Rebuilding Iraq
Continued Progress Requires Overcoming Contract Management Challenges Gao ID: GAO-06-1130T September 28, 2006The United States, along with its coalition partners and various international organizations, has undertaken a challenging, complex, and costly effort to stabilize and rebuild Iraq. The Department of Defense (DOD) has responsibility for a significant portion of the reconstruction effort. Amid signs of progress, the coalition faces numerous political, security, and economic challenges in rebuilding Iraq. Within this environment, many reconstruction projects have fallen short of expectations, resulting in increased costs, schedule delays, reduced scopes of work, and in some cases project cancellations. This testimony (1) discusses the overall progress that has been made in rebuilding Iraq and (2) describes challenges faced by DOD in achieving successful outcomes on individual projects. This testimony reflects our reviews of reconstruction and DOD contract management issues, as well as work of the Special Inspector General for Iraq Reconstruction. In our previous reports, we have made several recommendations to improve outcomes in Iraq. DOD generally agreed with our recommendations.
Overall, the United States generally has not met its goals for reconstruction activities in Iraq with respect to the oil, electricity, and water sectors. As of August 2006, oil production is below the prewar level, and the restoration of electricity and new or restored water treatment capacity remain below stated goals. One-third of DOD's planned construction work still needs to be completed and some work is not planned for completion until late 2008. Continuing violence in the region is one of the reasons that DOD is having difficulty achieving its goals. The contracting challenges encountered in Iraq are emblematic of systemic issues faced by DOD. When setting requirements for work to be done, DOD made assumptions about funding and time frames that later proved to be unfounded. The failure to define realistic requirements has had a cascading effect on contracts and has made it difficult to take subsequent steps to get successful outcomes. For example, in the absence of settled requirements, agencies sometimes rely on what are known as undefinitized contract actions, which can leave the government exposed to increased costs. Further, DOD lacked the capacity to provide effective oversight and manage risks. We also found that DOD, at times, improperly used interagency contracts and was not able to take advantage of full and open competition during the initial stages of reconstruction. Just as multiple factors contribute to success or failure, multiple actors play a role in achieving successful acquisition outcomes, including policy makers, program managers, contracting officers, and the contractors themselves.
GAO-06-1130T, Rebuilding Iraq: Continued Progress Requires Overcoming Contract Management Challenges
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Testimony before the Committee on Government Reform, House of
Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, September 28, 2006:
Rebuilding Iraq:
Continued Progress Requires Overcoming Contract Management Challenges:
Statement of Katherine V. Schinasi, Managing Director, Acquisition and
Sourcing Management:
GAO-06-1130T:
GAO Highlights:
Highlights of GAO-06-1130T, a testimony to the Committee on Government
Reform, House of Representatives
Why GAO Did This Study:
The United States, along with its coalition partners and various
international organizations, has undertaken a challenging, complex, and
costly effort to stabilize and rebuild Iraq. The Department of Defense
(DOD) has responsibility for a significant portion of the
reconstruction effort.
Amid signs of progress, the coalition faces numerous political,
security, and economic challenges in rebuilding Iraq. Within this
environment, many reconstruction projects have fallen short of
expectations, resulting in increased costs, schedule delays, reduced
scopes of work, and in some cases project cancellations.
This testimony (1) discusses the overall progress that has been made in
rebuilding Iraq and (2) describes challenges faced by DOD in achieving
successful outcomes on individual projects.
This testimony reflects our reviews of reconstruction and DOD contract
management issues, as well as work of the Special Inspector General for
Iraq Reconstruction.
In our previous reports, we have made several recommendations to
improve outcomes in Iraq. DOD generally agreed with our
recommendations.
What GAO Found:
Overall, the United States generally has not met its goals for
reconstruction activities in Iraq with respect to the oil, electricity,
and water sectors. As of August 2006, oil production is below the
prewar level, and the restoration of electricity and new or restored
water treatment capacity remain below stated goals. One-third of DOD‘s
planned construction work still needs to be completed and some work is
not planned for completion until late 2008. Continuing violence in the
region is one of the reasons that DOD is having difficulty achieving
its goals.
