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Before the Committee on Oversight and Government Reform, House of 

United States Government Accountability Office: 


For Release on Delivery Expected at 10:00 a.m. EDT: 

Thursday, June 28, 2007: 

Military Construction: 

Observations on Mismanagement of the Kaiserslautern Military Community 

Statement of Gregory D. Kutz, Managing Director: 
Forensic Audits and Special Investigations: 

Bruce A. Causseaux, Senior Level Specialist: 
Forensic Audits and Special Investigations: 

Terrell G. Dorn, Director: 
Physical Infrastructure: 


GAO Highlights: 

Highlights of GAO-07-1039T, a testimony before the Committee on 
Oversight and Government Reform, House of Representatives 

Why GAO Did This Study: 

According to the Air Force, the Kaiserslautern Military Community 
Center (KMCC), an over 800,000 square-foot facility, is currently the 
Department of Defense’s largest single-facility project under 
construction. It is intended to provide lodging, dining, shopping, and 
entertainment for thousands of U.S. military and civilian personnel and 
their families in the Kaiserslautern, Germany, area. Initial costs for 
the KMCC were estimated at about $150 million, with funding coming from 
a variety of appropriated and nonappropriated fund sources. The 
construction for the project, which began in late 2003, was originally 
scheduled to be completed in early 2006. 

This testimony discusses GAO findings to date related to the KMCC. The 
testimony describes (1) current problems facing the KMCC, (2) causes 
for identified problems, and (3) the effect of problems identified and 
their implications for future projects in Germany. 

To address our objectives, we interviewed officials from the U.S. Air 
Force, Army and Air Force Exchange Service, U.S. Army Corps of 
Engineers, and German government. We also conducted a site visit and 
reviewed relevant KMCC documents. We plan to continue our work and make 
recommendations to the Air Force as appropriate. 

What GAO Found: 

The KMCC project has encountered cost, schedule, and performance 
problems. Currently neither Landesbetrieb Liegenschafts- und 
baubetreuung’s office in Kaiserslautern (LBB-Kaiserslautern), the 
German government construction agency in charge of the project, nor the 
Air Force have a reliable estimated completion date or final cost for 
the project. 

Problems facing KMCC include construction flaws, vandalism of property, 
repeated work stoppages and slowdowns by contractors, and ongoing 
criminal investigations. Because of financial problems facing the 
project, the number of workers on-site has dwindled from several 
hundred to less than 50, which will likely further delay completion of 
the project. In addition, the KMCC’s multimillion dollar “green” roof 
is experiencing water leaks, and will likely require the Air Force to 
spend millions of dollars for its replacement. Below is a picture of 
damage caused to the building interior from the roof leak. 


[See PDF for Photograph] 

Source: USAFE. 

[End of figure] 

The KMCC faced a high level of risk from its inception, which was not 
effectively mitigated by the Air Force. Increased risks included an 
overseas project controlled by LBB-Kaiserslautern with financial risks 
borne by the Air Force and its funding partners. Unfortunately, LBB-
Kaiserslautern did not effectively manage the design and construction 
of the project. Rather than increase controls to mitigate project 
risks, the Air Force provided minimal oversight and in some cases 
circumvented controls to expedite the invoice payment process in an 
attempt to complete the project. 

Because this project is funded primarily with nonappropriated funds, 
the likely substantial cost increases in the project will be borne by 
military servicemembers, civilians and their families. Further, absent 
better Air Force controls, future projects may experience the same 
types of heightened risks associated with KMCC. 


To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gregory Kutz at (202) 512-
7455 or or Terrell Dorn at (202)-512-6923 or 

[End of figure] 

Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to discuss our initial findings related 
to our audit of the Kaiserslautern Military Community Center (KMCC). 
The KMCC is one of many projects that were initiated at Ramstein Air 
Base to upgrade the capabilities of the base as a result of the 
consolidation of military bases in Europe. According to the Air Force, 
the KMCC, an 844,000-square-foot facility, is currently the Department 
of Defense's largest single-facility project. Funding for the project 
was provided from a variety of sources including nonappropriated funds 
from the Army and Air Force Exchange Service (AAFES) and Air Force 
Services Agency,[Footnote 1] military construction appropriations, and 
Rhein Main Transition Program funds.[Footnote 2] The KMCC is intended 
to provide lodging, dining, shopping, and entertainment for over 50,000 
U.S. military and civilian personnel and their families in the 
Kaiserslautern, Germany, area. The KMCC won the Air Force 2006 Design 
Award for an outstanding design concept for its environmentally- 
friendly "green" roof,[Footnote 3] glass domes, and facades allowing 
maximum light into the facility, and its amenities to the 
Kaiserslautern military community. Project highlights include a 350- 
room visiting quarters, sports bar, name brand restaurant, food court, 
slot machines, and numerous retail businesses. Construction on the KMCC 
began in November 2003 and the building was planned to be completed in 
early 2006. This represented an expedited schedule developed to 
accommodate the need for additional visiting quarters resources 
resulting from the closure of Rhein Main Air Base in 2005. 

The activities of U.S. forces personnel in Germany are to be carried 
out in accordance with the provisions of the North Atlantic Treaty 
Organization's (NATO) Status of Forces Agreement (SOFA), the German 
Supplementary Agreement (SA) to the NATO SOFA, and the various 
administrative agreements that implement these two agreements. The 
KMCC, like other military projects constructed in Germany, is governed 
by one such agreement, the Auftragsbaugrundsaetze 1975 (ABG-75) 
Administrative Agreement. ABG-75 establishes specific procedures for 
construction of military projects, including the KMCC, in Germany. AGB- 
75 provides that U.S. forces are to coordinate construction planning 
with the German government to ensure the optimum use of German design 
and construction capacities. For the KMCC, the responsibility for 
construction resided with the Landesbetrieb Liegenschafts-und 
Baubetreuung office in Kaiserslautern (LBB-Kaiserslautern), a German 
government construction agency. 

