Hearing of the House Government Reform Committee: the Complex Task of Coordinating Contracts: Iraq

HEADLINE: HEARING OF THE HOUSE GOVERNMENT REFORM COMMITTEE SUBJECT: THE COMPLEX TASK OF COORDINATING CONTRACTS AMID CHAOS: THE CHALLENGES OF REBUILDING A BROKEN IRAQ

CHAIRED BY: REPRESENTATIVE TOM DAVIS (R-VA)

WITNESSES: MAJOR GENERAL CARL A. STROCK, DIRECTOR OF CIVIL WORKS, U.S. ARMY CORPS OF ENGINEERS, DEPARTMENT OF DEFENSE; GENERAL PAUL J. KERN, COMMANDING GENERAL, U.S. ARMY MATERIAL COMMAND, DEPARTMENT OF DEFENSE; MAJOR GENERAL WADE H. MCMANUS, JR., COMMANDING GENERAL, U.S. ARMY FIELD SUPPORT COMMAND, DEPARTMENT OF DEFENSE; TINA BALLARD, DEPUTY ASSISTANT SECRETARY OF THE ARMY FOR POLICY AND PROCUREMENT, DEPARTMENT OF DEFENSE; LEWIS LUCKE, DEPUTY ASSISTANT ADMINISTRATOR, UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT; DOV S. ZAKHEIM, UNDER SECRETARY OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, DEPARTMENT OF DEFENSE; WILLIAM H. REED, DIRECTOR, DEFENSE CONTRACT AUDIT AGENCY, DEPARTMENT OF DEFENSE; REAR ADMIRAL DAVID NASH, USN (RET.), DIRECTOR, Iraq PROGRAM MANAGEMENT OFFICE, COALITION PROVISIONAL AUTHORITY

LOCATION: 2154 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

BODY:
REP. STEPHEN F. LYNCH (D-MA): Thank you, Mr. Chairman. I want to thank Chairman Davis and also Ranking Member Waxman for their good work in putting this together. I also want to thank the members of the panel for coming before us and helping us in our inquiry.

I also had a chance to go into Iraq. I was actually part of the first delegation to go into Baghdad after the invasion and I have got about 20 years in instruction management, managing contracts and a couple of things I know about, no-bid and cost-plus contracts. Number one, since there is no or very little competition, it's basically a guarantee for whatever contractor is anointed.

The second thing, on a cost-plus contract, the profits are guaranteed.

And there really are no restraint on how much a project will cost. There are no internal restraints on the part of the contractor so that-I think Mr. Zakheim would agree that the auditing function here-and Mr. Reed would agree-the auditing function is extremely important because the more the company spends or the contractor spends, the more they are going to make on their percentage. So the auditing function is extremely important. Is that correct, Mr. Zakheim?

MR. ZAKHEIM: Absolutely, sir. I agree.

REP. LYNCH: In this case, we have an auditing function where our DCAA wrote a recommendation to the Army Corps of Engineers and said-I want to quote it right from the letter. It said, "They have identified systemic problems with Halliburton's accounting and it urged the DOD not to award further contracts to Halliburton without talking to the DCAA about Halliburton's accounting problems." And the problem that I have is this is the way the system is supposed to work, that the auditor is supposed to oversee what's going on and that the contracting authority is supposed to listen.

But that didn't happen here. That didn't happen here and another $1.2 billion went out to Halliburton and, in other cases, Brown & Root, despite some problems that have been found in their operation, they continue to work without any correction or any restraint at this point.

General Kern, I'd like to bring your attention to a couple of reports regarding several Halliburton employees who were caught taking kickbacks. They took them from a Kuwaiti company in exchange for steering contract to that company. And as I understand it, Halliburton caught the officials engaged in these activities and reported them to the Defense Department. Is that correct?

GEN. KERN: That's correct, Congressman.

REP. LYNCH: Last week, General, your staff met with our committee staff in preparing for this hearing and our staff asked for the identity of those two individuals. Your staff at that time reported that they didn't have the information then but they'd get back to the committee with the information. Unfortunately, we have been waiting and that has not happened, to my knowledge. Is that forthcoming or --

GEN. KERN: I was away last week, Mr. Congressman, so I don't know the precise answer. I will promise you that I will get back to you and if there is no legal reason why I can't provide that, it will be provided.

REP. LYNCH: I have to tell you I'm one of the Democrats who actually supported the action in Iraq and I supported the money for our troops and for reconstruction. And I got to tell you, I'm concerned right now. I'm concerned. I'm not somebody who has criticized the military or been reluctant to support you. But I got to tell you, it's our responsibility, all of us, to protect the American taxpayer. I'm concerned.

GEN. KERN: I agree with your concern. And we will, I promise you-and I have spoken a number of times with my command council about this specific incident and it is going to be thoroughly investigated and we will bring those concerns to the forefront for you.

REP. LYNCH: Well, more than concerns brought to the forefront. I'd like to have an opportunity to talk to those individuals and find out how senior are those individuals who accepted the bribes from this Kuwaiti company. Do we have at least an indication of how senior these Halliburton officials are?

GEN. KERN: I do not have any indication of that. I know that it was brought forward. I know that it is under investigation and I know that they have provided us compensation for what they believe was the amount of the bribe that was taken. But that is what we are going to ensure is investigated thoroughly.

REP. LYNCH: I'll conclude, Mr. Chairman. You know, I keep hearing this, that we are-the price is overcharged and then the penalty is to give the money back that we caught you stealing. That's just not going to get it. That's just not adequate.

GEN. KERN: Congressman, we agree with you 100 percent on it and that is in fact what's happening, that we are investigating it on our own.

REP. LYNCH: There has to be more serious consequences than just, Oh, we caught you stealing, give the money back. This is millions and millions of dollars of the taxpayers' money. And we've got to have a better standard than that. And I'm just going to conclude with these remarks. I don't understand how you couldn't know the rank and the identity of these officials. These officials were at the very top of the procurement ladder. These people were handing out millions of dollars of taxpayers' money in the form of contracts.

We know who these people are. That's why I say my confidence has been shaken on this point and we ought to put a lot of sunlight on this process, find out who these people were, find out how many contracts they oversaw, find out who the Kuwaiti contractors were that were bribing them and now those subcontractors who provided the bribe, are they doing other contract work in the country as well? We need some accountability here. That's all I'm asking.

Thank you, Mr. Chairman.