The contracting challenges encountered in Iraq are emblematic of
systemic issues faced by DOD. When setting requirements for work to be
done, DOD made assumptions about funding and time frames that later
proved to be unfounded. The failure to define realistic requirements
has had a cascading effect on contracts and has made it difficult to
take subsequent steps to get successful outcomes. For example, in the
absence of settled requirements, agencies sometimes rely on what are
known as undefinitized contract actions, which can leave the government
exposed to increased costs. Further, DOD lacked the capacity to provide
effective oversight and manage risks. We also found that DOD, at times,
improperly used interagency contracts and was not able to take
advantage of full and open competition during the initial stages of
reconstruction. Just as multiple factors contribute to success or
failure, multiple actors play a role in achieving successful
acquisition outcomes, including policy makers, program managers,
contracting officers, and the contractors themselves.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1130T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine V. Schinasi at
(202) 512-4841 or schinasik@gao.gov.
[End of Section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the contracting challenges the
Department of Defense (DOD) faces in achieving successful acquisition
outcomes in its efforts to stabilize and rebuild Iraq. The United
States, along with its coalition partners and various international
organizations, has undertaken a challenging and costly effort to
stabilize and rebuild Iraq. This enormous effort is taking place in an
unstable security environment, concurrent with Iraqi efforts to
transition to a permanent government, and relies heavily on private
companies for success. DOD has responsibility for a significant portion
of the reconstruction efforts and has awarded and managed many of the
large reconstruction contracts, such as contracts to rebuild Iraq's
oil, water, and electrical infrastructure.
As we have previously noted, amid signs of progress, the coalition
faces numerous political, security, and economic challenges in
rebuilding Iraq.[Footnote 1] For example, our recent assessment of the
security situation in Iraq found that the conditions have deteriorated
and grown more complex, as evidenced by the increased number of attacks
and growing sectarian violence. Within this environment, many
reconstruction projects have fallen short of expectations, resulting in
increased costs, schedule delays, reduced scopes of work, and in some
cases project cancellations. Poor acquisition outcomes are not unique
to Iraq; we designated DOD's contract management activities as a high-
risk area more than a decade ago. In our January 2005 high-risk report,
we noted that DOD needs to use sound business practices when buying
goods and services and have the right skills and capabilities in its
acquisition workforce to properly manage these acquisitions.[Footnote
2]
Today, I will briefly discuss the overall progress that has been made
in rebuilding Iraq and then describe challenges faced by DOD in
achieving successful outcomes on individual projects. This information
is based on completed and ongoing reviews of efforts to rebuild Iraq
that we have undertaken since 2003, as well as our work related to
selected DOD contract management issues. We conducted our reviews in
accordance with generally accepted government auditing standards. In
our previous reports, we have made several recommendations to improve
outcomes in Iraq. DOD generally agreed with our recommendations.
My statement also considers the work of the Special Inspector General
for Iraq Reconstruction, including audits of specific projects and
lessons learned reports. We and other accountability organizations
coordinate our oversight efforts with those conducted by the Inspector
General to avoid duplication and maximize resources. In that regard,
the Inspector General's ability to provide in-country oversight of
specific projects and reconstruction challenges has enabled us to focus
on national, sector, and interagency issues.
Summary:
Overall, the United States generally has not met its goals for
reconstruction activities in Iraq with respect to the oil, electricity,
and water sectors. As of August 2006, oil production was below the
prewar level, and the restoration of electricity and new or restored
water treatment capacity remained below stated goals. One-third of
DOD's planned construction work still needs to be completed and some
work is not planned for completion until late 2008. Continuing violence
is one of the reasons that DOD is having difficulty achieving its
goals.