As requested, this testimony highlights the findings to date from our 
audit of the KMCC. Specifically, the testimony will describe (1) the 
current problems facing the KMCC, (2) the causes for identified 
problems, and (3) the effect of problems identified and their 
implications for future projects in Germany. 

To address our objectives, we conducted interviews with officials from 
the U.S. Air Force, including U.S. Air Forces in Europe (USAFE) 
personnel responsible for the KMCC project and Air Force Services 
Agency. In addition, we interviewed officials from LBB-Kaiserslautern, 
AAFES, and the U.S. Army Corps of Engineers (USACE). We also obtained 
and reviewed project plans, cost estimates, and other relevant 
documents related to the design and construction of the KMCC. We 
physically inspected the KMCC and viewed the current status of the 
project. Our audit work was performed between May and June 2007 in 
accordance with generally accepted government auditing standards. 


The KMCC project has encountered cost, schedule, and performance 
problems. Factors contributing to problems facing the KMCC include 
construction flaws, vandalism of property, contractor work stoppages 
and slowdowns resulting from delays in payments, and an ongoing fraud 
investigation. Originally scheduled to be completed over a year ago, 
continuing KMCC construction and financing problems are likely to delay 
its completion. In fact, problems are so severe that neither officials 
from LBB-Kaiserslautern nor the Air Force can now forecast the 
completion date of the project. Original cost estimates for the project 
totaled approximately $150 million. However current cost estimates 
total approximately $200 million and will likely increase in the 
future. Cost increases have been compounded because of the significant 
appreciation of the euro versus the U.S. dollar since inception of the 
project. The KMCC is also experiencing numerous performance problems 
resulting from design flaws, ineffective construction management, and 
substandard workmanship. For example, the KMCC's multimillion dollar 
roof is experiencing water leaks, which according to Air Force 
officials will likely require its replacement at a cost of millions of 
dollars. In addition, the Air Force delayed payments to some 
contractors because contractor invoices were for contracts which had 
already reached their contract cost ceiling. Because of the delay in 
payments, contractors drastically decreased their workforce from 
several hundred workers per day to about 50. 

Finally, project management of both LBB-Kaiserslautern and the Air 
Force have experienced significant changes including: (1) replacement 
of LBB-Kaiserslautern project managers, (2) firing of LBB- 
Kaiserslautern's construction management contractor, and (3) 
resignation of a senior Air Force civilian working on the project. In 
addition, several Air Force and LBB-Kaiserslautern personnel involved 
in the management of the KMCC are currently under investigation by Air 
Force Office of Special Investigations (AFOSI) and German police. 

The causes for the current problems facing the KMCC stem from risks 
associated with overseas construction, failures by LBB-Kaiserslautern 
to effectively perform its construction management duties, and failures 
by the Air Force to institute effective controls to mitigate project 
risks. Overseas construction projects pose additional risk due to 
differences in languages, laws, construction standards, and currency 
fluctuations when costs are denominated in the host country's currency. 
Almost all U.S. military construction in Germany must be done within 
the framework of ABG-75. ABG-75 largely gives the German government 
contracting agency control over projects and contractors while 
financial risks are borne by, in this case, the Air Force and its 
funding partners. ABG-75 generally gives the German government the 
authority to contract and manage construction of most U.S. facilities 
in Germany through what is called indirect contracting.[Footnote 4] In 
addition, ABG-75 requires the U.S. government to pay the German 
government construction agency a percentage fee based on the cost of 
the contract.[Footnote 5] As a result, German government construction 
agencies do not have an incentive to control costs because each dollar 
increase in the project costs results in increased fees for the German 
government construction agents.[Footnote 6] 

In addition, LBB-Kaiserslautern did not effectively manage the KMCC 
project. The failures included LBB-Kaiserslautern's inability to 
maintain and implement a valid, updated construction schedule and to 
effectively coordinate work between multiple contractors. LBB- 
Kaiserslautern, and its architect-engineer contractor JSK, also did not 
adequately design the project prior to construction. Because of the 
poor design, Air Force officials estimate that millions of dollars of 
changes and rework were necessary as of June 2007. For example, the Air 
Force noted in the design review phase that KMCC's kitchen exhaust 
ducts as designed did not meet U.S. fire safety standards. However, 
because the Air Force design comment was not incorporated by LBB- 
Kaiserslautern, hundreds of thousands of dollars of rework on the 
KMCC's exhaust ducts will be necessary. In addition, LBB-Kaiserslautern 
acknowledged that it was vastly understaffed to effectively manage a 
project the size of the KMCC. This understaffing resulted in LBB- 
Kaiserslautern being unable to process the large number of change 
orders that arose from the project. According to Air Force officials, 
this resulted in work related to more than 400 contract changes being 
billed to the Air Force without supporting documentation.[Footnote 7] 

