"Implementing Improvements in Defense Wartime Contracting"
Chairman Thibault, Chairman Shays, and Members of the Commission:
I am pleased to be here today to discuss implementing improvements in defense wartime contracting. To place SIGAR's role in perspective, I should note our agency's unique jurisdiction as it relates to defense appropriations.
SIGAR's enabling legislation gives the agency oversight responsibility for selected programs, operations, and contracts employing funds for reconstruction in Afghanistan. While most Department of Defense (DoD) wartime contracting activities in direct support of its military operations and activities do not fall within SIGAR's oversight responsibility, some important aspects of DoD's contracting activities do. These include its employment of funds from the Afghanistan Security Forces Fund (ASFF), the Commanders Emergency Response Program (CERP) fund, and DoD Drug Interdiction and Counter-Drug Activities funding. SIGAR's jurisdiction covers about 13 percent of the $154 billion that DoD obligated through these accounts from fiscal years 2002 through 2010.
Many of our audits address projects and programs funded through the ASFF. To date, Congress has appropriated about $40.6 billion for the ASFF. The Combined Security Transition Command-Afghanistan (CSTC-A)1 uses this funding to equip, train, base, and sustain the Afghanistan National Security Forces (ANSF), which consists of the Afghan National Army (ANA) and Afghan National Police (ANP).
As requested, my statement will address: key recommendations from our most recent work; the status of agencies' actions on our recommendations; our work since we last testified before the Commission; investigations; key issues going forward; and our views on the Commission's recommendations in its second interim report.
1 CSTC-A is a joint command with the NATO Training Mission-Afghanistan (NTM-A). Because CSTC-A distributes and manages all U.S.-provided funding to support ANSF, this testimony refers to CSTC-A.
SIGAR's Key Recommendations Regarding ASFF and CERP Projects
Regarding contracting involving defense appropriations, our work has largely focused on construction projects funded by ASFF and CERP. SIGAR has issued eleven audit reports examining activities funded by either ASFF or CERP, including 15 ANSF construction contracts totaling $363.9 million and 70 CERP contracts totaling $54.7 million. In addition, we have looked at the Combined Security Transition Command's $11.4 billion program to build 900 ANSF facilities.
Our audits of construction projects examine the cost, schedule, and outcome of the contract, and assess whether projects are sustainable and helping to achieve U.S. and Afghan strategic goals. Our audits of construction projects implemented through ASFF and CERP have identified numerous problems, including insufficient planning; inadequate contractor oversight and quality assurance; and challenges in sustaining many of the construction projects. Several of our recent audits and recommendations address these challenges. For example:
- In October 2010, we issued an audit report on a $5.9 million contract to build ANP district headquarters facilities in Helmand and Kandahar Provinces.2 We recommended that USACE ensure compliance with its own quality assurance standards on this and related projects by directing the Afghanistan Engineer District-South to require quality assurance representatives to file daily assurance reports, ensure three-phase testing is implemented, and perform and record quality control testing.
- In January 2011, we issued an audit report on $53 million in CERP-funded projects in Laghman Province.3 We recommended that U.S. Forces-Afghanistan (USFOR-A) work with Government of Afghanistan officials to develop sustainment plans for CERP projects that are completed and have not been sustained. SIGAR also recommended that USFOR-A consider identifying steps for Afghan government officials in Laghman Province to take to sustain projects that have been transferred to their authority, prior to the commitment of additional CERP projects.
- Also in January 2011, we issued a report on CSTC-A's planning for the construction of new ANSF facilities, which is expected to cost $11.4 billion through fiscal year 2012.4 We recommended that CSTC-A develop a facilities master plan document that incorporates updated requirements for ANSF facilities; addresses the justification for and location of all ANSF facilities; determines how they meet strategic objectives for security; and discuss how facilities will be shared, expanded, or constructed to meet CSTC-A's eventual projected end strength of 378,000 personnel.
2 SIGAR Audit 11-3, ANP District Headquarters Facilities in Helmand and Kandahar Provinces have Significant Construction Deficiencies Due to Lack of Oversight and Poor Contractor Performance, October 2010.
3 SIGAR Audit 11-7, Commander's Emergency Response Program in Laghman Province Provided Some Benefits, but Oversight Weaknesses and Sustainment Concerns Led to Questionable Outcomes and Potential Waste, January 2011.
