hours in that day.
And what you found was that, if I -- on page 5 of your audit, you had told - the government told KBR to come up with a proposal to reduce this bloated figure for what it was charging the work by de- scoping -- supposed work by de-scoping. They came up with such a proposal, and you say -- and I quote -- "The de-scope proposal" -- that's KBR's -- "was ineffective because most positions eliminated had not been filled by actual employees. KBR primarily eliminated positions that had not been filled by actual employees charging costs."
In the -- in the phrases I've come to hear, here and in Iraq, they were just -- KBR was just eliminating spaces without faces, mere bookkeeping entries. Is there a broader risk that as Iraq draws down, KBR, if it were to do this, would still have the government paying for labor that's not actually being done?
MR. FITZGERALD: Yes, Commissioner. I think if -- if you look in -- in our report, it shows, after the change letter was issued by the contracting officer, we did an analysis to look at what the utilization rates were after -- subsequent to that change letter. And it showed that still, on average, it was about 16 percent, which gives meriting and credibility to the fact that some of the spaces that were eliminated were not charging to begin with.
MR. TIEFER: Okay. Now, when KBR says -- I want to know what your response is -- its basis of estimate -- we've heard about this; this is a level set after the contract -- gives it no choice but these high idleness rates -- this is a figure it negotiates with the government -- it's saying that it has no choice but to maintain an overcapacity of idle employees.
Do you accept that?
MR. FITZGERALD: Mr. Commissioner, I would say that there's probably some degree of capacity that they need to handle the fluidity of the situation. But clearly the percentages that we're talking about well exceed that.