Despite the high risks surrounding the KMCC, Air Force officials failed 
to institute effective management oversight and controls in order to 
mitigate the high risk from the project. Had LBB-Kaiserslautern done an 
effective job of managing the project, the lack of Air Force controls 
would have been mitigated. Unfortunately, as stated above, LBB- 
Kaiserslautern did not manage the project effectively and therefore 
increased the importance of effective Air Force controls. Normally the 
Air Force hires USACE to oversee projects in Germany to provide 
assurance that construction, procurement, and financial controls are in 
place and U.S. interests are protected. However, for the KMCC, the Air 
Force elected not to use USACE,[Footnote 8] and subsequently did not 
institute sufficient controls of their own to mitigate the project 
risks. The Air Force did not have sufficient staffing to oversee the 
project, given its complexity. According to Air Force officials, they 
initially had about 8 personnel on the project but have recently 
increased staff to 17 personnel. However, the Air Force still does not 
have experts, such as contracting officers or certifying officials, on- 
site to provide assurance that all requirements of the contract are 
met. As a result, the Air Force did not properly review many invoices 
prior to payment--tasks that a contracting officer or certifying 
official would be expected to perform. In addition, because of internal 
demands to complete the project on an expedited basis to accommodate 
needs rising from the closure of Rhein Main Air Base, the Air Force 
instituted processes that circumvent its main controls for monitoring 
costs associated with the project. Although ABG-75 allows all U.S. 
forces the right to reject invoices for which the contract or change 
order were not previously approved, Air Force project management 
instructed its staff to approve invoices that included items listed on 
certain change orders that had not been submitted to or approved by the 
Air Force. In addition, the Air Force instructed its staff to approve 
invoices where quantity limitations specified in the contracts were 
exceeded as long as LBB-Kaiserslautern provided a form letter stating 
the price was fair and the work was necessary. Therefore, despite risks 
associated with the KMCC, the Air Force elected to reduce controls 
instead of increasing their oversight of the project. 

Cost increases and schedule delays will most significantly affect AAFES 
and the Air Force Services Agency, the primary funding sources for the 
project. For example, according to an AAFES official, recent estimates 
by AAFES, the largest contributor to the KMCC, forecast its portion of 
the total KMCC cost will end up doubling its original cost estimate. As 
a result, the reduction in AAFES return on investment from the KMCC 
caused by escalating costs may reduce profits and thus may diminish 
future funding of morale, welfare, and recreational activities for U.S. 
service members. In addition, as a result of the higher KMCC costs, 
AAFES and the Air Force Services Agency are also likely to have less 
funding for their other planned capital projects, such as the 
construction or renovation of their stores. Also, because of the delay 
in the completion of the visiting quarters portion of the KMCC, which 
was needed to accommodate the additional quarters requirements arising 
from the closure of Rhein Main Air Base, service members in transit to 
and from other locations, such as Iraq and Afghanistan, may also be 
forced to stay off-base, at additional cost to the government. Finally, 
Air Force officials estimate there is at least $400 million in 
additional operations and maintenance projects and military 
construction projects planned in Germany over the next 5 fiscal years. 
Absent better Air Force controls, these projects may experience the 
same types of heightened risks associated with KMCC. 

KMCC Currently Experiencing Substantial Cost, Schedule, and Performance 

The KMCC currently faces significant cost, schedule, and performance 
problems, and it is unclear as to when the project will be completed 
and at what cost. Despite being originally scheduled to open in early 
2006, neither LBB-Kaiserslautern nor the Air Force can estimate a 
completion date for the project because of the widespread construction 
management problems. In addition, estimated costs associated with the 
KMCC have already exceeded original estimates and will continue to 
grow. LBB-Kaiserslautern mismanagement has caused numerous problems 
with the KMCC. Examples include poor designs, substandard workmanship 
on key building components, and a significant reduction in the number 
of workers on-site. Furthermore, there may be fraud within the project, 
which is supported by the fact that there are ongoing criminal and 
civil investigations by AFOSI and German police. 

The latest official design schedule completed by LBB-Kaiserslautern and 
provided to the Air Force in September 2006 indicated that the KMCC 
would be completed by April 2007. However, during our visit to the KMCC 
in May 2007, LBB-Kaiserslautern and Air Force officials stated that key 
milestone dates from the most recent design schedule had obviously 
slipped. In fact, neither LBB-Kaiserslautern nor Air Force officials 
could provide a new estimated project completion date during our audit 
of the project. Also, both LBB-Kaiserslautern and the Air Force 
provided us current cost estimates of about $200 million, which have 
already exceeded the original estimate of about $150 million. We found 
that these cost estimates did not include substantial costs related to 
the expected roof repair and replacement discussed later, as well as 
hindrance claims associated with the project.[Footnote 9] Furthermore, 
the Air Force contract with LBB-Kaiserslautern is denominated in euros 
and therefore the U.S. cost equivalent varies with the exchange rate. 
For example, the original cost estimate of about $150 million was 
developed in 2003 when 1 dollar was able to purchase significantly more 
in euros than 1 dollar can currently purchase. Figure 1 below shows the 
trend in the strengthening of the euro against the U.S. dollar over the 
past several years. 

Figure 1: Currency Exchange Rates for Euros since 2003: 

[See PDF for image] 

Source: Federal Reserve. 

[End of figure] 

The schedule delays associated with the KMCC have compounded cost 
problems because of the appreciation of the euro versus the U.S. 
dollar. Given the substantial costs associated with repairs to the 
roof, schedule delays, and potential hindrance claims by contractors, 
assuming currency rates remain higher than they were for the original 
project budget, the appreciation of euros versus the U.S. dollar 
compounds the effect of cost overruns on this project. 

Since the start of construction in 2003, the KMCC has experienced 
numerous problems including poor design, substandard workmanship, poor 
coordination of the different contractors, and a reduction of workers 
on the site. Some of the more notable problems associated with this 
project include the following: 

* Roof: The roof is experiencing water leaks causing considerable 
damage to the walls and the floors of the complex. According to Air 
Force officials, since the contractor responsible for roof construction 
went bankrupt, KMCC funding sources from the United States (AAFES, Air 
Force Services Agency, and Military Construction funds) will likely be 
used to pay the estimated millions of dollars in costs required to 
repair or replace the entire roof along with any internal damage. 
Figure 2 shows some damage in the KMCC resulting from the leak in its 

Figure 2: KMCC Damage from Leaks in Roof: 

[See PDF for image] 

Source: USAFE. 