4 SIGAR Audit 11-6, Inadequate Planning for ANSF Facilities Increases Risks for $11.4 Billion Program, January 2011.
Status of SIGAR's Recommendations to DoD on Contracting Issues
In fiscal years 2009 and 2010, SIGAR made 35 recommendations to DoD, primarily to CSTC-A and involving ASFF and CERP-funded projects. DoD concurred with 28 of the recommendations and partially concurred with the remaining seven. We have closed 26, or 74 percent, of the recommendations, based on actions taken by DoD components. We also made 14 additional recommendations to DoD components in fiscal year 2011 reports, and are awaiting responses from DoD regarding these recommendations.
SIGAR follows up on its recommendations by sending a letter to the agencies asking them to detail the actions they have taken to implement our recommendations and to provide documentation to confirm that these actions have been successfully completed. If SIGAR does not believe that an action fully implements a recommendation, it will leave the recommendation open and pursue further follow-up at a later date, generally about six months after receipt of the first response. This time frame can be advanced or pushed back depending on the circumstances concerning individual reports. Recommendations are generally kept open for three years after report issuance and then closed with non-compliance if no corrective action has been taken.
Update Since Our January 2011 Testimony
SIGAR last testified before the Commission on January 24, 2011. The Commission made several references to that testimony in its February 2011 second interim report. We are also issuing two additional reports today on activities funded through the ASFF.
-
We are issuing a report on infrastructure projects at Mazar-e-Sharif and Herat, totaling $42.2 million, managed by the Air Force Center for Engineering and Environment (AFCEE). We found that, in general, the quality of construction at both sites met the terms of the contract requirements but both experienced cost increases and construction delays.5 Some of the delays were for reasons beyond the contractors' control (each project had a different contractor) while others reflected poor contractor performance. For example, the contractor responsible for the Mazar-e-Sharif project had difficulty obtaining generators for an electrical upgrade. However, the Herat project was delayed because of poor contractor performance, particularly with regard to cost and schedule management. We found that the AFCEE contracting officer did not exercise adequate oversight of the Herat contractor. Specifically, the contracting officer approved over $5 million in funding increases for the project, despite having identified serious concerns about the contractor's performance. He also failed to follow up on his requests to the contractor to take corrective actions and did not provide timely information to other U.S. government contracting officials on the contractor's performance through the Construction Contractor Appraisal Support System.6
its February 2011 report the Commission raised concerns about providing contractors' past performance information. You stated that agencies can improve their ability to conduct meaningful competitions if they consistently record contractors' performance-evaluation information in the federal past-performance database-and then use the information when making source-selection decisions. We agree that it is important to record past performance information. In our report on projects at Mazar-e-Sharif and Herat, we recommended that the Director of AFCEE take immediate action to finalize the performance rating of the prime contractor at Herat and add this rating to Construction Contractor Appraisal Support System. In commenting on a draft of our report, AFCEE commented that it has now prepared and submitted the rating for the contractor's performance on the ANA garrison facilities at Herat.
5 SIGAR Audit 11-09, ANA Facilities at Mazar-e-Sharif and Herat Generally Met Construction Requirements, but Contractor Oversight Should Be Strengthened, April 2011.
- Our second report involves ANP payroll and workforce systems.7 The Government of Afghanistan has never had the financial resources to sustain ANP salaries at either the current or projected levels. In 2002, the Government of Afghanistan and its international partners agreed to establish the Law and Order Trust Fund for Afghanistan (LOTFA), managed by the UN Development Program (UNDP), to support the development of the ANP by covering certain recurrent costs which included the payment of police salaries, allowances and benefits nationwide. The U.S. has historically been the largest single contributor to LOTFA, providing nearly 32 percent of total contributions. U.S. funding for LOTFA has come primarily from ASFF and the Department of State's International Narcotics and Law Enforcement Fund (INCLE).
To date, UNDP has disbursed almost $1.26 billion from LOFTA to reimburse ANP payroll and other costs. While these payments do not involve contractors, they are a key issue for the ANP. We found that although the Afghan government, which pays the ANP, continues to make progress toward automating the payroll and payment processes, its personnel system provides little assurance that only ANP personnel who work are paid. The Afghan government has taken many steps to address ANP accountability, but significant risks of fraud, waste, and abuse of donors' funds will continue unless controls are improved.
