i was unaware until we were preparing for this hearing last week that dcma felt that there have to be explicit requirement in the contract clause 40 withhold. or we would have pursued a regulatory or statutory change because i have seen it done in a number of other instances, not in the logcap contractors, but others. especially small to medium companies. i see it happen when there is an adequate systems. . . considered

acceptable or adequate. the other internal control systems relative to accounting that would have that, that is the disconnect between the seven i connected, the focus contract to the business systems, i went through the regulation and pull out those systems that are supported by the contract clause. it is not that i didn't want silly recipes but it is difficult when the criteria and standards in the audit manual, not in the contract, which i believe would be an improvement and if we did mandate these expressly in the contract -- >> thank you.

>> for -- >> thank you. let me take you off the hook for a moment. you may want to comment on this later, but for you, do you think it is realistic to have the current standards for business systems apply in a contingency environment, and are they practical in the real world? do non contingency contractors meet the business more readily than contingency contractors? >> we recognize in the early stages of a contingency environment, there are situations when contractors need to be brought on to deliver goods and services when business systems may not have been audited or those that were audited may have significantly changed because of the contingency. we recognize that and we recognize that there is a need to get the goods and services in

absence of having an audited system. we recommend inadequacies be handled through other incentives throughout the process. the issue becomes how long does the contingency operation last? we are six years into this war. is that reasonable period to say that we are in a contingency environment when it comes to accounting system, billing system? i would say not. if the hurricane hit the gulf coast, there are contact is going in and putting new roofs the next day, yes, i would say we have to do this in that case. >> any comment? >> i believe that the availability of subcontractors makes it more difficult. three people got killed over the weekend. i believe it is different. >> mr. parsons, we have got

indications that certain historical records, project files, data, etc. may not have been passed on to the new contractor. when transition planning was accomplished by the army, what steps were taken to ensure that the transition of people and data, who were made efficiently and effectively, the successful contractor? >> i will have to get back to you on the exact details but i do know the transition plans were proposed, were evaluated by the program office including our offices in afghanistan, they were reviewed to see if they

were adequate and there was oversight provided during the transition peace by the office. you probably had that discussion with the details. probably much more than we had thought of originally which is incorporated into the afghanistan question. i am sure that will happen as we go to iraq. >> there are some things that have fallen through the cracks in the oversight of that. last question, let me direct it to director stevenson, since you were the only one who seemed willing to support the proposal for and oversight group for at least consider that. if we were ultimately to make some sort of recommendation that

a higher level oversight group be established to deal and resolve the differences between these two organizations, how would you propose the makeup of that group? >> my initial thought is it should be at the undersecretary level, perhaps the undersecretary with the controller, that is one possibility but i am sure there are other possibilities if we give it some additional consideration but that would be my initial thought. >> there is supposed to be a deputy chief management officer. would you see that individual as perhaps doing the job commissioner green is talking about? >> i am willing to try anything. if that is what the department would like i will try it and we will see if it works. than i am willing to try something else to see if it

works. >> thank you very much. >> thank you, commissioner green. you have been in the hot seat more than the others. it has been quiet for you today. you have been on the side that seems to connect more with the commissioners of here. i just want to say, you are known to be one of the most knowledgeable people in contrasting. you are extraordinarily hard-working and you are a very good american and we appreciate your service. we would like to see things change a bit. sometimes when you go down a route you feel you have to stick with it. we would like you to think anew and act anew. i would just end by saying you're going to be look at the issue of adequate and

inadequate. the second issue, we think it is dysfunctional way the system is working. no disrespect to you, there needs to be more adjustment. it is not a disrespect to any of you, but it is fairly clear. your teams, going from 102 down to 14, it is the logical given that more than half of the folks in the battlefield where the battle arena are contractors, so we are going to ask you to look at that. with this whole issue of withholding money, not paying what ever, we think you can do it now. you boxed yourself where you need more authority but that needs to be resolved as well.

we are going to ask the folks that oversee you to take note of this hearing, we are going to come back in 60 days to see what has changed and we think it is not rocket science to change this. then we are going to all feel like we are headed in a much better direction because we started this hearing saying the system is bad, getting worse and we want it the other way around. i want to thank all of you for being here, we're going to take a 30 minute recess the we know you are great americans, you are working hard and we appreciate your love of your country and the hard work you put into it for our fighting men and women. we will be recessing for 30 minutes. i am willing to see how we can communicate at the commission. okay, the other panel called at once, we will have 50.

thank you very much, commissioner. we can work together up here too. >> the panel is taking a break for lunch. when they return we will resume our live coverage on wartime contract in on c-span2. [inaudible conversations]

>> eunice kennedy shriver, founder of the special olympics and president john f. kennedy's sister, died today. she was 88. here is a tribute to her from november of 2007 held at the john f. kennedy presidential library in boston. speakers included her brother, senator ted kennedy and her daughter, maria shriver, wife of california governor arnold schwarzenegger. this runs a little over an hour. [applause]

>> welcome, everyone. very special welcome to our guest of honor, eunice kennedy shriver, senator edward kennedy, and ambassador jean kennedy smith, joe kennedy and death. my role this evening is to provide some introductions, and i am pleased to have tom putnam, director of the kennedy library,

john and tom daly lead our staff, such a great job, makes the board of directors so proud, members of the board here, we thank them for being here and for their wisdom and support through the years. this library, as an educational institution, enjoys its reputation because of the forum series and distinguished visitors series that take place here. those could not be accomplished without the support of some generous sponsors who are among boston's outstanding corporate citizens. i want to acknowledge them. the lead form of our series, the bank of america, ably represented by a member of our board. and the boston capital institute, the boston foundation, those who draw

attention to these forums, our media sponsors. we thank them, the boston globe which broadcasts the kennedy library forums on sunday evenings, and cable news. i would like you to join me in thanking them for doing such a great job in support of our series. [applause] we have a special privilege to sit in on a conversation as if we receding around the shriver dinner table. what we build here this evening, i hope, are eunice's children's perspective on her contributions to public life, to the lives of millions across the globe and to their own lives as well. to help facilitate that conversation, we are delighted to have professor mary and the london with us at the harvard

law school. her legal scholarship in the area of human rights and comparative international law and bioethics received international recognition. she is a member of president bush's council on biosaffixed and received a 2005 national humanities metal. she was appointed to the pontifical academy of social sciences by pope john ii and presently serves as its president. thank you for being here, we welcome you. [applause] auld later on in the program, you folks will have an opportunity to participate in the conversation as well by questions or comments you may wish to write on the cards which are at your places, staff will pick them up during the course of the program and submit them to mary ann and she was elected

representatives, questions to be addressed to our distinguished group on the stage. it is said that the purpose of life is a life of purpose. for all the world, i mean that literally, that lesson is best embodied in the inspirational examples of sargent and eunice shriver. for those who were blessed by their children, it is not surprising that our special guests and their brother, tim, are doing what they're still doing with their young lives. bobby shriver, a public servant, elected officials, former mayor, city councilman, santa monica, calif. advocate for the homeless, convene of talent and artists, to approve world society, creative founder, and

his partner donates a portion of known brand products purposely marketed and read to fight aids in africa. the lives of thousands in a large department. maria shriver, award winning tv journalist and producer, author of five best-selling books which educate and inspire and change the lives of those struggling with life's issues and looking for examples of the values to guide them to a better place. first lady of california unifying capitalist for so many important issues in that state, rebound and honored by all of us here. tim shriver took his talent and his heart to see schools where he taught, mentored and change the lives of countless school kids for 15 years before taking on the role of the special olympics, whose international

reach and impact he enhances every day. tim and linda are parents at yale with their son, tim, at this important time for him. mark shriver, public servants, former delegate to the state assembly, first chairman of the joint committee on children, youth and families, founder of the choice program, changing the lives of at risk kids from counseling and job-training services, presently vice president and managing director of the non-profit save the children, directing nutrition and literacy programs for children living in rural and impoverished communities across the country. anthony shriver, founder and president of best buddies international, a nonprofit which he began in his dorm room at georgetown and develop to change the lives of more than a quarter million intellectually disabled individuals around the globe through volunteer mentoring, buddies and services, transitioning these individuals from institutions of isolation

to productive lives in the community at large. if you are ever honest, what is a one word definition for an inspirational agent of positive change? the answer is, it is a shriver. this generation is just getting started. let's hear it for the work that they are doing. [applause] some months ago, we had a memorable event here in which we paid tribute to one of my favorite human beings, sargent shriver. his career speaks volumes about the importance of unselfish service to a life of purpose. for most mortals, the vision, the genius, the tenacity, the

love that units contributed to the global success of the special olympics would be nothing less than the achievement of an impossible dream. but it is only a part of the u.s. kennedy shriver story. as we did that, i thought it might be instructive to put u.s.'s incredible career of service in a more complete perspective. taking a complete walk down biography lane. here's how that story unfolds, graduated manhattan college, deployed in a special war problems division of the department of state. helping prisoners of war to reorient to civilian life. social worker at the penitentiary for women, in west virginia. social worker, house of the good

shepherd and chicago youth center for the juvenile court. the mission, to identify the causes and develop prevention of intellectual disabilities. to educate society in erasing discrimination and providing hope to those so afflicted. inspire the establishment of president kennedy's committee on mental retardation as well as national institute for child health and human development, driving force for the kennedy institute of medical ethics at georgetown in a similar institute at harvard university, founder of community fairing, to prevent teen pregnancy, drug and alcohol abuse, presently serving over 1200 elementary, middle,

and high schools in 20 states and district of columbia. founder of camp shriver, the day cab enabling intellectually disabled children to develop capabilities in sports and physical activities at the shriver home in maryland. kampf driver was a precursor of the special olympics which is recognized as a global force for a better humanity, private -- providing achievement and opportunity to more than two million to hundred 50,000 children and adults, competing in 26 sports in 250 countries around the world. the purpose of life is a life of purpose. to open the program, i am certain you will feel the powerful compassion which eunice shriver continues to bring to

her life of purpose, captured in this brief film. [laughter] ♪ >> my mother has been a key leader. i think she has done more than any other human being alive. she is striving to make sure people with special needs are useful and mainstream, viewed as capable and athletic, she will not rest until that is a world wide acceptance. >> we had a sister, rosemary, who was challenged intellectually. you this would spend time with rosemary, teaching her and making sure she felt included. >> 40 years ago, i can't think

of a positive experience through our special friends. they had no special education, they have no special sports. it is very hard when you are in sixth grade to complete -- compete against somebody doing math or geometry. if you go with the same person out on the field and play a sport, our special friend would excel. >> that spirit that started the special olympics. >> many of you will win but more importantly, we will bring credit to your parents and companies. [applause]. >> yunis is tireless and fearless and reflect a sense of goodness, so it is difficult for

people to say no. after president kennedy was sworn in, we used to joke that he feared seeing yunis because she always had an agenda. >> her fingerprints on legislation, schools, institution, perception. >> we have a right to enjoy life to the fullest. three million people take part in the special olympics. and mayor gave her 48 hours of life, to show what we can do. >> enough to be with my special friend, i like to learn from

them. i learned guts, courage. this is the future. . the law, the hope, to bring peace, to bring excellence to our special friend. >> what happy event this is, such a pleasure to have been asked to moderate a discussion about a woman who has always in

a heroine of mine. i might add she is also a heroine of benedict xvi and made her a dame of the order of st. gregory last year in recognition of her outstanding contribution to church and public service. the list of accomplishments that we just heard is impressive but to those of us who remember what it was like when not very much was expected of women, is more than impressive. it is mind-boggling to think of the passion, the intelligence, the energy, their sheer determination to make a difference that went into every single one of those accomplishments just listed. it is as though back in the 1950s, eunice, you had a kind of x-ray vision that let you pierce through the stories that society was telling about things to the real truth of the matter.

when eunice saw what she saw she was horrified. to use her own words, she was enraged at the conditions under which mentally disabled adults and children were being forced to live. when she saw, there was no stopping her. people began to use words like human whirlwind, force of nature. even her brother, the president, colored when he saw her coming. she hounded him relentlessly to sign legislation, establish national panels. it is said that franklin roosevelt had a similar dread of a certain woman and is said that when he went to bed at night he had a prayer that he said, dear god, please make eleanor -- i don't know if the kennedys or

shrivers ever tried to use that prayer on eunice, but if they did, a clearly didn't work. but as paul kirk just reminded us, the cause for which eunice shriver is most famous is just one of the causes that she championed long before they were on anybody else's radar screen. in the 1970s when bioethics' was a word many people didn't even know, she saw danger approaching, she was instrumental in establishing the kennedy center for ethics in georgetown. in 1982 she founded the community of caring and in each case she had an incredible instinct for just the right way to tackle a particular problem. the proof of that is that all of her ventures have kept growing,

spreading and developing offshoots. community of caring into the character education programs and force in many schools and most famously the little camp in the backyard that grew into other camps, similar camps that grew into the special olympics and the special olympics that have gone international and addressed to conditions where the intellectually disabled are still treated as they were here in the 1950s. those are just some of the reasons why when social historians look back at the great transportation's -- transformations that took place in the twentieth century, those are the reasons why they will cast eunice kennedy shriver on a flame with a very select group of other women, eleanor roosevelt, jane addams, dorothy day, a truly great american

women, who defend the human family of which we are all members and for which we all bear a common responsibility. eunice herself, i know what she is thinking, she is thinking many other people were responsible for all of these accomplishments, and she ran will name her husband, sgt shriver and her five children and we are very fortunate that four of those children are with us tonight and are willing to share some of their memories of eunice with us and with each other. so starting in order of seniority, i don't know how you sort this out among yourselves, in order of seniority, i am sure your mother is very proud that each one of you in his or her own way has carried on some aspect of her work. i wonder if you would say a

little bit about her influence on you, your choice of vocation, work and family. and anyones to get in on the act. >> we do it in reverse order. >> go ahead, anthony. and a tour..

maybe because that's what you're supposed to say about a woman here and i felt her to be extremely determined and very aggressive. super entrepreneurialism. and she saw opportunity with my friend and is over there laughing, it is true because he's seen that him south. you cannot in their way over state i would say love and determination. jacquard but everybody else and they were determined people. i've heard the stories when she tried to do the first games that people in the department would not allow the games she has to got to chicago where mayor daley controlled the soldiers field tracking and allowed it to happen and her people the said that we don't have insurance and

things for the assets to become upset and suppose this and that and the mother went up to mayor daley and staged the of the games. that was it. and so i think in my own work i've tried to carry on that's when i feel a little dogged by whatever is happening, i think about what would a mother do run the motor. [laughter] so that is what i tried to do a pair of [applause] >> marianne, i know that you boys haven't been happy with the way the press space of their mothers accomplishments as though there are trying to put her into some kind of mold when she is broken of the traditional molds'. >> well, i think just a follow-up alow of what bob was talking about, i think one of the things that mommy taught me as a daughter of was never to think that you couldn't play on

the same level playing field as a man and that you should never take now except when somebody tells you know you should figure out ways to get around the now into exactly what you want to do and i think when i think of it one of the many things that i got from being raised by her was the understanding that you have to compete, nobody is interested in and a struggle, there are just interested in the end result so don't cry. if you get tackled get up and get going, don't want the summit had the tennis ball as you hard-core that a boy tack 02 but feel that to figure out there and compete on a level playing field because that is what she did and every time somebody said no to her she said she would go around them and as bobby said that most of them. that's a very strong velocity to get and i think it proves that the other thing about her is she is relentless and loves to was to get accomplished and that's a very important philosophy to get

to anybody who wants to start anything. nobody has accomplished anything great without being relentlessly don't have to be the sister of the president or have to be born wealthy or of a mess. if you have an idea and vision and our relentless you can probably get it accomplished a some degree so i think that's a very important lesson that she gave all of us. the other thing i think people talk about mommy like to started this camp and is in its the special olympics but i think it misses some of the point of maumee, that she is a political operative. issue is a political strategist and works of both parties better than anybody i've ever seen and i don't think and teddy can probably speak to this far better but i done thank you would have had any of the legislation that too have americans for disabilities without mommy's relentless work lady after that year of a steelworks as anybody can say you see her down in the hill

today. and she goes down to the hill, she's been going down over 50 years of working both sides of the hell and i think that she was, she always looked at it in once you wanted to get as to figure out who she needed to talk to to get or she wanted and didn't care what party they are in whether who led them are not as she knew she needed to get and accomplished it. i think that is also the machine gets stuck in levels and stock in a party, she went in and accomplish what she wanted to do so i think her reaches the special olympics is extraordinary but for political success is also worth noting here and i think that sometimes have to focus in this family has been on the men. but the women in the family have also a published six primary things so i think sometimes people forget that mommy did what she didn't and pat did what she did and rosemary really was the catalyst for some of the work that all of them had done so on not taking anything away

from teddy, jack for bobby but there were some women. [laughter] there were women in this family who were is rarely accomplish at a time when people is by did women who did have high expectations for women issues in the beginning so it's even more extraordinary, there were able to accomplish when very little was expected of them. >> now, mark and anthony, marriott was in on the ground floor when this human world when it got going, but when you arrive in must have been in full force. what was a lie? >> i think bobby and maria brought up a great point. i think it's very important to did not see on that film that is that my mother and father goes to mass every day. and i think that the concept of social justice permeates her work in the you know, i think mother's perspective on power i guess i would disagree of the

bit with bob and maria on this regard, i don't know what can they would jump in but i think also to is on the ground working with people and paul kirk talk about her work as a social worker in chicago. she is actually out there and still in the backyard of working with special olympics athletes, she is on the ground for it and i think that really comes from from my perspective and very deep religious faith and i think if mother and this is a 30 a.m. mass in the mind she knows for the 12 listen to mrs. the policy goes to the five ended in charge your progress where she's going to mass and i think it is a really permeate some of her relationship with my dad to. i want to make the point that with so much of what she does is about a practice social change and she does work with powerful people, but i thank you pursue power without really a grounding in the path that god is bigger than you and every day you need to spend at least a half-hour a

valid and the fact that god is bigger than you and she does that. that's amazing example to all of us and my dad doesn't every day. they go in there every day, they get down on their knees and it may be powerful that their brother is president and other brother may be a congress in a big shot but the bottom line is men acknowledge every day that god is more important and that what they are trying to do is i change but to do it i think true social justice mission. i know what to give the impression that mother or i have a complex being jesus or anything like fat off. [laughter] but last week house censures and i went in there with our two 1/2 year old and the baby turned, they were talking away and the baby sits in the front row and they talk the entire service and when he said that as a great sermon interest to me and send to didn't listen to a word i said.

[laughter] so my message is that i think it is important that what she is really grounded in is dog. as he is grounded in every day and knowledge in god's presence in our lives and that two really pursue power to pursue a policy change without technology that god is a born in your life is really a hollow victory and i think that's what gives us so much energy at 86 to be running around on all of this country but around the world. the five issues down there with her special friends, she is in the swimming pool and she's had a couple of major medical issues perugia's with her friends and i think to susan those friends got it and i that we can all love each other and work together to create a world that is based on love and i've just want to make that point. i do not agree totally disagree. >> you said everything i was about to say. [applause] i agree with you come age has its priorities for its privileges. especially in this family, right?

