Foreign Assistance
USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key Projects May Exceed Initial Cost and Schedule Estimates Gao ID: GAO-06-488 April 14, 2006In December 2004, an earthquake off the coast of Indonesia caused a tsunami that left more than 230,000 people killed or missing and presumed dead and an estimated $10 billion in damage in 12 countries. In May 2005, Congress appropriated $908 million for relief and reconstruction. U.S. emergency relief efforts budgeted at $327 million were nearly completed in December 2005. The U.S. Agency for International Development (USAID) plans to spend $496 million on longer-term reconstruction, focusing on Indonesia and Sri Lanka, with the remaining $85 million allocated to other U.S. agencies. GAO has been mandated to monitor USAID's reconstruction efforts. In this report, GAO describes USAID's (1) progress in Indonesia and Sri Lanka, (2) financial and technical oversight measures, and (3) implementation challenges.
USAID has begun a number of reconstruction activities in Indonesia and Sri Lanka. As of January 31, 2006, approximately 8 months after Congress appropriated funding, USAID had obligated $111 million (32 percent) and expended $9 million (3 percent) of the $349 million budgeted for reconstruction in Indonesia, and it had obligated all and expended $2 million (2 percent) of the $85 million budgeted for reconstruction in Sri Lanka. However, rising prices of materials and labor in both countries may increase costs for many construction efforts, including USAID's "signature" projects, which are intended to generate greater visibility for U.S. assistance. In addition, revisions to initial assessments of site conditions may challenge USAID's ability to finish its signature project in Indonesia--a 150-mile road in Aceh Province--by September 2009, the estimated completion date. In Sri Lanka, the time needed to complete designs and plans may make it difficult to finish one part of USAID's signature project--a bridge at Arugam Bay--by March 2008, although this project is currently slightly ahead of schedule. USAID plans to complete most of its other reconstruction projects, such as building schools and restoring livelihoods, by September 2007. USAID has established financial and technical oversight for its tsunami recovery programs in Indonesia and Sri Lanka. For financial oversight, USAID plans to arrange a concurrent audit of the signature road project in Indonesia and strengthen Indonesian and Sri Lankan audit capacities. For technical oversight, USAID has begun to add staff to oversee its signature construction projects and has acquired additional construction engineering expertise from another U.S. agency. An additional engineer will start work in Indonesia in May 2006. In Sri Lanka, USAID has added two engineers to its staff and plans to hire an additional construction oversight engineer in April 2006, prior to beginning construction. In implementing its Indonesian and Sri Lankan reconstruction programs, USAID faces several broad challenges. These include working in regions with long-standing conflicts, coordinating with host governments and nongovernmental organizations, and ensuring that non-tsunami-related development assistance activities are not neglected. To address these challenges, USAID has taken actions such as engaging in peace-building initiatives, participating in regularly scheduled coordination meetings, and hiring and reassigning staff to assist with increased workloads.
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Director: Team: Phone:GAO-06-488, Foreign Assistance: USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key Projects May Exceed Initial Cost and Schedule Estimates
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Report to Congressional Committees:
April 2006:
Foreign Assistance:
USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but
Key Projects May Exceed Initial Cost and Schedule Estimates:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-488]
GAO Highlights:
Highlights of GAO-06-488, a report to congressional committees:
Why GAO Did This Study:
In December 2004, an earthquake off the coast of Indonesia caused a
tsunami that left more than 230,000 people killed or missing and
presumed dead and an estimated $10 billion in damage in 12 countries.
In May 2005, Congress appropriated $908 million for relief and
reconstruction. U.S. emergency relief efforts budgeted at $327 million
were nearly completed in December 2005. The U.S. Agency for
International Development (USAID) plans to spend $496 million on longer-
term reconstruction, focusing on Indonesia and Sri Lanka, with the
remaining $85 million allocated to other U.S. agencies. GAO has been
mandated to monitor USAID‘s reconstruction efforts. In this report, GAO
describes USAID‘s (1) progress in Indonesia and Sri Lanka, (2)
financial and technical oversight measures, and (3) implementation
challenges.
What GAO Found:
USAID has begun a number of reconstruction activities in Indonesia and
Sri Lanka. As of January 31, 2006, approximately 8 months after
Congress appropriated funding, USAID had obligated $111 million (32
percent) and expended $9 million (3 percent) of the $349 million
budgeted for reconstruction in Indonesia, and it had obligated all and
expended $2 million (2 percent) of the $85 million budgeted for
reconstruction in Sri Lanka. However, rising prices of materials and
labor in both countries may increase costs for many construction
efforts, including USAID‘s ’signature“ projects, which are intended to
generate greater visibility for U.S. assistance. In addition, revisions
to initial assessments of site conditions may challenge USAID‘s ability
to finish its signature project in Indonesia”a 150-mile road in Aceh
Province”by September 2009, the estimated completion date. In Sri
Lanka, the time needed to complete designs and plans may make it
difficult to finish one part of USAID‘s signature project”a bridge at
Arugam Bay”by March 2008, although this project is currently slightly
ahead of schedule. USAID plans to complete most of its other
reconstruction projects, such as building schools and restoring
livelihoods, by September 2007.
USAID has established financial and technical oversight for its tsunami
recovery programs in Indonesia and Sri Lanka. For financial oversight,
USAID plans to arrange a concurrent audit of the signature road project
in Indonesia and strengthen Indonesian and Sri Lankan audit capacities.
For technical oversight, USAID has begun to add staff to oversee its
signature construction projects and has acquired additional
construction engineering expertise from another U.S. agency. An
additional engineer will start work in Indonesia in May 2006. In Sri
Lanka, USAID has added two engineers to its staff and plans to hire an
additional construction oversight engineer in April 2006, prior to
beginning construction.
In implementing its Indonesian and Sri Lankan reconstruction programs,
USAID faces several broad challenges. These include working in regions
with long-standing conflicts, coordinating with host governments and
nongovernmental organizations, and ensuring that non-tsunami-related
development assistance activities are not neglected. To address these
challenges, USAID has taken actions such as engaging in peace-building
initiatives, participating in regularly scheduled coordination
meetings, and hiring and reassigning staff to assist with increased
workloads.
Tsunami-Damaged Road (left) and USAID-Funded Maintenance Work in
Indonesia:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that the Secretary of State, in the department‘s
semiannual report due to Congress in June 2006, provide updated cost
estimates and schedules. If the updated information differs
substantially from initial projections, the report should also include
alternative project scopes and the need for additional sources of
funding, if necessary. The Department of State agreed to fully
implement this recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-06-488.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David Gootnick at (202)
512-3149 or gootnickd@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
USAID Reconstruction Programs in Indonesia and Sri Lanka Have Begun,
but Some Project Costs and Schedules May Exceed Initial Projections:
USAID Established Financial and Technical Oversight Measures but Has
Not Filled Some Needed Technical Oversight Positions:
Several Challenges Confront Indonesian and Sri Lankan Reconstruction
Programs:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Debt Relief to Indonesia and Sri Lanka:
Appendix III: USAID's Three-Phase Signature Road Project in Aceh
Province, Indonesia:
Appendix IV: Comments from the Department of State:
Appendix V: Comments from the U.S. Agency for International
Development:
GAO Comments:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: U.S. Tsunami Emergency Relief Funds Budgeted and Expended, as
of January 2006:
Table 2: Funding Budgeted to USAID and Other U.S. Departments and
Agencies for Reconstruction and Other Postemergency Activities, as of
January 31, 2006:
Table 3: USAID Funds Budgeted for Tsunami Reconstruction Projects in
Indonesia and Sri Lanka:
Table 4: USAID's Indonesian Reconstruction Activities and Funding, as
of January 31, 2006:
Table 5: USAID's Sri Lankan Reconstruction Activities and Funding, as
of January 31, 2006:
Table 6: Impacts on the Indonesian and Sri Lankan Governments from All
Bilateral Debt Rescheduling, Fiscal Years 2005-2009:
Table 7: Scope and Status of Indonesian Signature Road Project, as of
December 31, 2005:
Figures:
Figure 1: Tsunami-Affected Countries;
Numbers of Dead, Missing, and Displaced Persons; and Estimated Damage,
as of November 2005.:
Figure 2: Entities Implementing International Tsunami Relief and
Reconstruction Assistance:
Figure 3: Projected Timeline for USAID Tsunami Reconstruction Programs
in Indonesia and Sri Lanka:
Figure 4: Approximate Route of Planned USAID Signature Road Project in
Aceh Province, Indonesia:
Figure 5: Planned Locations of USAID's Sri Lankan Signature Project:
Abbreviations:
BPK: Indonesian Audit Board:
BRR: Indonesian Rehabilitation and Reconstruction Agency:
DOD: U.S. Department of Defense:
IG: USAID Office of the Inspector General:
NGO: nongovernmental organization:
OFDA: USAID Office of U.S. Foreign Disaster Assistance:
OTI: USAID Office of Transition Initiatives:
TAFREN: Sri Lankan Task Force for Rebuilding the Nation:
USACE: U.S. Army Corps of Engineers:
USAID: U.S. Agency for International Development:
Letter April 14, 2006:
The Honorable Mitch McConnell:
Chairman:
The Honorable Patrick J. Leahy:
Ranking Minority Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
United States Senate:
The Honorable Jim Kolbe:
Chairman:
The Honorable Nita M. Lowey:
Ranking Minority Member:
Subcommittee on Foreign Operations, Export Financing, and Related
Programs:
Committee on Appropriations:
House of Representatives:
On December 26, 2004, a severe earthquake in the Indian Ocean off the
coast of Indonesia created a major tsunami that struck 12 countries in
Asia and East Africa.[Footnote 1] As a result of the tsunami, more than
230,000 people were either killed or are missing and presumed dead,
more than 1.7 million people were displaced, and an estimated $10
billion in damage was caused to infrastructure, houses, and other
property. Following initial emergency response efforts by the United
States and other donors, individuals, national governments, and others
around the world pledged more than $13 billion to assist in rebuilding
tsunami-affected areas throughout the region.[Footnote 2] In May 2005,
Congress appropriated approximately $908 million in assistance for
tsunami relief, reconstruction, and related programs. Beyond $327
million that was budgeted for survivors' immediate needs for medicine,
food, and shelter, approximately $496 million is budgeted for longer-
term reconstruction and related programs to be administered by the U.S.
Agency for International Development (USAID). This amount includes $349
million for Indonesia and $85 million for Sri Lanka, the two countries
with the greatest estimated needs, and $62 million for other countries
and regional programs. The remaining $85 million was budgeted to other
U.S. agencies. USAID began most of its activities by September 2005,
including "signature" projects intended to generate greater visibility
for overall U.S. assistance. Initial USAID plans call for completing
its nonsignature activities in both countries by September 2007 and its
signature projects in Indonesia and Sri Lanka by September 2009 and
March 2008, respectively.