The contracting challenges encountered in Iraq are emblematic of
systemic issues faced by DOD. When setting requirements for work to be
done, DOD made assumptions about funding and time frames that later
proved to be unfounded. The failure to define realistic requirements
has had a cascading effect on contracts and has made it difficult to
take subsequent steps to get successful outcomes. For example, in the
absence of settled requirements, DOD sometimes relied on what are known
as undefinitized contract actions, which can leave the government
exposed to increased costs. Further, DOD lacked the capacity to provide
effective oversight and manage risks. We also found that DOD, at times,
improperly used interagency contracts and did not take advantage of
full and open competition during the initial stages of reconstruction.
Background:
The contracting processes, activities, and challenges associated with
rebuilding Iraq can be viewed as similar to, albeit more complicated
than, those DOD normally confronts. We and others have already reported
on the large and continuing drain on reconstruction dollars to meet
unanticipated security needs. Further, multiple players with diffuse
and changing responsibilities have had large roles in rebuilding Iraq,
complicating lines of authority and accountability. Additionally,
rebuilding a nation after decades of neglect and multiple wars is an
inherently complex, challenging, and costly undertaking.
From May 2003 through June 2004, the Coalition Provisional Authority
(CPA), led by the United States and the United Kingdom, was the United
Nations recognized authority responsible for the temporary governance
of Iraq and for overseeing, directing, and coordinating reconstruction
efforts. During 2003, several agencies, most notably the U.S. Agency
for International Development (USAID) and the U.S. Army Corps of
Engineers, played a role in awarding and managing initial
reconstruction contracts. To coordinate and manage the $18.4 billion in
reconstruction funding provided in fiscal year 2004, the CPA
established a multi-tiered contracting approach for Iraq reconstruction
activities. The CPA, through various military organizations, awarded
the following contracts: 1 program management support contract to
oversee reconstruction efforts; 6 sector program management contracts
to coordinate reconstruction efforts specific to each sector; and 12
design-build contracts to execute specific construction tasks. DOD is
now emphasizing greater use of local Iraqi firms to perform
reconstruction work that was previously intended to be performed by the
design-build contractors.
With the establishment of Iraq's interim government in June 2004, the
CPA's responsibilities were transferred to the Iraqi government or to
U.S. agencies. The Department of State is now responsible for
overseeing U.S. efforts to rebuild Iraq. The Project and Contracting
Office (PCO), a temporary DOD organization, was tasked with providing
acquisition and project management support. In December 2005, DOD
merged the PCO with the U.S. Army Corps of Engineers Gulf Region
Division, which now supervises DOD reconstruction activities in Iraq.
Additionally, the State Department's Iraq Reconstruction and Management
Office is responsible for strategic planning and for prioritizing
requirements, monitoring spending, and coordinating with the military
commander. USAID continues to award its own contracts, which are
generally associated with economic assistance, education and
governance, and certain infrastructure projects.
U.S. Efforts Have Produced Mixed Results in Restoring Iraq's Essential
Services:
The United States has made some progress in restoring Iraq's essential
services, but as of August 2006, such efforts generally have not met
prewar production levels or U.S. goals. Reconstruction activities have
focused on restoring essential services, such as refurbishing and
repairing oil facilities, increasing electrical generating capacity,
and restoring water treatment plants. About one-third of DOD's
construction work remains, and DOD estimates that some work is not
planned for completion until late 2008. Continued violence, however,
may make it difficult for the United States to achieve its goals.
For August 2006, the U.S. embassy reported that the oil, electricity,
and water sectors generally performed below the planned U.S. goals.
Specifically,
* Crude oil production capacity was reported as about 2.4 million
barrels per day (mbpd), below the prewar level of 2.6 mbpd and the
desired goal of 3 mbpd.
* In the electricity sector, peak generation capacity was reported at
4,855 megawatts, above the prewar level of 4,300 megawatts, but below
the U.S. goal of 6,000 megawatts. Further, the current demand for power
continues to outstrip the available supply of electricity as more
Iraqis purchase consumer items and devices requiring electricity to
operate.