[laughter] teddy can relate to me on that one. [laughter] i always try to figure out what two say in a share in common and now i know it is being began last year in a family of dominance siblings. [laughter] >> you poor baby. >> friday river. >> i think this says something they all i think i might add is a slight modification of mark was saying and what always inspired me from my mother when i was down was for genuine commitment to the issue and i think as bobby was say she has the power to mold people over but i don't think people will tolerate that if they didn't think she has values and the right places his passionate because i thank you go to a center up on the hill and you work them over hard for a particular issue and they don't thank you are a genuine and don't thank you are passionate and in your heart and soul another for the right reasons. so it is free to say you're going to run people over but i don't think people tolerated

unless they feel your sincerity so i think my whole life i've always tried to think the matter having an organization made and for how many staff people we may have we keep going back, why do i keep going back. and i think she taught me that when a river that zero we used to hear going to institutions for people with disabilities people would tell you over and over is but enough of them. that really resonate for me in my mind if i went in and have four people in a room and i say there are four people and that room and they say it's good for them. and you see them in a building and the building would have 90 people and that people living in one building, it is good enough for them. and i think she really believed all the time that is never good enough for any of us and what ever we are doing is not good enough so that is challenging for us to keep. that our whole lives in mesa was two keep going and never can really stop. but that mentality i think for people with intellectual

disabilities and her unwillingness to accept its good enough, not to allow that too continue on i think is the thing that has driven her and why she keeps going at 100 miles per hour because to this day as great as the committee caring is and as great as the american disabilities act is is not good enough and we've got to do a lot more and live as you keep going into scott to start new camps and go on the hill because the tide is never over and the energy level has to keep going up. in reminds me of a book i was reading from a group of guys went on the audubon and the guy jumped is so excited and he said i can't drive as fast as i want and he's going a mouse pryor, 90, 100, 120 and he is in this car and all of a sudden he sees another car coming in and goes by at 180 miles per hour and the exact same model.

for me in the case i'm thinking that his mother. [laughter] she is in the same model that all of us are, we're all human have a better model is full speed and the cars maximum speed is 180 and i think hers is 180 and your all happen at 120. that is why she still goes at 180 and that is why people benefit is so much because she ran at full speed in her, model and is a great model to appear if [laughter] >> that takes care of one of the precious hours going to ask you, when you hear your mother described as a human will and the having superhuman energy alice went to ask how that compares with the eunice kennedy shriver you know by now i see it is, of course, exactly the mother you know. i think a lot of people who would be interested to know how the experience of growing up in

a family where work, family, pressures, keeping them in the proper balance must have been a constant challenge, how that has helped to in your lives to work out that difficulty. that americans are shoveling with now. >> to say in doubt as to means? >> yes,. anybody been able to do that? >> i think we grew up in a family where there really wasn't much balance. i think both mommy and daddy have lives of its meaning and purpose but it was all about work and you would not sit on the couch. i say to my toes and the other day of my her mother walks on the road this day i don't sit on the couch and i jump up and i visited. people say you've got to learn how to adjust the and i say that is not -- i don't know that to serve and not the way they live their lives. i think that they lived their

lives with a gold, silver and thing mommy had a goal always which was two really begin to change the world when family at a time and i think further involvement in this scene the way her mother had to deal with her sister and that hearing from other mothers that they had known to send their children and that they have no school their children for the intent on no camp issue is determined to change their world and then she became determined that we would all join in her cause and that everybody that we knew would join in their costs of people who came to our house as our friends got wrapped up in it. there was probably nobody here who knows any of us who's not involved in some capacity working for mommy. [laughter] you walk in the door and walked out with their pockets and take a minute given money and are volunteering, involved in best buddies are special olympics in seoul because mommy's philosophy has been everybody has the ability to serve and get on to

yourself. the matter was your age or where you are from the should be able to do something. >> that was in the infirmary grew up in but to be honest people don't think they serve a bunch of different names and i try to sit on the council of m.r.. [laughter] i thank you learn a lot especially from your children. >> growing up you did not thank you could sit on the couch. >> i'm trying to -- now a little bit i think we grew up in very much in and analyze that and i think for me and some of us are trying to i think change the course a little bit and i think to an awful lot by sitting on the couch looking at your 60 than the eye and having a conversation and not making them run up and down the field in jump in the pool where the [laughter] >> i tell my mother and now i'm just trying to be in she says what does that mean? i'm just trying to be present and be today.

>> as he was to get on to the next day and hear your brothers are to invest. she does not like it. [laughter] still is turning to him saying one of the same price. >> mark, you mentioned that the family were all this is going on and nobody is suit said on the couch but the day began by going to do a mass in a way putting everything that was going to happen during the day and a certain respect them and their relative rising power and all of a of the fans. >> i definitely believe that and i think that she has a unique way of looking at power and i think shea seize power from the broken people she sees it in disabled adults and she's using the power that they have witchery as a society i don't think frankly value. and we've got to elected office, we value money, we value the

rich people and in that area and a mother definitely said the know how to work with those folks but she also would make a very unique is that she is as easy or as, and as comfortable with a disabled person who may have a profound physical problem as she is talking to clint eastwood and/or one buffett. and i think that that is the efficiencies of the value income is the and i think she sees the value in broken humanity and sees that is ultimately the goal is to pull that together and work together. i don't think she started out in chicago for and the backyards thinking i'm going to change the world here. i think she saw some families that did not have resources and started on a little by little basis and in view of their great social movements that only start with somebody who is really doing it in their backyard or in

their house or is upset about something and then they slowly gather steam in and making change great promise. but as often time and that comes from the grass roots up i think and not from the top down. but mother knows how to read the top down and the bottom up and i think that is where you the power comes from new york city resonates with people were as some political leaders that have much more power to me remembering what they did 10 years later but they will remember people that changed the hearts. they done mrs. ciller remember a policy that changed 20 years ago but they remember when people affect people's hearts and those of the los like mother teresa come and dorothy day, that really have a profound impact because it is the power of justice and the use in an of itself to make money or a change public policy but how you change people's hearts and i think that is ultimately the brainpower. >> i think the other thing that's really important when you talk about mommy you can't talk

about her without the importance of her family. if that is first and foremost i think the joy of her life and i don't mean just the five of us are that a, her brothers and sister are really i think the great joy ever lie and her parents and i think that permeates really her whole life. everything is about her brothers and sisters and her parents and the lesson of her parents and a royalty of her brothers and sisters and all i say to the five of us i want you to be together, i wanted to be committed to each other, we're all in this together. this is family work people that our friends are part of the family and the work and trying to kind of extent of that philosophy to our friends and their friends and so on, but i think the bedrock of a mommy is really her parents and her brothers and sisters. he talks about them all the time. that really is i think for

foundation, the rock from which she comes from and which she is constantly talking to people about the importance of family and the importance of faith and loyalty to family and then purpose in life commission in life. those i think are all connected in. >> may be one last question of a fourth -- now it is time to go -- one more question i think all of you are a grave that the full extent of eunice kennedy shriver contributions eugene j. hearts, minds of some issues has not begun to be fully recognized so if we think about those historians of the 20th-century who will be in killing the small pantheon of a great american women, what would you want them to notice that hasn't been adequately noticed a thus far?

>> per. i think we'll go to look at the women's hall of fame in seneca falls, you'll see susan b. anthony and eleanor roosevelt, elizabeth cady stanton and you'll see eunice kennedy shriver and i think that's two really -- i would hope people would look different entire story. yes, the family she came from a yes, the family she created by what was her goal? what was your vision and mission? and had to go about accomplishing it? to creed is something that did not exist before. she was relentless in its and the issue was a mother, she was a wife, she was a sister, she was a daughter, she was a friend really to millions into not only changed the backyard and then she started in, the committee she started in and the state and the united states but really the world. permission may have started in the backyard of the results of current mission has changed from the world and so i think she believed she deserves to be on

the women's hall of fame. this is the first american living woman to be on a dollar. i think she deserves that. she deserves a bug that details how difficult that work was a time in this country when people didn't expect things from women and really the political mine here and in as people say to me, i did not learn how to cook or sew for my mother but i learned how to tackle a guy or hit a ball and how to accomplish things and that really is, she wants her kids and everybody, her brings can to get things done. and i think that as her story and that she did it with her family and to kaptur family intact and she kept her marriage intact and she kept her faith intact into never sat on the couch. [laughter] >> don't sit on the couch. >> is the custom of the kennedy

library at these funds to take questions from the audience and now i will open the envelope of. the first one is, in a house full of children do you have a favorite funny story that exemplifies her mother's her personality? >> i will say there are some in the you don't know where to start, but one of vivid memory is an image of her personality when our company from school she made an effort to pick me up from school quite a bit to. to come home in perth a car and she would tell me that now we're going to have races and she would go out and line them next to me and be like i'm going to give you a little head start and let's see who can win here and into marks summer on the road and into a race me every day after school mtv every day after school. [laughter] i think that is a pretty good image of what her personality was like i'll just say that and

say that last year mother busted her hip a couple years ago and her house in potomac, we live about a mile away. it is a circular in the house and a circular loop and she started in the middle and my seven year-old son and his body had to run the whole loop around the house and she ran a half loop. and she did win a. [laughter] and the kids with that looper and to do a short cut and my son almost the third couple of times and knocked her over into did it multiple times. my wife came over at about 9:00 o'clock on a saturday morning and my mother turned to tv and said i beecher son of pierre and [laughter] in a running race and my wife went, all my god. [laughter] so it is still going on. >> when we were a little or yonder bonnie always hired people with the intellectual disabilities to work in our

house so my memories and a lot of times people would not want to come over to our house because they thought it was really like wild, there were a hundred kids in the backyard with intellectual disabilities and hundred volunteers and there were people working in the house that she was trying to train for jobs so she would hire -- >> the fine is part of it is of the volunteers were from the local prison a pair of [laughter] we have a couple of monkey is. >> in addition, she would also try to -- she did higher convicts as volunteers and then i would say these people came from the prison issue is they don't tell anyone. [laughter] >> it proves that we were with them. and. >> is a to the some of the counselors at camp shriver drink all of your father is a favorite wine. >> that is too, that had come

back from being in france, he had got a case of very nice wine from a mr. rothschild. on his departure. they did one day and there was a punch on fridays and one friday for some reason that the punch manhattan not delivered so somebody.com take the case of wine and empty it and make the bonds and with that he got quite exercised. the [laughter] and mother was like for decades. what do we care about the wine. >> i think that mommy used our house as a training ground for all of her philosophy so while she is wanted to see that people with intellectual disabilities could work so she would hire people with intellectual disabilities to work in the house and she believed that prisoners could be rehabilitated so she would bring them our to our house and tried to turn them into counselors even though they are in for murder. [laughter] she did stuff like that where

she wouldn't, you know, try all seven kinds of sports. archery. [laughter] >> we are not making this up. [laughter] >> we leave this report a program to take you back to a hearing on a wartime contacting oversight following a lunch break. this portion the commission hearing testimony from executives of three of the largest government contractors. event now getting under way with live coverage on c-span 2. ..

>> has met and has discussed these issues with his counterparts in each of the companies. it is the intent of myself and mr. harrington who is the assistant secretary of army procurement to meet with each of these contractors to discuss these business systems. so i want to assure you that the army senior leadership is committed to working these hard issues. and i think as mr. shea said these are complex. business systems and idyllic couple folks that shortly are not rocket scientist but they are complex. i think there's a lot of work that has to be done to make this better for the future.

i do want him to size on the afghan task force, we had to make a decision come may, june timeframe to get those task orders awarded. we look at what the additional delay might entail if we ask dcaa to go back and into detailed audits on those cost proposals and came up to the conclusion that any further delay on getting those task orders awarded in a timeframe that we did was not going to meet the operational needs. and it gets to mr. greenspoint. they have to make this trade off, meet the operational needs of the war fighter and its same time have to care about protecting taxpayers interests. so the decision was made to go ahead and report those task orders under afghanistan. however, we have agreed and we are working with dcaa to go in and do post audit reviews of the cost baselines that were proposed by each of these contractors. so who were going to get detailed cost information out of the contractors that supported those proposals that they sedated and we will ask dcaa to

do that audit to give us a baseline. if we find that there were some differences, significant differences out what was proposed versus what dcaa is fine in these cost baselines, that will be taken into consideration. as i said, on our decision of whether or not we will exercise for the option for that work. or, if we need to make some withholds as has been suggested by ms. stephenson. and i talked with the contracting officer representative adverse to doing so. as i mentioned these systems are important. the whole thrust of logcap iv was to put emphasis on these business systems, and they will be addressed as we move forward. and in a determination of whether or not options will be exercised as we award the task orders. we also are working with dcaa on the audit of the iraq task force. are contracting officers have shared the solicitation with dcaa, getting input. we're still having some discussions on the extent of how much audit activity we think is

needed versus what dcaa, but we will work with that and to have my commitment we will continue to work with dcaa as we move forward. i just wanted to add those points and again, thank you for the commission's interest and it is an important area. when you take a look at the extent of the business systems issues we have to cross the baseline, the root causes need to be identified thank you. >> thank you very much, director parsons. and so director stephenson. >> i had two points that i wanted to say and i will keep it brief in the interest with this afternoon session. one, i did want to leave the impression that inadequate system is any different than an inadequate in partisan. they do have serious material deficiencies. we would not report a deficiency unless it had a material impact on government contracts. however, commissioner shays, as u.s. we will read examine that. second thing is commissioner shays, i wanted to second what you said about mr. ricci.

i realize he has taken a lot this morning. but in our working relationship, he is one of actually the people who has resolved a number of issues that we have had with contracting officers. although, this one is one where we disagree on. he actually has been the type we have been able to make a phone call and helps resolve them and i did want to second what you have to say about mr. ricci. >> think you. mr. ricci? >> i did want to say that i sincerely appreciate being invited over here to discuss the business systems as well. as our interpretations to regulations governing them. you know, i understand that it's unpopular, but it is our best interpretation of the regulations as they exist today, as well as long-standing practice. but, you know, we will look at proposing additional regulatory changes that we think will help us to do a better job at getting correction. and will also work, the final thing i want to mention is that

over the past, say 15 years, decade of acquisition reform, there has really been -- i would say kind of almost direction to the government folks to try to work with your industry counterparts. and i think to the extent that dcma perhaps is not taken the strongest action that maybe it could have over the years, part of it does go to that climate, which we can work to change over time. thank you. >> think you. i appreciate all of your candidness, and we look forward to meeting with you in approximately 60 days. we look forward to those folks that have input on what you do, helping sort this out, and we look forward to some changes. so, yes, absolutely. >> i just want mr. parsons, i am really impressed when you mentioned and harrington, and i

am really pleased that we're able to draw in that kind of talent and that kind of background in this critical area. so good luck, good fortune to all of you and thanks. >> thank you all very much. and we will go to now our second panel. our second panel is mr. ballhaus, president of dyncorp. executrix of compliance, for government group, bill walter, director of governor compliance, kbr. and why don't you stay skinny because then we would just swear you in and take care of that while you are standing. >> and by the way, if there is anyone else in your company that maybe, you might turn to answer a question, we would ask that they stand up so we don't have to swear in someone a second time. so say standing if you would. is there anyone in your companies that you might want to respond to a question?

we don't have to take their name now but if you want them to. okay. so raising her right hand do you solemnly swear or affirm that the testimony you will give before this subcommittee will be the truth, the whole truth and nothing but the truth? thank you. note for the record all of our witnesses have responded in the affirmative. and so, do i pronounce it i thought? how do i pronounce your name? >> methought. >> thank you. measurements are, thank you for coming and will start off with you. you. and he would just go down the line. and we are saying six to seven minutes would be our wish that seven minutes of ashy to close but if you close before that is all right to. and i'm going to make the same point this time. i don't think i will forget. if you have a closing comment, you will be able to do if you weren't asked a question that you want to put on the record. mr. methot, you have the floor.

[inaudible] >> cochairmen tivo, cochairmen chaise and numbers of the commission on wartime in iraq and afghanistan. thank you for the opportunity to discuss force businesses to. my name is david the thought and i service director for four corporations government business segment. we are a fortune 500 company with over 42000 employees serving five business segments, including energy and chemicals, industrial and infrastructure, global services, power and the u.s. government and international agencies. our total revenue last year was $22 billion, of which are the smallest business segment was the government with 6% revenue performing work for department of energy, state, homeland security and defense. fluor has been actively supporting the u.s. government for 60 years.

throughout this period we have supported the government's need, including the manhattan project, the strategic petroleum reserve, missile defense infrastructure in alaska, the cloche, a deal waste facilities in ohio, disaster response and recovery support for fema and response and other natural disasters in hurricane katrina and rita. and projects for several defense agencies in iraq and afghanistan. there are ongoing projects in iraq and afghanistan, transatlantic program center and under the army's logcap iv program. fluor was loaded the seatac to contract in january 2004 and has performed work under 22 task orders between 2004 and 2008. we are still performing work under four of those task orders. fluor was awarded one of three logcap iv contract in july 2007. the army contracting command has

completed a task -- completed a task orders and fluor has received four awards. fluor first word was in september 2008 for the expansion of afghanistan's regional command east which consisted of the establishment and continue life support for forward operating bases. this was followed by an additional award in october 2008 for calibration and repair services from military equipping in iraq and afghanistan. anti-semitism made, fluor received an award for construction, expansion and continue life support of eight fluor operating bases. recently fluor was awarded a task order for base life support and theater transportation function for u.s. and coalition forces in the afghanistan area of responsibility. the total by a task order is over $7 billion over five years, including one based year with four, one year option

extensions. we are now working closely with the army to plan, chordate the transition of this work. as the chief compliance officer of fluor's government grew, i directly report to the president of and have any independent reporting relationship of our corporate compliance officer of fluor's board of directors board of directors. as well of the corporate compliance and ethics committee. i am accountable for ensuring fluor complies with federal contracting requirements and for implementing and overseeing an effective business ethics and compliance program. this includes maintaining government approved business systems. i am supported by our corporate finance operations for dcaa and dcma court nation of our corporate business systems and in direct agreement. fluor's business systems and processes are well-established and designed to support global execution of engineering, procurement construction and o&m services to its customers are these systems are designed to support execution excellence and include effective internal

controls and a sound business operations. after businesses and have received hundreds of reviews over the years and determined to be adequate by the u.s. government. historically, any business system and internal control audit issues identified have been resolved with the government. were a deficiencies were identified plans were submitted to the government and an appropriate level as senior management and shirt and limitation. follow-up audits have routinely resulted in adequacy determinations of the affected business system. as a chief compliance officer for fluor to government group i am proud of our track record of performance and compliance across our government agencies. on behalf of over 2100 employees of fluor, we are cognizant of the unique role we played in support of the u.s. and coalition forces operating in iraq and afghanistan i look forward to your comments, questions and dialogue about fluor and our business systems. >> thank you.