[End of figure] 

* Exhaust ducts: The kitchen exhaust ducts installed in the KMCC do not 
comply with fire code standards established by the National Fire 
Protection Association.[Footnote 10] According to Air Force officials, 
it will take several months to make the exhaust ducts compliant with 
the fire codes at a cost of hundreds of thousands of dollars. 

* Bathroom faucets: Design plans called for some of the bathroom 
faucets in the KMCC to be automatic where water would turn on when a 
motion sensor indicated the presence of a person. However faucets and 
walls were installed prior to the electrical contractor installing 
wires needed to power the automated faucets. 

* Vandalism: In April 2006, vandalism occurred in over 200 rooms inside 
the KMCC. The cost to repair damage caused by the vandalism is 
estimated to be over $1 million. To make matters worse, as shown in 
figure 3, due to poor project coordination, a German contractor 
installed light fixtures on top of the vandalized walls. These lights 
will need to be removed to enable wall repairs to be made and then 

Figure 3: Light Fixture Installed on Top of Vandalized Wall: 

[See PDF for image] 

Source: USAFE. 

[End of figure] 

* Reduction of construction workers: In the past several months, the 
KMCC has faced a drastic reduction of the number of workers on-site. 
LBB-Kaiserslautern officials attributed this decrease to slow payment 
for services and reduced payment amounts from the Air Force due to 
increased scrutiny of invoices by the Air Force. The Air Force has 
delayed the payments to certain contractors because the total amount of 
charges billed to the Air Force has already risen to the contract cost 
ceiling for the specific contractor. Therefore, the Air Force has been 
unable to pay those contractors for work performed without a contract 
change order to increase the contract ceiling. As a result, many of the 
contractors either reduced the number of workers or have quit working 
altogether on the project. Prior to September 2006, the number of 
workers on the site was normally several hundred. Currently, the number 
of workers on the site is routinely less than 50. 

In addition to the construction problems faced by the KMCC, there have 
been a number of personnel who have been removed or have resigned from 
the project. In the past year, project management officials from LBB- 
Kaiserslautern have been replaced. Also, JSK, the firm hired by LBB- 
Kaiserslautern to manage the KMCC, was fired. Finally, a senior Air 
Force civilian in charge of the project resigned from the position and 
left the Air Force in 2006. On top of those personnel changes, both the 
AFOSI and the German Police have ongoing investigations into the 
project. The investigations span a variety of issues, both criminal and 
civil, including the investigations of Air Force project management 
officials as well as German government officials. In the past year, 
both Air Force and LBB-Kaiserslautern offices have been searched and 
documentation seized by both AFOSI and German police in relation to 
these investigations. 

KMCC Problems Caused by Overseas Construction Risks, LBB-Kaiserslautern 
Management Deficiencies, and Lack of Air Force Controls: 

Current problems facing the KMCC have been caused by the additional 
risks associated with overseas construction, project management 
deficiencies by LBB-Kaiserslautern, and the Air Force's lack of 
effective controls to mitigate project risks. Guidelines set forth in 
ABG-75 add risk to the contract management process for U.S. forces 
construction in Germany. In addition, during the design and 
construction of the KMCC, the German government construction agent, LBB-
Kaiserslautern, did not effectively carry out its project design and 
construction management duties. Finally, the Air Force failed to 
recognize risks associated with the KMCC and develop control procedures 
to minimize project risks. Because the most significant control that 
the United States can exercise over construction projects in Germany is 
financial control, the Air Force should have increased the project 
oversight controls to identify any invalid, unsupported, or inaccurate 
costs before money was spent. Instead, the Air Force did not have basic 
oversight and in some cases has circumvented controls in order to 
expedite payments. 

Overseas Construction Risks: 

The KMCC presented increased risk from the beginning because U.S. 
forces are not in direct control of construction projects in Germany. 
Under the terms of ABG-75, most U.S. military construction projects are 
required to be executed by German government construction agencies, in 
this case LBB-Kaiserslautern, in accordance with German laws. This 
includes all contractual authority for design, bid tender and award, 
project execution, construction supervision, and inspection for all 
military projects within Germany. As such, the German government 
construction agency contracts directly with the design and construction 
companies responsible for a given project. As a result, the United 
States is required to work through this indirect contracting method, 
and does not have any direct legal relationship with the contractors 
for construction projects that are to be built on their behalf. 

According to Air Force officials, because ABG-75 gives the German 
government such broad powers in the construction of military projects, 
the United States has limited influence on how construction projects 
are built. For example, Air Force officials stated that they were 
initially resistant to use a trade lots[Footnote 11] acquisition 
strategy for the construction of the KMCC because of the complexity 
involved with coordinating and managing the contractors associated with 
this strategy. Air Force officials stated that they relented to German 
government demands for trade lots after it was pointed out that the 
method of contracting was clearly within the German government's 
prerogative under ABG-75. ABG-75 stipulates that the U.S. government 
pay German government construction agencies (e.g., LBB-Kaiserslautern) 
between 5 and 7 percent of the project cost for administering the 
contract regardless of the total project costs with no incentives for 
early completion. As a result, no incentive exists to minimize costs or 
encourage early completion. 