6 The Construction Contractor Appraisal Support System is the database used by U.S. contracting officials to record assessments of past performance of construction contractors.
7 SIGAR Audit 11-10, Despite Improvement in MoI's Personnel Systems, Additional Actions are Needed to Completely Verify ANP Payroll Costs and Workforce Strength, April 2011.
We also found that the Afghan government is currently automating its human resource records and developing personnel management systems to improve ANP accountability. However, it cannot determine the actual number of personnel that work for ANP because it has been unable to reconcile the number of personnel records or verify the data in four different personnel systems and databases.
We are making recommendations to improve the monitoring and oversight of LOFTA and to address the development of the Afghan government's personnel and payroll systems to help ensure they provide consistent and reliable ANP workforce data and payroll costs, as well as ensuring that only eligible ANP costs are reimbursed with LOTFA funds. NTM-A/CSTC-A concurred with the recommendations to develop written guidance for the roles and responsibilities of the Ministry of Interior and CSTC-A for future personnel inventories, and to develop a plan to coordinate the efforts to automate and centralize payroll and personnel systems and databases. These actions, if implemented, will substantially address our concerns.
We also have two ongoing audits of large AFCEE-managed infrastructure projects funded through the ASFF-one of the $161 million Kabul Military Training Center and the other of the $83 million Afghan National Security University. (In addition, we have ongoing work on local governance and community development projects (valued at $429 million) implemented by the U.S. Agency for International Development contractors.) Each of our contract audits examine whether 1) the projects were completed within the terms of the contract; 2) oversight and administration adhered to requirements; and 3) plans exist to transfer and sustain the projects.8
We are also planning to conduct an audit of two USACE contracts with ITT Corporation to provide operations and maintenance for ANSF facilities. USACE awarded these contracts, valued at up to $800 million over five years, in 2010. One contract, for $450 million, covers the ANSF sites in the north; the other contract, for $350 million, covers ANSF sites in the south. Part of the contract includes an agreement that ITT Corporation will provide Afghan workers with training in facility management and the trades, including carpentry, plumbing, and electrical work. This provision addresses the key issue of building Afghan technical capacity to sustain ANSF infrastructure. The DoD Inspector General is currently conducting an audit of the training portion of these contracts, and we are coordinating our efforts with them. Both contracts are expected to exhaust their funding well before their five-year performance period. USACE is considering courses of action for follow-on sustainment.
Investigations
Of our 76 current cases, 46 address contract fraud. Our closed cases have involved the proposed suspension or debarment of 5 companies and 26 individuals. SIGAR has an excellent 6 relationship with the Department of Justice's (DOJ) National Procurement Fraud Task Force (NPFTF) and had no issue getting cases accepted for potential prosecution.
8 SIGAR, Plan for Performance Audits of Contracts and Other Financial Mechanisms to Meet the Requirements of P.L. 110-181, Section 842 (a) (3), January 28, 2011.
In recent months, I have asked SIGAR to undertake a review of all investigations in an attempt to focus resources on matters believed to have the greatest potential for law enforcement return on investment. As a result, we are now concentrating on large contract fraud cases. We have hired an attorney, who has been detailed to the DOJ as a Special U.S. Attorney located in the NPFTF. The deployment of a Special U.S. Attorney to the NPFTF will contribute significantly to the early presentation of our cases to the DOJ and improve coordination as cases move forward to prosecution.
Key Issues Going Forward
As the U.S. and coalition partners focus on the transition planning for 2014, we believe the following issues remain critical for oversight efforts of U.S. reconstruction funds in Afghanistan.
First, we recognize the concern you expressed in your February 2011report that the U.S. has come to over-rely on contractors. For Afghanistan reconstruction projects, we would expect that the U.S. will continue to use contractors for the construction of ANSF facilities. Our audits have shown that insufficient planning, inadequate oversight, and lack of sustainability could adversely affect providing ANSF with the facilities it needs to operate.
