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Sometimes It Helps to Read the Fine Print

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Here are some excerpts from the first panel of the hearing held earlier this week (April 19) by the Commission on Wartime Contracting. The topic was "Improving the Federal Government's Service Contracts for Southwestern Asia," as in Afghanistan.

I have added some annotation before each excerpt

Many private military contractors say publicity on and criticism of PMC activities is old news. So why is there yet another hearing on the subject? Is it just grandstanding? This opening statement by CWC Co-Chairman Michael Thiubalt succinctly explains why. Put another wsy, as the saying attributed to former Senate Minority leader Sen. Everett Dirksen goes, "A Billion here, A billion there, and pretty soon you're talking real money.

Mr. Thibault: (In progress.) The commission estimates that these contracts have consumed some $80 billion of taxpayers' money over the past five years. Most of the services contracts for tasks like logistical support, security, transportation and maintenance are distinct from buying weapons or equipment and are made by the U.S. Army -- as made by the U.S. Army.

...

Observers of this hearing may wonder why its focus is on services contracting. After all, the commission has already heard extensive testimony of the largest of the services contracts, the LOGCAP contract for global logistic services, and on the many services to be managed in the drawdown of American forces in Iraq.

The answer is simple. Although services contracts account for more than 60 percent of the contract effort in Southwest Asia theater and have cost about $80 billion over the past five years, they continue to suffer from lack of commensurate focus, oversight and program management by government officials. The result is often unnecessary risk of waste, fraud, abuse and the undermining of our national objectives.

These concerns aren't new. Department of Defense contract management has been on the Government Accountability Office's high- risk list since 1992, every year since 1992. If that designation were a person, that person would be old enough to vote now.

Numerous GAO reports over succeeding years have added much detail to the catalogue of shortcomings, including one released last month under the title "Warfighter Support." DOD needs to improve its planning for using contractors to support future military operations. This is the subject or one of the many subjects that we're going to explore today.

In the past decade, Congress has weighed in nearly every year with new directives on contracting. For example, statutory mandates in fiscal 2002 and 2006 National Defense Authorization Acts direct that the secretary of Defense establish a management structure for the procurement of contract services -- 2002, 2006.

The law calls for a designated official in each military department to exercise responsibility for managing its procurement services, for departments to dedicate full-time commodity managers to coordinate procurement of key services, and to conduct annual execution reviews.

The Army, the U.S. Army, does not appear to have effectively responded to these requirements. For example, the law requires that the management of services contracts be comparable to that applied to weapon systems. But progress is incomplete.

Four very large, over $1 billion each, services contracts in Southwest Asia received Department of Defense secretarial-level review both before and after they were awarded. But commission staff have identified 38 large services contracts in the area, ranging from $50 million up to that $1 billion level. Of those 38, three received only pre-award review at Army headquarters. The other 35 had only field reviews below headquarters level.

We're concerned that this situation represents a gap in contract oversight for many large contracts. Below the $50 million level, incidentally, about 3,500 contracts in Iraq and Afghanistan have received only field reviews, even though they add up to very large sums of money.

Let's be fair about this. It is not always the fault of a contractor. Sometimes it is the government which can't get its act together.

Mr. Thibault: The issue of the Army's commitment to aggressive and effective contract management shows up in other ways. After more than seven years of war in Southwest Asia, typically with a 1-to-1 ratio of contractor employees to warfighters, it is astonishing but apparently true that no one in DOD or the Army has either a department-wide or a theater-wide view of contracts, contracting activity, or the numbers and locations of contractors.

And with a massive drawdown operation underway in Iraq, it is also astonishing to hear a three-star Army general confirm at our last hearing that there is no single entity with the power to monitor operational needs and order appropriate adjustments in the scope of contracts.

With all due respect to Gen. Phillips what are "acquisition interns?" If we are talking about people who approve payments for contracts we are talking about people who approve task orders ranging from hundreds of thousands to tens or hundreds of millions of dollars. Do we really want interns doing that? I'm not being sarcastic here. I just want to know. Could someone tell us? Perhaps it is entirely reasonable and straightforward.

Lt. Gen. William Phillips, Principal Military Deputy to the Assistant Secretary of the Army (Acquisition Logistics and Technology):

It is often stated that people are our most important asset. As the Army's director of the acquisition management career management, I can assure you that we are working aggressively to reverse the years of decline in authorized strength levels. We're also working to restore the skill level of our acquisition and contracting workforce to deal with the growing complexities of our business environment.

We believe that additional training of the workforce will, over time, enhance the skills necessary to better support our war fighters. We appreciate the support of members of Congress as we work to rebuild the acquisition and contacting workforce to handle the increased workload in managing our acquisition programs as well as a number of contracted actions and contracted dollars which, in the last 15 years, has increased by more than 500 percent along with over a 20 percent reduction in contracting personnel.