Despite additional risks associated with ABG-75, U.S. forces do have 
some leverage in managing construction projects in Germany. 
Specifically, under ABG-75, the United States is granted the authority 
to approve designs and provide prior consent to any modifications to 
the construction contract (also known as "change orders") that affect 
the scope, quality, or cost of the project. Any excess costs must be 
approved in advance by U.S. forces, and the forces are not liable for 
costs proved to be the fault of German officials or contractors. Thus, 
U.S. forces do have the "power of the purse" which can be used to pay 
only for costs within the scope of the contract. According to Air Force 
officials, the Air Force has the ability to cut off funding for its 
projects. However, since the projects are needed for base operations, 
such a step would only be used as a last resort. 

Finally, general risks associated with overseas construction projects 
add to an already risky situation. Increased complexities of overseas 
projects include differences in languages, culture, construction laws, 
safety regulations, and exposure to changes in currency exchange rates. 
Changes in currency exchange rates can pose a significant risk when 
project costs must be paid in the host country's currency, especially 
when projects take substantially longer to complete than originally 
planned. Despite risks associated with overseas construction, the Air 
Force did not institute sufficient controls to manage the project. 

LBB-Kaiserslautern Did Not Effectively Perform Required Duties for the 

During the design and construction of the KMCC, LBB-Kaiserslautern did 
not effectively carry out its project design and construction 
management duties. LBB-Kaiserslautern's deficiencies in these areas 
have contributed to additional costs, schedule delays, and increased 
financial risk to the U.S. government for the KMCC project. 

Flawed Project Design and Implementation: 

The design of the KMCC was inadequate and resulted in numerous 
instances of rework costing millions of dollars to fix. LBB- 
Kaiserslautern hired an architect-engineer firm, JSK, to draft plans 
for the KMCC, and subsequently contracted with JSK to be the 
construction manager. According to Air Force and AAFES officials, 
numerous design flaws were identified by the Air Force in the initial 
design review of the KMCC and were communicated to both LBB- 
Kaiserslautern and JSK. However, according to these U.S. officials, 
neither LBB-Kaiserslautern nor JSK incorporated many of their comments 
into the final design, which later resulted in additional work and 
costs. Air Force officials stated that, as of June 2007, they have 
identified millions of dollars of additional work required because of 
identifiable design flaws, which the Air Force plans to pay for in 
order to keep construction work moving forward. 

The following are some examples of design and construction flaws for 
the KMCC project: 

* Exhaust ducts: During review of the initial KMCC design, Air Force 
identified and commented to LBB-Kaiserslautern and JSK that the exhaust 
ducts used in the restaurant kitchens did not meet U.S. fire safety 
standards. However, LBB-Kaiserslautern and JSK failed to ensure the 
change was addressed by contractors responsible for duct construction. 
As a result, the exhaust ducts installed at the KMCC were not compliant 
with U.S. fire safety standards. In addition, when we toured the KMCC, 
an Air Force official showed us the material used to seal the exhaust 
ducts. According to the official, this material was flammable and, as 
such, posed a safety risk when hot gasses are vented through the 
exhaust ducts. Because of the poor design of the exhaust ducts, the Air 
Force has recently approved a change order for hundreds of thousands of 
dollars to fix the problem. Figure 4 below is a picture of the 
flammable sealant used in the kitchen exhaust ducts. 

Figure 4: Flammable Sealant Inappropriately Used in Kitchen Exhaust 

[See PDF for image] 

Source: USAFE. 

[End of figure] 

* Retail space ceiling: The design of the ceiling in the AAFES retail 
area was not adequate to support light fixtures. The design detailed an 
open-grid suspended ceiling (not fitted with tiles) with light fixtures 
fitted into some of the openings. However, during installation, workers 
discovered that the ceiling grid was not strong enough to support the 
light fixtures. Ceiling tiles stabilize the grid to keep it from 
shifting, so omitting the tiles weakened the grid to the point where 
the light fixtures could not be supported. As a result of this design 
error, a contract change was necessary in order to provide additional 
steel supports for the ceiling grid. 

* Escalator/escalator pit: Poor design and construction coordination 
caused problems with installation of the building's escalator. The 
escalator pit was initially built as part of the contract to construct 
the building's concrete floor. A subsequent contract was issued for 
installation of the escalator itself. However, the contract 
specifications for the escalator installation did not sufficiently 
detail the size and location of the escalator pit, and the escalator 
provided by the contractor did not fit in the previously-built pit. As 
a result, rework was necessary to build a new pit in the proper 

Ineffective Project Management: 

LBB-Kaiserslautern did not effectively manage the KMCC project. Instead 
of using a general contractor who would be contractually responsible to 
build the project, LBB-Kaiserslautern attempted to execute the project 
by managing more than 30 separate trade lot contracts by itself. Each 
trade lot contractor was only responsible for its section of work, and 
no one party, other than LBB-Kaiserslautern, was responsible for the 
overall completion of the project. In addition, the LBB- 
Kaiserslautern's decision to use trade lot contracts also meant that 
LBB-Kaiserslautern would be required to properly coordinate the effort 
of all the contractors, adequately staff the project, and appropriately 
monitor construction schedule and costs, so that work could progress. 
As described below, LBB-Kaiserslautern did not carry out its 
requirements in the following areas: 

* Poor project coordination: LBB-Kaiserslautern did not effectively 
coordinate the work of the more than 30 construction contractors on- 
site. This resulted in inefficiencies in construction as well as damage 
to finished work. For example, one contractor responsible for 
installing a tile floor was forced to delay work while the contractor 
responsible for installing the ceiling finished work over the area 
where the floor was to be installed. In another case, the contractor 
responsible for laying the paving stones outside the building was 
allowed to finish its work before major exterior construction was 
completed. This resulted in damage to the paving stones when heavy 
cranes were subsequently used on top of the stones to install exterior 
bracing to the building. 