We were directed to monitor the delivery of U.S. assistance to the
tsunami-affected countries.[Footnote 3] For this report, we examined
(1) USAID's progress in providing longer-term reconstruction assistance
in Indonesia and Sri Lanka; (2) the extent to which USAID has
established financial and technical oversight; and (3) any challenges
USAID faces and any steps the agency has taken to address these
challenges.
To address these matters, we reviewed USAID's expenditures through
January 2006, and analyzed USAID's program objectives and oversight. We
also traveled twice to Indonesia and once to Sri Lanka between July and
December 2005. On our trips, we visited numerous project sites in the
tsunami-affected areas, meeting with survivors and monitoring the
progress of USAID's portfolio of projects. We determined that USAID's
funding and expenditure data were sufficiently reliable for our
analysis. In addition, we considered previous GAO work on U.S. disaster
assistance efforts. We conducted our work from May 2005 through March
2006 in accordance with generally accepted government auditing
standards. (For details of our scope and methodology, see app. I.)
Results in Brief:
USAID has recently initiated reconstruction programs in Indonesia and
Sri Lanka, but, primarily because of rising costs and scarcity of
materials and labor, it appears that some projects may exceed USAID's
initial cost and schedule estimates.
* USAID has started many of its planned reconstruction activities in
Indonesia.[Footnote 4] As of January 31, 2006, the agency had obligated
$111 million (32 percent) and expended $9 million (3 percent) of the
$349 million budgeted for reconstruction.[Footnote 5] USAID has awarded
contracts for preliminary work on a 150-mile signature road
construction project in Aceh Province, which, at a projected cost of
$245 million, represents roughly two-thirds of U.S. reconstruction
funding in Indonesia. However, completing the road within projected
cost estimates and time frames may be difficult for the following
reasons:
* USAID's initial cost estimate was based on building the new road over
large portions of undamaged sections of the existing road and over the
temporary road built by the Indonesian army. Since the initial
estimate, however, plans for routing the road have changed. According
to the U.S. Army Corps of Engineers (USACE), large segments of the road
are now planned along new undeveloped routes that require more
extensive construction activities than originally anticipated and, as a
result, higher costs. Because of uncertainty about site conditions,
USACE included a 20 percent contingency in its initial cost estimate.
USAID expects to have updated cost estimates in June 2006.
* Demand for, and costs of, construction materials and labor have
increased substantially. For example, according to USAID officials, the
price of fuel oil in Indonesia had risen by more than 250 percent
between February and December 2005. In addition, as regional
reconstruction continues over the next several years, construction
spending is expected to increase fortyfold from pretsunami levels,
rising from $50 million to $2 billion annually, and 200,000 additional
workers will be needed to meet construction demands.
* The Indonesian government faces difficulties in acquiring the land
and establishing the right-of-way needed for the road.
USAID has also initiated several other reconstruction and related
projects in Indonesia, including:
* constructing schools, clinics, and water distribution and port
facilities;
* providing technical assistance for good governance and supporting the
Indonesian government's coordination and audit organizations; and:
* providing housing and small loans.
However, some of these projects also face increasing costs and
potential delays. For example, soon after agreeing to build 1,000
houses for $4,500 per house, a USAID implementing partner informed the
agency that escalating prices had increased the unit cost to $7,000.
According to USAID officials, the nongovernmental organization
implementing the program will reduce its budget for other USAID-funded
projects and will attempt to solicit private donations to meet its
commitment.
USAID has initiated many of the reconstruction activities planned for
Sri Lanka.[Footnote 6] As of January 31, 2006, the agency had obligated
all $85 million (100 percent) and expended $2 million (2 percent) of
the amount budgeted for reconstruction. USAID has begun its signature
project, which comprises:
* building infrastructure, including a bridge and water treatment
facility, and repairing damaged fishing facilities;
* providing construction and tourism-related training; and:
* constructing new and repairing tsunami-damaged vocational education
facilities.
However, as in Indonesia, several factors may limit USAID's ability to
complete its signature project activities in Sri Lanka within projected
costs and schedules.
* Limited availability and rising costs of materials and labor may
increase the costs and time required to complete some projects. For
example, one of USAID's implementing partners reported that, during
2005, the cost of brick had doubled and that similar increases had
occurred for cement and lumber. USAID has acknowledged that, to address
increases in costs or difficulty in obtaining materials or expertise,
the USAID mission in Sri Lanka is considering moving funds from other
tsunami reconstruction activities to complete some construction
projects.
* Although currently projected by USAID to be completed in January
2008, an extended design and planning phase for the signature bridge
construction project may make it difficult for USAID to finish the
project by March 2008, the initial projected completion date.
USAID has begun other projects in Sri Lanka, most of which it expects
to complete by September 2007, including:
* construction of playgrounds and rehabilitation of community markets,
* promoting transparent local governance, and:
* providing loans to small businesses and vocational training.
Although USAID has established financial and technical oversight
measures for its tsunami reconstruction programs in Indonesia and Sri
Lanka and hired some staff, it has not staffed several positions that
it considers critical to essential technical oversight. For financial
oversight, USAID has implemented its standard financial controls, such
as conducting preaward surveys of prospective award recipients and
establishing a schedule of independent financial audits. USAID also
plans to establish measures that augment these controls, including
contracting for an additional concurrent audit of the Indonesia
signature road project by the Defense Contract Audit Agency. USAID's
Office of the Inspector General (IG) is currently conducting audits to
address concerns about potential corruption and misuse of funds and
plans to conduct additional audits. For technical oversight, USAID
added staff in both Indonesia and Sri Lanka with expertise to oversee
large-scale projects such as roads and bridges and it entered into
successive interagency agreements with USACE for technical
services.[Footnote 7] As of March 2006, USAID transferred three persons
with engineering and management experience and hired an engineer to
oversee the signature road construction project in Indonesia, but the
engineer is not expected to begin working until May 2006. In Sri Lanka,
USAID added two engineers to its staff in late 2005 to oversee
infrastructure construction activities, but as of March 2006, one
engineering-related position has not been filled.
USAID faces three broad challenges in implementing its tsunami recovery
program in Indonesia and Sri Lanka, but it has taken some steps to
address them.
* Working in regions with long-standing civil conflicts. Civil conflict
in both Indonesia and Sri Lanka could affect USAID's ability to
complete reconstruction projects within projected time frames. Conflict
has subsided in Indonesia following the August 2005 signing of a peace
accord between the Indonesian government and an Indonesian separatist
group, but in Sri Lanka, USAID's ability to provide assistance in some
regions has been limited by recent increases in violent incidents. To
strengthen the peace process in both countries, USAID designed and is
implementing some projects, such as building infrastructure in
Indonesian communities, to facilitate former combatants' participation.
* Coordinating with host governments and nongovernmental organizations
(NGO). USAID has encountered difficulties in coordinating its
reconstruction efforts with the governments of Indonesia and Sri Lanka
and with NGOs operating in those countries. Although both governments
established entities to coordinate donor support following the tsunami,
neither entity has been able to fully ensure that projects do not
overlap. In addition, the Sri Lankan government has inconsistently
enforced a ban on rebuilding in coastal areas since the tsunami, making
it difficult for USAID to proceed with some nonconstruction projects.
Also, USAID has encountered challenges in coordinating with NGOs
operating in the two countries, which in some instances has led to
duplication of efforts. To avert potential future overlap with NGO
programs in Sri Lanka, USAID has participated in weekly meetings with
the Sri Lankan government coordinating entity and NGOs, among others,
to designate responsibility for different geographic areas.
* Ensuring that the tsunami focus does not hamper nontsunami
development assistance. Recognizing that the urgency to respond to the
tsunami could hamper the management of some ongoing development
projects in Indonesia and Sri Lanka, USAID has taken several steps. In
Indonesia, three key positions were created to provide needed oversight
in Aceh, and USAID plans to add positions for oversight of both regular
and tsunami project activities. In Sri Lanka, after temporarily
suspending some non-tsunami-related community development projects,
USAID plans to add an additional specialist during fiscal year 2006 to
ensure coverage of tsunami assistance projects.
Based on our review of USAID's planning and design efforts for its
reconstruction program, especially with regard to the signature road
project in Indonesia and bridge project in Sri Lanka, we are
recommending that the Secretary of State, in the department's required
semiannual report to Congress due in June 2006, provide updated cost
estimates and schedules obtained from USAID. If the updated information
differs substantially from initial projections, the report should also
include alternative cost estimates, schedules, project scopes and, if
necessary, the need for additional funding sources. In commenting on a
draft of this report, the Department of State agreed to fully implement
our recommendation and USAID stated that the report's findings
accurately describe the tsunami program situation and the potential
broad challenges for achieving its reconstruction goals. USAID also
provided information on additional steps the agency intends to take to
mitigate the potential for increased costs and schedule delays, as well
as an explanation of how it obligates funds.
Background:
Although the tsunami's effects were concentrated in the countries
closest to the earthquake's epicenter in the Indian Ocean, about 100
miles off the coast of Sumatra, it also destroyed communities along
some coastlines thousands of miles away. A year later, in December
2005, more than 40,000 persons were still listed as missing and tens of
thousands remained in temporary housing. Figure 1 shows the most-
affected countries, the numbers of people dead, missing, and displaced,
and the estimated damage as a result of the tsunami.
Figure 1: Tsunami-Affected Countries; Numbers of Dead, Missing, and
Displaced Persons; and Estimated Damage, as of November 2005:
[See PDF for image]
[End of figure]
International Funding and Implementing Entities for Tsunami Relief and
Reconstruction:
Responding to the magnitude of the disaster, the international donor
community, including the United States, pledged approximately $13.6
billion to assist with tsunami relief and reconstruction efforts in all
of the affected countries. National governments and the European Union
pledged $6.2 billion of this amount (45 percent), private individuals
and companies pledged $5.1 billion (38 percent), and international
financial institutions pledged $2.3 billion (17 percent). These funds
are being provided to a wide range of entities involved in implementing
relief and reconstruction efforts (see fig. 2).
Figure 2: Entities Implementing International Tsunami Relief and
Reconstruction Assistance:
[See PDF for image]
[End of figure]
USAID and Military Agencies' Emergency Relief Efforts:
USAID and the U.S. Department of Defense (DOD) and its component
services provided immediate assistance to tsunami survivors and to the
governments of many of the affected countries, largely completing these
efforts by the end of 2005.[Footnote 8] USAID's Office of U.S. Foreign
Disaster Assistance (OFDA), Office of Transition Initiatives (OTI), and
other USAID offices assisted survivors by providing food, water,
temporary shelter, and other critical needs. Soon afterward, USAID
initiated economic reactivation projects, such as paying people to
remove debris in many affected areas. USAID's emergency relief budget
totaled approximately $101 million, including $32 million in Indonesia
and $47 million in Sri Lanka.