Our Army, under the guidance and direction of Secretary McHugh and General Casey, continue to work hard to reduce this trend, and we're on the right path. Within the next few years, we will end source approximately 4,041 positions that were previously contractor to government. We expect to hire, by 2015, over 1,885 personnel into Army acquisition, of which about 1600 will be contracting.

Within the last couple of years, we have hired over 600 acquisition interns, much of that as a result of Section 852 funding. Along with the additional workforce personnel, we thank Congress for authorizing five additional general officers for acquisition. We have promoted three colonels to general officer since the Gansler Commission reported its findings. In addition, there are other general officers that are serving in key acquisition positions today.

Is developing a contract proposal for contractors an inherently governmental function? You and I and other ordinary citizens might think so but apparently we are wrong. Evidently, developing a statement of work is not an inherently governmental function

Commissioner SCHINASI: Thank you.

But let me start by talking about some of the problems that we're seeing. In your statement -- I think it was on page six -- and in your oral statement, you talked about the review that the Army has done to identify positions that contractors are holding, which are really for inherently governmental purposes, which is a good thing. But you've put a five-year time horizon around bringing into the government those things which the contractors would not be doing -- not cannot, but should not be doing, all right?

And so I'm a little disturbed that you're talking about 2015, because I think we have 7,162 positions coming in fiscal year '10, but 11,000 more plus that you've identified that also need to come in. And the Army doesn't seem to be able to do that before 2015. So that's a -- that is a timeline that I think is too long.

In addition to the inherently governmental position, there are a lot of things that the Army has asked contractors to do, which are in that other realm of closely associated or critical. And I will just point out a report that the GAO issued last week that talks about the amount -- the number of contractors that are supporting contract administration in Iraq and Afghanistan. Again, a job that probably is better done by government officials.

The Army has used contracting officer representatives -- contractors to be contracting officer representatives in the past. Do you know what the situation is with that now? Are you still using contractors as corps?

GEN. PHILLIPS: Ma'am, a lot of questions in your statement.

In Iraq today and Afghanistan, we have a contract with CACI that was competed off a GSA schedule. And that contract allows for up to 40 CACI employees to serve alongside Joint Contracting Command personnel, as well as to serve with units and brigades, primarily, within their supply shops -- and also, at division headquarters. In Afghanistan, it allows for up to 35 to do essentially the same thing.

They are not doing inherently government functions. They are doing work that involves developing a statement of work; that is worked through the war-fighting units - through their requirements and resourcing process. And once it gets to JCC-I/A, there are some CACI employees that are serving alongside our contracting officers both in Iraq and Afghanistan that are supporting the pre-war process -- putting the requirements together, developing the solicitation.

They are not signing any contracts; they are not negotiating; they are not doing any kind of that work, which would be termed inherently government.

In the beginning of the hearing Mr. Thibault raised a question about how much competition there was in the awarding of the contracts. Mr. Shay Assad, Director of Defense Procurement and Acquisition Policy, DoD said, "I think the figure over in Iraq and Afghanistan -- and General Phillips can be more definitive on this, but it was around 97 (percent) or 98 percent of the actions that they actually compete. Gen. Phillips said, "When I left, we were at about 98 percent for all our contracts, over 30,000 contracts last year that we did in competition. One of the comments, sir, don't hold me to the day, but I believe it was 4 March of '09 when the President signed out his directive on competition. I actually took that directive in Iraq and had a discussion with the operational commander about how to emphasize contracting within our realm of joint contracting command Iraq and Afghanistan and a lot of the goodness that we were doing. Firm believer in competition.

But it turns out, to paraphrase Bill Clinton's famous question about the meaning of it, that it all depends on what you count as competition.

Commissioner Tiefer: All right. Mr. Harrington, as competition -- you're competition advocate -- yes, do I have your title correct?

GEN. HARRINGTON: Yes, sir.

MR. TIEFER: Okay.

You carried out President Obama's call in March 2009, for more competition. Your own 2009 competition report speaks of, quote, "increased efforts by DASA(P) to scrutinize high-dollar value sole source procurements."

Now, here's my question. We've been listening. I'm listening to these great statistics. 97 percent competitive, 98 percent competitive, 99 percent competitive and I hear off in the room somewhere, there's an 800-pound gorilla. How do you manage with this single-award, LOGCAP III contract, which went to $30 billion, to reach these high figures? To reach up to task order 161 on that contract?

Am I right that you were viewing in what you called competitive LOGCAP III, although there hasn't been a contract on LOGCAP III since before 9/11?

GEN. HARRINGTON: Sir, I'm not sure of your question. Could you help me?

MR. TIEFER: Are you counting LOGCAP III as, when you say that 97 percent and 99 percent of your contracting is competitive?

Are you counting LOGCAP III as competitive?

GEN. HARRINGTON: Yes, sir. Yes, sir. That's within the figures. Yes, sir.

MR. TIEFER: Thank you.