chairman thibault, chairman shays and members of the commission on behalf of dyncorp international's 25000 employees, serving in over 30 countries, thank you for the opportunity to participate in this hearing. i would like to start today by summarizing the three major points that shaped the recommendations of my full statement and i would like to request that my full statement is included in the record. thank you. the three points, .1. contingency operations are different and offer unique challenges versus executing similar work in peaceful environments. at dyncorp international with our expense afforded u.s. national security and foreign policy objectives around the world, we understand these unique challenges intimately and firsthand. .2, successful contingency operations require trained leadership. capable of making timely decisions. while business systems and policies are enablers, it's people that make things happen. and three, successful

contingency operations require a culture of performance, transparency, timeliness and accountability. throughout the acquisition lifecycle from both contractors and government employees. let me touch on each of these three points briefly and summarize my recommendations. first on unique challenges. the commission is well aware of the unique challenges associated with contingency contracting rapidly changing missions and requirements are at the top of the list. but not least of all, contingency operations present a number of personal challenges for our people. from tough living conditions and working environments to long days, weeks, and months. this looks nothing like what you might see in domestic operations. these environments are astaire, hostile, and they are not for everyone. our employees understand these risks, yet they are motivated to serve and stand shoulder to shoulder with the war fighter. and it isn't just for the money. our employees come to work to make a difference, to serve

today for a safe tomorrow. today, 65 employees from dyncorp international and our joint ventures have paid the ultimate sacrifice for our country and our company. dozens more have been injured. this is a reality of contingency support, and it is why i recommended to the commission our employee assistance program as a model for contractors to support followed and injured employees and their families. second, on the topic of leadership i was pleased to see that this was an area of the commission's interim report. i fundamentally believe that successful contingency operations required for both contractors and the government competent, capable, leadership properly positioned to get the job done. on our largest and toughest programs like logcap and gls, i personally select our program leaders. similarly, i support the commission's interim findings on the need to deploy trained, dedicated contracting office

representatives and administrative contracting officers to the field. the need for dedicated, well trained leadership in wartime operations is amplified by the unique challenges of the environment. third and finally, successful contingency operations require a culture of transparency, accountability, and an intense focus on performance across the board. even with the best leadership and business systems, there will be issues. the key to success is instilling a proactive culture that works hard to prevent issues, but when they do occur, works hard to fix them fast. at dyncorp, we set a standard for ourselves imperfection with respect to program performance and compliance matters. now we realize the impact account of the standard. we are not perfect. but it is an ambition that drives our culture to be proactive in preventing issues and responding fast when they occur. the need for accountability

responsiveness is behind two additional recommendations, included in my statement. first on the topic of business systems. i have recommended an addition to adopting a more graduated adequacy determination scale like was discussed this morning, that dcaa should adopt standards for prompt review of contractors corrective actions and responses. we have responded properly and thoroughly to dcaa findings, as this commission has noted. and would appreciate timely follow-up from dcaa to reevaluate our systems. second, on the topic of undies in a tight contract actions, which i know is a significant topic of the commission's may 4 hearing, i have recommended that contractors be allowed to invoice and be paid as long as the contractor is responded and accountable in supporting contract definitive station. it can be penalizing to ask contractors to partially fund when the contract definitive station process is not completely within their control. on the other hand, i fully support withholding payments

when contractors are not responsive in this process. i want to thank you again for the opportunity to appear today and i look forward to answering any questions that you might have and addressing any topics that may have come up this morning. thank you. >> mr. walter. >> thank you. thank you. i am the senior vice president of government compliance for kbr with oversight responsibility for the business systems we're talking about here today. kbr looks forward to helping the commission identified lessons learned that can be applied to current operations as well as focused actionable recommendations that will enable positive changes to the contingency contracting process. critical to this discussion is the unique operating challenges in here and in a war zone. as well as understanding the challenges posed by competing governmental priorities inherent in a contingency contracting environment. kbr uses a variety of business systems to manage the day-to-day

operations. these include systems to acquire goods and services, and to estimate at unit and report costs. anchored to provide services to provide the support to the war fighter. the primary systems include accounting, billing, purchasing, estimating and property. our systems are regularly reviewed and approved by the government. just last month the government's most recent review resulted in the continued approval of our purchasing system. these approvals are not done in a vacuum. dcma and dcaa are resident in kbr facilities throughout the world with close to 50 government personnel in our houston office is alone. we are in daily dialogue with government representatives to ensure corporative communication and implement feedback in real time to provide transparent and to improve our services. for example, kbr lead interactive monthly meetings with representatives from dcma and dcaa regarding business

systems. throughout our history as a government contractor which dates back to world war ii, kbr's business systems have been appropriate and sufficient. our business systems have evolved over the years to keep pace with the also evolving requirements of the government and the marketplace. prior to the iraq war our most recent expats has been supporting military forces in the balkans. is on the volume, based on the original logcap iii scope of work, we anticipated at the bottom of work would be comparable. however, as everyone knows what happened in iraq was dramatically different. magnitude and urgency of the logistical support needed in iraq present new and extraordinary contracting challenges that any company with any business system would have faced. as you know, the military and the contractors encountered a rapidly changing and increasingly perilous situation in iraq that it was in this environment that the initial levels of service acquired of kbr under the logcap iii contract evolved to meet the other situation that america's courageous soldiers, civilians and contractors who support them confronted. this was true with respect to the number of personnel on the ground, the duration of the troop presence and the hazards

posed by the insurgency. while the original contract clearly stated the essential services that kbr would perform, a specific requirement associated with those such as the location, the types of facilities that would be available, or those types of facilities that would have to be built at each camp and the availability of supplies and services were constantly in flux. does contractors frugally develop solutions to wartime ledges to go challenges on the ground and in real-time to support the 211,000 service members and over 215 sites throughout the theater. in this volatile situation that pays a paperwork and this led to further challenges for kbr and the governmental administrative teams. another inherent challenge relates to the expectation of acceptable quality and extent of documentation. in iraq and afghanistan theaters while there may be vendors that can provide the services, few if any have experience with a level of documentation expected by the u.s. government. when this is combined with the

demand for kbr to provide services to the war fighter, in an externally compressed schedule in a war zone, the resulting documentation often does not meet the traditional stateside expectation. it is helpful to provide one specific concrete examples of the contracting challenges at kbr face at the outset of the iraq war. given the immediate need of operations, kbr identified an urgent requirement for deal and heavy-duty suvs. we went to the local dealerships in kuwait and we were charge the market rate of $43000 per vehicle. subsequently, kbr worked diligently to put a supply chain in place to procure these types of vehicles at a discounted the great by december of that year. this is but one of the examples of the realities of contracting in a war zone and the demands placed on the contractor to meet governments demand on its schedule. with regard to the application of business systems in this challenging and ever-changing environ, we identified a need in 2003 to upgrade our county system to keep pace with a significant increase in data requirements associated with

logcap iii. drug implication of this change, we invited dcaa participate and observe the entire process. further, once this is a mathematician was complete, kbr made presentations to dcaa personnel on its functionality on an operation. our business systems have evolved over time. as security, communications and acquisition workforce and proved we identified opportunities to utilize more stateside business systems and processes. kbr was often the leader on these issues. we continue taking steps as necessary to maintain the best business systems and to serve the military's need in iraq and around the globe. finally, our experiences in iraq and extensive history in government contracting up for us a somewhat unique perspective on the challenges faced by the military and its wartime contractors. perhaps the most vivid observation i might make use of the contractors are often faced with multiple and at times competing priorities. the military commander on the ground may express an immediate need with the necessity.

both the army and the army sustainment command and dcaa are responsible for overseeing our contract. and both give us instructions on what is or is not required or permitted under the contract. dcaa and other after the fact auditors come in later and provide their view. as you might imagine, many contract expenditures and actions look different to the soldier and his commander during the heat of the battle then they may appear months or years later by a stateside auditor. as the contractor we face the challenge of meeting the very least of the army fighting the war while also satisfying the important domains of the contracting officers and government auditors. if the commission can identify the means that will allow the government to speak with one voice, and instructing its contractors in future wartime contingencies, this would be a significant improvement to the current expeditionary contracting system. the second observation involves the nature of the auditing process. from our perspective the current audit process for adequacy determination contains too many subjective aspects that very

significantly between auditors leaving the contractor in an unattainable position to a greater like an objective criteria would provide contractors with an enhanced ability to meet and exceed the government expectations, and would indeed result in increased contractor efficiency for the government. >> if you would finish up in the next minute. >> yes, i am finishing a. i look forward to answering your questions. [laughter] >> that's comply. i wanted to catch my breath year. i want to start out with my cochair, mr. thibault. [inaudible] >> i need a microphone, okay. thank you. i had a couple of points, three maybe, or questions and points and then i'm going to do for five minutes of my time to professor kiefer who has been leading the commission efforts on logistical support since the three companies are logistical support.

i thought that made sense but i'm salvaging my last five minutes. you don't get any of that, professor. mr. methot, i just want to share something and then kind of calibrate and give you an opportunity. in your statement, page five, you don't have to look it up it is only $0.01 you probably haven't more comfortable than i do. you make a statement that fluor business systems have received multiple reviews over the years and were determined to be adequate by the u.s. government. what i want to share with you, and it is all marked up that because of anything any company did, but because i was trying to understand that and because it points to some of the coordination and issues within the government. but the point is that it shows those nine systems which are the management warehousing, inventory isn't one that they look at in they tend not to have that. and i just want to share with you that six of their reviews, dcaa's review and fluor, it is

one of those companies you are aware of this, a little slow for dcaa to be getting in and looking at. so they list based on their cycle, which is every three years, six of those nine as overdue. in other words, they have audits to do. i want to share that with you because fluor, with your current i guess i would call it winning structure in terms of contract award while you're only 6%, i'm willing to bet you're going to be more than 6% in the future just doing some simple math. but what i want to also point out is the other three, the most three recent reviews, billing, inadequate in part, compensation, inadequate. set a september 2008 and february 2008 indirect cost and other direct which is primarily the submission was inadequate in part. so i would caution you that as someone who is really expanding, one of the issues, and mr. walter brought it out, as

sometimes the challenges are greater than you anticipate it and i share that. mr. ballhaus, i commend you for being here. i commend all of you for being here, and thank you. what i want to share in this, if i take one more minute, then charles, you only get four, but i am wrapping appears i am not usually one for visuals but this is a big visual that your chief financial officer gave me with a lot of paper for you all. what this is is three responses to this most recent reports that you talk about in your testimony, ms. stephenson talked about in her testimony. one for labor, one for billing system, and one for compensation system. corrective action plan. and what you have done. for the record, i think it is important that in april said on two of them she has backed off her standard recommendation to do wit withholds.

and your chief financial officer, he is the one, i am very impressed. i was very curious. we put eight x. director on our static current officer, very senior who is on our staff to look at all three. they were very impressed. so i commend you for your actions to do that in terms of doing that, and it is important i think that this commission when an organization is responsive, that they step out and acknowledge that. and my question, which i think you can help with is, i also commend you for having her chief financial officer, the whole government compliant folk and all that were there when we talked about finances. he was representing the company, and that was very impressive. because he knew inside and out the issues we were talking about. you primarily do government business. so to me that made all the sense

in the world. and you are here. why are you here versus your government compliant person? >> first of all, thank you for the compliment. second of all, i am here because my name was on the invitation letter from the commission to attend the hearing. but also i think it sends a strong message and it is a message that reflects our corporate attitude around performance and compliance. you know, what our role as a contractor support a u.s. national security foreign policy objectives, our role is to both perform and be compliant. and when we have issues that come up around our billing systems, we taken very seriously. now, one of the reasons why you may have gotten the response that you did in the thick pieces of paper that you held up, is we've reviewed many of those issues weekly with me. and so the fact that our cfo, mike thorne was knowledgeable and responsive on those matters is no surprise to me.

>> will give mr. tiefer 12 minutes. >> i think mr. thibault for the extraordinary generosity. characteristic of him, but extraordinary nevertheless. mr. walter, we her testimony this morning by april stephenson about the problems, and this is in the context of a drawdown of contractors in iraq. the problems that will be posed by kbr's labor system. you may have heard this, excuse me for once again setting the stage. i sat with general odierno. he shared his challenges and perceptions and he said, i am shortening this now, go, we'll look at logcap as we close the spaces. that is the plan, close the camps, close the bases and shrink the footprint and the costs. the footprint, meaning the number of people, both

contractors and soldiers. that is the footprint. shrink it. as we close these bases, i wasn't seeing a reduction of contractors. we had to make logcap accountable. logcap in iraq means kbr and its subcontractors. can't mean anybody else. what i want to ask you, start with when i was asking the dcaa director, because she hasn't completed the cycles of labor system devaluation, she referred me to the most recent task order, 159, the one that had over a billion dollars in question and unsupported costs. and specifically to the $368 million indirect labor costs, which were questioned, not merely unsupported. not merely give us a more documents. questioned. part of this is your job. are you familiar with the $368 million, and did dcaa in fact question that? >> i do not have access to the

final dcaa audit report that was associated with 159. i do have bits and pieces of it. i do have the peace on the $1 billion of unsupported costs, which i would like to make the comment that that really is not an accurate statement where it is perceived as if it is an overbilling. what that is is a disagreement between kbr and the dcaa auditor looking at a series of individual subcontracts with respect to what does make adequate competition with respect to those particular items. but i will look into the 300,000 -- 300 million, and if i get that information, i will gladly provide a response to you, sir there in a. i handed out some documents. i apologize for doing this over the last minute. we were in effect rushed from a trip to baghdad into the preparation of his hearing and it has been an effort to put stuff together. the first is a two-page article

from the washington post, which i use only because it mentions specifically the 5% contractor drawdown. there are many, many articles on the subject of this is not special. this is a short question and answer. you have awareness of this 5% drawdown for iraq? >> i am familiar. >> yes. the next page is about the order we just talked about and i will skip it. my only reason for including this code chart is to show sort of the vision of these logistics people of how to carry out general odierno order. that is, this is a total sort of draft down, slide down, glide down they like to see of the contractor footprint. and then they break it down into u.s. people, iraqi people and a third country people. and those three add up to the graph. glide down. now, what happened after general

odierno gave his january 31 order that is on the public record in the washington post, is that it was in the following month and implication, and that is a couple of pages later. and i won't rush it. you can follow it. you see the big unclassified staff at the top, and it is a memo to your guy, your regional guy, and the subject is contracting officers direction for freezing kbr personnel in iraq. and what it says is, number one, the intent of this letter is to be a responsible drawdown of personnel decrease the cost and footprint. the cost and the footprint. the footprint is the number of soldiers and the number of contractors. and wants to freeze a. a couple of interesting things and then i'm going to ask you. the interesting things about this comment is directed at kbr. it is not directed at contractors generally. it is direct it at kbr. kbr is, you want to be very,

very rough about it, half of the contract in iraq. it is not granted to all of them, just at kbr. and the second thing is it is a rather strong measure. it is a freeze. and when one of our team talked to the pco, kevin martin about this, he said that although it mentions the general odierno order, it is also because there has been a $50 million cost overrun in iraq. and that the fact in his mind led him to saying we have to have a freeze, a very forceful measure. are you familiar with any of this? >> i am familiar with some of the pieces of this, not all of the details. >> i appreciate your short answer. did you want to name what pieces are familiar? >> when i was in iraq the last time, this topic of conversation came up. we worked very closely with our contracting officer in theater. we did talk to kevin martin, and

while the contract was on a freeze status, there is a lot of additional work that goes on. we get requests every day to be able to perform additional work to be able to support the soldiers. in addition to be able to support the withdrawals. as you do decide to move down the footprint, the army doesn't necessarily have the resources available to be able to shut down the building, shut down the camps, shut down the housing unit and move them to other locations. generally, that is something that kbr -- >> change order. there was another thing we ran into concern. i mentioned things at the top level. they also, they flew me out to a forward operating base being closed down by the marines in the sunni triangle. and do we get the picture. we saw a picture from the bottom of the top that senior and junior government officials were

concerned about and are seeking to guard against what they called the shell game, that kbr will move its employees between bases rather than demobilize them out of theater. because that is the real goal, not to have them, you closed they say, they go to to the next bay city where they can be passed. you close the base b. and the move to a basic see that they are waiting to be passed. that doesn't reduce the footprint, and yet it seems that the system that they can get at, the internal control systems are inadequate, they say they can't get it reducing the actual numbers of kbr. so, here's what i want to ask. we also got -- oh, one of the things i want to ask was when i say that the internal control systems are not strong enough, did you hear april stephenson described this morning that she said your internal control

systems for labor are not adequate and they recently gave you a statement of conditions and conditions, are you the mother with that, yes? >> does, i am. >> i asked if she considered that kind of a criticism of your system. it came out of baghdad. did you take it as a criticism? >> what we take it as is a misunderstanding at first. there is a large transition of people coming into theater. the systems that are in place, the processes and the expectations are quite different. so what we have, when we got the initial statement of conditions and recommendations, it said that kbr does not take into consideration the existing staffing when it creates an administrative change letter, or aco estimate. we disagreed with that, and what i cast our team to do was to get the people from our estimating department to work with the

auditor and how they accomplish and how they do utilize that enteral control process. >> well, i'm glad you're familiar with the so car and your precision and brevity of your answers is admirable. you are not stalling. i appreciate that. when i read them particularly concerned about is that goes over and over, proposing the duplicate fee, paid key twice, paid fee twice, that their understanding is that these change orders, which you describe what you are still coming in, coming in for project safe in order to electricians come in and fix all the electrical problems caused originally by your detective work and housing. not you personally. those were change orders. and i use a change orders, would you call acl's, change letters, that as they are very concerned to put it mildly. that is why the issue does. that you take tea, both off the original contract and if there

is a acl even if the old labor issues, you take it off the old contract and then another time off the acl. am i correct that is what they are concerned about? >> that is what they are concerned about. and i am concerned that is what they believe is happening. we do have internal controls in place. we have worked the process of administrative change letter estimating with the government very rigorously over the past five years. as we do that, one of the first things we do look at is the availability of existing personnel, if they are there then there is a no cost change. no additional fee, no additional anything. however, if there is additional resources that are required, then those are the resources that we are going to have to bring into theater to be able to do those things. my expectation is that by the auditors and by my estimating team in iraq, sitting down to go through and demonstrate how they take that into consideration, we can put this concern of the auditor to rest.

>> in the meantime, the drawdown is going to be attempted, and attempt to bring the numbers down. let me show you two pieces of paper we put together. one, still in the packet, is each color chart. this color chart put together by our logistic team leader, steve, objectivity and dedication. and he has tried to put the data together quickly since we came back from iraq, and some of this is preliminary. but what it shows is the two lines at the bottom should add up to the one at the top. one shows the two lines at the bottom, one is the downward decline in non-kbr life. that is the green dotted line. that has a fast slope down. and then there is the blue dotted line. that is the almost level, slightly downhill. we estimated six-point 2%.

of kbr labor. and so the cuts in labor are not coming from kbr. the reductions in labor are coming disproportionately from the other contractors. is it possible, you dummy what you're understanding is? is that different from your understanding? >> part of the drawdown is what kbr is a result of discussions with kevin larkin and others we went through and performed a personnel reduction plan to reduce the number of personnel in theater. at the same time, while the drawdown of iraq is happening to the requirement for us to abort not necessarily happening at the same time. so we still have the same footprint that we still have to provide the same support for -- >> i am reminded my time is running out. the last piece of paper i have there is your par, it is called, and kbr lancashire and it has a phrase called bases without

spaces. that you still are seeing the faces, personnel you have to don't have assigned slots. it seemed like you still have a loose pool of labor there waiting for work. you are not reducing like the other contractors. instead, you are keeping this pool of unassigned labor. and it seems to me that is very contrary to general odierno's hopes for our footprint. do you want to respond? go ahead. >> i am not aware of that particular piece of information. i will find out about it and in the 10 day period hopefully i will have an opportunity to provide a response for you on that. >> thank you. my time is up. >> let me just ask, will be a lot of answers where you are not aware? are you the person who should be answering these questions or is there someone else who should be at this desk? >> if we are talking about business systems, i will be able to answer a majority of the

questions. and respect to a specific operational action that was taken by ivo and his team in theater, i may be aware of it but i would hate to misquote the record. >> i would like to go after a line of questioning that frankly mystifies me. and if i could just start with an understanding so we can share the same understanding. briefly, you are each publicly traded companies? >> yes, sir. >> you each comply with a overseen by the sec and other agencies and you filed financial statements and can case in every thing else that goes along with that, right? >> yes. you each have an extra auditor, right? >> yes, sir. >> can you say the name of that auditor firm? >> for fluor is ernst and young. >> deloitte. >> kpmg. >> okay. so you have these different audit firms. now, they provide you, i assume, each of you has an unqualified clean opinion on your financial

statements, is that correct? >> yes, sir. >> yes. >> what would the reaction be to your company's value much lesser company's reputation if you were to lose that opinion, to have either a qualified opinion or an adverse opinion former extra auditor's? which basically would say your books aren't worthwhile. what would be the general sense of reaction to that? briefly, in order. >> i will answer for dyncorp i think you would be significant. >> i think would represent a lack of confidence in our financial systems. >> i agree with that. >> i would agree with that, commissioner. >> so you each have a clean opinion if you were to lose that opinion, it would be probably one of your cfo's worst days, right? making light of a very serious thing i guess. but here's what i don't quite connect. if the standards are public companies here, government accounting here, then i can

understand why it is so difficult to climb this mountain to get greens instead of reds and yellows. but the piece i am trying to put together in my mind is if you're externally audit it, clean opinion, compliant, i would imagine. so you are doing all that, but at the same time we can produce -- these are the same systems that run your financial statements that run billing and estimating and your financial accounting systems. what am i missing? do you have a good opinion, but at the same time you've got systems that are not passing mustard. what am i not getting? >> i will take that first and then give the other witnesses a chance to respond. for our systems here, it was discussed earlier today, we have three systems that just in june were assessed as inadequate. so this is a real-time issue for us.