* In the water sector, new or restored treatment capacity was reported
at about 1.44 million cubic meters per day, compared to the U.S. goal
of 2.4 million cubic meters.[Footnote 3]
According to senior CPA and State officials responsible for the U.S.
strategy, the CPA's 2003 reconstruction plan assumed that (1) creating
or restoring basic essential services for the Iraqi people took
priority over jobs creation and the economy and (2) the United States
should focus on long-term infrastructure projects because of the
expertise the United States could provide. Further, the strategy
assumed that reconstruction efforts would take place in a relatively
benign environment. The difficult security environment and persistent
attacks on U.S.-funded infrastructure, among other challenges,
contributed to project delays, increased costs, and canceling or
reducing the scope of some reconstruction projects. As we reported on
September 11, 2006, the overall security conditions have grown more
complex, as evidenced by increased numbers of attacks and Sunni/Shi'a
sectarian strife. The continuing violence may make it difficult for the
United States to achieve its goals.
Iraq Contracting Challenges Reflect Systemic Issues Faced by DOD:
The contracting challenges encountered in Iraq are emblematic of
systemic issues faced by DOD. A fundamental prerequisite to having good
outcomes is a match between well-defined requirements and available
resources. At the sector, program, and project levels, the failure to
define realistic requirements has had a cascading effect on contracts
and made it difficult to take subsequent steps necessary to get to
successful outcomes. For example, in the absence of settled
requirements, DOD has sometimes relied on what are known as
undefinitized contractual actions, which were used extensively in Iraq
and can leave the government exposed to increased costs. Managing risks
when requirements are in flux requires effective oversight, but DOD
lacked the capacity to provide a sufficient acquisition workforce,
thereby hindering oversight efforts. In Iraq, as elsewhere, we found
instances in which DOD improperly used interagency contracts to meet
reconstruction needs. Finally, the underlying market discipline offered
by competition can help promote better outcomes, but DOD, like other
agencies, was challenged, particularly early on, in its ability to
realize the benefits of competition. One or more of these factors can
contribute to unsatisfactory outcomes on individual projects; the net
effect, however, is that many reconstruction projects did not achieve
their intended goals and DOD has incurred unanticipated costs and
schedule delays.
Matching Requirements with Available Resources:
One of the factors that can contribute to poor DOD acquisition outcomes
is the mismatch between wants, needs, affordability, and
sustainability. This mismatch was evident in the reconstruction efforts
in Iraq. U.S. reconstruction goals were based on assumptions about the
money and time needed, which have proven unfounded. U.S. funding was
not meant to rebuild Iraq's entire infrastructure, but rather to lay
the groundwork for a longer-term reconstruction effort that anticipated
significant assistance from international donors.
To provide that foundation, the CPA allocated $18.4 billion in fiscal
year 2004 reconstruction funds among various projects in each
reconstruction sector, such as oil, electricity, and water and
sanitation. As noted by the Special Inspector General, almost
immediately after the CPA dissolved, the Department of State initiated
an examination of the priorities and programs with the objectives of
reprioritizing funding for projects that would not begin until mid-to
late-2005 and using those funds to target key high-impact projects. By
July 2005, the State Department had conducted a series of funding
reallocations to address new priorities, including increasing support
for security and law enforcement efforts and oil infrastructure
enhancements. One of the consequences of these reallocations was to
reduce funding for the water and sanitation sector by about 44 percent,
from $4.6 billion to $2.6 billion. One reallocation of $1.9 billion in
September 2004 led the PCO to cancel some projects, most of which were
planned to start in mid-2005. Changes, even those made for good
reasons, make it more difficult to manage individual projects to
successful outcomes.