In addition, several DOD component services, including the U.S. Air
Force and Navy, provided important emergency relief. For example, the
Air Force rescued survivors and airlifted supplies, and a Navy hospital
ship provided medical support. The supplemental tsunami appropriations
law provided up to $226 million to reimburse DOD for its emergency
relief activities. As of January 2006, DOD expended approximately $125
million (55 percent), including nearly $79 million for airlift and
other flying costs and slightly more than $7 million for health-and
medical-related services. Of the remaining $101 million, DOD had not
completed a final reconciliation of $47 million, $40 million had been
reprogrammed to help cover DOD's costs in other disaster assistance
efforts, and $14 million had lapsed. Table 1 shows U.S. tsunami
emergency relief funds budgeted and expended.
Table 1: U.S. Tsunami Emergency Relief Funds Budgeted and Expended, as
of January 2006:
Dollars in millions.
DOD emergency relief efforts[A];
Funds budgeted: $226;
Funds expended: (percentage of funds budgeted): $125 (55);
Comments: Of the unexpended $101 million,
* $47 million was obligated, but because some cost data are not yet
available, DOD has not determined the amount expended;
* $40 million was reprogrammed for disaster assistance efforts in
Guatemala and Pakistan; and;
* $14 million lapsed.
USAID emergency relief efforts[A];
Funds budgeted: 101;
Funds expended: (percentage of funds budgeted): 70 (69);
Comments: Of the unexpended $31 million, the entire amount was
obligated but not expended because some projects were intended to
purposely transition into the reconstruction phase.
Total;
Funds budgeted: $327;
Funds expended: (percentage of funds budgeted): $195 (60).
Sources: DOD and USAID.
[A] DOD data are through January 26, 2006, and USAID data are through
January 2006.
[End of table]
U.S. Supplemental Funding Budgeted for Reconstruction in Tsunami-
Affected Countries:
Of the $908 million appropriated for tsunami relief and reconstruction
assistance, $581 million, or 64 percent, was budgeted for
reconstruction and other postemergency relief activities. Of this
amount, USAID was budgeted $496 million for reconstruction, and other
U.S. agencies were budgeted $85 million for various other activities.
(See table 2.)
Table 2: Funding Budgeted to USAID and Other U.S. Departments and
Agencies for Reconstruction and Other Postemergency Activities, as of
January 31, 2006:
Dollars in millions.
USAID reconstruction:
Indonesia;
Funding budgeted: $349.
Sri Lanka;
Funding budgeted: $85.
Other countries, regional programs, operating costs, and other
expenses;
Funding budgeted: $62.
Subtotal;
Funding budgeted: $496.
Other U.S. departments and agencies:
Centers for Disease Control and Prevention: Avian flu prevention and
control;
Funding budgeted: $15.
U.S. Departments of Commerce and the Interior: Regional early warning
systems and disaster preparation;
Funding budgeted: $25.
U.S. Department of the Treasury:[A]; Debt relief to the government of
Indonesia;
Funding budgeted: $20;
Debt relief to the government of Sri Lanka;
Funding budgeted: $3.
State Department: Reconstruction efforts in the Maldives;
Funding budgeted: $11;
Assisting U.S. families in searching for persons, and monitoring; human
trafficking;
Funding budgeted: $5.
U.S. Trade and Development Agency; Technical assistance and project
planning for reconstruction;
Funding budgeted: $6.
Subtotal;
Funding budgeted: $85.
Total;
Funding budgeted: $581.
Sources: USAID and P.L. 109-13, May 11, 2005, Title IV, Chap. 1-5.
[A] Funds were initially budgeted to USAID; Treasury is involved in
oversight.
[End of table]
USAID Reconstruction Programs in Indonesia and Sri Lanka:
USAID's planned reconstruction efforts in Indonesia and Sri Lanka
include its signature projects, such as road and bridge construction;
small-scale infrastructure projects, such as rebuilding schools and
clinics; technical assistance for good governance; and transition
assistance to improve survivors' livelihoods and, in Indonesia, to
build houses. In addition, USAID, through a transfer of funds to the
Department of the Treasury, is funding debt relief to the governments
of Indonesia and Sri Lanka; in exchange for deferral of a portion of
their debt, both governments agreed to use the resources freed by debt
deferral for relief and reconstruction-related programs (see app. II
for a more detailed description of this aspect of the program). Table 3
shows the funds budgeted for ongoing and planned U.S. reconstruction
assistance in Indonesia and Sri Lanka.
Table 3: USAID Funds Budgeted for Tsunami Reconstruction Projects in
Indonesia and Sri Lanka:
Dollars in millions.
Project description: Signature infrastructure;
Indonesia: $245;
Sri Lanka: $35.
Project description: Transition assistance;
Indonesia: $59;
Sri Lanka: $17.
Project description: Small-scale infrastructure;
Indonesia: $29;
Sri Lanka: $15.
Project description: Technical assistance for good governance;
Indonesia: $10;
Sri Lanka: $8.
Project description: Other projects and operating expenses;
Indonesia: $6;
Sri Lanka: $10.
Project description: Total;
Indonesia: $349;
Sri Lanka: $85.
Source: USAID.
[End of table]
Initial USAID plans call for completing its nonsignature activities in
both countries by September 2007 and its signature projects in
Indonesia and Sri Lanka by September 2009 and March 2008, respectively.
Section 4102 of the supplemental appropriations act requires that,
beginning in December 2005, the Secretary of State report to Congress
every 6 months on tsunami-related progress, expenditures, and
schedules. The report due in December 2005 was provided to Congress on
March 22, 2006. Figure 3 shows USAID's projected timeline for
completing its tsunami reconstruction programs in Indonesia and Sri
Lanka.
Figure 3: Projected Timeline for USAID Tsunami Reconstruction Programs
in Indonesia and Sri Lanka:
[See PDF for image]
[End of figure]
USAID Reconstruction Programs in Indonesia and Sri Lanka Have Begun,
but Some Project Costs and Schedules May Exceed Initial Projections:
USAID has obligated some, and expended small percentages, of its
reconstruction funding in both countries and has initiated some of its
planned activities. However, USAID may have difficulty completing its
reconstruction projects--particularly its large-scale signature
projects--within initial cost estimates and schedules because of, among
other factors, increased demand and higher costs for construction
materials and labor in both Indonesia and Sri Lanka.
USAID Has Begun Reconstruction Efforts in Indonesia, but Several
Factors May Increase Costs and Delay Schedules:
In Indonesia, USAID has begun many of the reconstruction projects that
it plans to complete by September 2007. USAID has obligated about one-
third, and expended a small percentage, of the funding budgeted for
reconstruction in that country. In addition, USAID has begun to design,
and performed preliminary site work on, a 3-mile segment of its large-
scale signature infrastructure project, a 150-mile paved road; however,
because of a variety of factors, the overall road construction project
may overrun cost and time estimates. Similarly, USAID is currently
planning and designing its small-scale infrastructure projects and has
begun its transition assistance projects, both of which may also exceed
cost and schedule projections.
USAID Has Obligated about One-third and Expended a Small Percentage of
Reconstruction Funds in Indonesia:
As of January 31, 2006, USAID had obligated $111 million (32 percent)
and expended $9 million (3 percent) of the $349 million budgeted for
its reconstruction projects in Indonesia (see table 4).[Footnote 9]
These activities include the signature road construction, small-scale
infrastructure construction, technical assistance for good governance,
and transition assistance.
Table 4: USAID's Indonesian Reconstruction Activities and Funding, as
of January 31, 2006:
Dollars in millions.
Project description: Signature road construction;
Funds budgeted: $245;
Funds obligated (percentage of funds budgeted)[A]: $35 (14);
Funds expended (percentage of funds budgeted)[B]: $1[C] (0);
Projected completion date: September 2009.
Project description: Transition assistance;
Funds budgeted: 59;
Funds obligated (percentage of funds budgeted)[A]: 49 (83);
Funds expended (percentage of funds budgeted)[B]: 6 (10);
Projected completion date: September 2007.
Project description: Small-scale infrastructure construction;
Funds budgeted: 29;
Funds obligated (percentage of funds budgeted)[A]: 15 (52);
Funds expended (percentage of funds budgeted)[B]: 0 (0);
Projected completion date: September 2007.
Project description: Technical assistance for good governance;
Funds budgeted: 10;
Funds obligated (percentage of funds budgeted)[A]: 10 (100);
Funds expended (percentage of funds budgeted)[B]: 1 (10);
Projected completion date: September 2007.
Project description: Other projects and operating expenses;
Funds budgeted: 6;
Funds obligated (percentage of funds budgeted)[A]: 2 (33);
Funds expended (percentage of funds budgeted)[B]: 1 (17);
Projected completion date: September 2007.
Total;
Funds budgeted: $349;
Funds obligated (percentage of funds budgeted)[A]: $111 (32);
Funds expended (percentage of funds budgeted)[B]: $9 (3);
Projected completion date: [Empty].
[End of table]
Source: GAO analysis of USAID data.
[A] Generally, an obligation is a definite commitment that creates a
legal liability of the U.S. government for the payment of goods and
services ordered or received (G [Hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-734SP]
AO-05-734SP, p. 70). Consistent with 31 U.S.C. 1501 defining when an
agency can record an obligation, USAID policy is to treat as an
obligation the bilateral agreements it makes with other countries to
deliver assistance. However, for purposes of this report, obligations
are defined as amounts of orders placed, contracts awarded, services
received, and similar transactions during a given period that will
require payments during the same or future period. USAID labels these
actions subobligations.
[B] Expenditures are defined as the issuance of checks, disbursement of
cash, or electronic transfer of funds to liquidate a federal
obligation.
[C] USAID plans to award the signature road construction contract by
September 2006 and expects construction to take 3 years. As is normal
practice in administering construction contracts, funds will be
expended incrementally over this period as segments of work are
completed.
USAID Has Started Indonesian Signature Road Project but May Encounter
Cost and Time Overruns:
USAID awarded an initial contract and began work on a segment of its
signature road construction project in Indonesia in August 2005, but,
owing to various factors, the project may overrun initial cost
estimates and schedules. The proposed project, budgeted at $245
million, consists of building a 150-mile paved two-lane road and more
than 100 bridges and culverts along the western coast of Aceh Province
on the island of Sumatra, from the provincial capital of Banda Aceh to
the city of Meulaboh. The tsunami's impact destroyed or badly damaged
much of the original road, a vital transportation route for the region.