and to your analogy i think it is a good one. i think it is not only a cfos potential worst nightmare. is also a ceo's worst nightmare and we take very seriously. there were 19 findings across those three systems, roughly neck and findings. and somebody earlier said this is not rocket science, and i agree. and i believe that all of those issues are correctable and fixable, and as commissioner tivo has described, we have approval or at least agreement from dcaa on two of our three systems and are corrective actions. the third is our compensation system and i believe there are five questions that dcaa comeback with. and that when i looked at them i think there'll easily ansell, crick fixable. the issue that i see is, and this came up this morning as well. there is some subjectivity in the approach to show or demonstrate compliance to a regulation. and within that subjectivity, people can have a different opinion of what it takes to be

compliant. these rankings represent what the auditors who came to see us and evaluate our systems at the appointed time determined to be findings, and inadequacies that needed to be addressed. as we sit here today, that is the current status of our system. but i do believe those 19 findings are all addressable. >> good. thank you. mr. walter. >> we also take this very seriously. i was hired by the company in 2003 based on the experience that i had in helping companies with these types of issues. when we came in, we have taken a very, very serious look at a very focused effort on identifying the issues raised by the auditors as they come in. and if we need to implement a corrective action, we will implement the corrective action. there are some cases -- >> you say if we need to? >> there are some questions we may not agree with the auditors position as to whether an item is a significant deficiency or not.

and those we work correctly with the auditor and we do have monthly meetings that we have had for the past couple of years to discuss the specific issues being raised, and if the corrective action plan is required, what are the steps we're taking, how are we progressing against those steps. >> roughly, how much of the time do you take issue with the findings as opposed to just shrugging and fixing? >> i would say probably about half the time the issues we look at, we agree with. and we will make the change is. >> in the case where you disagree with the auditor, what happens? it just stays status quo, stays yellow or red until when? >> with the items that are disagreeing with where we do disagree with the auditor, those do remain status quo, but there are just a very small handful of those particular items.

the other issue is when the auditor does raise a question, and they identify what the issue is half the time it is simply getting people together to really understand what the reality is into contingency side, where the people are working in the battlefield as opposed to what an auditor may expect with a company that has a sophisticated manufacturing system where they have blueprints and manufacturing production schedules, which we do not have an iraqi. >> okay. mr. methot? >> from fluor's respect, i would agree with the first two witnesses comments. in general. of the three systems use either of fluor that are either inadequate or any adequate in part over the years, there isn't one issue in there that isn't addressable. why aren't they complete, or why aren't the result? clearly there is a process that you heard at length this morning, and that process goes

through a contracting officer. and with dcaa. we do have monthly meetings with dcaa offices that review us as well as our contract -- our corporate administrative contracting officer. and we attempt to resolve issues, much of that are status reporting. but quite frankly and when it gets right down to it is a matter of education from a contracting officer, and we provide all the appropriate supporting data that we need to provide in order for the individual to make a decision is. >> i need to move onto the next part of the question. mr. ballhaus, and your statement, i was struck by the statement accused in some cases we may not have concurred with dcaa's findings that we revise our procedures or processes as recommended by dcaa. >> that is correct. >> what is your philosophy there? >> i believe of the 19 findings and it may not have these number try but there may be two or three that we did not agree with. that said, we decided to follow

the recommendation. and i do want to comment, that the findings in our systems have nothing to do with the billion lines of software code. it is literally policies, procedures and training, those kinds of things. and we look at it and we said look, we don't agree. we may not agree this is absolutely necessary but in the subjectivity around compliance we will follow their lead and the recommendation because we want those systems bring. >> we will give it to you. we will do it, right? >> i think that to me, is a strong statement. it is a clear statement of intent, and you are spending your time it seems fixing rather than disagreeing professionally. and if i read all of your testimony here about the three systems, it seems like you are waiting to hear back from dcaa to get a different grade. you have responded in three of three cases, and that to me that is a leaning forward position witting to hear back. >> just to be fair to dcaa because they have responded to

the corrective action plans, the next that would be for them to come in and assess the adequacy of the controls we put in place and that is something that we will be ray for in the september timeframe and welcome in. >> thank you. >> the logical follow-up to that is mr. walter, if dyncorp finds this doable, why doesn't kbr find distillable? why does kbr have to go from 2003 until 2009 with dcaa's determination that you haven't met the adequacy's of these systems? why it is so simple for mr. ballhaus and it is so complicated for you? >> well kaw i wish i knew the complete answer to that, but i can't say that kbr does share the same attitude. >> i don't see the action supporting that statement. >> not in the result on the table, ma'am, but we have -- >> where is it then if it is not in the results on the table? >> is in the meetings that we do hold with the dcaa. for example, in our accounting

system the auditors have identified that we don't have a policies and procedures with respect to an allowable cost prohibitive by that we don't have procedures with respect to updating our cost of having standards. we update our cost accounting standards, disclosure statements annually. we do have a policy and procedure in place that we provided to the auditors several years ago. the same for the unallowable cost. get, the audit reports have not had the complete follow-through as we have gone through. part of what i hold the monthly bees is to try to push this particular requirement to try to get the answers to these items so that we can get down to, you know, be able to make that yellow and green. >> not only has yellow not become green but on the purchasing system, the yellow has become red. and yet you are saying that you are doing everything you can to meet these terms and conditions of having inadequate business system. how does the purchasing system go from yellow to red? >> the purchasing system went from yellow to red for

ms. stephenson comments because of the billion dollars of unsupported costs on the task order 159, flash report that came out of it both estimating as well as purchasing. in it, we had kept dcaa informed of the subcontracts that we were competing. we had recomputed every single contract in the iraq theater for that particular task order. as the dcaa came up with questions, for our team and in the form of stations and conditions and recommendations they identify that they had concerned with where we didn't always go with a low bidder on sub contracts. and on those where we didn't did, or we didn't go with the low bidder, we provided the dcaa with occupations that we sat down with the government and we show them what our recommendations were, and the government came to us and said that, if you swap out the competitors here there's going to be some additional cost to the government that you need to take into consideration. so therefore, the incumbent is

actually a lower cost. we provided that documentation. we provided the procurement files to the dcaa for those particular subcontracts. we also have some subcontracts where dcaa saw that we had bidders that were higher than a subcontract where we had exercisable options, and the recommendation was made that we needed to go in and negotiate a lower price on the exercisable option, even though that was a valid computed subcontracts maxa basically you think dcaa is wrong and you're going to do what you want, despite what dcaa says. >> no, ma'am. >> or are you going to convince dcma to go with you as opposed to dcaa? is that what happens, you do a lot lobbing with dcma to make this yellow code red to green? >> no. what we do we've had a lot of challenges in the past because of pork and mitigation. when it came to task order 159, we set up a subcontracting plan to identify which subcontracts we would recompute. we kept dcaa apprised of that.

dcaa would not review it because under their guidelines, until they had a complete package, they would not be able to audit that package for fear of an ipt or a conflict of insurance. we kept them in fort. we kept providing the documentation. at the time the task order was executed, we issued those of subcontracts and we have to continue performance. the question is, on those subcontracts that are existing and we are performing on, the question is is there adequate price competition on those, did kbr's procurement team in theater who made the decision and worked with the government do the right thing. so it is not a question of us trying to tell dcaa that we are trying to lobby with someone else. it is the contingency environment that we are working in. i can't withhold those subcontracts and say i am not going to award the contract and not provide the support to the soldier for the food service or for the firefighting, which is what those contracts were. so we are trying to work through it, but it is the events of the

day and the fact that you can't date you can't stop something. . . >> back in 2004 we've talked about the utility or the nonutility of withholds from contractors this morning. back in 2004 there was a recommendation by a contracting

officer for a 15 percent withhold of kbr. you were at kbr at that time because you were there in 2003. >> yes, ma'am. >> and kbr objected to that withhold. >> yes, we did. >> i would say you mightily objected to the withhold, and you sought a waiver of the withhold. the law requires a withhold if you don't have a definitized contract, and you wanted a wafer of the -- waiver, is that right? that is right. >> we wanted a waiver of the withhold, yes, ma'am. >> yes. and so it ended up going up to deidre lee in order to get that withhold, right? >> i believe that's who it went to. >> right. so we're looking at the role of contracting in a contingency environment, and i want to ask you because i'm trying to got at whether contractors in a contingency environment have us over a barrel to some extent because of our concerns about the protections of the soldiers. so it's important for me to know whether anybody at kbr

essentially argued up the contracting chain of command that if you were subject to the 15 percent withhold and you didn't get the award fee that you were looking for, that the needs of the troops might not be met. was that the reason you were supportive of a waiver and against the withhold, that you thought it would have a consequence to the soldiers in the field? >> we've had many discussions about that because there's been a lot of publicity about allegations associated with that particular time that came out years later. i do know that i was at rock island, and we were having a teaming conference when that particular issue came up. i was not in support of that because we had already had significant investment of our own working capital -- >> you were not in support of what? >> of the 15 president with-- percent withhold for two reasons. the second item was the fact that the reason for the delay in

defintizing the task orders which is what caused -- >> right. >> -- the issue was the fact that from the end of 2002 through the beginning of 2003 there were a significant number of task orders that were issued to support the escalation of the war. at the same time, the task order was issued for task order 59 which was the largest one, we had an estimate in place, we had provided that to the government, and that was basically to provide food service for the troops in a very rapid manner. >> i just want to know whether you argued that the 15 percent withhold would affect the needs of the troops. >> i cannot recall making that argument, ma'am, no. >> my time's up. >> you know, i don't want to drop this because this is a key point. the key point is that the withholds don't happen because there is either a direct or

implied view that if the withhold happens, the service doesn't get provided to the troops. i would have thought you would have said let me state unequivocally whatever happens we're going to make sure we provide the service, and we would not under any circumstance withhold that service. are you prepared to say that or not? >> that, that would be my view, sir, yes. >> i don't understand your view. what is your view? is that the view of your company? you're not here with your view, you're here as the company. and if you're not the right person to sit here, we need someone else. can you speak for your company? >> yes, i can speak for my company. >> okay. then i'd like an answer for the question. >> we will not let the service to the soldier go down. >> and the next question then is have you ever implied directly or implied to the government that if they withheld money, the service would not be provided? >> i have not, and i am not aware of any statement that was

made such as that. >> by your company. >> by my company. >> okay, thank you. >> yeah. you mentioned that you've had monthly meetings with dcaa, mr. walter. >> i have monthly meetings on systems, and i invite dcaa, yes, sir. >> okay. how, when did those meetings start? >> the initial meeting was associated with our procurement system, and that one began in 2004. >> 2004. okay. >> yes. >> now i'm looking at this chart here, and i see that dcaa has had, felt that your estimating systems have been inadequate in part since 2005. september 2005. we are now in august of 2009. by my simple reckoning and by what you just said, you have had 47 meetings with dcaa, and you couldn't work it out whereas

mr. ballhouse says he goes out of his way to work it out. were you guys stone walling? >> no, sir. >> why can't you work it out with 47 meetings? >> with respect to our estimating system, the initial issue that was raised dealt with the ability to update proposals for actual costs that were incurred after a task order began. we worked very closely with dcaa, we worked very closely with the army to figure out as the progress is progressing. you're incurring actual costs. as you incur actual costs under the truth in negotiations act we have to be able to identify all of our cost or pricing data which includes actual costs that we're including. as we were performing under task order 59, we were incurl costs. -- incurring costs. as we submitted a proposal to the government, that proposal was then audited.

time has passed, i now have more actual costs that i have to go back and put into my cost estimate. it's a vicious cycle that we were stuck in. under task order 89, the following one -- >> wait a minute. you say you're a vicious cycle, and you were stuck in it because you, obviously, refused and now after 47 meetings to turn around and say, well, okay, we'll solve this. i mean, that's the only vicious cycle. otherwise mr. ballhouse could say he's in a vicious cycle. why is your cycle any more vicious than anybody else's? >> when it comes to the the inclusion of the actual costs into the estimating system, we did find a way to accomplish that to the satisfaction of the auditors, we thought, okay? and as we updated our policies and procedures, we got the estimating system in place. we've also had outside audits -- >> that chart says it's not been completely addressed. it's yellow. >> i, i understand. >> so -- >> it is.

>> -- you obviously haven't satisfied the auditors. >> the issues that are still open on our estimating, sir, are differences of judgments. >> well, but that's my point. after 47 meetings you still haven't sorted it out. well, let's go to another one. billing, okay? that's december '06. so now we're not talking about 47 meetings, we're talking about roughly, i don't know, 30-some-odd meetings, okay? why haven't you sorted that one out? >> okay. for, for the record with the procurement system that's the one that started out in 2004, and it was not a monthly meeting. for the estimating, the accounting and the billing system those started at the end of 2007. >> oh, so for quite some time you didn't really reach out to dcaa at all is what you're telling me. >> no, sir. i personally believe that we were trying to work out with dcaa. we had proposed many different ways to accomplish it. but based on the environment that we're working in, the --

>> the environment? what do you mean? this isn't 2003. i was in the government in 2003 and in 2004. >> yes, sir. >> and i can tell you the environment now is not what it was in 2003 and 2004, and you know it. >> it is -- >> so talk to me about -- >> it is a different environment, but it is not at all a stateside environment. >> no, it's not a safe environment. it's not the environment of this particular committee room, but you're not going to tell me it's as unsafe now as it was in 2003 and that, therefore, you cannot deal with an environment where these other two companies seem perfectly able to deal with the environment. why is your environment so different? >> okay. what we're working with is -- and i believe that we do have open and honest dialogue with the auditors in theater, okay? we're not trying to say we're not going to accept your changes. we try to address the changes as they're presented. sometimes we do get stuck behind the power curve, and right now our estimating system is

deficient in the eyes of the dcaa because of the purchasing system review. >> okay. well, what about the billing and accounting systems? >> the accounting system we have basically two items that are, that we're trying to work through with the dcaa. the one deals with the description that we put into a field in our automated system that's associated with a journal voucher. so if we have a journal entry that goes into the accounting system, our accountants used to just put in a phrase that said transfer cost. we have gone in, and we have provided updated descriptions, we have provided training so that our guys -- >> okay, i've got only 2:20. can you give me the answers to those questions for the record, please, what the differences are and what's holding you up from, you know, accommodating dcaa on these two areas? my final question is this,

you've just made a statement that you couldn't withhold anything from a sub because, after all, you're relying on those subs. my question is haven't you looked for other subs? is there only one sub in the world for one particular cast? there are people dying to be subs last time i checked. so if somebody isn't performing, i mean, after all, you are responsible for your sures. i don't know if you give them a liability of limitation or what. you are responsible as the prime, and if your sub isn't performing, you can't come back to the government and say, well, sub's not performing. you just terminate for default and get yourself another sub, in effect. now, to what extent have you ever done that? have you fired a single sub? if so, how many subs have you fired? >> we have fired some subs, i would have to get the exact number for you, but significant numbers especially in the

'02-'03 time frame. >> i'm much more interested in recently. you've talked about '03, give me the last two years. >> recompete task order 159. we recompeted every single subaccurate that was out there -- subcontract that was out there. with a new vendor with a lower price, those are the ones we attempted to replace. there were some that were identified with additional costs for the government to incur, so there has been a significant change in the, the both the makeup of the subcontractors that do work for kbr. these subcontractors are normally on about a six-month contract with a six-month option, and if they're not performing, we will recompete that particular subcontract. >> and you've done that. >> yes, sir, we have done that. >> thank you. >> thank you.

most of my questions are going to be kbr, and that being so probably all of them in this 8-minute round. i want to preface that by saying i'm not anticert, i think that's true for all of us, and i'm not anti-kbr. in fact, there were three comments that i particularly supported and two of those comments were kbr ones. one was that contractors ought to be involved at the inception of contingency conflicts. i think i strongly agree with that, we've talked about that internally, and the second one is that the government needs to speak with one voice so it's clear to you contractors what you can and can't do. that leads to mind first question to kbr, and we've talked about this a little bit, i think we understand the inception of the war in iraq and afghanistan, but as is clear we're now in 2009, and these problems largely persist with regard to kbr. in fact, in certain instances they've actually gotten worse.

so my question, i was struck by your boast, really, in your statement that on page 2 our systems are regularly reviewed and approved by the government. what you really mean by that, isn't it, is that your systems are regularly reviewed and approved by dcma, by dcaa, and doesn't that go to what you said earlier, that the fact that government doesn't speak with one voice in this instance allows kbr, to be candid, to play dcma off against dca and to tout yourself as you've done in your statement by saying that the government has reviewed and approved your systems? >> it is not my intense to play one agency off of the other, sir. what we do is when we have a system and a system approval per the current confines of the regulations, they state that the administrative contracting officer determine cans the adequacy -- determines the adequacy of that system. we're playing by the rules and

doing our best to try to satisfy the dcaa auditors with the examples that they present to us and with our corrective actions that we've butt in place -- put in place that we are complying with the framework guidelines. >> yeah. well, i appreciate that answer because i think by that answer and by your statement here you really have underscored for us what really is the fundamental problem, or at least a fundamental problem, probably the fundamental problem that ought to be corrected by this commission that you could say in your statement and now defend that your systems are regularly reviewed and approved by the government notwithstanding what we've heard from dcaa, i think, says a lot. let me ask some specific questions. one is this: there was a tiger team review, we understand from ms. stevenson's testimony, of various subcontracting practices that kbr was involved in early on. and i guess a threshold question is what is kbr's -- and i'm going to ask this of the other

contractors if i have a chance to -- what is kbr's philosophy about making the results of your internal reviews, whatever you call them internal reviews, managementreviews, whatever, available to the government when we're talking about evidence of fraud that your team has uncovered or substantiated? >> one i would like to make a statement on very clearly is that of the individuals who have been identified as committing fraud for kbr, those are management reviews that were completed by kbr where through the voluntary disclosure program and through our ethics program we went to department of justice to make sure that they understood all the information we had, the results of our investigations. with regards to the tiger team that you're talking about, we have provided dcaa with access to the members of the tiger team. as aye mentioned -- i mentioned in my statement as this thing took off, there was a lot of things that were happening in the 2002-2003 time frame, and

the documentation was lacking. in great part because we could not get enough trained procurement professionals in theater. >> okay. since my time's limited you're saying that you've made the tiger team available, the personnel available to dcaa to talk to, is that what you saidsome. >> yes, sir. >> and have you provided the results, the actual documentation that the tiger team arrived at? >> what i have explained to the dcaa is the tiger team's role was to insure that the procurement files were current, accurate, and complete. so the tiger team provided the procurement files that we provided were the work product of that tiger team. there is a question about a memo that was cited in "the wall street journal" that we cannot track down. i don't know what that is, i have not been able to provide that memo or anything about that memo to the dcaa. but we have provided the time sheets, the individuals, the invoices from outside consultants that we were using to help us get that period of

time caught up. >> so your testimony is that any and all documentation produced by the tiger team to kbr management has, in fact, been provided to the dcaa to the best of your knowledge? >> to the best of my knowledge. >> all right. could we just really clarify? because this is a point under oath. and i'm only saying that because i want you to be very sure that if this team put together documents that was available to management that was not shared with dcaa, then your question would be incorrect. so i want to have you -- and i'm asking it a second time because we're going to check it out, and you will not be in doubt of our interests in this. >> uh-huh. >> so i'd like you to just stop a second and think is there any documentation that was provided to you that you did not share with dcaa that was related to any of the activities of the tiger team?