Further, such changes invariably have a cascading effect on individual
contracts. To produce desired outcomes within available funding and
required time frames, DOD and its contractors need to have a clear
understanding of reconstruction objectives and how they translate into
the terms and conditions of a contract: what goods or services are
needed, when they are needed, the level of performance or quality
desired, and what the cost will be. When such requirements were not
clear, DOD often entered into contract arrangements on reconstruction
efforts that posed additional risks. For example,
* In June 2004, we reported that faced with uncertainty as to the full
extent of the rebuilding effort, DOD often authorized contractors to
begin work before key terms and conditions, including the work to be
performed and its projected costs, were fully defined.[Footnote 4] The
use of undefinitized contract actions, while allowing needed work to
begin quickly, can result in additional costs and risks to the
government. We found that as of March 2004, about $1.8 billion had been
obligated on reconstruction contract actions without DOD and the
contractors reaching agreement on the final scope and price of the
work. In one case, we found a contract action that had been modified
nine times between March and September 2003, increasing estimated costs
from $858,503 to about $204.1 million without DOD and the contractor
reaching agreement on the scope of work or final price.
* In September 2005, we reported that difficulties in defining the
cost, schedule, and work to be performed associated with projects in
the water sector contributed to project delays and reduced scopes of
work.[Footnote 5] We reported that DOD had obligated about $873 million
on 24 task orders to rebuild Iraq's water and sanitation
infrastructure, including municipal water supplies, sewage collection
systems, dams, and a major irrigation project. We found, however, that
agreement between the government and the contractors on the final cost,
schedule, and scope of 18 of the 24 task orders we reviewed had been
delayed. These delays occurred, in part, because Iraqi authorities,
U.S. agencies, and contractors could not agree on scopes of work and
construction details. For example, at one wastewater project, local
officials wanted a certain type of sewer design that increased that
project's cost.
* Earlier this week, we issued a report on how DOD addressed issues
raised by the Defense Contract Audit Agency (DCAA) in audits of Iraq-
related contract costs.[Footnote 6] We again noted that DOD frequently
authorized contractors to begin work before reaching agreement on the
scope or price of the work. In such cases, we found that DOD
contracting officials were less likely to remove costs questioned by
DCAA from a contractor's proposal when the contractor had already
incurred these costs. For example, of the 18 audit reports we reviewed,
DCAA issued 11 reports on contract actions where more than 180 days had
elapsed between the beginning of the period of performance to final
negotiations. For 9 of these audits, the period of performance DOD
initially authorized for each contract action concluded before final
negotiations took place. In one case, DCAA questioned $84 million in
its audit of a task order proposal for an oil mission. In this case,
the contractor did not submit a proposal until a year after the work
was authorized, and DOD and the contractor did not negotiate the final
terms of the task order until more than a year after the contractor had
completed work (see fig. 1). In the final negotiation documentation,
the DOD contracting official stated that the payment of incurred costs
is required for cost-type contracts, absent unusual circumstances. In
contrast, in the few audit reports we reviewed where the government
negotiated prior to starting work, we found that the portion of
questioned costs removed from the proposal was substantial.
Figure 1: Timeline of Key Contracting Events for Restore Iraqi Oil
Contract, Task Order 5:
[See PDF for Image]
Source: GAO analysis of DOD data.
[End of Figure]
Oversight and Workforce Issues:
Instability--such as when wants, needs, and contract requirements are
in a state of flux--requires greater attention to oversight, which in
turn relies on a capable government workforce. Managing the attendant
risks in unstable situations grows in both importance and difficulty.
Unfortunately, attention to oversight and a capable government
workforce has not always been evident during the reconstruction effort.
Such workforce challenges are not unique to Iraq. DOD's civilian
workforce shrank by about 38 percent between fiscal years 1989 and
2002, but DOD performed this downsizing without ensuring that remaining
staff had the specific skills and competencies needed to accomplish
future DOD missions. In other cases, contractors have taken over
support positions that were traditionally filled by government
personnel. For example, a contractor began providing intelligence
support to the Army in Germany in 1999 and deployed with the Army to
Iraq in 2003. The Army, however, found itself unprepared for the volume
of Iraqi detainees and the need for interrogation and other
intelligence and logistics services.