USAID agreed to reconstruct the road to support the Indonesian
government's overall reconstruction strategy, with the goal of helping
to restore the economic strength of the area and promoting the
redevelopment of the affected communities. According to an Indonesian
government report, the road is key to revitalizing the economy of Aceh
Province and to successfully initiating other reconstruction efforts.
Figure 4 shows the approximate route of the planned road and photos of
damage caused by the tsunami.
Figure 4: Approximate Route of Planned USAID Signature Road Project in
Aceh Province, Indonesia:
[See PDF for image]
[End of figure]
USAID plans to design and construct the signature road in three
distinct phases, with separate contracts for each phase. USAID also
entered into interagency agreements with USACE for technical support.
In early 2005, USACE and USAID conducted a preliminary assessment of
site conditions and prepared the cost estimate that USAID submitted to
Congress. The three phases for the signature road project are as
follows (see app. III for more details):
1. Maintain a rehabilitated 50-mile temporary segment and construct a
short segment. In August 2005, an Indonesian firm began maintaining a
temporary 50-mile road segment, from Banda Aceh to Lamno, and designing
and constructing a new 3-mile segment. This maintenance work is
intended to ensure that the temporary segment, recently rehabilitated
by the Indonesian army, remains passable until permanent construction
is completed.
2. Design the signature road and supervise its construction. The second
contract, for designing most of the 150-mile road and supervising
construction work, was awarded to a U.S. firm in November 2005. The
firm will supervise construction of the 3-mile segment, develop plans
and specifications for the remaining 147 miles, and assist USAID in
awarding and supervising construction of the signature road.
3. Construct the signature road. USAID plans to award a third contract
by September 2006 to construct the 147-mile segment of the signature
road.
However, several factors--limited site information, rising materials
and labor costs, and land acquisition issues--may increase the
signature road project's total costs and the difficulties of completing
it within the intended time frame.
* Limited site information. A joint USAID-USACE team initially assessed
conditions and developed a cost estimate for building the
road.[Footnote 10] The estimate was based on using undamaged sections
of the existing road and large segments of the temporary road placed by
the Indonesian Army. A 20 percent contingency was included in the cost
estimate because much of the road's planned route was inaccessible,
resulting in the team approximating site conditions and developing
plans based on their assumptions.[Footnote 11] However, actual costs
may still exceed the estimate because plans for routing the road have
changed. According to USACE, current plans show that large segments of
the road are now planned to be placed along new undeveloped routes--not
along existing routes as initially planned. This change is expected to
result in the need for more earthwork and related construction
activities than originally anticipated.
* Rising costs. Increasing costs for materials and labor will also
likely affect the road construction project's overall cost. Demand for
construction labor and materials has risen dramatically in Aceh
Province and, according to USAID officials, will likely continue to
rise. For example, a USAID official reported that the price of fuel oil
used for construction equipment had risen more than 250 percent, from
$0.17 per liter in February 2005 to $0.60 per liter in December 2005.
According to the United Nations Development Program, posttsunami
construction spending in and around Aceh is expected to increase
fortyfold from pretsunami levels, from $50 million to $2 billion per
year, and 200,000 additional workers will be needed to meet
construction demands.[Footnote 12] Because the demand for skilled
workers is greater than the number available, labor costs for
reconstruction projects requiring skilled workers may rise.
* Land acquisition. Awarding the signature road construction contract
by September 2006 may be difficult because of uncertainties regarding
the road alignment and acquiring the needed right-of-way. The alignment
of the new road will differ from the former road because, in some
locations, the former roadbed is either submerged or was rendered
otherwise inaccessible by the tsunami's impact. According to a USAID
official, the design contractor intends to propose a final road
alignment to Indonesian authorities by mid-May 2006. Once the alignment
is approved, the Indonesian government must coordinate with multiple
jurisdictions to obtain land. USAID helped establish a technical
steering committee with Indonesian government entities to facilitate
land acquisition issues. However, progress depends on the Indonesian
government's timeliness in acquiring the land and establishing right-
of-way.
USAID expects to have more comprehensive cost estimates and schedule
projections for the signature road project in June 2006.
Other USAID Reconstruction Activities in Indonesia May Also Exceed Cost
and Schedule Projections:
USAID has initiated other projects in Indonesia, some of which may
exceed initial cost and time estimates. These projects encompass small-
scale infrastructure, technical assistance for good governance, and
transitional assistance aimed at restoring livelihoods.
* Small-scale infrastructure. USAID has begun reconstructing schools,
clinics, water distribution systems, and small port facilities. Other
projects will assist communities in preparing solid waste management
plans, helping rebuild business districts, and constructing markets.
Two planned projects include helping to build a teacher-training
facility in Banda Aceh and rehabilitate the fishing industry by
constructing port facilities, fishing vessels, and ice-making
facilities. According to the USAID official responsible for overseeing
the project, the teacher-training facility project is unlikely to begin
as initially scheduled because of the time it has taken to plan and
assess site conditions. He added that, even if the project does begin
on time, the schedule is unlikely to be achieved, and because of
rapidly escalating costs for materials and labor, the project is at
risk of exceeding its budget.
* Technical assistance for good governance. USAID technical assistance
and good governance projects in Indonesia are aimed at enhancing
reconstruction efforts by facilitating the peace process. The projects
include paying consultants to work with the Indonesian government's
Rehabilitation and Reconstruction Agency (BRR), the Audit Board of the
Republic of Indonesia (BPK), the supreme audit institution, and local
communities.
* Transition assistance. USAID has begun its transition assistance,
including rebuilding shelters and helping restore livelihoods through
microenterprise support. However, USAID may face difficulties meeting
its shelter construction cost and schedule estimates. For example, 2
months after agreeing to build 1,000 houses for $4,500 each, the NGO
implementing the project informed USAID that, because of escalating
prices for fuel, building materials, and labor, the unit cost had risen
more than 60 percent, to $7,000. The NGO has tentatively agreed to
reduce its budget for other USAID-funded activities, such as upgrading
an ice-making facility to assist the fishing industry, and will attempt
to solicit private donations to meet its housing commitment.
USAID's Sri Lankan Construction Activities May Face Cost and Time
Overruns, but Other Programs Are on Schedule:
USAID has begun many of its longer term reconstruction efforts in Sri
Lanka. By the end of 2005, the agency had obligated 100 percent of its
funds and expended approximately 2 percent of reconstruction funding.
USAID has started its signature project, which includes building a
bridge and other infrastructure, addressing coastal management issues,
and constructing vocational education facilities. However, primarily
because of shortages of labor and materials, the project faces
potential cost and schedule overruns even though it is currently
slightly ahead of schedule. USAID has also begun its small-scale
infrastructure, governance, and transition assistance projects.
USAID Has Obligated All and Expended a Small Percentage of
Reconstruction Funds in Sri Lanka:
As of January 31, 2006, USAID had obligated all $85 million (100
percent) and expended about $2 million (2 percent) of the funds
budgeted for longer-term reconstruction efforts in Sri Lanka (see table
5).
Table 5: USAID's Sri Lankan Reconstruction Activities and Funding, as
of January 31, 2006:
Dollars in millions.
Signature project;
Funds budgeted: $35;
Funds obligated (percentage of funds budgeted)[A]: $35 (100);
Funds expended (percentage of funds budgeted)[B]: $1 (3);
Projected completion date: March 2008.
Small-scale infrastructure;
Funds budgeted: 15;
Funds obligated (percentage of funds budgeted)[A]: $15 (100);
Funds expended (percentage of funds budgeted)[B]: $1 (7);
Projected completion date: September 2007.
Technical assistance for good governance;
Funds budgeted: 8;
Funds obligated (percentage of funds budgeted)[A]: $8 (100);
Funds expended (percentage of funds budgeted)[B]: 0 (0);
Projected completion date: September 2007.
Transition assistance;
Funds budgeted: 17;
Funds obligated (percentage of funds budgeted)[A]: $17 (100);
Funds expended (percentage of funds budgeted)[B]: 0 (0);
Projected completion date: September 2007.
Other projects and operating expenses;
Funds budgeted: 10;
Funds obligated (percentage of funds budgeted)[A]: $10 (100);
Funds expended (percentage of funds budgeted)[B]: 0 (0);
Projected completion date: September 2007.
Total;
Funds budgeted: $85;
Funds obligated (percentage of funds budgeted)[A]: $85 (100);
Funds expended (percentage of funds budgeted)[B]: $2 (2).
Source: GAO analysis of USAID data.
[A] Generally, an obligation is a definite commitment that creates a
legal liability of the U.S. government for the payment of goods and
services ordered or received ([Hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-734SP], p. 70). Consistent with 31 U.S.C. 1501
defining when an agency can record an obligation, USAID policy is to
treat as an obligation the bilateral agreements it makes with other
countries to deliver assistance. However, for purposes of this report,
obligations are defined as amounts of orders placed, contracts awarded,
services received, and similar transactions during a given period that
will require payments during the same or future period. USAID labels
these actions subobligations.
[B] Expenditures are defined as the issuance of checks, disbursement of
cash, or electronic transfer of funds to liquidate a federal
obligation.
[End of table]
USAID Has Started Sri Lankan Signature Project but Faces Rising Costs
and Labor Shortages:
USAID's signature project in Sri Lanka began in September 2005, when
the agency signed a contract with a major U.S. design and construction
management firm. All components of the project--particularly the
construction of a bridge at Arugam Bay in eastern Sri Lanka, where
tourism is a vital component of the local economy--are consistent with
the government of Sri Lanka's strategic reconstruction plan.[Footnote
13] The signature project has three components (see fig. 5 for the
planned locations).
1. Construction of a bridge and other infrastructure. These activities,
largely focused on the Arugam Bay area of eastern Sri Lanka, include
rebuilding a bridge spanning the bay and constructing a water treatment
facility for nearby towns. Three ports in southern Sri Lanka will also
be rehabilitated.
2. Provision of coastal management training. A management organization
will provide training in construction and tourism-related skills that
USAID considers essential to rebuilding and reactivating the economy in
the Arugam Bay area. As of December 31, 2005, the contractor had
completed some assessments and plans, but construction work had not yet
begun.
3. Construction of vocational education facilities. This component of
the project includes constructing two schools and reconstructing
approximately eight others.
Figure 5: Planned Locations of USAID's Sri Lankan Signature Project:
[See PDF for image]
[End of figure]
As in Indonesia, several factors may hamper the completion of USAID's
signature project in Sri Lanka.
* Limited availability and rising costs of materials and skilled labor.