* Inadequate staffing: In our interviews, LBB-Kaiserslautern officials 
told us that their office was understaffed. LBB-Kaiserslautern 
officials stated that this lack of staffing hindered LBB- 
Kaiserslautern's ability to provide assurance that the project design 
was adequate and improve contractor coordination discussed previously. 
In part, as a result of the above listed design and coordination 
problems, numerous contract change orders were necessary. Again, the 
lack of staffing hindered LBB-Kaiserslautern's ability to process 
necessary change orders as required by ABG-75.[Footnote 12] According 
to Air Force officials, there are hundreds of change orders that LBB- 
Kaiserslautern has approved, yet has not submitted documentation to the 
United States for approval. Many of these change orders also had 
corresponding invoices submitted and certified by LBB-Kaiserslautern 
that the Air Force subsequently paid. LBB-Kaiserslautern was only able 
to provide us a listing of the change orders involved. This was far 
less than the detailed specifications required for review by the Air 
Force prior to the approval of the change and payment. 

Air Force officials also stated that this failure to process change 
orders was a major problem because this processing serves as the basis 
for increasing the obligation authority for the contract. In addition, 
LBB-Kaiserslautern officials stated they had approved the work for most 
of these change orders and thus the contractors performed the work and 
were expecting payment. According to Air Force officials, in some cases 
when the Air Force refused to make payment on the unapproved changes, 
contractors halted work and sent notices to the LBB-Kaiserslautern that 
they would be liable for any costs associated with delays in payment. 
In many cases, the Air Force chose to reduce controls and make payments 
on these items despite not having appropriate change order documents in 
an attempt to keep the work on the project progressing. 

The lack of staff also hindered LBB-Kaiserslautern's ability to 
sufficiently monitor the quality of the contractors work. For example, 
as stated previously, the KMCC roof is leaking substantially because 
LBB-Kaiserslautern did not properly monitor the contractor's work. 
Because of this, the Air Force is facing potentially millions of 
dollars in additional costs to replace the poorly built roof. 

* Unreliable construction schedule and cost estimates: LBB- 
Kaiserslautern is responsible for providing the Air Force with up-to- 
date detailed construction schedules and cost estimates. According to 
Air Force officials, the latest official construction schedule provided 
by LBB-Kaiserslautern was in September 2006 and showed a completion 
date of March 2007 for the visiting quarters and April 2007 for the 
mall portion of the KMCC. During our visit in May 2007, LBB- 
Kaiserslautern officials stated that they do not have a current 
construction schedule or completion date established for the project. 
Despite the lack of an estimated completion date, LBB-Kaiserslautern 
officials had developed an estimate of the total KMCC cost at 
completion. This estimate currently projects that costs will be higher 
than original estimates of approximately $150 million. According to LBB-
Kaiserslautern officials, this cost estimate does not include certain 
expected costs, which we consider significant. For example, as stated 
earlier, the roof on the facility is continually leaking and likely 
will need to be replaced. Air Force and AAFES officials estimate that 
the cost to replace the roof will be in the millions of dollars. In 
addition to roof estimates, there are additional costs associated with 
hindrance claims that were not included in the cost estimate. In fact, 
in May of 2007, LBB-Kaiserslautern officials stated they received a 
single claim for several million dollars, which has not been 
substantiated, from just one of the more than 30 contractors. Finally, 
LBB-Kaiserslautern cost estimates do not include adjustments for future 
cost increases on existing contracts. Although past experience on this 
project has shown that many of the contract amounts have increased due 
to change orders or quantity increases, LBB-Kaiserslautern did not 
include any estimates for these expected future increases. 

Air Force Did Not Appropriately Minimize Risks: 

The Air Force did not incorporate sufficient controls to minimize the 
significant project risks involved with the KMCC. Control deficiencies 
included inadequate staffing, poor policies, and a lack of effective 
control processes in place. By not utilizing controls that were 
available to them through the ABG-75 agreement, the Air Force has given 
up any leverage it had on keeping project costs within budget. These 
control weaknesses contributed to schedule and performance problems 
without a sufficient reaction from the Air Force. In addition, after 
problems were identified, the Air Force did not take appropriate 
corrective actions. 

Air Force Lacked Necessary Staffing and Expertise for Adequate 

Air Force officials did not have adequate staff with appropriate 
expertise needed to oversee the KMCC. In 2002, the Air Force elected 
not to use the USACE as the servicing agent for the KMCC project. 
According to the Air Force officials, they were not required to use the 
USACE on this project because only a small percentage of the KMCC funds 
were based on appropriated military construction funding. However, in 
foregoing USACE oversight, the Air Force did not establish adequate 
staffing or contracting and construction management expertise needed 
for a project as complex as the KMCC. According to Air Force officials, 
at the inception of the project, there were approximately eight full 
time personnel assigned to the KMCC from the Air Force. In addition, 
the limited number of Air Force staff did not have adequate expertise 
in the areas of contracting or construction management. As of May 2007, 
no contracting officers or certifying officials have been assigned to 
the KMCC. [Footnote 13] These experts are trained and certified to 
obligate and spend funds on behalf of the U.S. government and would 
typically be found in any military construction-funded 
project.[Footnote 14] 

As a result of the lack of staffing with adequate contracting and 
construction management expertise, many invoices came into the Air 
Force office, overwhelming the ability of the staff to adequately 
review invoices prior to payment. According to Air Force officials, no 
invoices were disputed prior to September 2006. However, after 
September 2006 when significant problems with the KMCC were recognized, 
some staffing improvements were made. For example, the Air Force 
increased the number of personnel to approximately 17 full time 
personnel currently on site, because it became apparent that they did 
not have sufficient personnel to conduct adequate reviews of invoices. 
Since the increase in staff, the Air Force has been able to review 
invoices more thoroughly, and according to Air Force officials, the 
percentage of recent invoices disputed increased to 75 percent. 