We and others have reported on the impact of the lack of adequate
acquisition personnel and high turnover rates on reconstruction
efforts. For example, among the lessons learned identified by the
Special Inspector General was that one of the CPA's critical personnel
shortcomings was the inadequate link between position requirements and
necessary skills. In this case, gaps existed in the experience levels
of those hired, as well as in the quality and depth of their
experiences relative to their assigned jobs. Similarly, in January
2004, an interagency assessment team was sent to Iraq to review the
CPA's contracting capability. The team found that existing contracting
personnel were insufficient to handle the increased workload that was
expected with the influx of fiscal year 2004 reconstruction funding and
that the CPA needed more individuals with acquisition expertise who
could help the programmatic side of the operation. In part, the CPA's
decision to award seven contracts in early 2004 to help better
coordinate and manage the fiscal year 2004 reconstruction efforts was
in recognition of this shortfall. As a result, DOD finds itself in the
position of relying on contractors to help manage and oversee the work
of other contractors.
At the contract level, having personnel who are trained to conduct
oversight, assigned at or prior to contract award, and held accountable
for their oversight responsibilities is essential for effective
oversight. Our work has shown that if oversight is not conducted, is
insufficient, or is not well documented, DOD, and other reconstruction
agencies, risk not identifying and correcting poor contractor
performance in a timely manner and paying contractors more than the
value of the services they perform.[Footnote 7] For example,
* Our June 2004 report found that early contract administration
challenges were caused, in part, by the lack of sufficient
personnel.[Footnote 8] We found that, due to the lack of government
personnel to provide oversight, one contractor may have purchased $7
million in equipment and services that were not specifically authorized
under the contract. Similarly, on another contract, to provide subject
matter experts to the CPA and Iraqi ministries, DOD officials stated
that some experts failed to report to duty or when they did, did not
perform as expected. DOD officials attributed such performance issues
to the lack of personnel to provide oversight when the experts arrived
in Iraq.
² In July 2005, we noted that USAID obligated an additional $33 million
on one of its contracts to pay for unanticipated increases in security
costs, which left it short of funds to pay for construction oversight
and quality assurance efforts, as well as to fund administrative
costs.[Footnote 9]
* Our September 2005 report on water and sanitation efforts found that
frequent staff turnover affected both the definitization process and
the overall pace and cost of reconstruction efforts.[Footnote 10] For
example, new contracting officers had to be brought up to speed and
would sometimes ask the contractor to resubmit information in formats
different from those previously required. A PCO official also noted
that the contracting office in Iraq lacked sufficient staff and
equipment and that some of the staff assigned as contracting officers
lacked experience with the type of projects the PCO managed.
Using Interagency Contracting Vehicles:
Another area in which workforce shortfalls proved problematic was in
DOD's use and management of interagency contracting vehicles. We
identified management of interagency contracting as a high-risk area in
January 2005. In recent years, federal agencies have been making a
major shift in the way they procure many goods and services. Rather
than developing and awarding their own contracts, agencies are making
greater use of contracts already awarded by other agencies, referred to
as interagency contracting. This practice offers the benefits of
improved efficiency and timeliness. Such contracts, however, need to be
effectively managed, and their use demands a higher than usual degree
of business acumen and flexibility on the part of the acquisition
workforce. Our work and that of some agency inspectors general found
instances of improper use of interagency contracting, resulting from
increasing demands on the acquisition workforce, insufficient training,
inadequate guidance, an inordinate focus on meeting customer demands at
the expense of complying with sound contracting policy and required
procedures, and the lack of clear lines of responsibility and
accountability.
During the initial stages of reconstruction, we and the DOD Inspector
General found instances in which DOD improperly used interagency
contracts for many of the same reasons. For example,
* In March 2004, the DOD Inspector General reported that a review of 24
contract actions awarded by a DOD component on behalf of the CPA
revealed that DOD circumvented contracting rules, including improperly
using General Services Administration federal supply schedule contracts
and improperly contracting for personal services.[Footnote 11] The
Inspector General attributed this condition to the need to quickly
award contracts and to DOD's failure to plan for the acquisition
support the CPA needed to perform its mission.