During our visit to Sri Lanka in July 2005, we learned that, as in
Indonesia, the increase in construction had led to limited availability
of materials and labor and resulted in higher costs. For example, one
USAID report noted that the cost of a brick had doubled and similar
increases had occurred for cement and lumber. USAID included $2.2
million in the project budget to cover possible materials and labor
increases, but USAID officials acknowledged this extra funding may be
insufficient to cover costs.
* Lengthy planning and design of Arugam Bay bridge and other
infrastructure. Although USAID signed the contract for the planning and
design of the bridge in September 2005, construction of the bridge is
not expected to begin until August 2006. Although USAID is slightly
ahead of schedule, the length of time required to correctly plan and
design the signature bridge project at Arugam Bay may challenge the
agency's efforts to complete the bridge by March 2008, the projected
deadline. Also, construction of a water treatment facility experienced
delays due to technical issues that arose during the preliminary
assessment.
Other USAID Tsunami Reconstruction Projects in Sri Lanka Are Under Way
and Most Are Currently on Schedule:
USAID has made some progress in its other projects in Sri Lanka and
expects to complete them by September 2007. These projects include
small-scale infrastructure, technical assistance and good governance,
and transition assistance aimed at encouraging economic activity.
* Small-scale infrastructure. USAID has leveraged other donors' funds
to increase the scope of some small-scale infrastructure projects,
which include the following:
* USAID entered into a public-private alliance to build playgrounds,
some of which include accessibility for the disabled. USAID contributed
$0.5 million and attracted $1.5 million from two private organizations,
increasing the number of playgrounds planned from 20 to 85.
* Another project involves rehabilitating community markets and
restoring access to potable water. These activities are projected to be
completed by mid-2006.
* Technical assistance and good governance. USAID will provide
technical assistance and promote good governance in Sri Lanka. USAID
has also budgeted funds to strengthen the Sri Lankan government's audit
capacity. In addition, USAID is providing funds to promote accountable
local governance in tsunami-affected regions.
* Transition assistance. USAID is providing assistance to help tsunami
survivors transition from camps to permanent communities. Activities
under way include providing businesses with credit and vocational
training. We visited a vocational school that USAID was rehabilitating
and equipping with computers and found many students who were learning
new skills; the principal reported that enrollment had also increased
dramatically.
USAID Established Financial and Technical Oversight Measures but Has
Not Filled Some Needed Technical Oversight Positions:
To establish financial oversight of its reconstruction programs in
Indonesia and Sri Lanka, USAID has augmented its standard financial
controls with external and internal audits and efforts to strengthen
local accountability. To establish technical oversight, USAID has
reassigned and hired experienced staff, such as engineers, and acquired
additional technical expertise through interagency agreements. However,
USAID has not filled some positions that it considers critical to
technical oversight.
USAID Has Established Financial Oversight Mechanisms in Indonesia and
Sri Lanka:
For its reconstruction programs in Indonesia and Sri Lanka, USAID plans
to augment its standard financial controls for development assistance
programs through additional internal and external audits. USAID also
plans to strengthen Indonesia's and Sri Lanka's auditing capacities.
USAID Plans Internal and External Audits:
In addition to its required financial controls, which include preaward
surveys of prospective award recipients and financial audits, USAID
plans to arrange for additional audits.[Footnote 14] According to
agency officials, USAID intends to sign an agreement with the Defense
Contract Audit Agency to concurrently audit funding for USAID's
signature road construction project in Aceh, Indonesia. USAID officials
told us the agency is undertaking this work because of the additional
risk inherent in large construction projects.
USAID's IG is also providing oversight of reconstruction programs. The
IG is currently auditing the signature road construction project in
Indonesia and plans to conduct three additional audits, two in
Indonesia and one in Sri Lanka.[Footnote 15] The IG is undertaking this
work with funding included in the May 2005 emergency supplemental
legislation.
USAID Intends to Strengthen Indonesian and Sri Lankan Audit Capacities:
USAID plans to strengthen the capacities of the BPK, the Indonesian
government's supreme audit institution. USAID will provide funding for
technical assistance and training to the BPK to enhance its ability to
audit donor funds administered by Indonesian government ministries.
In Sri Lanka, USAID plans to strengthen the capacities of Sri Lankan
government organizations. USAID has hired a consulting firm to work
with the Sri Lankan Office of the Auditor General. USAID will also
support Sri Lanka's Commission to Investigate Allegations of Bribery
and Corruption. This work will focus on training and capacity
development and is intended to reduce corruption and ensure the proper
use of reconstruction funds.
Also, in April 2005, USAID participated in an international conference
in Jakarta on the importance of managing tsunami assistance funds. The
conference, funded by the Asian Development Bank and hosted by the BPK,
was intended to highlight the importance of accounting for the large
amounts of tsunami reconstruction funds. The conference was attended by
representatives of donor countries' supreme audit institutions,
including GAO, and representatives of recipient countries, including
Indonesia and Sri Lanka.
USAID Has Taken Steps to Establish Technical Oversight but Has Not
Filled Some Needed Positions:
To establish technical oversight for its reconstruction programs in
Indonesia and Sri Lanka, USAID has relocated experienced staff, plans
to hire other staff locally, and has acquired additional expertise
through agreements with other U.S. agencies. However, it has not filled
all needed technical oversight positions.
In Indonesia, USAID reassigned two experienced engineers to share
responsibilities as the cognizant technical officers and an experienced
project manager to assist with the signature road project. A USAID
engineer was reassigned and another hired to work in Sri Lanka to
oversee the signature infrastructure projects. USAID also plans to hire
an additional engineer locally when construction in Sri Lanka
commences.
In addition, USAID has acquired expertise through three interagency
agreements with USACE, totaling $2.9 million, to provide technical
assistance for its signature projects, develop scopes of work and cost
estimates, and conduct environmental reviews in Indonesia and Sri
Lanka. USACE efforts to date include assembling a team that assessed
the existing conditions, developed cost estimates, prepared acquisition
plans, and performed short-term on-site project management in planning
the signature projects. Under the most recent interagency agreement,
USACE is to provide technical assistance to USAID in Indonesia through
the award of the road construction contract, expected in September
2006.
As of March 2006, USAID had not filled several positions critical to
implementing its construction activities in Indonesia and Sri Lanka.
Although USAID hired an engineer to oversee the signature road
construction project in Indonesia, the engineer was not expected to
begin work until May 2006. In addition, USAID had added two of the
three engineers needed to oversee infrastructure construction
activities in Sri Lanka.[Footnote 16]
Several Challenges Confront Indonesian and Sri Lankan Reconstruction
Programs:
In implementing its tsunami reconstruction programs in Indonesia and
Sri Lanka, USAID faces several key challenges, some of which it has
taken steps to address. These include working in regions with long-
standing civil conflicts, coordinating with host governments and NGOs,
and ensuring adequate management of regular programs.
Civil Conflicts Threaten Reconstruction Efforts:
Long-standing civil conflicts could affect USAID's ability to complete
reconstruction projects within projected time frames in Indonesia,
despite recent advances in a peace process, and have limited USAID's
ability to provide assistance in some tsunami-affected regions in Sri
Lanka.
Indonesian Factions Have Signed Peace Accord, and Some USAID Projects
Are Supporting Reconciliation:
Owing to a 30-year conflict between a separatist group and the
Indonesian government, the entire province of Aceh, Indonesia, was
under a state of emergency prior to the tsunami and access by outsiders
was limited. However, within days of the disaster, the Indonesian
government lifted the state of emergency to allow access by donors and
relief organizations. In August 2005, the separatists signed a peace
accord, which both sides appear committed to honoring. However, an NGO
monitoring the accord has cautioned that the difficulties of ending the
30-year-old conflict should not be underestimated.[Footnote 17]
To address this challenge, USAID is implementing peace-building
initiatives in Aceh Province. For example, according to USAID
officials, former combatants are working on construction crews
rebuilding community water systems.[Footnote 18] USAID's aim is to
provide income-generating opportunities to former rebel soldiers,
thereby strengthening the peace accord.
Deteriorating Sri Lankan Security May Affect Some Programs, but USAID
Is Working to Promote Reconciliation:
A conflict between the Sri Lankan government and a separatist group,
which began in 1983, has increased since the tsunami and could impact
implementation of some USAID reconstruction programs. Since the
tsunami, the number of violent incidents has risen dramatically,
primarily in northern and northeastern Sri Lanka, which are largely
under separatist control. USAID was not directly implementing
development activities in these areas prior to the tsunami, and it is
not planning any tsunami-related projects in these areas at
present.[Footnote 19] USAID officials stated that they expect little
disruption to most of its reconstruction efforts in other parts of the
country. However, in the eastern Sri Lankan region near the separatist-
controlled area, several USAID activities involving construction of
small-scale infrastructure have been delayed because of increased
violence. USAID officials stated that the signature construction
project could also experience delays due to the conflict.
As in Indonesia, USAID has incorporated peace-building initiatives into
some of its Sri Lankan tsunami reconstruction efforts. One such
project, implemented by USAID's Office of Transition Initiatives (OTI),
promotes participation by people of different ethnicities and religions
by requiring that they work together toward a shared goal, such as
rehabilitating a school. USAID has also dedicated $2.5 million for a
reconciliation program in which community members will be trained in
mediation skills.
Coordination with Governments and Nongovernmental Organizations Has
Been Difficult, but USAID Is Taking Steps to Improve Coordination:
USAID has encountered challenges in coordinating its reconstruction
efforts with the governments of both countries. In addition, USAID has
faced coordination problems with NGOs. To address these challenges,
USAID has taken steps to improve coordination, avoid duplication of
efforts, and minimize gaps in providing assistance to survivors.
Indonesian Government's Coordination Difficulties Have Challenged
USAID:
USAID has faced challenges coordinating its reconstruction activities
with the Indonesian government. In April 2005, the Indonesian
government established the BRR to coordinate the international response
to the tsunami. Since its creation, BRR has used the Indonesian
government's master plan for reconstruction to attempt to control and
track organizations involved in reconstruction and has created a
publicly accessible database that, according to USAID, is expected to
be fully operational by mid-2006. However, according to USAID
officials, BRR lacks the capacity for effectively registering donors
and coordinating projects.
The lack of coordination has resulted in the overlapping of USAID
projects with other donors' projects and in gaps in aid to survivors. A
USAID official told us that, in one instance, BRR approved similar
water and sanitation project proposals submitted by USAID and an
international NGO. USAID negotiated directly with the NGO over which
agency would carry out the project and eventually resolved the
differences without BRR involvement. In addition, a United Nations
official told us that many donor organizations are providing assistance
to communities along the coastal road near the capital city of Banda
Aceh but that survivors in numerous harder-to-reach areas down the
coast and on nearby islands have received little or no aid.