Second, we recognize the recent legislative changes to CERP. CERP enables local commanders to assist with humanitarian relief and reconstruction projects for the local population by providing funds through purchase orders to local firms. The program has also included larger projects implemented through contracts with the signature of a warranted contracting officer. We expect both types of projects to continue, subject to the recent changes made by Congress. The Fiscal Year 2011 National Defense Authorization Act (NDAA) (P.L. 111-383) addressed many of the issues that SIGAR has identified. The law extended CERP for one year, but limited individual CERP projects to a maximum of $20 million. The Act also reflected Congress's concern that DoD was using CERP to fund large-scale projects in support of its counterinsurgency strategy rather than for the original purpose, which was to enable military commanders to implement small-scale projects to meet the urgent humanitarian relief and reconstruction needs within their areas of responsibility. The Act authorized the creation of a new fund-the Afghanistan Infrastructure Fund-to be the primary source of DoD funding for large-scale development and reconstruction projects in Afghanistan. SIGAR will be closely monitoring the development of this new fund.
Third, we note the Commission's related concern on the reliance on contractors for security. Prime contractors for Afghan construction contracts are generally responsible for providing for their own security, including site security for their facilities and security for the movement of their personnel, equipment, and construction materials. The fate of construction projects that rely on private security contractors has been in doubt since August 2010 when President Karzai issued Presidential Decree 62, announcing a planned dissolution of all private security contractors. On March 15, 2011, the Afghan government announced a bridging strategy to transfer many of the contracted security functions to the state Afghan Public Protection Force (APPF) which will ultimately provide security services for development projects, International Security Assistance Force (ISAF) convoys, ANSF construction sites, and ISAF bases in Afghanistan. ISAF and the U.S. Embassy in Kabul have agreed to support the implementation of Decree 62 and development of the APPF.
Fourth, continued cooperation among the Inspectors General (IGs) and related agencies will be essential for effective oversight of Afghanistan reconstruction programs and operations. As a 16-year senior executive in the IG community, I take the responsibility of coordinating SIGAR's work with other IGs very seriously. As a courtesy, SIGAR vets all new notification letters with other IGs to ensure that we are not duplicating their efforts. We use all the formal and informal channels of coordination to the fullest extent possible.
Views on Selected Recommendations from the Commission's Second Interim Report
Finally, you asked how the Commission's second interim report recommendations impact IGs' roles. We have identified 3 of the Commission's 32 recommendations that would, in my judgment, most directly affect IGs.
Recommendation 29 would expand the power of IGs - giving subpoena power to civilian IGs to include subpoenas for the attendance and testimony of witnesses, as is currently provided to the DoD IG, and providing both civilian and DoD IG with authority to interview contractor and subcontractor personnel. In my judgment, we have the necessary authority and access to records and individuals in our existing authority to conduct our work. It is my understanding that the DoD IG uses its subpoena authority sparingly.
Recommendation 12 would create a permanent office of inspector general for contingency operations. As a 16 year veteran of the IG community, I generally favor mechanisms that create avenues of improved oversight and continuity. At the same time, however, I do not favor adding extra layers of oversight and duplication, which this proposal might do. I believe there are already mechanisms in place, including the use of the Council of Inspectors General on Integrity and Efficiency in Government that could serve this function.
Recommendation 28 would establish a permanent organization to investigate international contract corruption. Depending on whether this would add to or draw from existing IG investigative staff, it could impact our investigations work. I would not be in favor of actions that would reduce SIGAR's investigative resources.
Two other recommendations, Recommendations 11 and 14, involve organizational actions outside SIGAR's jurisdiction but could affect its operations. Recommendation 11 would establish a new joint position at the Office of Management and Budget and the National Security Council to provide oversight and strategic direction for contingency operations.
Recommendation 14 would create a congressional committee to integrate the individual authorities, resources and oversight of contingency operations.
In conclusion, developing Afghanistan's security forces and infrastructure is an important element of the overall U.S. reconstruction strategy in Afghanistan and SIGAR will continue to conduct audits of projects being implemented through the ASFF and CERP funds. SIGAR will also closely monitor the establishment of the Afghanistan Infrastructure Fund this year. We are committed to following the money, focusing on returns for the taxpayers, and building cases against individuals and entities committing fraud.
Again, thank you for this opportunity to testify before you today, and I am prepared to address any questions you may have.