* In June 2004, we noted that a task order awarded by the Air Force to
provide logistical support and equipment to support USAID's mission in
Baghdad and at other sites in Iraq was, in part, outside the scope of
the contract.[Footnote 12] The Air Force indicated that it was issuing
additional guidance to ensure that future task orders were within the
scope of the contract.
* In April 2005 we reported that a lack of effective management
controls--in particular insufficient management oversight and a lack of
adequate training--led to breakdowns in the issuance and administration
of task orders for interrogation and other services by the Department
of the Interior on behalf of DOD.[Footnote 13] These breakdowns
included:
* issuing 10 out of 11 task orders that were beyond the scope of
underlying contracts, in violation of competition rules;
* not complying with additional DOD competition requirements when
issuing task orders for services on existing contracts;
* not properly justifying the decision to use interagency contracting;
* not complying with ordering procedures meant to ensure best value for
the government; and:
* not adequately monitoring contractor performance.
Because officials at Interior and the Army responsible for the orders
did not fully carry out their roles and responsibilities, the
contractor was allowed to play a role in the procurement process
normally performed by the government. Further, the Army officials
responsible for overseeing the contractor, for the most part, lacked
knowledge of contracting issues and were not aware of their basic
duties and responsibilities.
Initial Inability to Benefit from Competition:
Finally, one tool that can help mitigate acquisition risks is to rely
on the discipline provided by market forces when contracts are awarded
under full and open competition--that is, when all responsible
prospective contractors are afforded the opportunity to compete. During
the initial stages of reconstruction, we found that agencies were
unable to take full advantage of competition, in part because of the
relatively short time--often only weeks--to award the first contracts.
Our June 2004 report found that agencies generally complied with
applicable requirements for competition when awarding new contracts but
did not always do so when issuing task orders against existing
contracts. We found that 7 of the 11 task orders we reviewed were for
work that was, in whole or in part, outside the scope of the existing
contracts. In each of these cases, the out-of-scope work should have
been awarded using competitive procedures or supported with a
justification and approval for using other than full and open
competition in accordance with legal requirements. Given the urgent
need for reconstruction efforts, we noted that the authorities under
the competition laws provided agencies ample latitude to justify their
approach.
Such latitude presupposes that the rationale for such actions is valid;
if not, then the loss of the benefits from competition cannot be easily
justified. For example, in November 2005, we sustained a protest of a
sole-source contract awarded by the Air Force in December 2004 for
bilingual-bicultural advisers that was placed under an environmental
services contract, which, on its face, did not include within its scope
the bilingual-bicultural adviser requirement.[Footnote 14] We concluded
that the agency's efforts were so fundamentally flawed as to indicate
an unreasonable level of advance planning. In the same decision, we
sustained a protest of a second, follow-on sole-source contract awarded
by the Air Force in July 2005 to the same company, in which the
justification and approval prepared in support of the contract was
premised on the conclusion that the contractor was the only responsible
source, yet the capabilities of other firms were not in fact
considered. The lack of advance planning, the failure to meaningfully
consider other sources, and the attempts to justify the use of sole-
source contracts originated, in large part, from the desire and
pressure to meet the customer's needs in a short time frame. At the
time of our decision, the initial contract was substantially complete,
but we recommended that the agency promptly obtain competition for the
requirement or prepare a properly documented and supported
justification and approval for the second contract.
Overall, the Special Inspector General has reported that competition
has improved for Iraq reconstruction projects since the early
reconstruction efforts. Next month we will issue a congressionally
mandated report that will provide an assessment of competition for
actions subsequent to our June 2004 report.
Conclusions:
The reconstruction contracting problems we and others have reported on
over the last several years are emblematic of contracting problems we
have identified in numerous other situations but with more dramatic
consequences for failure, as the nature of the task for the United
States is so large and so costly. While some of the factors I discussed
today--mismatches between needs, wants, affordability, and
sustainability; oversight and workforce challenges; improper use of
contracting approaches; and competition issues--were more prevalent in
the initial stages of reconstruction, the risks posed by others have
not yet been fully mitigated. Understanding not just where we are
today, but why, is important to enable DOD to make corrections and
prevent repeating mistakes.