>> before you answer that -- >> no, i don't -- >> no, let him answer it. >> go ahead. i want to add one more part to the question. >> okay. >> and the one more part to the question, you know, i'm having déjà vu as i'm listening to this discussion because i was directly involved in that debate. and the reason the tiger team was set up is because kbr decided to do that and had issues to address. but also the reason it was set up was to defer certain government decisions, and they requested that dca hold off on doing some work that dca wanted to do themselves. i was directly involved in communicating with our staff there. and so we agreed. and the debate began shortly thereafter because the agreement was all work product would be provided, and that's the proper

verbage, that anyone there provided, and then there was this long, drawn-out debate about, well, and it finally ended up, well, it was just conversation, so we'll give you access to the people. that's kind of where it's at. but i'll restate the question. is there in the language of the land which is is there any other work product that has not been provided to the government? >> okay. i was very involved in the tiger team. i'm also very involved in the dcaa audit of 2003 and 2004 where this has come up a number of times. the purpose of the tiger team was to send experienced procurement officials in on a short-term basis so that they could update the procurement files. that information has been provide today the dcaa. i am not aware of any special reports that the tiger team put together, and i was very involved in it, okay? so i'm not aware of any reports that we have not provided to dcaa. the only issue of contention is

a document, some sort of an internal memo that was specified during a "wall street journal" article that i have searched high and low within our firms through the executives to try to obtain a copy of, and i cannot provide something that i don't have. >> okay. the only other thing i'd say -- that's a clear answer -- is i would consider work product memoranda as whether that or notes or reports, status reports and the like. and what i've heard is there's no other work product that you're aware of. >> not that i'm aware of, sir. >> i'm going to ask the question again. i'm going to ask have you provided any and all information to dcaa or any other government, excuse me, dcaa that was presented to you, anyone in the company, to the board, to the

ceo that was not provided -- let me state it, i'm going to state it, i'm going to restate it. is any and all information that the tiger group did that was presented to management either memorandums, e-mails, special reports as you named it or any other document been provided to dcaa? do they have all of the documents that any of the management team has received? >> based on the exceptional detail of your scope, i request that i be able to check to make sure that i have answered that. i do not believe that we have provided every e-mail that says tiger team, but i do believe that we have provided all of the principle documents that identify that. >> i think it's better to qualify and then let me just make this point, that any documents that you discover, will you give them to dcaa? >> i will review that with my management team. i can't think of any reason why

i wouldn't, sir. >> then any documents that you don't, i would like you to inform the committee what documents you haven't given. >> i will do that. >> okay. >> i think a couple of more minutes left. just let me broaden this a little bit. what is kbr's position, let's forget the tiger team specifically, what is kbr's position about making available to the government, to dcaa in particular, the results of all internal reviews and management reviews regarding performance? in theater? >> with regards to management reviews that we do for evaluating journal vouchers, evaluating time sheets, we do share those results with the dcaa. we were initially hesitant to do that in great part because i wasn't satisfy with the the quality of the reviews we were doing, but for about the past year and a half or so we have been providing those reviews. the only documents that we do not provide to dcaa are internal audit reports. >> mr. ballhouse, what's

dyncorp's position on this? >> yeah, well, relative to internal audit reports we do give dcaa access to our reports. i don't believe we give them copies of the work product, but we do allow them to look at those and have access to them. >> mr. methot? >> we generally provide listings of all of our internal audits and all of our management assessments performed during the year as part of control reviews, and so we generally do provide those. but in some cases we don't -- in most cases we do not provide the actual work product themselves. >> let me just ask two final questions, and then i'll continue this in the second round. the promise of log cap 4 and the transition from 3 to 4, was that the government, the taxpayer, the american people would realize some savings because of the greater competition that would be induced by that. and there have been a number of

examples already to suggest that that hasn't happened, it may not happen going forward all of which is very troubling to us, as you might imagine. and in particular back to you, mr. walter, we understand that kbr made it very difficult, extremely difficult for those kbr employees who wished to do so to be employed by your successor, by dyncorp, to do so. and that the first kbr employees who advised that they were going to or had accepted positions with dyncorp were summarily fired in order to leave kuwait in 48 hours. and this included a number of employees with many years of service to kbr. is our understanding correct? >> there are certain visa issues that are associated with working in iraq. to be there on a work visa, you have to be an employee of kbr. unfortunately, due to the visa processes and legal issues associated with being in the country under a sponsor, we had to demobilize those employees that were going to work for

fluor to dyncorp. >> so you're saying to us in those instances where you fired people, it is because they had visa issues and not because they advised you they intended to work for dyncorp? >> once the employee makes the decision to work for dyncorp, i have to find out how i'm going to get the work done that that employee was doing. once they tell us that they're going to work for dyncorp, it was our practice to terminate the employees at that date so that, you know, they could go work for dyncorp, do whatever they needed to do. our team did make recommendations to the government crew on the transition about the issues associated with visas and the importance of getting all of those things lined up. >> let me ask one final question. i.t. systems and deletion of files. it's our understanding that during the course of transition

again, from log cap 3 to log cap 4 that kbr removed hard copies of extensive maintenance data on vehicles. did that, in fact, happen? did you delete the electronic files, and if so, why did you do that? and if you did that after i hear your explanation for it, i presume that there's a backup of that and would like to know whether you'd make the backup available. >> unfortunately, that's an operational issue. thisthis is the first time i've heard that statement coming up, and i've been involved in many briefings on the transition. i will have to talk to the transition team for kuwait to get you that answer, sir. >> all right. so this particular issue you're completely unaware of? >> i've heard of many different challenges, but i've never heard of that type of an issue, sir. >> thank you. i'm done. >> just a quick one to mr. ballhouse, are you aware of the issue? >> no, sir, i'm not. >> okay. >> my question is sort of a follow on to what commissioner

irvin said --er vin said, and i'd like mr. ballhaus to respond in a more general way. but when contractors turn over, it's common for the incoming contractor, of course, to hire a lot of personnel from the outgoing, the existing contractor. i assume that both in your estimating and labor systems you'd include assumptions about how many of those folks that you would plan to hire. in preparing your cost proposals and after a ward of the -- award of the transition plan, what extent did you assume that you would hire the outgoing contractor's work force? and what obstacles, if any, did you encounter in kuwait, and how did it affect the assumptions in

your cost and labor-estimating systems? >> yeah. let me answer it this way. in our proposal for the kuwait task orders, we had a certain assumption and plan for mix of personnel and specifically i mean mix of expats versus local nationals that was a different mix, that was utilized by the incumbent. and that was our plan, and that's what our proposal was based on. as we got awarded the contract and worked with the customer on the specifics of the transition plan, there was a compression of the transition. and what that compression forced to happen was rather than allow for the time to shift the mix so that the labor cost savings could be achieved because with a lower mix of ex-pat to total population it's a lower cost,

because of the compressioned transition, we were forced to take on a larger percentage of the incumbent work force than we had planned. with a longer transition, we were planning on more time for recruiting so that we could change the mix of the work force as the customer directed a shorter transition, we were forced to keep the same mix, and so the question around why wasn't there a cost savings, that's one of the reasons why there wasn't a cost savings yet, because we weren't able yet to shift the mix, but we will over time. ..

>> we had proposed. as we adjusted the estimates for the true scope on the program, that number went up also. i wanted to just clarify on those additional points in addition to the mix issue. i apologize for going off track. >> that's fine. the other one, i would like to reinforce what commission said what he comment about the files and destruction of any records. and just clarify that little so we get an accurate respond back. i think it's our sense that i.t. systems should prevent and have systems that prevent the files and provide back up.

in the course of that particular one, it was reported that kbr did in fact remove hard copies of expensive maintenance data and they also deleted the electronic files for such records. there was another incident not related to that, related to an airfield transition that existing project files were also not in coming to the new contractor which caused some delay. so the question is, you know, how is it that an i.t. system would allow the files containing government data and does the back up of deleted files. if so, are you prepared to turn those over? i know you're going to provide that for the record. but i'm very interested in that.

the last for this round that i have, kind of a softball. and i'd like responses from any or all of you. in your testimony, and you made reference in your oral presentation also, it would be helpful with the commission would identify means that will allow the government to speak with a single voice to instructing contractors. i would like to hear how you would propose, and how you would propose that did done to simplify your life. >> to simplify our life, the single voice. however the government developed it, would work for us. as i said in my testimony i do take guidance and direction from acos in the theater, i take

direction from contracting officers, i get input from dcaa, and we do our best. as i try to answer the questions for one individual to satisfy their interpretation of how something should be done. i often times go awry. within the environment, it's not just the bullets flying, et cetera, it's also a very significant transition impact. most of the government individuals are there for 180 days. that's generally half a year. that causing me with significant challenges. as they are there, they get up to speed with the environment. then they have their ticket home and as i'm going along in a path, i'm not in the same channel. i would like to see longer terms for individuals in theater, our individuals are generally there for a one-year contract.

generally they are there for about 18 months. that constant turnover as well as the different voices causes us great concern. however the government decided to do it, we're a contractor, we'll find our way to work within that confine. >> i think a single voice would be helpful. i think for me as i just reflect on the challenges that we're trying to work through, timeliness and urgency, would be the characteristic that i would like to see shifted and changed most. i think most systems can work or fail and it depends on the people that are in them and their attitude and their mindset. i think based on what we heard this morning, there is an opportunity to improve the system and one voice might help that. at the same time we do a lot of work within the existing system. and i think across the board

between government and contractors, timely response, things would work better. i think standards in terms of timeline of response and business systems is something that i think would have a lot of value. >> thank you. >> i believe that clearly a single voice in the government would be a great improvement. in my mind, the issues that we've had in the past clearly fall between a subjective evaluation process that leads to differences of opinions, differences of opinions between the contractor and the contract or -- and between the two government agencies. clearly one single voice would get rid of that kind of situation and lead to more limely determinations of

adequacy and reduce the confusion that exists today. >> thank you. >> speaking with one voice doesn't mean that it would necessarily be dcmas decision. it might be dcaas decision. and so mr. walter, in your statement, when you said our systems are reviewed and approved by the government that was dcma, if you did dcaa, you would more likely say they are reviewed and disapproved by the government. i think of all the things that i've heard today i think that is the most telling because it does illustrate the problem that we had. and it was mr. comment. the only reason i'm repeating it like you're under oath and the

tiger team and all of that, i don't want the basic point to be missed. i'm wrestling with the fact that somehow we had this conversation with commissioner zakheim. the charts are all yellow. it seems like a matter of fact conversation. they are all yellow. we all disagree. therefore, case closed. i always feel like i'm a youngest of four boys, i tell most that my older brother is the most intelligent and i'm the smartest. i learned from all the mistakes they did, and i didn't make them. i probably did a few others. but i'm thinking your two partners, they are newer kids on the block. and they learned from the bad

habit that kpr got into. that was basically go to dcma and forget dcaa, and we'll just toss it through. and i think the better approach is even if you disagree try to comply. i think that's one of the lessons that i've seen happen here. we all support contracting. we all know that it is indispensable. if we voted congress to have a military be the tip of the sphere, then we don't want them to be crooked. we may not want them to be security guards, maybe in some we would. we don't want them building buildings, we don't want them doing things that contractors can do. we don't need tour sold on the need to have contractors. but what i need to be sold on is that there is going to be some general outrage with what's

happened in the past. and somehow what i've been hearing is well, that's the way we did it. i have been stunned to learn, and i'm naive about this, that some contractors are auditable. and 70% of the workers and contractors, how convenience. i'm stunned that people can put three or four hours on plumbing and electrical work, they charge for 12. they say that's the way we do it. why we might have 12 plumber when we only need two. and we charge for 12. then i ask people why it happened. it's kind of in the contract they have to be on duty 12 hours at a time. what i want to ask each of you, if you were, and i'm going to give you some choices. if you, and maybe it's not the work you do, but it tells me

your mentality. if you were asked to build a new dining facility when you had just renovated and you know the troops are leaving, would you renovate it? are you sure you want me to do this because you don't need it? i'd like to know if you had 12 people assigned to do the job of two, would you say well we have 12 that's what the contract is or would you come back proactively and say we only need two. by the way we'll have one person of the five that are there on call and the other three will put in an eight-hour day. i want you to tell me what your approach would be with the government. i'm going to go down the line and have you respond. >> the way i would approach is that is in your first exam. if there's a dining hall

facility and we have to build one right next to it. clearly we would ask if that was necessary. only because we're taxpayer too. if we're directed to do it out of the task order and work contract, i'll do that, of course we're going to build that facility. in your other example, where we have multiple servicemen assigned, electricians, whatever the example is, and we don't have sufficient people, we're not going to charge for work not performed. but again we're new kids on the block. this is a philosophy. we always go to work contracting officer or their representative and ask are you sure you want us to do this. so clearly that is the philosophical approach of hey, we have to protect the taxpayers dollars. >> sir, we do the right thing.

we're significant piece of orients training and mentoring and we work ourself out of business over time. that's the intent of a big piece of our business. we're used to working through a program to try to do the right thing. over the last year i can give you examples of where we've laid people off on cost-plus programs trying to get cost out of the system so we can have and deliver a more cost-efficientive better value system. so in the example it's a hypothetical example, but to me that doesn't pass the goofy test. doing the right thing we'd come forward and say that's not something we'd be interested in doing. >> mr. walter. >> with respect to your example, sir, that is the case where the government is speaking with one voice would be great. under our contract, we did renovate a dining facility. and we did what we thought was a

fantastic job on that dining facility. at the same time under a separate contract, or separate agency, they requested send out a solicitation to a number of groups says we'd like people to bid on this work. we bid and won through a separate organization of the company. so having one government agency working or one voice working there would have helped to avoid any potential concerns that you would have on that. >> the two dod agencies. okay? >> no, it was one department. it was the dod. it was probably the army? >> correct. >> so it was the army in both cases and nobody from kbr went to senior in the army and said what are you doing? >> we did not have the visibility into the details.

we didn't know what the planning was. >> excuse me. may i? >> yes. >> you knew they were asking for a new facility. you knew you had just renovating a facility. you're going to tell me you didn't say what's going on? >> the way that kbr has been forced to set up the contract is we are not allowed to be able to set up marketing per sea -- per se with the people. we do what we are told to do. the work to bill -- >> wait. this is not marketing. this is going from a senior official such as yourself to a senior official of the army saying that is nuts. that is nothing to do the marketing. in fact, it's the opposite. i don't understand why you guys simply do not go to the undersecretary or deputy

undersecretary or four star or three star and say do you realize what you have just done? >> with all of the publicity and information out there today, it makes it seem as though there's a crystal clear question. at the time it was built under a contract to provide a building, one of many types of construction. >> can i point out, haven't you had criticism that you don't seek cost saving? the answer is yes by the way. >> okay. i would have to go back to that. >> it is yes. >> let me just add, mr. walter, this question, is there anyone fired either who worked for kbr

or with a kbr subas a result of the work of the tiger team? i'll repeat it again. >> i'm just trying to think. >> i would you to think. this is not a tough question. is there anyone prior who worked for kbr or was it kbr sub as a result of the work of the tiger team? >> i will have to check on that and get back to you, sir. >> how long will that take? >> within the 10 days. >> why don't you do it within the five days? that would be appreciated. >> i will be happy to do that. >> technology. i just want to wrap up what we were saying before. i had a reason to ask you that,

obviously, about your personal role. because again my history over a long time is when a ceo and chief financial officer with no respect to all of the other positions in the company, including interface with the government at all levels. and you chief financial officer, the dcaa manager person, she said that she met regularly, whatever she had an issue she would talk to your chief financial officer. not the government compliance deputy director or something. that person is critical. and he said that that's helped a lot. and so i share that. i just have a couple of items, mr. walter, i would ask you that

i think -- and we've agreed on commissioner's question was there any discussion about the company's ability to feed and house troops. was there any that would deny or couldn't do the work? when we have visited a couple of locations, and i don't know two or three, but i got them when they were given to us. i see some head nods. i have seen correspondence, i don't know the what said what said that said that something along the lines that if they whistle is taken, specificically, that the company could be put under financial stress. i believe those are the words used. so and so and so and so in the company, and that was written,

and it was signed by someone isn't the company. it could impact our ability to -- and i'm making this part out, to house its feet. i would ask you in your research on this for the record to go back and take a look and see if it's there. >> i won't be boxed out. i will find the answer. >> i've seen it, and we have all files and folders. i have it in a folder. part of why i let in with my next to last, part of why i led in with the question is just to be candid. after our last hearing, we got quite a letter from the president of kbr. and we as a commission discussed it.

i got beat up a bit for not responding quick and talking about it. and the point that is because there were items that we could have gone back and forth and clarified and got into a contest about you said this but it could have been this or that's not correct or something like that. i was kind of sitting on my hands as i was getting pummeled. but then time elapsed and we wrote a letter to your president after about a month. it's been out there for six or seven weeks. we said to him that we'd be glad to discussion anything that's of concern to you. but we'd really like to meet with you, the president, because we would like the opportunity, and i'm paraphrasing, we've made

that offer in the letter. what i'm trying to make the point is if you take any other message back in this -- and i know, you know, it's sort have ban phil walter day and i commend you for that for staying calm and giving good answers. it is that we would like to engage, kbr is an important supplier, we'd like to work with and understand we're trying to be prospective. sometimes you live in the past and present in order to identify what can be done. and we'd like to do that. if you take that message back. i've seen that individuals sit behind you shaking its head back and forth. i'll be glad to e-mail the letter asking for that session. >> if you could because as i said to my written testimony, we

have made every effort to provide as much information as we can. we've met about kuwait, iraq, i have in qualms. as for a letter that game into the commission to our president. >> it was signed. i accept that you haven't seen it. if you take a message back from this. we're trying to engage in a constructive dialogue. we're going to ask for it. if we appreciate you being here, no department, you both are very knowledgeable about the company. but we're going to be asking the same thing. there's a reason. because it impacts us. we'd like to get the feel for this is really important to us. if you can take that back, id be glad all morning or maybe we have a hearing, so tomorrow afternoon to e-mail that to

you. >> okay. >> all right. thanks. >> thank you mr. thibault. >> okay. i'm mostly would like to ask you some questions for the record afterwards. i think you are about to face the transition in afghanistan. we studied the one in kuwait, it was hell. everyone agrees that on all corporate and afghanistan was going to be hell to have a transition. i'm curious about your plans. are you going to follow the root into the water falls or are you going to learn government contracting and set things up right? they both thought they would. never of them did. okay.

questions for the record. i have a, mr. walter, i have a request for you to provide information to mr. sternly. the last page has this chart. i'm going to go into detail. it's the range of movement of kbr people. looks like a big movement. until you took it's the area of 20,000 and 21,000. and it's not even the whole area. it's like a very small movement. now what we would like is if you would range that mr. sternly would get the weekly briefing that you already give the pco on personnel. this is not any more work, the briefing you already give, and talk the personnel people on the par, not you, although you are welcome to somebody in the room.

it's not that. we want to unction it, he wants to understand it, agreeable? >> it's agreeable. >> okay. third, we had some questions from the other -- my fellow commissioners. i feel i let them down. they asked questions about your transition in kuwait. and these are sort of i'm not sure what the format will be. but they are from both our house and mr. walter. first of all the notion that you fired people when they were going to quit or work for the other company, that's nonsense. as in any transition, the people who are doing the work want to know if they will still be able to keep the jobs. they want to be able to ask. if you're coming in, will i be able to work? places like that are revolving door. the same people do the work.

we all know that. i teach it at the university of baltimore law school. my students know it. you're firing people who wanted to know will i be able to keep my job? we got the first hand knowledge that was asking the question and telling us about what happened to the computer records and paper records that were destroyed. he said yes we removed or proprietary information. we doubled our proprietary information on the vehicles. come on. we might want the people that more stars on the shoulder than they need to decide this. not just on the subject, maybe a briefing or briefing to our staff where the people who did the transition deal with the issue that we got from responsible government officials. are you agreeable to something like the fast briefing?

>> can i make, i am agreeable. can i make one comment? >> sure. i don't have much time left. 57 seconds. >> i think staff briefings are very useful. i like getting program reviews from my team. on something like the kuwait transition, i went and met with tommy marks. and i was there the week of june. i saw the challenges that our team faced. i saw the issues that we had. but the remarks and the feedback i got was very positive. i went and met and he gave us some issues and concerns that needed to be worked out. issues that had happened on the transition and concerns looking forward. so while i'm agreeable, i think there's a lot of value to going in country and meeting. >> i did. now i want to find out about the things that have been denied. last thing for you, mr. walter,

it's about the 15% withholding. suppose we are able to find the letter, the letter in which what happened was the contracting officer when you made orally suggestion that this would have strategic impact, but didn't have that effect. you didn't give him a rough estimate, you gave him a letter. if we find this mysterious letter. would you allow us to interview the officials that were involved in the letter. i don't want to play you are under oath, i'm finding how can we find it and deal with it. >> i believe we are talking about the same thing. i said i would go back and try to find that information. >> and i'm saying if there is such a letter can we interview

those who are involved in it? >> i don't see why we wouldn't be able to do that if they are still with the company. >> thank you. >> just by the nature of having a meeting and public dialogue can come across a certain way. part of the charter of this commission at least as we interpret is is to let people know how the contractor's are to american objectives. i think it would be surprising to the great majority of americans to know that 1400 contractors have been killed in this current war. can you tell us any have floor employees been killed in the war? or are you too new? >> currently we have had no

floor employees killed. >> mr. walter, how many kbr employees? >> i don't have the impact number. but it is over 100. but i will get you the exact number. that's something we take very seriously. we don't want to misrepresent the number. but it does cross multiple contracts, not just the contract we are talking about here. >> right. >> so we've lost 65, that included 12 from our joint ventures. >> what happened? >> we lost an employee last week who had a heart attack. >> okay. it's an easy question, it's a short question, it's an end-of the-day-softball question. i don't want to say contractors and employees are being

sacrificed as well. you can't find that as easily as you can the troops. but i don't want that you go without saying today. >> thank you. >> thank you. not to be the head horse, but i do have to make this one point. this is that dcma and dcaa did agree on one important item back in 2004. that was their analysis that we could back kbr on a 15% withhold. that was an issue if they could sustain themselves. those two agencies agreed that they could and would do that. they went on to say that they thought the 15% withhold would likely be passed on the subcontractors and that would affect the troops. so i want somehow those two agencies got the notion that there was going to be some

effect on that withhold, with respect to the troops. that's just an fyi. looking at withholds, i would to talk to each one of you about what the significance of a withhold is. we were pushing here for the agency to be more aggressive in using withholds. business systems can't be deemed rack ," then we have to use the carrot or stick to make this happen. the question is what effect do withholds have on you? i know that's general question. it depends on the size of a withhold. let's say a significant withhold. what does that mean to you? >> i can tell you to the floor it's on contention right away. it's happened to us before. and i think we have testified to that this morning. we're working hard to resolve issues that they brought up.