Air Force Policies and Control Procedures were Inadequate: 

The Air Force did not have adequate policies and control procedures in 
place for the management of the KMCC. At the beginning of the project, 
project management officers lacked a standard operating procedure to 
follow. According to Air Force officials, the only written process in 
place was a simple one-page process flow chart to delineate how the 
entire process was supposed to work. Since the recognition of numerous 
problems associated with the KMCC, the Air Force has instituted 
additional control procedures, such as increased invoice reviews, but 
has not formalized those procedures into a written operating procedure. 

We were unable to determine if there were any specific procedures in 
place prior to September 2006. However, the project schedule slippage 
and lack of disputes of invoices by the Air Force indicates that the 
controls in place were not fully effective. When we asked the Air Force 
officials about control procedures in place prior to September 2006, 
several officials, who were working on the project during the time in 
question, stated they were unable to answer questions based on advice 
from their legal counsel. The same officials who declined to answer 
questions stated that the project was under investigation by AFOSI. In 
addition, a senior Air Force civilian on the project prior to September 
2006 had resigned and was therefore unable to answer questions. Without 
written procedures or explanations from Air Force staff, we could not 
determine what controls, if any, existed prior to September 2006. 

In September 2006, Air Force officials recognized that significant 
problems faced the project. One problem specifically recognized was 
that numerous payments were made on invoices for work that had been 
billed on the 400 contract changes, which lacked documentation and had 
not been previously approved by the Air Force. Upon this recognition, 
the Air Force attempted to institute controls going forward. For 
example, the Air Force instituted a closer review of invoices to 
identify items that were billed but were not approved by the United 
States through change orders. However, under pressure to keep the 
project moving forward to completion, the Air Force subsequently 
relinquished much of this control by expediting the payment of invoices 
upon receipt from LBB-Kaiserslautern including charges for unapproved 
work. Examples of the relaxing of these controls include: 

* paying invoices submitted after September 2006 on work billed to the 
Air Force related to the 400 contract changes which had not been 
submitted by LBB-Kaiserslautern, and: 

* approving invoices even though the line item quantities greatly 
exceed contracted amounts. 

The Air Force stated the decision to relax the controls was made so 
that construction proceeded as expeditiously as possible on the 
KMCC.[Footnote 15] Despite the removal of these controls, the number of 
workers on-site has still decreased significantly. In addition, Air 
Force officials stated that they viewed these payments on unapproved 
work as "partial payments" of expenses, and that any disputes in 
payments could be recouped upon project completion. However, we have 
reported in the past that such "pay and chase" strategies are not 
effective and increase risks substantially to recover the unapproved 
amounts. The Air Force was unable to provide any examples were the 
United States had successfully recouped overpayments in German courts. 

KMCC Problems May Adversely Affect Military Members and Future 
Construction Projects: 

The substantial schedule and cost overruns of the KMCC may affect 
military personnel and have major implications for future projects in 
Germany. The effects of these cost increases are likely to be 
shouldered by our men and women in the military. AAFES, the largest 
financial contributor to the KMCC, has stated that cost overruns have 
reduced the return of investment (e.g., the amount of profit they plan 
to receive from the project). As a result, AAFES and Air Force Services 
Agency funding of morale, welfare, and recreational activities for U.S. 
military members may be reduced. In addition, the escalation in costs 
may also affect the ability of AAFES and the Air Force Services Agency 
to finance future capital projects from its nonappropriated funds. 
Further, because of the delay in the completion of the visiting 
quarters portion of the KMCC, service members on travel to other 
locations, including Iraq and Afghanistan, may have to stay off-base. 
In addition to the inconvenience that this places on service members, 
the Department of Defense--and thus taxpayers--must fund the additional 
cost of any required temporary lodging off-base, which the Air Force 
estimates to be approximately $10,000 per day or $300,000 per month. 

In addition to the effect on military members and their families, the 
current Air Force project management weaknesses may have implications 
for future Air Force construction in Germany. The Air Force planned 
construction within the Federal Republic of Germany for the next 5 
fiscal years totals more than $400 million. These construction projects 
include small operations and maintenance projects (such as school 
renovations and road repairs) and major military construction projects 
(such as a $50 million clinic and a $50 million base exchange and 
commissary). Absent better Air Force controls, these projects may 
experience the same types of heightened risks associated with KMCC. 

Concluding Comments: 

Although one of the major problems with KMCC related to ineffective 
project management by LBB-Kaiserslautern, the Air Force did not 
effectively institute oversight to mitigate the high-risk nature of the 
entire project. By the time the Air Force started making an attempt at 
oversight, the project was already several months past the original 
construction deadline of early 2006. With mounting problems including 
contractors walking off the job, the Air Force faces the dilemma of 
instituting controls far too late in the process and further extending 
the completion of the project versus paying whatever it costs to get 
the job done as quickly as possible. The likely substantial cost 
overruns and potential years of schedule slippage will negatively 
affect morale, welfare, and recreation programs for DOD service 
members, civilians, and their families for years. The Air Force needs 
to seriously consider substantial changes in oversight management 
capabilities for the hundreds of millions of dollars of planned 
construction projects planned in Germany over the next several years. 