GEN. HARRINGTON: Okay.

MR. TIEFER: Now, following up, Mr. Harrington, we've heard about the fact that we were
invited to the --.

MR. SHAYS: Would the gentleman yield a sec? Just to clarify this, what it sounds like, though, is you're counting it as one and not in terms of the dollar amounts. You couldn't be counting it in terms of the dollar amounts.

GEN. HARRINGTON: No, the 97 percent figure, Mr. Shays, is for contracting being done by the joint contracting command in Iraq. It wouldn't include LOGCAP.

GEN. PHILLIPS: And it's for contract actions as the count.

GEN. HARRINGTON: That's correct.

MR. SHAYS: Contract what?

GEN. HARRINGTON: Actions. These contract actions.

MR. SHAYS: All right. You've taken each contract separately.

GEN. HARRINGTON: Yes. Yes.

GEN. PHILLIPS: Sir, I was speaking of the Army as a whole.

GEN. HARRINGTON: Sir, I would also add that -- if I could just add this, that the dollars are about the same as well. So we did 30 -- over 30,000 actions last year in Iraq and Afghanistan.

MR. TIEFER: If I can reclaim my time, I honor you in JCCIA, but LOGCAP is LOGCAP. It counted as competitive or not?

GEN. HARRINGTON: Sir, not talking about JCCIA.

MR. TIEFER: (inaudible) Mr. Harrington does cover it. It does cover it?

GEN. HARRINGTON: Sir, it's counted as part of the Army whole for contracting. The Army as a whole competed 67 percent of its contract actions in dollars.

MR. TIEFER: Is it counted as a competitive thing?

GEN. HARRINGTON: Yes, sir.

MR. TIEFER: That's what I thought - it's counted as competitive. Okay. You know, yeah, it's not part of JCCIA.

All right, did you attend the April 12th briefing that we were initially invited to and subsequently were disinvited to? I'm not asking you to talk about the content, just whether you were invited to it.

GEN. HARRINGTON: Yes, I was.

MR. TIEFER: You were, okay. Anyone else on the panel who attended it?

GEN. PHILLIPS: No, sir.

MR. ASSAD: No, sir.

MR. TIEFER: Okay. Now, Chairman Thibault said the thrust of the analysis he'd heard from the person who gave the briefing - who is unnamed - was for not competing Iraq-based level services on LOGCAP IV. Do you want to warn me that we're on a false trail? Or - you're not telling me that's wrong, are you?

GEN. HARRINGTON: Sir, what I can tell you right now, sir is that in holistic terms is being assessed by the Army leadership.

MR. TIEFER: Well I want you to warn me. If I'm wrong, if that wasn't the thrust of the briefing I don't want to be wasting my time and the commission's time on this. Do you want to warn me of that? Are we wrong?

GEN. HARRINGTON: That the thrust of the briefing was that it would not be competed?

MR. TIEFER: Yes.

GEN. HARRINGTON: Sir, that was one of the topics discussed, yes.

MR. TIEFER: That's all.

...

MR. Shays: And there are a few things -- and the other part is, given my respect for all of you, then I want to ask questions that may not sound as friendly. I think it's absurd to call LOGCAP III a competitive grant. LOGCAP III is a logistic contract augmentation program. We had I. We had II. We had III. LOGCAP was a -- it turned out to be a 10-year program. We kept renewing it every year.

When it was bid out, the contractor thought they would get hundreds of millions of dollars of business. They're getting $35 billion of business. Do you think that when we bid that out, if all the other contractors knew they were going to get $35 billion of business, do you think it's possible that maybe it would have been a little more competitive? And I think the answer is yes, hugely.

So the first thing I'm putting on the table is I don't buy that it is a competitive grant. I do buy that LOGCAP IV can be, because now people know how lucrative it can be. And now we have three, so we can have the three compete with each other.

Where do you disagree with what I just said? Mr. Harrington?

MR. HARRINGTON: Sir, I'd just comment that LOGCAP IV was conceived in the 2006 time frame,
recognizing that LOGCAP III was growing regularly with the war effort.

MR. SHAYS: But doesn't that just emphasize the bureaucracy? 2006, you said?

MR. HARRINGTON: Yes, sir.

MR. SHAYS: And it's 2010 now.

MR. HARRINGTON: Well, sir, LOGCAP IV was awarded in 2007.

MR. SHAYS: I know, but it was conceived way back.

MR. HARRINGTON: Yes, sir.

MR. SHAYS: And it's taken so long. And the reason is the commanders on the field liked what they got. But they don't have to worry about cost. They don't have a concept of opportunity cost. And you end up with the absurdity of our last hearing where we have a contractor who is basically providing services, maintenance services, at 15 -- excuse me -- 7 to 10 to 15 percent capacity utilization, average 10 percent. And frankly, our government witnesses weren't all that troubled because the bureaucracy liked what they were doing. But it's hugely wasteful.