Just as multiple factors contribute to success or failure, multiple
actors play a role in achieving successful acquisition outcomes,
including policy makers, program managers, contracting officers, and
the contractors themselves.
Looking to the future, about one-third of DOD's planned construction
work remains to be completed, including some work that is not planned
for completion until the end of 2008. It is not too late for DOD to
learn from its past difficulties and provide adequate oversight on
these remaining projects. Delivering these projects on time and within
cost is essential if we are to maximize the return on this investment
and make a difference in the daily lives of the Iraqi people and help
to provide the services they need--safe streets, clean water, reliable
electricity, and affordable health care.
Mr. Chairman and members of the committee, this concludes my prepared
statement. I will be happy to answer any questions you may have.
Scope and Methodology:
In preparing this testimony, we relied primarily on our completed and
ongoing reviews of efforts to rebuild Iraq that we have undertaken
since 2003, as well as our work related to selected DOD contract
management issues. We conducted these reviews in accordance with
generally accepted government auditing standards. We also reviewed
audit reports and lessons learned reports issued by the Special
Inspector General for Iraq Reconstruction and work completed by the
Inspector General, Department of Defense. We conducted this work in
accordance with generally accepted government auditing standards in
September 2006.
GAO Contacts and Staff Acknowledgments:
For questions regarding this testimony, please call Katherine V.
Schinasi at (202) 512-4841 or on schinasik@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the back page of this statement. Key contributors to this statement
were Daniel Chen, Lily Chin, Tim DiNapoli, Kate France, Dave Groves,
John Hutton, Chris Kunitz, Steve Lord, Micah McMillan, Kate Monahan,
Mary Moutsos, Ken Patton, Jose Ramos, and Bill Woods.
FOOTNOTES
[1] GAO, Rebuilding Iraq: Governance, Security, Reconstruction, and
Financing Challenges, GAO-06-697T (Washington, D.C.: Apr. 25, 2006);
GAO, Rebuilding Iraq: More Comprehensive National Strategy Needed to
Help Achieve U.S. Goals and Overcome Challenges, GAO-06-953T
(Washington, D.C.: Jul. 11, 2006); and GAO, Stabilizing Iraq: An
Assessment of the Security Situation, GAO-06-1094T (Washington, D.C.:
Sep. 11, 2006).
[2] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[3] The data for the water sector is as of September 18, 2006.
[4] GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures
and Management Challenges, GAO-04-605 (Washington, D.C.: Jun. 1, 2004).
[5] GAO, Rebuilding Iraq: U.S. Water and Sanitation Efforts Need
Improved Measures for Assessing Impact and Sustained Resources for
Maintaining Facilities, GAO-05-872 (Washington, D.C.: Sep. 7, 2005).
[6] GAO, Iraq Contract Costs: DOD Consideration of Defense Contract
Audit Agency's Findings, GAO-06-1132 (Washington, D.C.: Sep. 25, 2006).
[7] GAO, Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.:
Mar. 17, 2005).
[8] GAO-04-605.
[9] GAO, Rebuilding Iraq: Actions Needed to Improve Use of Private
Security Providers, GAO-05-737 (Washington, D.C.: Jul. 28, 2005).
[10] GAO-05-872.
[11] Office of the Inspector General, Department of Defense.
Acquisition: Contracts Awarded for the Coalition Provisional Authority
by the Defense Contracting Command-Washington. (Report No. D-2004-057,
Arlington, Virginia, Mar. 18, 2004).
[12] GAO-04-605.
[13] GAO, Interagency Contracting: Problems with DOD's and Interior's
Orders to Support Military Operations, GAO-05-201 (Washington, D.C.:
Apr. 29, 2005).
[14] WorldWide Language Resources, Inc., B-296984, Nov. 14, 2005, 2005
CPD P 206.
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