Mr. Chairman and Members of the committee, this concludes our 
statement. We would be pleased to answer any questions that you or 
other members of the committee may have at this time. 

GAO Contacts: 

For further information about this testimony, please contact Gregory 
Kutz at (202) 512-7455 or or Terrell Dorn at (202) 512- 
6293 or Contacts points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 

[End of section] 

Appendix I: Scope and Methodology: 

To assess the current problems facing Kaiserslautern Military Community 
Center (KMCC), we interviewed agency officials from the Air Force at 
Ramstein Air Force Base in Germany. We physically inspected the KMCC 
facility with an Air Force project manager and documented construction 
problems. We also reviewed financial records and statements in the form 
of contracts, change orders, and invoices to the extent that they were 

To examine the effect the Auftragsbaugrundsaetze 1975 (ABG-75) had on 
the management of the KMCC project, we reviewed the ABG-75 agreement, 
which outlines construction requirements for U.S. forces stationed in 
Germany. In addition, we conducted interviews with officials from the 
Air Force, Landesbetrieb Liegenschafts-und Baubetreuung (LBB) the 
German government construction agency, and the U.S. Army Corps of 

In order to determine the management weaknesses of LBB and the Air 
Force, we interviewed officials from both organizations, conducted 
interviews with other organizations affected by the KMCC project 
including the Air Force Office of Special Investigations (AFOSI), Air 
Force Audit Agency, Air Force Services Agency, and the Army and Air 
Force Exchange Service. We also reviewed applicable Department of 
Defense Financial Management Regulations as well as the National Fire 
Protection Association standards. 

To assess the effect that control weaknesses found in the KMCC project 
could have on future the Air Force projects in Germany, we obtained 
information from the Air Force on future construction plans in Germany. 
We also interviewed Air Force officials to determine what changes in 
processes had been made that would affect future construction projects. 

We performed our audit work from May 2007 through June 2007. Audit work 
was conducted in accordance with generally accepted government auditing 

[end of section] 



[1] AAFES is a joint military activity providing merchandise and 
services to active duty, guard and reserve members, military retirees, 
and their families. AAFES utilizes earnings to improve troops' quality 
of life and to support morale, welfare, and recreation programs. Air 
Force Services Agency provides combat support and community service 
programs that enhance the quality of life for Air Force members and 
their families. Air Force Service Agency programs include lodging, 
youth programs, and sports and fitness programs 

[2] The closure of the Rhein Main Air base is part of the Rhein Main 
Transition Program where the United States and Germany agreed to return 
the base to Germany. In return, Germany allowed the relocation of the 
base's key airlift capability to Ramstein and Spangdahlem Air Bases. As 
part of the agreement, the Federal Republic of Germany, federal states 
of Rheinland-Palatinate and Hessen, city of Frankfurt, and Fraport AG 
Frankfurt Airport Services Worldwide agreed to provide funds to upgrade 
the facilities at Ramstein and Spangdahlem Air Bases, including about 
14 million euros for KMCC. 

[3] According to a USAFE official, for KMMC, green roof refers to an 
environmentally engineered roof whereby soil and vegetation are placed 
on the roof of a structure in order to provide a reduction in energy 
costs, reduce water runoff, and offset the forest area cleared for a 

[4] According to ABG-75, indirect contracting means the planning, 
execution, and administration of construction works are performed by 
the German government on behalf of the U.S. forces. 

[5] Thus, the total cost for the KMCC is the cost of the contracts that 
the German government construction agent negotiated with contractors 
for constructing the building plus the fee for the German government 
construction agent. 

[6] LBB-Kaiserslautern for the KMCC is reimbursed 5.6 percent of the 
total cost of the project as its fee for managing the construction on 
behalf of the U.S. forces. 

[7] The 400 contract changes refer to changes in the project that were 
approved by LBB-Kaiserslautern, but have not been submitted to the Air 
Force. The extent of documentation provided to the Air Force justifying 
the need for the changes has been limited to a one-line description. 
Although requested, LBB-Kaiserslautern did not provide any additional 
documentation to us to substantiate the existence or justification for 
these changes. 

[8] Air Force officials stated that they did not use USACE because of 
the limited amount of military construction funds associated with the 
KMCC project and additional costs associated with using USACE. 

[9] Hindrance claims refer to claims against the United States for 
additional costs contractors incurred due to interruption of contractor 

[10] National Fire Protection Association 96: Standards for Ventilation 
Control and Fire Protection of Commercial Cooking Operations. 

[11] The use of trade lot contracts refers to the practice of 
contracting directly with individual companies for specific sections of 
work on a larger project instead of contracting with one general 
contractor who then subcontracts out the specific tasks. 

[12] During normal construction work done under the ABG-75 agreement, 
contractors perform work as specified in the original contract. When 
changes to the original contract are necessary, U.S. forces are to be 
given advance notice of any change and must give their approval before 
work can begin. This notice and approval process would be accomplished 
by LBB-Kaiserslautern through development of a contract change order 
document which specifies the details of the change, cost, and other 
related information. Once documents are approved by the U.S. forces, 
work can be initiated. 

[13] For example, a German national employed by the Air Force has been 
obligating and expensing millions of dollars spent on the KMCC. This 
official is neither a contracting officer nor a certifying official but 
rather what the Air Force calls their ABG-75 specialist. 

[14] According to a USACE official, the USACE makes it a standard 
practice to have a contracting officer involved in all of their 

[15] The Air Force continues to look for ways to relax controls to 
expedite payment. For example, the Air Force is studying whether to 
approve change orders based on contractor's initial offer instead of 
negotiated amount, as is typically required.

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