To strengthen BRR's capacity to coordinate and oversee reconstruction
efforts, USAID is providing technical assistance and training. However,
according to USAID officials, until BRR is able to fully develop its
capacities, USAID and other donor organizations will face difficulty in
coordinating projects and outreach.
Sri Lanka's Organizational Problems and Policy Changes Have Created
Challenges for USAID:
Organizational inefficiency and policy shifts in Sri Lanka have led to
coordination problems for USAID. In January 2005, the Sri Lankan
government created a Task Force for Rebuilding the Nation (TAFREN),
charging it with assessing needs and donor coordination. The
organization was expected to operate for 3 to 5 years. In its first
months of operation, TAFREN developed a needs assessment that drew on
World Bank, Asian Development Bank, and other organizations'
information and analyses. TAFREN used the assessment to attempt to
avoid duplication but lacked the capacity to ensure that donors
registered and coordinated with TAFREN. In addition, with donor
support, TAFREN began work on a publicly accessible database to track
reconstruction projects that is expected to be functional by mid-2006.
In November 2005, the newly elected Sri Lankan president disbanded
TAFREN and announced the creation of a new coordination mechanism,
further increasing potential coordination challenges; however,
development of the database is continuing.
When we visited Sri Lanka in July 2005, USAID officials told us that
TAFREN had taken little action to coordinate donor efforts. They added
that TAFREN had been slow to react and lacked decision-making
authority. Nonetheless, USAID moved forward with some projects and kept
TAFREN aware of its activities. In addition, the Sri Lankan
government's inconsistent policies on rebuilding in coastal areas have
affected the progress of some USAID reconstruction programs. Soon after
the tsunami, the President of Sri Lanka announced that the Sri Lankan
government would begin to enforce a valid, but previously unenforced,
law that banned construction within a 100-to 200-meter coastal "buffer
zone." This policy has affected the progress of some USAID projects,
such as rehabilitating community markets and building schools. In late
2005, the Sri Lankan government began allowing construction in certain
coastal areas, but as of late 2005, many survivors were still awaiting
approval to rebuild their homes.
Poor Coordination with Nongovernmental Organizations Has Caused
Problems:
In both Indonesia and Sri Lanka, USAID has encountered challenges in
coordinating with some of the scores of NGOs operating in the countries
since the tsunami. After the disaster, many NGOs received large amounts
of private donations, enabling them to conduct their work without
funding from bilateral and multilateral organizations. As a result,
some NGOs began implementing reconstruction projects with minimal
coordination with such organizations or with the host governments.
In Indonesia, coordination with NGOs was particularly difficult during
the emergency relief phase but has generally improved since the
establishment of BRR, which currently permits only approved NGOs to
participate in reconstruction projects. However, with limited
resources, BRR cannot be sure it is aware of all NGOs activities. For
example, according to UN officials, an international NGO constructed
new houses and water and sanitation systems near the Indonesian
coastline without coordinating with the Indonesian government or other
donors to ensure that the housing could be connected to local water and
sanitation infrastructure. Because of tsunami-altered water tables and
topography in some areas, those communities' sanitation systems
overflowed during certain tidal conditions, inundating the area with
untreated sewage.
Coordination with NGOs in Sri Lanka has also been problematic, despite
TAFREN's efforts. For example, several NGOs and private donor
organizations provided new fishing boats to fishermen. However,
according to a bilateral donor official, several communities received
too many fishing boats, and as a result, some coastal areas were
depleted of large numbers of fish. On the other hand, coordination in
southern Sri Lanka has been more effective than in other parts of the
country. There, USAID, NGOs, and other donors agreed that certain
organizations would have responsibility for different districts or for
different types of assistance, such as housing. Coordination meetings
are normally held weekly and TAFREN officials periodically attended.
USAID's Tsunami Response Has Created Challenges for Non-Tsunami-Related
Programs:
The urgency to quickly plan and implement USAID's tsunami-related
program activities in Indonesia and Sri Lanka may affect the management
of some of non-tsunami-related projects. In Indonesia, USAID officials
are concerned that the focus on tsunami reconstruction activities in
Aceh could limit oversight of regular programs, leading them to rely
more heavily on information provided by implementing partners. To
mitigate this potential challenge, USAID added two direct-hire U.S.
staff to fill two key positions in Aceh.
In Sri Lanka, USAID is experiencing similar challenges. For example, a
USAID activity to reconstruct small-scale infrastructure was suspended
so that staff could focus on the tsunami relief. Later, the program was
reactivated, although USAID did not add staff. As a result, USAID's
monitoring of some of regular program activities diminished. USAID
reported that it reduced its efforts to involve the community in the
program, resulting in repeated additional visits to ensure the
program's successful completion. To address this issue, USAID hired
additional staff to ensure that ongoing programs are not neglected.
Conclusions:
The U.S. government has played an important role in helping Indonesia
and Sri Lanka recover from the devastating 2004 tsunami. USAID and
other agencies provided immediate assistance to survivors and work has
begun on several high-profile infrastructure projects. However, since
USAID made its initial projections in the spring of 2005, materials,
labor, and fuel costs have increased substantially in both countries.
In addition, changes to project scope and ongoing design work for key
construction efforts may reveal actual conditions that differ from
initial assessments, potentially leading to higher than planned costs.
This information suggests that the cost contingencies included in the
initial estimates may be insufficient. Congress needs current
information on projected costs and schedules to provide appropriate
oversight.
Recommendation for Executive Action:
On the basis of our initial review of USAID's design and implementation
of its tsunami reconstruction programs in Indonesia and Sri Lanka,
especially regarding its signature road project in Indonesia and bridge
project in Sri Lanka, we recommend that the Secretary of State, in the
department's required semiannual report to Congress due in June 2006,
provide updated cost estimates and schedules obtained from USAID. If
the updated information differs substantially from initial projections,
the report should also include alternative cost estimates, schedules,
and project scopes and the need for additional sources of funding, if
necessary.
Agency Comments and Our Evaluation:
At our request, USAID and the Department of State provided written
comments and technical suggestions and clarifications on a draft of
this report. (See app. IV for State's written comments and app. V for
USAID's written comments.) USAID stated that the report findings
accurately describe the tsunami program situation and the potential
broad challenges for achieving its reconstruction goals. USAID also
provided information on additional steps the agency intends to take to
mitigate the potential for increased costs and schedule delays, as well
as an explanation of how it obligates funds, which we incorporated into
the report. The Department of State agreed to fully implement our
recommendation. We have also incorporated technical suggestions and
clarifications from USAID and State, as appropriate.
We also requested comments from the U.S. Army Corps of Engineers and
the Department of the Treasury. Although neither provided written
comments, both provided technical suggestions and clarifications that
we have incorporated, as appropriate.
We are sending copies of this report to interested congressional
committees as well as the Administrator, USAID; Commander, U.S. Army
Corps of Engineers; and the Secretaries of State and the Treasury. We
will also make copies available to others upon request. In addition,
this report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-4128 or [Hyperlink, gootnickd@gao.gov]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix VI.
Signed by:
David Gootnick, Director:
International Affairs and Trade:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
We were directed to monitor the delivery of U.S. reconstruction
assistance to the tsunami-affected countries through periodic visits.
In this report, we review (1) USAID's progress in providing longer-term
reconstruction assistance in Indonesia and Sri Lanka, (2) the extent to
which the U.S. Agency for International Development (USAID) has
established financial and technical oversight for its tsunami
reconstruction programs in those countries, and (3) any challenges that
USAID faces in implementing the Indonesian and Sri Lankan programs and
any steps the agency has taken to address these challenges.
To determine the progress of USAID's reconstruction programs in
Indonesia and Sri Lanka, we met with officials of USAID's Bureau for
Asia and the Near East and Office of Foreign Disaster Assistance and
with the U.S. Army Corps of Engineers (USACE). In addition, to examine
issues involving the U.S. debt relief component of the assistance to
Indonesia and Sri Lanka, we conducted work at the headquarters offices
of U.S. Departments of State and the Treasury. We traveled to Indonesia
in August and December 2005 and Sri Lanka in July 2005. In Jakarta and
Banda Aceh, Indonesia, and in Colombo, Sri Lanka, we reviewed USAID's
strategies, work plans, and applicable contracts, grants, and
cooperative agreements and discussed with USAID and other U.S.
officials how their respective programs addressed reconstruction needs.
During our visits to Indonesia, we reviewed USAID's activities in
tsunami-affected areas, including the $245 million, 150-mile signature
road construction project in Banda Aceh. In many instances, we visited
and photographed sites before the projects began, at locations where
USAID-funded maintenance work was ongoing, or where USAID-funded
construction had begun. During these trips, we interviewed
representatives of contractors, nongovernmental organizations (NGO),
government ministries, and other entities responsible for day-to-day
project implementation. We also interviewed many of the intended
recipients of U.S. assistance, asking about the tsunami's impact on
their homes, livelihoods, and communities and about the effectiveness
of U.S.-funded projects in helping them rebuild infrastructure, restore
their livelihoods, and obtain basic services. Finally, we reviewed
prior GAO reports on USAID disaster assistance efforts.
To assess USAID's financial and technical oversight, we reviewed
USAID's financial procedures and discussed the procedures with
cognizant USAID officials. In Indonesia, a licensed GAO professional
engineer met with USAID and USACE engineers and other technical staff
to discuss the level of technical oversight and planning. We also
coordinated with USAID's Office of the Inspector General in Washington,
D.C., and the Philippines to minimize duplication of efforts and to
share information.
To determine the challenges that USAID faces in implementing its
program, we discussed oversight procedures and financial systems with
officials of host governments, multilateral and bilateral donors, and
NGOs involved in reconstruction efforts. We also met with host
government officials, including national and local officials, to
discuss their procedures for ensuring that donor activities did not
conflict or overlap and their views on donor coordination.
We assessed the reliability of funding and expenditure data compiled
and generated by USAID's Office of the Controller in Washington, D.C.,
and by the USAID missions in Indonesia and Sri Lanka. We met with USAID
officials to review the internal controls for the collection and review
of data, comparing the consolidated reports with mission-specific
reports, and discussed relevant data reliability issues with cognizant
agency officials. In addition, we interviewed knowledgeable USAID
officials about the systems and methodology they use to verify the
completeness and accuracy of the data. Finally, we reviewed relevant
reports from the USAID Office of the Inspector General and several GAO
reports of USAID disaster reconstruction program funding since 1999.
