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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 DODís 
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. 

≤ 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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