>> i think the term used this morning was the sledge hammer. i agree with that. it doesn't have to be a big withhold to contract the contractors attention. we have on one program a $2.5 million withhold that's been with us for seven months. in this instance we we believed we responded to the all the concerns that were raised, yet there is no respond and indication of how the withhold will end. that's one that not like a sledge hammer, leaves a bitter taste. but in terms of the carrot to the stick, i about lieuly support it. >> i agree with bill on those points. kbr's withholds that we have faced have been on special items. for those items that we have may have raised a question that we have agreed in some

circumstances not to bill the government for costs. the ones that we are going through the entire process where we believe the cost occurs responsibly. as for a system withhold, if there's doing to be a change to the way that the rules are written so that there is a system withhold what i do ask is that we make sure that as i said on my testimony that we do have subjective or objective standards that we can measure those against. >> do you believe you're in the law behind right now a withhold on adequate business system? is that kbr's season? -- opinion? >> that would be our opinion. >> but that is not sufficient regulatory authority? >> okay. can you rephrase the question, i'm sorry?

>> i didn't ask it very well. is there sufficient regulatory authority for the government to exercise withholds with respect to inadequate business systems? >> with the experience that i've had, i have not seen that it's there as i've read through the regulations. i don't see it there. >> it doesn't surprise me. your business and systems approved by dcma. just to take you back briefly on what commissioner shays said. that the responsibility of going with the contractors to save cost. i want to make sure to ask each of you. do you believe that you have an duty to the government to seek cost-saving on behalf of the government whether or not it's explicitly stated in your contract? >> absolutely.

>> yes. >> yes. >> good to hear that. let me just close quickly by saying, i want to put you on notice that we're concerned about this major cost increase on the task order on 70% increase. and that one thing we are really committed to is following law cap for and the transitions very, very seriously and in great detail. they will put you on notice that we're going to be looking very closely into that and we want to know why there was 70% cost increase and find out whether it was legitimate or not. >> okay. absolutely. we'd be happy to meet. i can make remarks and follow. >> we'll have the commission to that later. thank you. >> we could provide some of that

information on the record? >> absolutely. >> let's do it. >> i think i tried to get to this earlier in one of the previous question. >> so you have whatever time you need. and you can follow up in you'd like. >> okay. absolutely. i would characterize it in three buckets in terms of the cost growth to each of witch is scope driven. one that i mentioned earlier had to do with the transition where the transition timelines got impressed and changed. as a result of that it caused us to adjust our labor and staffing profiles where we had to go with a higher percentage of paths than local nationals. that has the direct cost implications. so be directed to move to a more aggressive timeline. that was one bucket of costs that got adjusted. >> can you tell us from what to what? >> i can't give you. >> one of your experts can --

>> i can get you that information. i think the relevant piece of data though is that it forced us into a profile that looked very different. we had bid a 10 to 15% range in terms of total population and we're out about 50. we will work that mix over time. but the support and the transition and to meet the transition timelines, that was the work force that we had to accommodate. that's one big bucket. >> let me ask you, are they charges you more than the kbr contract? >> no, they are not. my understanding is that we transitioned employees on the same salaries. it is above of what we had because of the mix issue, right, because of the mix issue. and the other two buckets are direct scope items. in the proposal we had proposed

165 facilities. anteactual number that we are supporting today is close to 15% higher than that. and the third item has to be with shuttle services. and i don't have the specifics. >> they said we want you to go after scope intentions? it was form pally done by the government; correct? >> correct. this has big ripple effects. it not only tied to the cost of the program. by the way i do think we will see cost reductions. when we are able to adjust and get to what we have proposed in our proposal, we will see the cost reductions. we are motivated to do it because we know if we continue do it and we don't meet our obligations and we are not cost competitive, there is an opportunity to replace us. so the notion of competition, i

will tell you personally, it is very note waiting for us. >> what percentage of the 70% is attributable to the increase in the scope? the directive scope. >> all of the increase. my understanding is that all of the increase is tied -- >> why -- you got three buckets. the first bucket was the transition timeline. >> and the skill mix. >> and the second is o and m. >> o and m facility. >> what percent of the increased facility is increased to the 70%? >> i think it's 30 to 40%. i'd be happy -- it's a very simple story and i'd be happy to get it down and supply it. >> thank you. >> commission, did i hear you correctly when you said that you opened your internal audits to dcaa? >> yes. >> okay.

you said that you list your audits but you don't open them. >> that's correct. >> so you open them and you list them. what do you do, mr. walter? >> we do the same thing. we will list -- we provide a listing of our internal audits to the dcaa but we do not provide the results. >> okay. so if dcaa sees something on the list and says we want to see x, do you show it to them? >> we show it to them. >> mr. walter, they are the proactively show or reactively show and you don't show at all; is that correct? >> correct. >> the audit reports are very subjective in nature. we provide the audits with all of the factual information.

but since their information is very subjective in nature, we don't provide the details of the internal audit. >> okay. so i assume, therefore, that kbr's audit are more subjective to companies. is that what you're implying? >> i've never seen their audit reports. >> can i ask -- i don't want to leave an interpretation about audits. they are not subjective, let's be fair. maybe you will tell me you were an internal auditor. i've worked with many groups. they audit the precise standard. i've had the opportunity to see the work papers. we have this new news thing and we're trying to find some middle ground. but there are company that will accommodate by setting down and saying read it. if something tweaks you, we'll make the audits. there are other companies that give you a list and say subject

title. it's rarely happened where someone says that's the assignment that someone's working on. so you're not the only company that does it. but that's certainly, that's not giving them the work papers and everything else. but there is a prosignificance, now opinions are based on data that's gathered in a structured matter. they have internal audit standard and internal auditors spend a lot of time down at the audit institute. it's just unfair, number one that internal auditor that i work with a lot of government. it's unfair to say that it's subjective. >> well, i certainly align myself with my cocommissioner just said. but let me just point constitute i am exceedingly, just this one

commissioner was a taxpayer and individual, boy, as i uncomfortable with your answer. not just because of what mike said, these two other companies are pretty big companies and they don't seem to have the problem that you have. i want to state my extreme discomfort. if you can turn on page seven of your testimony, you talked about the fact that after katrina, you started a program to look at pricing. had you done something similar or are you planning to do something similar with iraq and afghanistan? >> well, we will go whatever is necessary given the pace of the work. again as we are growing rather rapidly the pace of contract awards that we're catching up to in terms of getting the compliance systems in place. so i'm making those analysises

right now. clearly when you award something this an urging and compelling environment versus sustaining environment, you're going to look at things in a different way. we will be watching. >> what you did say for sure is on the same page you're scanning all the purchase orders and subcontract files. you're doing that now; correct? >> okay. are you doing something like that or are you contemplating doing something like that? >> sir, i'd have to check. i don't know offhand. i would be surprised if we're not. >> okay. mr. walter, do you do that? >> yes, sir. we do have a procurement team that review the the procurement files and do self-evaluation, the results are shared. >> so you are scanning all the purchase orders. >> in terms of scanning -- >> that's what i asked.

are you guys doing it? >> in scans and making them digitally available? >> yes. >> yes, sir. we are doing that. >> okay. that'll be all for me right now. thank you. >> sir, just to clarify, we do do it. >> thanks very much. >> thank you. thank you. i'll be very brief. i have a couple of things. first i want to clarify what i understood to be the outcome of the exchange that commissioner had with you three about withholds. my recollection of her question was whether each of you agreed that withholds are hammer or sledge hammers that they are real incentives. all of you agreed to that. i think i heard you for a second time go further to say that you support as a matter of policy withholds in order to contract performance? that right.

i don't want to put words in your mouth. >> i do. we have signed up and agreed to a withhold on the portion of the work until we get it definitized with the customer. >> do you understand that you, mr. walter, that objective standards are said that you two for kbr support the notion of withhold as a matter of policy? >> yes. >> i'm sorry. could you repeat the question. >> the question is not whether withholds are hammer but as a matter of policy and the notion of withholds. >> we do. >> hopefully that will have some impact on whether they think they can do it. the second and final issue i want to get into. we got into a little bit with commissioner. i was unclear as to how we left it. the whole issue back to the

transition. this time moving employees around is really a question for you mr. walter for kbr. can you and do you represent to us that to the best of your knowledge and speaking on behalf of kbr is that there isn't a transfer of kbr employees waiting for work or there is a significant drawdown of the contractor to match the military personnel? >> there are certain individuals and certain skillsets that we are recruits for currently. if we do have an opening for the a specific skillset is that open, then we will transfer that person over there so that that particular activity can be taken care of. >> but unless and until there is either a position or a

solicitation for a position, simply allowing people to wait on the clock, does that happen? >> we have reck significances open for i don't know the exact number. but it's not thousands of positions for services in the theater. so there are, for us, if we have an individual who has a skillset that wants to say with kbr and i need that, i and s will not have a spend the cost to transition and train somebody and them ship them into theater. i can transfer them across. so to the extent that it makes the existing statement work accomplishable, then we will make those transfers. >> thank you. >> commissioner green. >> thank you. >> all of you either have been

or will soon be huge and very important contributors to the war effort. and recognizing the fact that you get called in a dozen directions in accomplishing your mission. i have a short statement, comment, and then i'd like to ask the question. and i'm going to read from a joint publication 4-10 operational contract support dating october 2008. i don't know if you've seen it. but let me read one paragraph here. and then i'll ask a question of all of you. the continual military forces will be augmented with contractor support.

to do this contract support integration and contractor management must be intergrated into military plans and operations. this is a complex and very challenging process. and i know mr. walter in your testimony you promoted contractor involvement in the operational playing process. my question to each one of you is have any of you been asked by com, the army's osd, anybody to participate in a planning process? whether that's planning it's pure sense in training, in exercises, or in briefings. any of you? >> i'm not aware of any. >> i'm only aware of one example

where we've been asked to do that. >> could you elaborate? >> yeah, it's on the police training side whether we've been asked to provide our input and thoughts around the police training program that's specifically in afghanistan and give our view how it could be brewed. that's the thing i can specificically think of. >> i'm not aware of any requests to participate in that. >> you know, i think this is a big hole in the whole operation. if you guys aren't involved, not just you, but all contractors, are not involved in the planning process as we go to war whether this is going out to levinworth and teaching a class or going out to fort irwin when the unit

is coming up for the deployment, i think our government is making a huge mistake. that's the end of my comment. >> when you met with secretary of the army he made a very strong point about how he's trying to change the culture of the military so that they value the contracting aspect that's inherit now with the department of defense whether half of the personnel are contractors and not men and women in uniform. and part of is that is to recognize that the status that you can be a general or admiral by going this root instead of just becoming a colonel and so

on. he thinks in the even in the military exercises, contractors should participate in the military exercises. i'm wondering if any of three of you have ever been involved to participate in a military exercise. >> did you ask that question? >> well in an military exercise we have had contracts where we could set up the facility where the exercises is going to be -- but not in the planning. not in the planning, sir. >> and that was the question they should be driving at. i wanted to be clear that that is something that, you know, my secretary is believing strongly should happen. and the nodding of your heads

indicate that none of you has been invited to participate. would you like to? and do you think there's value in doing that? >> absolutely. >> i'm sorry. absolutely, yes. >> yes. >> i'm struck by the fact that the military have an oath of office. and i'm wondering if there would be serious consideration being given that contractors first off do you have an oath that you would apply to any of your workers? i'm not shaking heads or nodding heads. go write it down. >> no. no. >> no. >> no. >> there could be value, for instance, part of the oath could relate to this question relating to this -- do you think you're company has an affirmative duty

to seek cost saves on behalf of the government whether or not it is stated. i think all of you said yes. i was wondering if you actually have part of your written documents provided to your workers and whether that's part of your training. and i suspect it isn't necessarily there. so let me ask you though, is it part of your, could you each show us the document that says that part of your responsibility is to provide cost savings back to the government and the government? i'd like to go down to each of you? >> i couldn't show you a document that showed that. >> but you would like it. so i'm just asking. >> i can show you a document, it's a one-page strategic framework for our company. there's a bullet and one of our focus area is enterprise.

so it doesn't using the words -- >> it's not using the words that i'm getting to. >> but it does represent the intent. >> okay. mr. walter. >> i have not seen if in print. >> do you think it would be valuable? we're looking for the cost savings for the company and the government? any time you see ways that are our company would help save government money even if it meant reducing our work force that we have an obligation to share that information with the government. do you see value and would you all be willing to do that as part of your written documents and as part of your training to the your employees? >> we would be willing to do that. >> will you be willing to do it? i think there's something more important than that oath, sir. it is leadership driving the concept from the top.

without it the oath is irrelevant. >> whether it's an oath for a written document, it would just state some priority of the company that would be clear to your employees so they wouldn't be looked at as traders to your company if you say we're going to reduce the income by 1/3 of because you have don't need 1/3 of these employees. rather than being considered unfaithful, they would be considered faithful to the government and would be ethical to your company. >> i don't see that we would have any issue of building that type of thing into our training. >> the reason i'm thinking is if you are a part of military effort, it strikes me that that might be a positive way to go. i just know that we focus more, mr. walters, with you, because your company has been in business longer. we don't like yellow. and we suspect that the other

companies are learning by some of your mistakes. we hope that you're company is going to reevaluate how they have done things in the past versus how they doing things in the future. we know all of you have responded in a sincere and very valued way. we know the work that your men and women do for our country is extraordinary. i'll repeat the comment that i made earlier, that is that the military appreciates what each of you do for them. and that goes a long way with us. we'd just like that make sure that it's cost effective in the process. mr. co-chairman, would you like to make a comment? >> i would like to be sure that each has an opportunity if they have any final comment to make. :

>> army contracting command. we have a lot of customers when we say the government is our customer. and we are here to please every one of those. and while we are the new kid on the block, i just want to say we are very happy to be here, and we take everything you have said seriously. we will do you proud.

>> well, we are not a new kid on the block. we have been in this business since right after world war two including operating in war zones and contingency operations. we have been in iraq for several years. we have been in afghanistan for several years. places like africa and colombia. so we are absolutely not the new kid on the block. i'm very much respect and appreciate what the commission is taking on. these are significant issues. they are hard issues, but they are all fixable and addressable. i hope we got across today or i got across today appointed that reflects the characteristic of our culture at dyncorp. we realize what our job is. there isn't a separation between the performance and compliance. it is one integrated thought. that is our job. to perform and satisfy the war fighter, and do it the right way.

i just want to thank the commission for your time today. thank you very much. >> thank you. i reiterate many of the same feelings. we have been around for a long time supporting the government and the various contracts we have had over the past many decades. we do take it seriously. we to strive to work hard, and we will continue to strive to try to get the recommendations of the d.c. a so that we can get this yellow and red box to a green. add to appreciate your time, and i look forward to our future meetings to discuss the other items that came out of this. >> thank you all for your closing comments. and with that we will adjourn. thank you, commissioners. [inaudible conversations]

>> with congress on its august recess lawmakers across the country are meeting with constituents to discuss health care and answer questions. maryland senator ben cardin held the townhall-style meeting. our cameras were there, and you can see it tonight at 8:00 eastern on our companion network c-span. this week washington journal is hearing from mayors on how the economy is affecting their cities.

>> sunday contributing editor and columnist for the magazine on is public radio series against the odds with profiles people who have overcome significant obstacles. q&a sunday night at a clock on c-span. >> this fall into the home of america's highest court periods ends the supreme court coming the first sunday in october on c-span. >> in a few minutes house hearing on the obama administration's proposal to create a new consumer financial protection agency. it would assume responsibilities held currently. here is an update on the issue from a capitol hill reporter. >> with the administration looking to create an new consumer financial protection agency we are joined by michael of dow jones newswires. why is the administration proposing this? >> i think one of the key problems of the financial crisis and at least from the administration's perspective has been the adhesive products that

were put out there, the mortgage loans, the financial products that suddenly fled the system. people got very excited. a lot of credit was extended to people who could not afford it. they want to address some of those problems. >> treasury secretary geithner, why has he said this agency is necessary? >> what we have seen for years regulation for consumer protection has been sort of shared by the various federal -- it is an alphabet soup. also responsible for the safety and soundness. the regulators focus more on keeping the banks of the than they do on protecting consumers. >> the administration likes the idea. what about lawmakers? how are they responding to the idea of creating this new agency? >> anytime you want to create something like this it is going to create problems. democrats, obviously, many of them support this. it will be a matter of working out the details.

but i think on the democratic side it enjoys widespread support. republicans oppose it, as would be expected. so you're going to see basically along party lines when we get back. >> what are republicans specific concerns in opposition to this sort of thing? >> well, they say it would limit terms for people. it would cost too much. the supervisors should be able to do five you know, there are various arguments being put out there by the banking lobbyists. you're seeing some of those same talking points. it is an interesting dichotomy. you have the banking regulators and the republicans and the banking industry all opposing the creation of this new agency. >> you wrote a couple of weeks ago about this. the chairman of the house financial services openly challenged the financial service industry for a debate over this proposed agency. does he think that he can -- does he think that he can have

some sway with the financial industry on this? >> the financial industry is going to oppose this to the very end. they don't want any limits on their ability to offer whatever products they feel they can make a profit on. what we have seen is a lot of these products aren't actually legitimate products. they're basically in there to get fees from people for a certain number of years before they defaults. the idea would be this agency could prevent that. it is a pretty easy issue. you are either in favor of consumers are the banks that receive billions in government aid. >> what about the existing regulators, the fed, fdic? what role would they have in this new creation until they have existing consumer departments as well? >> yeah, all of the banking agencies have existing consumer departments, and those powers would be taken away, most notably from the fed which has come under pretty intense criticism for waiting for years to write some of these

regulations dealing with mortgages, 14 years it took them to right. and by that time of lot of these really bad loans that, you know, are still causing us all problems in the economy, all those loans were already written by the time they actually reacted. the problem is four years regulators have these dual responsibilities. today is sort of sums of on the consumer protections. >> and when congress comes back what is the timetable for getting this done? >> well, talking with treasury officials as recently as yesterday. they say their on track for the end of the year. for some sort of legislation, but this is part of a much broader regulatory reform effort, and i just don't see how they are going to meet that deadline. they say they are on track, but i think they are going to be hard pressed with everything that is going on in health care. on the other hand there is a certain window of opportunity for legislation this significant to get through and to keep in people's minds the crisis we saw

last fall and how important it is to make changes. >> michael crittenden of dow jones newswires. thanks for joining us. >> thank you. [inaudible conversations] >> consumer protection. now come to order. the purpose of today's hearing is to hear witnesses on the consumer financial protection agency. the consumers and the ftc. welcome all the witnesses. the chair recognizes for five

minutes for the purposes of opening statements. i would like to thank all of my colleagues and all the witnesses who diligently worked to prepare testimony over the fourth of july holiday so that today's hearing would be as meaningful as possible. as we commence our examination of the administration's proposal to create a new financial -- and new consumer financial protection agency. it's a fairly straightforward. i believe that the ftc shall remain intact and the community should continue to up to oversee an authorized the fcc. the commission was established

in 1914 during our nation's progressive era and was designed to be a regulatory agency to ensure compensation and to promote free enterprise. concerns are as much today as they were almost a century ago. the commission also exists. from high above the agency can survey the marketplace and a swoop down on predators that deceive unsuspecting and misinforms consumers. the higher and farther away that the fcc is from other agencies and the entities that at it regulates the better it is at spotting unfair commercial training practices and at isolating those practices.