None of these sources noted any significant discrepancies or concerns
about the reliability of USAID's data. Based on our comparison of data
generated from different USAID sources at USAID headquarters and
mission, we found that the sources generally corroborated each other,
increasing our confidence that the data were reliable. We determined
that USAID's funding and expenditure data were sufficiently reliable
for our analysis.
[End of section]
Appendix II: Debt Relief to Indonesia and Sri Lanka:
To make resources available for the Indonesian and Sri Lanka
governments to address humanitarian and reconstruction needs after the
tsunami, and at the request of these governments, the United States and
other international donors agreed to defer the payment of some eligible
debt the Indonesian and Sri Lankan governments were due to pay in
2005.[Footnote 20] Both countries agreed to use the debt relief to help
recover from the tsunami's extensive damage, estimated at $4.5 billion
in Indonesia and $1.5 billion in Sri Lanka.[Footnote 21]
Debt Relief Provided by the United States:
With funding appropriated in the emergency supplemental legislation
enacted in May 2005, the United States provided $20.1 million and $3.2
million to cover the U.S. budget costs of debt deferral for Indonesia
and Sri Lanka, respectively. Using these funds, the United States
rescheduled about $190 million in 2005 debt payments from Indonesia and
about $40 million in 2005 debt payments from Sri Lanka.
The U.S. debt relief agreements with Indonesia and Sri Lanka require
independent outside evaluations to ensure that the countries comply
with the terms of the agreements that the resources freed by the Paris
Club debt consolidation and deferral will benefit directly the people
affected by the tsunami. According to the Department of the Treasury,
the benefit from the international debt rescheduling is $236 million
for Indonesia and $34 million for Sri Lanka.[Footnote 22] According to
our analysis, the net benefit of the debt rescheduling for Indonesia
and Sri Lanka is about 9 percent and 11 percent, respectively, of the
amount of the debts rescheduled. The United States will rely on
periodic reports from each country's regular consultations with the
International Monetary Fund, the World Bank, and the Asian Development
Bank to measure compliance with the agreements, according to Department
of State officials. The officials stated that both countries are likely
to meet their commitments to use the resources freed by the Paris Club
debt consolidation and deferral to benefit directly the people affected
by the tsunami.
Debt Relief Provided by International Creditors:
The total amounts of bilateral international debt rescheduled in 2005
for Indonesia and Sri Lanka were approximately $2.703 billion and $323
million, respectively.[Footnote 23] Indonesia did not seek or receive
any debt deferral from multilateral creditors. Sri Lanka sought a debt
deferral from the International Monetary Fund, which granted a 1-year
extension for debt repayments of about $106 million for its repayment
expectations due in 2005. Multilateral debt service in 2005 was $4.3
billion and $294 million, accounting for 55 percent and 48 percent of
total debt service, before the debt reschedulings for Indonesia and Sri
Lanka, respectively.
Rescheduling international debt provided immediate budgetary savings
for both countries in 2005, but both countries' debt burden will
increase when payments restart in 2006. Both countries agreed to repay
the rescheduled debt in seven equal semiannual installments, starting
December 1, 2006, and ending December 1, 2009. Table 6 shows the
impacts of rescheduling all bilateral debt on the budgets of the
governments of Indonesia and Sri Lanka for fiscal years 2005 through
2009.
Table 6: Impacts on the Indonesian and Sri Lankan Governments from All
Bilateral Debt Rescheduling, Fiscal Years 2005-2009:
Dollars in millions.
Indonesia;
Debt service reduction in 2005 due to debt relief provided by bilateral
creditors: 2005: $2,703;
Annual repayment schedule: 2006: $418;
Annual repayment schedule: 2007: $835;
Annual repayment schedule: 2008: $835;
Annual repayment schedule: 2009: $835;
Total repayments: $2,923.
Sri Lanka;
Debt service reduction in 2005 due to debt relief provided by bilateral
creditors: 2005: $323;
Annual repayment schedule: 2006: $50;
Annual repayment schedule: 2007: $100;
Annual repayment schedule: 2008: $100;
Annual repayment schedule: 2009: $100;
Total repayments: $350.
Source: GAO analysis of Department of the Treasury data.
Note: Key assumptions: (1) annual interest rate of 4 percent on
deferred principal and interest and (2) repayment of debt in seven
semiannual payments beginning December 1, 2006.
[End of table]
[End of section]
Appendix III: USAID's Three-Phase Signature Road Project in Aceh
Province, Indonesia:
USAID developed plans to implement its signature project in three
phases (see table 7).
Table 7: Scope and Status of Indonesian Signature Road Project, as of
December 31, 2005:
Contract: Phase 1: Repair, maintenance, and priority construction;
Scope:
* Repair and maintain existing 50-mile segment from Banda Aceh to
Lamno;
* Design and construct a short priority (3-mile) segment between Banda
Aceh and Lamno;
* Perform the design work on a cost- plus-fixed-fee basis;
* Perform the maintenance and construction work on a fixed-price basis;
Status:
* Contract was awarded to an Indonesian firm (PT Wijaya Karya) on
August 23, 2005;
* Contract cost is $12.8 million;
* Maintenance and repair work is ongoing; route is passable;
* Design of the new 3-mile road segment is under way;
* Construction of new 3-mile road segment is expected to be completed
by August 2006.
Contract: Phase 2: Design and construction supervision;
Scope:
* Design the new road (except for the 3-mile priority segment);
* Supervise construction;
* Perform services on a cost-plus-fixed-fee basis;
Status:
* Contract was awarded to a U.S. firm (Parsons Global Services Inc.) on
November 10, 2005;
* Estimated contract cost is up to $34.9 million; current obligation is
$20 million;
* Design work is ongoing and scheduled to be completed in June 2006;
* Contractor is required to prepare an updated estimate of construction
costs;
* Construction management services are being provided on the priority
road segment and will continue in September 2006, when the contract for
construction of Banda Aceh to Meulaboh road is awarded.
Contract: Phase 3: Construction;
Scope:
* Placement of new road along a 150-mile route from Banda Aceh to
Meulaboh (except for the portion covered under the priority segment);
* Construction will be done on a fixed-price basis according to the
plans and specifications of the design prepared under separate
contract;
Status:
* Construction contract is expected to be awarded in September 2006,
and construction is to be completed by September 2009.
Source: GAO synthesis of USAID information.
[End of table]
[End of section]
Appendix IV: Comments from the Department of State:
United States Department of State:
Assistant Secretary and Chief Financial Officer:
Washington, D.C. 20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:
MAR 23 2006:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "FOREIGN
ASSISTANCE: USAID Has Begun Tsunami Reconstruction in Indonesia and Sri
Lanka, but Key Projects May Exceed Initial Cost and Schedule
Estimates," GAO Job Code 320336.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact Lori
Balbi, Financial Economist, Bureau of Economic and Business Affairs, at
(202) 647-7411.
Sincerely,
Signed by:
Bradford R. Higgins:
cc: GAO - George Taylor;
EB - E. Anthony Wayne;
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report:
FOREIGN ASSISTANCE: USAID Has Begun Tsunami Reconstruction in Indonesia
and Sri Lanka, but Key Projects May Exceed Initial Cost and Schedule
Estimates, (GAO-06-488 GAO Code 320336):
The State Department appreciates the opportunity to review and comment
on the draft report " Foreign Assistance: USAID Has Begun Tsunami
Reconstruction in Indonesia and Sri Lanka, but Key Projects May Exceed
Initial Cost and Schedule Estimates."
In preparing the June 2006 semi-annual report to Congress, the
Secretary of State will obtain updated cost estimates for planned
projects from USAID. If the schedules or scope of any planned projects
should change, this information will also be provided in the report.
Lastly, should any funding shortfalls exist, the report will discuss
steps being taken to secure complementary funding from other donors or
host governments.
[End of section]
Appendix V: Comments from the U.S. Agency for International
Development:
USAID:
March 30, 2006:
Ms. Jacquelyn L. Williams-Bridgers:
Managing Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N. W.
Washington, D.C. 20548:
Dear Ms. Williams-Bridgers:
I am pleased to provide the U.S. Agency for International Development's
(USAID) formal response on the draft GAO report entitled "USAID Has
Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key
Projects May Exceed Initial Cost and Schedule Estimates" (GAO-06-488).
In general, USAID believes the report findings adequately describe the
situation and the potential broad challenges ahead. We acknowledge that
there are schedule and cost risks to the large scale infrastructure
projects, and we are taking steps to mitigate these risks to the extent
possible. We also note that the GAO report's calculation of obligations
does not reflect all legally-binding funding commitments made by USAID.
The enclosed comments provide further explanation of our positions in
response to specific issues in the report.
Thank you for the opportunity to respond to the GAO draft report and
for the courtesies extended by your staff in the conduct of this
review.
Sincerely,
Signed by:
Lisa D. Fiely:
Chief Financial Officer:
Enclosure: a/s:
U.S. Agency for International Development:
1300 Pennsylvania Avenue, NW:
Washington, DC 20523:
USAID Comments on GAO Report 06-488:
To mitigate the potential for cost increases and schedule delays in
large-scale infrastructure construction projects, USAID is taking
several measures.
In Indonesia, the large road construction contract will be a
combination firm-fixed-price (lump sum) and firm-fixed-unit price
contract. This contract type places upon the contractor the maximum
risk and responsibility possible for all costs and resulting profit or
loss. Fixed-price contracts provide maximum incentive for the
contractor to control costs and perform effectively and on time (FAR
16.202-1). By fixing the unit prices for the large quantities of
commodities in the contract (such as gravel, steel, cement, and
asphalt) that can be priced during the bid process, USAID will be able
to hold the contractor to these prices throughout the contract.
A fixed-price contract awarded under full and open competition also
means the contractor holds the risk to meet the schedule.
USAID/Indonesia intends to incorporate liquidated damages clauses in
the contract to make USAID whole in the event that the contractor fails
to meet stated deadlines in accordance with the project schedule. In
essence, for each day of delay under a specified activity, USAID may
assess a predetermined liquidated damages amount against the
contractor. Although these liquidated damages are not intended as
negative performance incentives, the contractor will understand and
appreciate the importance of completing the construction work on time.
Value engineering is another way to encourage lower costs, and USAID
will incorporate appropriate value engineering clauses into the large
road contract. Should the contractor identify and secure approval for
an alternative lower-cost construction solution, the contractor would
be able to retain a portion of the cost savings realized.
The small scale construction projects in Indonesia such as the teacher
training and the vocational training facilities will be tendered as a
firm-fixed-price design/build contract. We will negotiate this contract
under FAR Part 15. The final negotiated fixed price will be the final
price. Only negotiated changes, claims, or differing site conditions
(all provided for in standard clauses) can impact cost or schedule.
This type of contract will help keep the project on time and on budget.
USAID will also incorporate liquidated damages clauses in this contract
as appropriate.
In Sri Lanka, costs of both labor and materials have escalated. In Sri
Lanka, we retained the services of CH2M-Hill as our prime contractor
for the infrastructure contract in September 2005. Having a highly
competent American firm is a major step in controlling risk. We
directed CH2M-Hill to carry out a value engineering exercise on the
USACE design of the Arugam Bay Bridge which resulted in a cost savings
estimated at approximately $10 million. We will carry out similar value
engineering assessments on other infrastructure components. CH2M-Hill
will also design the facilities to make them suitable for
subcontracting to local construction firms. This design consideration
is important because construction subcontractors will bid more
competitively when they perceive a lower level of risk. In conjunction
with this effort, we will endeavor to provide 100% design to the
construction subcontractors. We have found that local construction
companies prefer "construction only" subcontracts and consider
design/build subcontracts riskier. Additionally, as per the prime
contract, CH2M-Hill will award fixed-price (unit price or lump sum)
construction subcontracts which will place the risk of any increased
labor and material costs on the subcontractors.
CH2M-Hill has widely publicized this project in Sri Lanka and received
19 expressions of interest for the bridge construction, with 14 firms
considered by CH2M-Hill acceptable to submit formal prequalification
documentation. This vigorous level of competition should also provide
best value to USAID. We are also spending Tsunami livelihoods
restoration funds in the Arugam Bay area to train several hundred
people in basic construction skills to address anticipated labor
shortages.
Having adequate engineering staffing in both Missions is essential to
managing both costs and schedule. In Sri Lanka, the direct hire
engineer and the U.S. personal services contractor (PSC) are registered
professional engineers. The direct hire engineer has more than 24 years
of USAID experience, including 11 years managing the implementation of
more than $2 billion worth of construction at USAID/Egypt. This
experience will be crucial as USAID/Sri Lanka works with CH2M-Hill, the
construction subcontractors, various Government of Sri Lanka
institutions, and local authorities during the actual construction
phases of the project to contain costs and address problems impeding
progress. In Indonesia, the Mission has two engineers (an Indonesian
and a Bangladeshi), and a U.S. engineer will start in early May; as
with Sri Lanka, the U.S. engineer has extensive engineering experience
with USAID projects.
In both Sri Lanka and Indonesia, budgets were established for major
infrastructure projects based on U.S. Army Corps of Engineering
tentative designs. In both countries, the construction management firms
are doing more detailed environmental analysis and plans that are
refining initial cost estimates. This practice is normal. Upon
completion of those analyses, we will better understand the potential
for a funding shortfall, and the need (if any) to engage other donors
or the host government for support. While we are taking every effort
through the types of contracts used, appropriate clauses, and tight
contract administration and oversight to protect the Government's
interests and deliver successful projects, potential circumstances such
as increased energy and labor costs, land acquisition problems, and
prolonged unfavorable weather conditions can impact costs and schedules
during design and construction.
Explanation of the basis for obligations reported by USAID:
The GAO reports funds as "obligated" only when subobligating
implementing instruments for work performed under a bilateral agreement
have been signed. USAID's longstanding policy on what constitutes a
valid obligation, ADS 621.3, is consistent with and based on 31 USC
Section 1501 (a) requirements for recording an amount as an obligation,
and clearly states that such bilateral agreements constitute a valid
obligation. Therefore, funds are "obligated" upon signature of a
legally binding agreement with the government of the country to whom we
are providing assistance; an agreement under which subobligating
implementing instruments are executed. In July 2005, USAID executed a
bilateral agreement with the Government of Indonesia, committing the
U.S. to provide a total of $332 million in reconstruction support,
including $245 million for the road. USAID financial records reflect
the full $332 million as obligated. Accordingly, USAID financial
records report obligations of $346 million of the $349 million budgeted
for Indonesia reconstruction. GAO's calculation of obligated funding of
$111 million only includes a small portion of the total amount
allocated to the road, and not the full amount of the signed and public
agreement with the Government of Indonesia.
The following are GAO's comments on the U.S. Agency for International
Development's letter dated March 30, 2006.
GAO Comments:
1. USAID states that it intends to use fixed-price contracts because
the contracts provide the maximum incentive for the contractor to
control costs and perform effectively in order to complete the work on
time. We agree that fixed-price contracts can be effective in
controlling costs by shifting performance risk to the contractor.
However, as USAID also notes and we point out in the report, costs may
increase due to other circumstances, such as site conditions being
different than expected and the potentially lengthy process of
acquiring land. As our recommendation indicates, it is important that
Congress be kept informed of cost and expenditure information in order
to effectively oversee expenditures of U.S. funds.
2. We modified the text of footnote 5 and added explanatory notes to
tables 4 and 5 to reflect USAID's comments regarding obligations and
expenditures of funds.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
David Gootnick, (202) 512-4128 or [Hyperlink, gootnickd@gao.gov].
Staff Acknowledgments:
In additional to the contact named above, Phillip Herr, George Taylor,
Michael Armes, Ming Chen, Reid Lowe, Michael Maslowski, and Thomas
Zingale made key contributions to this report.
(320359):
FOOTNOTES
[1] The 12 countries that sustained significant damage from the tsunami
are Bangladesh, India, Kenya, Indonesia, Malaysia, the Maldives,
Myanmar, Seychelles, Somalia, Sri Lanka, Tanzania, and Thailand.
Several other countries, including Comoros, Madagascar, and Mauritius,
sustained minimal damage.
[2] Although pledges of $13 billion exceed initial damage estimates of
$10 billion, escalating costs may increase the amount of funding needed
for reconstruction.
[3] H. Rept. 109-16, p. 49.
[4] The United States has a signed agreement with the government of
Indonesia for a total of approximately $400 million for all emergency
relief, recovery, and reconstruction assistance activities.
[5] Generally, an obligation is a definite commitment that creates a
legal liability of the U.S. government for the payment of goods and
services ordered or received (GAO-05-734SP, p. 70). Consistent with 31
U.S.C. 1501 defining when an agency can record an obligation, USAID
policy is to treat as an obligation the bilateral agreements it makes
with other countries to deliver assistance. However, for purposes of
this report, obligations are defined as amounts of orders placed,
contracts awarded, services received, and similar transactions during a
given period that will require payments during the same or future
period. USAID labels these actions subobligations. Expenditures are
defined as the issuance of checks, disbursement of cash, or electronic
transfer of funds to liquidate a federal obligation.
[6] The United States has a signed agreement with the government of Sri
Lanka for a total of approximately $134 million for all emergency
relief, recovery, and reconstruction assistance activities.
[7] Services provided by USACE in Indonesia and Sri Lanka included
identifying large-scale infrastructure projects; developing scopes of
work, cost estimates, and initial environmental reviews; and
recommending acquisition strategies for signature infrastructure
projects. In Indonesia, two USACE engineers are continuing to assist
USAID in project management and construction oversight.
[8] As of January 31, 2006, USAID had not completed a small number of
emergency relief projects, such as cash-for-work activities to remove
debris and rehabilitate small infrastructure. However, according to a
USAID official, all emergency relief projects will be completed and
funds expended by the end of 2006.
[9] USAID funding includes $10 million to the World Bank's Multidonor
Trust Fund, which supports the rehabilitation and reconstruction of
Aceh Province, Indonesia.
[10] According to a USACE official, about one-third of the road was
surveyed on the ground and the remainder was surveyed from the air by
helicopter.
[11] USACE's cost estimate is consistent with Construction Industry
Institute best practices, which suggest that actual costs for projects
for which limited information on conditions is available, such as the
Aceh road construction project, can be expected to range from 20
percent lower to 30 percent higher than estimated costs. See
Construction Industry Institute, Improving Early Estimates: Best
Practices Guide (Austin, Texas, September 1998.)
[12] Peter Reina and Tom Nicholson, "Survivors Still Dealing with Poor
Conditions," Engineering News-Record (Jan. 2, 2006), 12-13.
[13] USAID's non-tsunami-related development efforts in the Arugam Bay
area also include strengthening the tourism sector.
[14] USAID requires an annual audit of foreign nonprofit organizations
expending $300,000 or more of USAID funds, and a preaward survey or
audit before negotiating a contract of $500,000 or more.
[15] The three additional audits were planned to determine whether (1)
Indonesia's livelihood assistance activities were on schedule to
achieve their planned outputs and objectives, (2) tsunami-related
activities in Indonesia implemented by Development Alternatives Inc.
(DAI) were on schedule to be completed as planned and whether USAID
properly monitored DAI's activities, and (3) USAID's infrastructure
rebuilding activities in Sri Lanka were on schedule to be completed as
planned.
[16] These staffing issues are similar to those USAID has previously
faced in disaster recovery efforts. See GAO, Foreign Assistance,
Disaster Recovery Program Addressed Intended Purposes, but USAID Needs
Greater Flexibility to Improve Its Response Capability, GAO-02-787
(Washington, D.C.: July 24, 2002).
[17] International Crisis Group, Aceh: So Far, So Good
(Jakarta/Brussels, Dec. 13, 2005).
[18] USAID's regular program activities also include projects designed
to enhance peace building by assisting former combatants.
[19] Since the 1980s, some areas of northern and northeastern Sri Lanka
have been under the control of the Liberation Tigers of Tamil Eelam.
According to the Department of State, this is a terrorist organization
that has advocated secession of these areas to form a separate ethnic
Tamil state.
[20] In Indonesia, the creditors--Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Italy, Japan, the Netherlands,
Norway, the Republic of Korea (an ad hoc--not a permanent--Paris Club
member), Spain, Sweden, Switzerland and the United Kingdom--are, like
the United States, members of the Paris Club, which works to find
coordinated and sustainable solutions to the payment difficulties
experienced by debtor nations. In Sri Lanka, the creditors are
Australia, Canada, Denmark, France, Germany, Italy, Japan, Korea, the
Netherlands, and Switzerland. Paris Club creditors agree to reschedule
debts due to them--that is, to provide a country with debt relief by
postponing and, in the case of concessional rescheduling, reducing debt
service obligations.
[21] The damage in Indonesia was estimated at 1.8 percent of gross
domestic product (GDP) and in Sri Lanka at 4.5 percent of GDP.
[22] The net benefit of the debt rescheduling is the difference between
the net present value of the debt payment flows before and after the
rescheduling. The net benefit is affected by the length of the
deferment period, frequency of payments, interest rate charged, and the
discount rate. These figures are net present value.
[23] The Department of the Treasury noted that the numbers in the
bilateral agreement with each individual Paris Club country may be
slightly different because the data may have been updated and revised
by the time bilateral agreements are signed, as is often the case in
Paris Club agreements.
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