similarly by the instance can keep people at bay while achieving its critical mission of protecting consumers. looking at all reliable indicators the commission has performed commendably. working along with of 5% bipartisan submission, a lemon hundred dedicated employees spread out. all those entities the ftc statutory hundred that ftc act consists of a cumbersome form of

rulemaking paired with litigation authority. this has made a successful ad glancing blows that pack the full punch that businesses will respect and consumers deserve. currently the proposal, its entities and agencies crafted as germans, research, a policy and developments, consumer complaints and education. competition, the analysis, and economics. what the ftc does well it has done without. and when it has not done particularly well in the process. it's just a few weeks ago our

committee worked intently. adopt rules, rulemaking authority that will address rampant, unfair practices in that area of lending, automobile finance, mortgage, and debt settlement. to for more authority upon the ftc so that for rulemaking procedures and reinforcements. we have worked devotedly in the past more than a few times with members from the financial-services committee to

overcome the ftc shortcoming, holdout best practices for making agencies protect consumers and improve the ability of regulatory agencies to protect consumers' hands by unfair and incessant rules. i have witnessed commerce and financial-services. tackling some of these challenges. further i offer an amendment to a 3526 bill. require that a report investigate regulations of unfair and incessant ax on

proprietary institutions. pressure to provide financial services including banks and depository institutions to a balanced safety and soundness against the needs of consumers. this collaborative working relationship between committees, consumer protection to safeguard consumers and financial-services and consumer credit products as an example of the independent agencies that will be affected by the administration and allow each of them to maintain their independence and respected biases. i want to thank the witnesses for being here today, taking time from their busy schedule to

meet and to participate in this hearing. with that i yield back the balance of my time. the chair now recognizes the gentleman from california, the ranking member for five minutes. >> thank you, mr. chairman, and good morning. i appreciate your calling today's hearing on this important topic. whenever something goes wrong in this country washington proposes a solution regardless of whether the situation calls for one. however, well intentioned our actions they rarely work out because they're often undertaken as a knee-jerk response. we have seen many unintended consequences of rush to legislation and in recent histo. at best we have seen a marginal improvement in the markets while diverting billions of dollars toward new compliance costs to the detriment of many small and medium-sized businesses. in another example last congress re-enacted the law in response to lead paint on toys. the pained by elected an

existing standard, but what was a compliance problem rather than a deficience standard problem led to numerous costly new mandates that but many small and medium-size businesses out of business because the cost was too high without any corresponding increase in safety. this was not to say that weaknesses in our financial system don't exist. they obviously and clearly do. the failure of so many financial restitutions and the ongoing problem of foreclosures on mortgages, some borrowers never should have taken out or evidence of that. and if the bailout of banks and financial firms rarely were necessary to save the financial system something clearly needs to be done to address the systematic risk. additionally fraud and deception by both lenders and borrowers in the mortgage market ran rampant. the fbi reported an increase in fraud by more than 400% since 2005. few people question anything was wrong in the market until home prices started plummeting.

the uniformity and enforcement of existing laws can address these problems, i would support that. apart from the lack of systemic risk regulated to prevent future financial collapses required in the taxpayer bailout and still trying to understand what holes exist in the ftc consumer protection authority and to what extent the government contributed to the crisis with its intervention in housing policy. i am far from convinced that the market problems require the creation of a new federal regulator as contemplated by the administration's proposal. fannie mae and freddie mac are under government control in part because they did exactly what congress and the government wanted, extend home ownership to as many people as possible under the watch of the federal regulators. fannie and freddie along with the federal housing agencies and programs were encouraged to extend credit, and when they did they and their shareholders paid

the price. armbar -- more borrowers qualify for loans they could not afford. my point is that was on the books did not stop people from taking out riskier mortgages either in spite of or because of rapidly increasing home prices. nor has it stopped regulators or law enforcement from prosecuting those who we now know committed fraud and broke the law. while many experts believe that the banking regulators performed their duties inadequately i will leave that to the financial services committee to decide, but with regard to the ftc it seems to me that we are throwing out the baby with the bathwater by stripping the authority over consumer protection for financial products and services on the one agency has performed well. if we agree we need legislation we should take the approach of legislating with a scalpel rather than with a bulldozer. with that said, i have two

primary concerns, first create a new federal entity with an enormous scope of authority. financial products that would cover every sector of the economy. as i understand it the draft legislation would touch everyone from a certified public accountant to a realtor and subject them to a new tax -- to a new tax. second, i am concerned about transferring functions from the ftc to a new agency without any evidence that it is necessary or that it will be as effective as a regulator as the ftc is. by removing the ftc authority we could lose the ftc unique expertise and balance in consumer protection and competition. finally, the legislation contains several new, broader authorities for the ftc regarding rulemaking authority and civil penalty authority for 3i have previously disagreed with these, and do not need to repeat them at this time. however, i do have some questions of the witnesses

regarding these and at last been at the appropriate time. i want to welcome the members to the panel and yield back, mr. chairman. >> the chair thanks the gentleman. the chairman of the full committee is looking for opening statements for five minutes. >> thank you very much. i want to thank you, mr. chairman, for holding this. last year as chairman of the house oversight committee i held several hearings examining the causes of the financial crisis. those hearings revealed a government regulatory structure that was unwilling and unable to meet the complexities of the modern economy. we found regulatory agencies that have fully abdicated their authority over banks and had done little or nothing to curb abusive practices like predatory lending. the prevailing attitude was that the market always knew best. federal regulators became enablers rather than enforcers.

the obama administration has developed an ambitious plan to address these failures and to strengthen accountability and oversight in the financial sector. today's hearing will take a close look at one piece of that plan, the proposal to create a single agency responsible for protecting consumers of financial products, a new approach is clearly warranted. the banking agencies have shown themselves to be unwilling to put the interests of consumers ahead of the profit interest of the banks they regulate and the structure and division of responsibilities among these agencies has led to a regulatory raced to the bottom. the federal trade commission has taken steps to protect consumers, but its jurisdiction is limited and it has been hampered by a slow and burdensome rulemaking process. i am pleased that this subcommittee is holding today's

hearing and examining the administration's proposal carefully. there are two areas in which attention and focus from this committee are particularly needed. first and new agency must be structured to avoid the failures of the past. it only makes sense to create a new agency if that agency will become a strong authoritative voice for consumers and second we must ensure that the federal trade commission is strengthened, not weakened by any changes. unlike the banking agency ftc has consumer protection as its core mission. in recent months ftc has taken great strides to protect consumers of financial products bring enforcement actions against fraudulent debt settlement companies and writing new rules governing mortgages. the administration's proposal would give most of the fcc's

authority over financial practices and some of ftc's authority over privacy to a new agency in. at the same time the administration proposes improving ftc rulemaking authority and enforcement capability. it is not clear what impact these proposals would have on ftc or its ability to perform its consumer protection mission. as we build a new structure for protecting consumers of financial products it is our responsibility to ensure that we do not weaken the agency currently responsible for consumer protections and this and many other areas. once again i thank the chairman for holding this hearing. >> the chair thanks the chairman of the full committee. now the chair recognizes the gentleman from florida for two

minutes for the purposes of opening statements. >> good morning and thank you, mr. chairman. this is a very important hearing. important for us as members of the subcommittee, mr. chairman, in terms of our jurisdiction and what the implications are for jurisdiction in the future. the administration proposed cfpa or the consumer financial protection agency. it's relevant. it's an idea that a lot of us have mixed reactions on. it has implications for our subcommittee. although this is only one component of the administration's broad reaching financial regulatory reform proposal it certainly is important as a part of that overall program, and it needs a detailed examination. we must carefully consider the long-term effects that this will have on the federal trade commission. consumers, it is charged with protecting and industry. currently the federal trade commission has broad authority

to protect consumers from unfair and deceptive practices in the credit and debt areas, and the ftc has steadily been an effective and reliable agency in terms of consumer protection. we have seen it on this subcommittee. however, this new agency, that cfpa proposal strips the federal trade commission have virtually all of its consumer protection authorities pertaining to financial practices and even some of its privacy protection authority. so mr. chairman, i'd think that has to be a concern. the proposal compensates for this shifting of authority by granting the federal trade commission streamline administrative procedures act, an epa rulemaking authority demand the ability to seek civil penalties against unfair deceptive practices. but this is a term which has no clear definition, as well as making it unlawful to aid andin deceptive acts. so do to the shifting of power and the potential economic consequences of business we must

ensure that effective stakeholders have a voice at the table, but ultimately we need to ensure that the cfpa, the new agency will be an agency designed to do what is in the best interest of consumers and not what is in the best interest of the bureaucrats to run its. one other concern i would have, mr. chairman, with the apa, is it has 180 days for consideration. is this sufficient time under the mag moss act rulemaking requirements included a public hearing. and so, mr. chairman, perhaps if this bill moves along we might want to include some kind of public hearing to incorporate in this 180 days of consideration. with that i yield back the balance of my time. ..

>> found to be a problem. things which brought about the 1929 crash. and lo and behold, the failure to learn those lessons, or preserve the protections which the congress and the president in the 1930s put into place a lead to the economic collapse which occurred in the united states in the last calendar year and this calendar year. so the question that we are watching are very close. the questions that will be concerned with is going to be our consumers protected? is the federal trade commission able to continue doing the work that it does to protect

consumers? and this committee is going to concern ourselves of this morning with these issues, and means by which to improve consumer protections, continue to exist with regard to financial products and services. and to see to it that the federal trade commission is able to carry out the responsibilities which are in rather contemptible fashion were disregarded by the sec, and also by the comptroller of the currency. now, we need to know if our concerns here, and the pause that it gives us, occurs in part because of a transfer of existing authority from the federal trade commission to a newly admitted consumer financial protection agency, an agency whose behavior we don't

know, but an agency which is going to probably be composed of the many other goodhearted people who have brought us to this curious and unfortunate state of offense. i will be truthful. i have significant concerns about these plans. and i will be intending to engage today's witnesses in a frank discussion about their merits. the administration which has no fault in the event of the deregulation and the collapse of the american economy and last year, envisions consolidating all consumer protection functions related to financial products, including rule-making supervision examination, and enforcement under the aegis of the new cfpa. which would receive sole rule-making enforcement authority over consumer financial protection statutes such as the truth in lending act. at first glance, this strikes me

as a bay shore, and possibly unwarranted reassignment of ftc's consumer protection authorities in the financial services area. i will be looking to see whether this is so, and whether in fact it is a good thing or could be justified by the administration. while comparatively a small agency, it is to be observed at dc has done superb work in protecting consumers. and in this, the country would benefit not from a diminished mandate to that agency, but rather to additional statutory authority, personnel and funding. consequently, i have more than a modest degree of skepticism regarding the administration's proposal. in brief, i wish were eyewitnesses to up on several matters associated with the proposal.

first, if cfpa were mandated under law, what authorities would be left to the sec? or rather ftc. and why would that occur. second, what latitude would ftc have in enforcing consumer protection statutes as they relate to financial services? and what consumer protection statutes would be denigrated or dissipated under this proposal? third, how would one characterize the level of interagency cooperation in the drafting of the administration's proposal? finally, if the cpa receives his proposed mandate, what will become of this committee's jurisdiction over consumer protection as designated under rule 10 of the house of representatives? i will welcome the witnesses responses to these and other questions in order to properly establish an adequate record before additional action by the congress, if such is deemed

necessary. i would ask at this time that i have unanimous consent to keep the record open, to submit a list of questions to the witnesses today, and to have those responses and the questions inserted into the record. i want to commend you, mr. chairman, for your courtesy and foresight in this hearing. i would conclude by a personal note, welcoming doctor stephen calkins, associate vice president for academic personnel and professor of law at wayne state university in my home state of michigan. his testimony has been indictable to my understanding of this matter, and i look forward to his participation in the continuing debate on consumer financial protection. and i know, mr. chairman, that my wife is a member of the board of governors of that great institution, which is a particularly a warm feeling

about it. and again, mr. chairman, i urge you and my colleagues do the most diligent, most cautious, most careful, and most beautifully suspicious of the events that we inquire into today. thank you. >> the chair thanks the chairman emeritus. the chair and hearing no objections, so ordered the request by the chairman emeritus. that you're also wants to take a moment of personal prudence to celebrate the chairman emeritus birthday and to wish him a happy birthday. so we want you to know that we all wish you a very happy birthday and many, many more. [applause]

[inaudible] >> a little more careful about celebrating his birthday. the good news is, the good news is i am celebrating my 83rd birthday. the bad news is that i am 83. [laughter] >> i thank you, mr. chairman, for your courtesy and i think my friends for their kindness and courtesy. >> that chair now recognizes the gentleman from kentucky, mr. whitfield, for two minutes for opening statements. >> excuse me. i didn't see you back there. you just walked in. okay. >> you can go to mr. whitfield, he was here before me. and then come back to me after the next. >> you all work that out. mr. whitfield. >> we are all very polite today,

so thank you very much. mr. chairman, i want to thank you also for holding yet another important hearing examining the ongoing financial crisis and ways we can help our constituents get through these difficult times and mitigate future problems. secretary geithner said that this new consumer financial protection agency would have only one mission, and that is to protect consumers. it's also my understanding that this proposal would eliminate the consumer protections that the fdic, the federal reserve board, comptroller of the currency, any impact on the ftc -- perhaps we should explore expanding the authority of the ftc. another problem that concerns me about the proposed legislation

is that there is no federal preemption of any state law that is more stringent than federal law. and anyone that has gone through a mortgage process, when they hand you the 45 pages of documents, you are going to find yourself getting more documents if you have these conflicting state laws on these consumer issues. and i think that's a real concern as well. but the problem i have most of all is how much will this cost? every day we pick up another article in the newspaper, growing national debt. may be next economic crisis. unless we demonstrate a strong commitment to fiscal sustainability in the longer-term, we will have neither financial stability nor healthy economic growth. interest payments on the debt alone last year was $452 billion. this year is expected to be

$470 billion. the largest federal spending category after medicaid, medicare, social security and defense. at another article today, economist declares train wreck because of out of control federal budget deficits. the economist talks about the real question is how much damage will greater indebtedness due to economic growth and a government credit worthiness. those things may transcend what limited additional protection consumers get from this legislation. so i think we need to move cautiously, find out how much cost are we talking about here and what will the benefits be. thank you, mr. chairman. >> the chair thanks the gentleman. the chair now recognizes the vice chair of the subcommittee, my friend from illinois, congressman schakowsky. >> thank you very much, mr. chairman. i just team from a round table

on women's financial literacy. clearly an important issue, but what we have found is how daunting the environment has been for anyone who even is pretty literate in financial issues. we have seen the systematic production and marketing and sales of countless financial products, including mortgages that were extremely risky, even downright dangerous for borrowers. and often it was pretty hard to figure out what was what. for years, nice and non-banks lenders operated with too little oversight by government regulators. and when regulation was taking place, there was little focus on whether the financial products and services sold were safe for consumers. the federal trade commission, and i am so glad its chairman is here today, is essentially the only agency with a mandate to prioritize consumer safety and protect americans from unfair or

deceptive practices. and i commend chairman liebowitz for his renewed commitment to consumer's rights in the areas of credit and debt. however, as has been mentioned the ftc's jurisdiction is limited to non-bank activities. the agency has been hampered for decades by cumbersome rulemaking authority, and in recent years its actions were limited by the previous administration, general contempt for oversight of the private sector. overall, current regulations are not sufficient and they are not working. we can't maintain a system which neglects consumer protection for the bulk of the financial service industry. americans deserve access to honest information that will help them make educated decisions on mortgages, credit cards, and bank accounts. dangerous financial products should be kept off markets and advertisers must be held accountable for their claims. we have to move forward with these goals, and i look forward to hearing today's testimony and

how he consumer financial protection agency might achieve them. thank you, and i yield back. >> the chair thanks the gentleman. the chair now recognizes the ranking member for the full committee, the humble and honorable gentleman from texas. >> thank you, mr. chairman. to forgive my opening statement, let me amplify what you said about the chairman emeritus, mr. dingell. some people get one year of experience, and that is it. in his case, you could say that would be one year 83 times. but in mr. dingell's case, each year he adds it to the days where it compounds and amplifies by orders of magnitude. i think you can honestly say that our friend and chairman emeritus is the most influential member of congress in our lifetime, and it is such a privilege to have him on our committee. and it isn't really fun when he

is on my side. it is not so much fun when he is not on my side. but even then i learned from him. so my hardiest congratulations from the minority side to a true gentleman of the house, the conveyor and protector of institutional viability for this body. we wish you many, many more. with regards to this hearing, mr. chairman, i would bring the members attention to today's wall street editorial op ed piece about particular agency is entitled last treat borrowers like adults. it calls into question whether there needs to be a super consumer financial products protection agency which the legislation we are looking at today would empower. we accept the intentions being honorable, but people like myself have extremely strong

reservations about the implementation of such an agency. what would the legislation actually accomplish that some federal agency isn't already attempting to do? would like to know what's gone so wrong with our existing protection agency that we deem it necessary to create another, brand-new agency. i am a bit taken aback by the breath of the proposed coverage. under this legislation relates a course to a great deal of banking and other financial institutions over which this committee, unfortunately, has no jurisdiction. at least not now. one never knows about the future. but it reaches beyond that. it could reach accounts, orders, gift cards, all other types of institutions and entrepreneurial activities. it doesn't fall strictly within our jurisdiction because it applies to banks, but it is still a concern there seems to me to be an exception that swallows the preemption rule.

according to the proposal, if i understand agrippa, state and consumer laws of general application in those state laws enacted pursuant to federal law intended to and i quote, exceed or supplement federal law will now apply to any national bank. the harvard professors credited with inspiring this all-inclusive consumer financial protection agency described the need for it in her article unsafe at any rate. professor warren wrote that we need this agency in order to reverse industry practices that make it difficult for consumers to understand what they are getting any financial product world. for example, 30 pages of contract terms for a simple credit card or to explain all required disclosures. i understand that. i just cosigned for my stepdaughter's new condo in austin, texas. and it took an hour of sign various doctors under and documents. some of documents signed

certifying that i just signed the previous document. so i understand the need for simplicity and the need for perhaps a review of some of the existing document that we are asked to sign. i am not sure that this agency gets better. there. this bill assumes that businesses and customers are eager to pay more for such protection, maybe even a lot more because there are no limits on the burdens to either. there are all kinds of reports this new agency could mandate, regular and special request but there are no limits as to how often the agency could require those reports. there is no mandate to consider the burden placed on the business is to produce these reports to the preemption provision really convey no preemption at all. in one paragraph, the proposal mandates all state laws are preempted, but only to the extent they conflict. at the next, the legislation permits a state law to supersede federal law if the new agency determines the state law is more

protective. that seems to be almost in direct opposition to the prior paragraph. what if the company is compliant with the federal law but while the agency hasn't yet determined whether a state law is more protective, the attorney general believes it is and bring the action against the business for a violation? is that company liable for its violations of state law without any notice? this would seem to exacerbate decisions, but rather by making certain that the products themselves don't become the source of the trouble. i see my time is about to expire, mr. chairman. i have another page and a half of it written commentary here simply put me down as extremely doubtful about the positive impact of this legislation. i think we would be better served on this committee and your subcommittee to go in and reform existing authority, clarify the differences between existing regulatory agencies, and if there is something that has really fallen through the cracks, try to figure out what

the existing agencies like the ftc and see if we couldn't give them explicit authority in that area that needs reinforcing. with that, mr. chairman, i yield back. >> the gentleman from texas, mr. green, for two minutes for opening statements. >> mr. chairman, thank you for holding this timely hearing to examine the administration proposal to create a new agency that would consolidate and be responsible for consumer protection with regard to financial products and services. after the events of last year, there should be no doubt that congress needs to act to further protect consumers with regard to financial regulation. this subcommittee has already taken steps that address this by moving forward h.r. 2309, consumer to give the federal trade commission additional power to better address consumer credit issues, credit and debt issue. it was widely agreed in hearings that the legislation with the added authority h.r. 2309 would

provide the ftc it should take a broader and more effective role in consumer financial protection. with regard to the new tools this proposal would give the ftc the administration has addressed many of the problems. they have hamstrung the commission to additional financial consumer protection, particularly with regard to the ftc rulemaking process. magnuson-moss procedures are lengthy and cumbersome and can prevent the ftc from taking action on widespread problems in a timely and efficient manner. i strongly support the provision that the administrator proposes and grant the commission authority to make under the administrative procedures act. the proposal also falls 2309 grant ftc authority to seek civil penalties for any violations in section five of the ftc act which provide a great deterrent to would-be actors are the portions that i propose i am less certain about how it would move nearly all of the ftc's consumer protection authority for financial practices to the newly created

consumer financial protection agency. i do not disagree that additional law-enforcement is a good thing for the consumers. my main concern is adding a new enforcement regime that is siphoning off authority from our nation's primary consumer protection agency. when that agency is more than capable of doing the job given the necessary tools and funding. it would be responsible for or removed from other agencies and departments that do not have consumer protections as their primary thoughts. however, this is not the case of the ftc. i look forward to hearing from our witnesses and why the administration believes the ftc should not continue these roles. and again, mr. chairman, i thank you for the time and for this hearing and i look forward to export with regard to this bill and look forward to the best path to protect consumers. >> the chair thanks the german. the chair recognizes for two minutes for the purposes of opening statements. >> thank you, mr. chairman. thank you for holding this important hearing on the administration's proposal to create a new agency responsible for consumer protection.

i think we all agree that we need strong consumer protection measures. the recent housing and credit crisis our country has faced makes this abundantly clear. we must do this prudently though avoiding the mistakes of the past. it seems, however, the proposal we have before us create yet another divided system of regulation, making rooms for gaps in oversight. we saw the effects of divided regulation at fannie mae and freddie mac were to regulators met let regulation, not more. the proposed new agency would also have the authority to set prices, rather than allowing costs to be determined by consumers in the marketplace. everything from atm fees, check overdraft fees, and late payment fees for credit cards would fall under the purview of this new agency. instead of adding layers of

bureaucracy to financial regulation and intervening in the marketplace, things we have tried in the past, we should work to bring transparency and consumer choice to our market. consumer financial protection is a worthy goal. unfortunately, increasing the layers of bureaucracy in the financial industry has not protected consumers in the past. and i see no reason why it will this time around. again, we all desire effective and efficient enforcement of consumer protection laws. it is my hope that this committee moves forward in a wise and careful manner with increased transparency and consumer choice as their primary goals. i look forward to hearing from our distinguish witnesses. thank you, and i yield back. >> the chair now recognizes the gentleman from texas, mr. gonzález, for two minutes for his opening statements. weight. the chair now recognizes the gentleman -- the gentle lady

from california, ms. matsui for two minutes. >> thank you, mr. chairman, and thank you for calling today's hearing. i applaud your leadership in addressing this important issue. i would also like to thank the witnesses for joining us today. in today's economic recession, many families in my home district of sacramento are struggling to make ends meet. i have heard countless stories of people struggled to keep their homes, their jobs and their way of life. california and in particular my constituents in sacramento, has been greatly impacted by the economic crisis. many of my constituents were and continue to be victims of predatory home loan lending him a unfair credit card practices, payday loans and other forms of unscrupulous business practices. just recently, the president signed into law credit card reform legislation to regulate unfair credit card practices. the ink is hardly dry. nobody's already trying to find ways to arbitrarily raise credit card interest rates and fees on

consumers. struggling homeowners are also seeking assistant to keep their homes, but continue to be tricked into contacting scam artists who just so happen to be in the same crowd that initially steered homeowners into subprime loans. this is all occurring as job losses now, foreclosures continues to rise and americans are increasingly turning to other forms of credit to make ends meet. it is clear that consumers are not being properly protected from unfair and deceptive financial practices. when is enough enough? the president's proposal to create a new financial consumer protection agency could be the answer to the american consumers are seeking, but it must be done in a thoughtful way. to assure that consumers are protected from fraudulent activity. we must make sure any new agency has real authority and just as much bite as it hasn't barked. consumers need to feel protected and in confidence in our financial system. right now it is clear they do

not. i thank you, mr. chairman for holding this important hearing today and i look forward to working with you and the committee on this issue moving forward. i yield back the balance of my time. >> the chair thanks the generally. but chair now recognizes the gentleman from nebraska, mr. terry, for two-minute. >> thank you, mr. chairman. i will try to be quick. i think the fundamental premise of this of this bill is that the ftc, the entity in charge of protecting consumers is evidently been in a abysmal failure. i don't agree with that premise. i think the issue should be how do we make sure that the ftc is properly empowered to protect consumers, and that should be what we are working for as opposed to stripping away whatever jurisdiction they have over protecting consumers and creating some monolithic new

government agency in replace of what already exists. so i am very skeptical of this process, or this bill, and i look forward to hearing from our witnesses so we can determine if ftc is capable of doing what they have been doing, and whether or not this bill is even necessary. so i yield back. >> the chair recognizes the gentle lady from michigan for two minutes. >> thank you, chairman rush. that you probably today's very important hearing on the newly proposed consumer financial protection agency. as elizabeth warren aptly stated in describing the need of emergencies like this quote it is impossible to buy a toaster that has a one in five chance of bursting into flames and burn down your house, but it is

possible to refinance an existing help with the mortgage that has the same one in five chance of putting a family out on the street. and the mortgage won't even carry a disclosure of that fact to the homeowner, and quote. unfortunately, many people in my district who were preyed upon by so many unscrupulous companies, people know this all too well. the well-known and tragic case of one of my constituents, at the polk, is a shocking example of a financial product that not only cause someone to almost be homeless, but caused someone to attempt to take their own life. at the age of 86, ms. polk was given a new 30 year mortgage on a house she already owned. and for an amount greater than the value of her house. let me say that again. at the age of 86, ms. polk was given a new 30 year mortgage on a house she already owned, and for an amount greater than the value of her house. less than four years later,

ms. polk, probably no surprise to the person who sold it to her, began to have trouble making her payment and her house fell into foreclosure. feeling trapped and without options, ms. polk shot herself rather than lose the house she lived in for 40 years. no one ever should be in this pokes position. now is our chance in honor of ms. polk and countless other americans who have found themselves the unfortunate owners of financial products with indecipherable terms, smoke and mirror like provisions and gotchas these two support strong consumer protection or other forward to hearing from the panel about how we make sure we provide the need of protection. and i yield back. >> the chair thanks the gentle lady. the chair now recognizes the gentleman from georgia, dr. gingrey, for two minutes. >> mr. chairman, i thank you and i thank you for calling the hearing, and the welcome back john liebowitz and honorable

bar, this is the secretary of financial institutions. iso- state my remarks really with what the germans from nebraska on our side just said, mr. terry. here we are creating a whole new federal government bureaucracy when we have one already that is doing a heck of a job, as it would certainly seem to me and i think most members on this panel. so the question becomes, you know, why to use a medical expression throw the baby out with the bathwater if we are doing -- if the ftc is doing the right and proper job and the right and proper oversight and all of a sudden we come in and spend more federal dollars, as the gentleman from kentucky was talking about earlier, by creating a whole new federal bureaucracy. so again, i am happy to hear it

from the witnesses, and maybe they can explain that. hopefully they will explain that, but i think this is something we need to look at very, very carefully as we just continue to create one more or instead of grading one more government bureaucracy at a time when we are running billions of dollars deficit a year after year after year. and with that, mr. chairman, i would yield back. >> the chair recognizes the gentle lady from florida, ms. castro, for two minutes. >> thank you, chairman rush, for calling this critically important hearing on the obama administration's proposal or our consumer financial protection agency. last congress, in the wake of wide spread concerns about talks led paint and other toxic consumer products, the subcommittee to reorganize and strengthen the consumer product safety commission.

and allows you to the economy plunged. there were some terms being used to describe some of the mortgage and investment products. we heard about toxic assets, poisoning banks, balance sheets and toxic mortgage products leaving millions of our neighbors facing foreclosure. predatory lenders wreak havoc on my community, and the subsequent significant decline in property values has affected millions of folks in my home state. and unfortunately, consumers could not count on state oversight, these mortgage brokers in my home state, they just turn a blind eye and i would recommend the miami heat on exposé that documented how many convicted felons entered into the subprime mortgage loan marketing business. so this financial crisis has taught us that in order to

maintain a healthy economy, effective regulation must focus on protecting consumers from deceptive and unfair lending practices. the ftc has the enforcement authority to go after only non-depository lending institutions that deal unfairly with their borrowers, but the abuses that led to the financial crisis spread deep into the banking system. so in light of the need for more effective regulations, albany and institutions, depositories and non-depository, the obama administration has rightly proposed a reorganization. and i think all of us can agree that revelation of financial institutions must be improved to better protect consumers. however, we must be aware not only of the impact of granting authority to a new consumer financial protection agency, but also of the consequences to consumers of the changes that have been proposed to the ftc. the administration proposal would reshape the ftc by shifting authority over consumer

credit, but also by streamlining its role they can process and allowing it to excess civil penalties on bad actors. so i look forward to your testimony on what this new ftc might look like and how its ability to achieve its mandate of consumer protection will be affected. i yield back. >> the chair now recognizes the gentleman from louisiana for two minutes. >> thank you, mr. chairman. i would've thank you and the ranking member for having this hearing. the administration is proposing yet another new federal agency with big sweeping authority. we all know that in bad actors in our financial system that took advantage of consumers and contributed to the current economic crisis. unfortunately, many of the problems that brought on today's financial crisis are not even being addressed in this bill. the proposed legislation does not address the real bad actors in our financial systems. but fannie mae and freddie mac and other institutions that engage in subprime lending and

relaxing their standards to encourage more people to take out loans they could not afford. those warning signs were brought before congress for years, and yet many of the same people in this administration and in the leadership in this congress are the same people who opposed the very reforms that would have prevented this financial crisis from happening in the first place. this proposed new agency represents yet another step in the federal government trying to run all aspects of our lives. the government is running banks and car companies with disastrous results. the so-called stimulus bill which spent $787 billion of money we don't have is now being recognized even by this administration as a failure that did not create any jobs that were promised. there are even some in this administration floated a reckless idea of yet another massive spending bill since the last one did not work. scores of experts predict that this administration cabinetry energy tax will cost us millions of jobs while increasing electricity rates on all american families. we are debating a bill that proposes a government takeover of health care.

which has been tried and failed in other countries to the point that sick people with the means in this country come here to get their health care because government run health care lead to rationing everywhere it has been tried. we have this bill to create a consumers czar. enough is enough. let's fix the problems that exist and make reforms to federal agencies that are causing these problems rather than adding yet another layer of government bureaucracy. that saboteurs of the root causes of problems while punishing those by who played by the rules. i look forward to hearing the comment on today's panel and would like to hear how the administration's panel impact the ftc. janet liebowitz speaks to the success of the ftc has had in protecting consumers and financial matters. which begs the question why do we need a new agency with all the sweeping new powers that spend more money that we don't have. i yield back. >> the chair now recognizes the gentle lady from colorado, ms. degette. the chair thanks the gentle

lady. the chair recognizes the german from ohio. the chair recognizes now the gentleman from north carolina, mr. butterfield, for two minutes. >> thank you, chairman rush borland is very important hearing and i especially want to thank the witnesses for the test was today. mr. chairman, i hope this hearing will provide an opportunity for the subcommittee to address some concerns that we have about the proposed agency, particularly the loss of jurisdiction on the part of the federal trade commission. now my colleagues are right, mr. chairman. there are many actors to blame for the current state of our economy. unscrewed was subprime mortgage lenders and their lack of effective oversight have all contributed to the financial meltdown. a deep concern and rightfully so is the regulatory patchwork of federal agencies charged with regulating all aspects of financial institutions. for example depository institutions such as banks and credit unions are overseen by many different agencies.

conversely, all non-depository institutions are overseen by one agency, and that is the ftc. the ftc has done a good job, and i think we could all agree on that, at regulating these players. and i have concern that reducing ftc oversight is part of the creation of the consumer financial protection agency may do more harm than good. while i am pleased that the administration's proposal seeks to strengthen the ftc's rulemaking and enforcement abilities in areas unrelated to financial products, i believe that it is extremely important that the ftc maintains strong non-depository institution oversight. the administration's proposed agency would seek to achieve important objectives bowstring consumer confidence and financial institutions and transactions. and these objectives include ensuring consumer education and understanding of these financial products, better protection of consumers, better protecting

consumers of unfair and deceptive practices and discrimination, and ensuring consumer financial services operate fairly, making certain that underserved communities like my district, have increased access to financial services. these are excellent objectives that i strongly support the goals of the proposed agencies, but i want to be certain that the creation of a new regulatory agency will not place undue and unnecessary strains and burdens on existing federal regulatory frameworks that may still be capable of meeting those same goals and objectives. and so, mr. chairman, this hearing today is a vitally important that i look forward to have the testimony of the witnesses and i thank you for the time. >> the chair thanks the gentleman. the chair sees no other members who have opening statements. now, it is my pleasure to introduce panel one. this is a two panel hearing. and panel one consists of the honorable michael barr who is

the assistant secretary for financial institutions at the department. we want to welcome mr. barr back to this committee once again at. and also joined the witness will be someone who is very familiar with the subcommittee. mr. littlewood who is the chairman of the federal trade commission. and chairman liebowitz, we serve a welcome you back again to the subcommittee. it is the practice of the subcommittee now to swear in the witnesses. so i would like for each of you to stand and raise your right hand. do you solemnly swear to tell the truth, the whole truth, and nothing but the truth? but directed reflect that the witnesses have answered in the affirmative. now, we want to recognize

beginning with mr. barr the witnesses for an opening statements. you have five minutes, or thereabouts. for your opening statements. mr. barr, you're recognized for five minutes. >> thank you, mr. chairman. and thank you, ranking member redondo beach for providing me with this opportunity to testify about president obama's proposal to establish a new strong financial regular tory agency charged with just one job, looking out for consumers across the financial services landscape. as secretary geithner has said, protecting consumers is important in its own right. and also central to safeguarding our financial system as a whole. we must restore honesty and integrity to our financial system. that is why president obama personally feels so strongly about creating this new consumer financial protection agency. i understand the committees

concerned that have been expressed today with respect to boundary issues, and jurisdictional issues and the role of the ftc. i think as we work together on those issues, it is important to keep in mind the central goal we all share. having one agency for one marketplace with one mission, protecting consumers. the new agency will have the authority and the resources it needs to set consistently high standards for banks, and nonbank financial providers alike. to put an end to regulatory arbitrage. to put an end to unregulated corners of our financial system that inevitably weaken standards across the board. this agency will be accountable for its mission, yet independent. it will have a wide range of tools to promote transparencies and fairness that it will act in a balanced manner, considering costs as well as benefits. in a way that protects consumers from obvious, while ensuring

their acts to innovative responsible services. it will be able to reduce regulatory burden while helping consumers. for example, by creating one simple mortgage disclosure form for all consumers to use. it will not set prices for any service. the federal government has failed to date in its most basic regulatory responsibility. utterly failed to protect consumers. the deep financial crisis that we are still in, let me emphasize, that we are still in today, revealed the alarming failure of our existing regime to protect responsible consumers. and to keep the playing field level for responsible providers. instead of leadership and accountability, we have had a fragmented system of regulation designed for failure. bank and nonbank financial service providers compete vigorously in the same consumer markets, but are subject to two different and uncoordinated

federal regimes. one based on examination and supervision, the other on after the fact investigation and enforcement. last responsible actors are willing to gamble that the ftc and the state lacked the resources to detect and investigate them. this puts enormous pressure to on banks, thrift and credit unions to lower their standards to compete. and on the regulators to let them. and no financial providers should be forced to choose between keeping market share and treating consumers fairly. this is precisely what happened in the mortgage market. independent mortgage companies petaled risky mortgages in misleading ways to borrowers who could not handle them. to compete, banks and thrift and their affiliates relax their standards on underwriting and sales, and the regulars were slow to act. the consequences for homeowners were devastating, and our economy is still paying the price. fragmented regulation facilitate abusive credit card, tricks and traps enabled banks advertised

selectively low annual percentage rate to grab market share in boost income. other banks could not compete if they offered their credit cards with transparent pricing, and consumers ended up with retroactive rate hikes and unfair terms. the list goes on and on. credit unions and can you debate with straightforward and product struggled to compete with less scrupulous providers who appear to offer a good deal and then pulled a switch on the consumer. our federal agencies do not currently have the mission structures and authority suited to the affected consumer protection and consumer financial markets. the ftc has no jurisdiction over banks. and it doesn't have the supervisory and examination authority to detect and prevent problems before they spread throughout the market. mr. chairman, i see that i will be significantly over my time. could i take several additional minutes? >> yes, so approved. >> thank you for. bank regulators have supervisory

powers over banks, but their primary mission is to ensure that banks are safe and sound and not to protect consumers. consumer protection supervision is never going to share the front seat with safety and soundness. tinkering with the consumer protection mandates or authority of our existing agency cannot solve the structural problems. we need a structural solution. we need one agency for one marketplace with one mission, to protect consumers of financial products and services and the authority to achieve that mission. that is the agency we are proposing to create. the cfpa will have the sole mission of protecting consumers. it will write rules, supervising institutions, examined them, and lead enforcement efforts for the whole marketplace. the implications for our proposal for consumer protection and competition are enormous. the proposal will bring higher and more consistent standards,

stronger, faster responses to problems, the end of regulatory arbitrage, a level playing field for all providers, and more efficient regulation. our proposal gives the agency the power to strengthen mortgage regulation across all vendors and brokers, it can strengthen disclosure, make it easier for consumers to choose simple product, prevent lenders from paying you to spread freedom that they brokers more if they deliver loans with higher rates that consumers qualify for. the agency would implement credit card protections and update these protection as markets change. and it would set high national standards for licensing, bonnie, monitoring of all nonbank financial services providers. let me say, the ftc is a good agency. the chairman and i are good friends. our legislation does not affect the jurisdiction of the ftc over the vast array of nonfinancial markets and actually strengthen

to police those markets. to increase the ftc's ability to protect consumers, we propose that the ftc be able to adopt rules to prohibit unfair and deceptive at other acts or practices. to obtain civil penalties when companies act in an unfair or deceptive way. and to pursue those who substantially aid and abet providers that commit unfair or deceptive practices. the administration also supports increased resources for the ftc so that consumers can be better protected across all markets. as for financial markets, the ftc would continue to have authority under the ftc act to pursue financial fraud without delay. including on foreclosure rescue and loan modifications cambs. the ftc will retain authority for writing rules under the telemarketing sales act, and concurrent responsibility for enforcing them of financial products and services. and the ftc would retain primary authority in the area of data security for nonbank entities.

in addition, the ftc would have backstop authority to enforce the same consumer credit statute that can enforce today. under that authority, the ftc, or frankly, a bank regulator could if it becomes aware of a possible law violations refer it to the new agency, and if the new agency doesn't act, take action itself. that same referral requirement will apply to the bank regulators. and it is designed to ensure a consistent federal approach to interpreting and enforcing our consumer protection statutes. finally, let me just say this. it is time to put consumer protection responsibility in an agency with a focused mission and comprehensive jurisdiction over all financial services providers, banks and on banks are like. it is time for a level playing field for all financial services providers. it is a time for an agency that consumers and their elected representatives can hold fully

accountable and responsible for consumer protection in all financial sectors. and, it is also long past time for a stronger ftc. the president of legislation fulfills these needs. thank you for this opportunity to discuss the proposal. the additional time you have graciously given me, and i will be happy to answer any questions at the conclusion of our opening statements. >> mr. chairman? >> i would like to make a unanimous consent. that the gentleman from the ftc have nine minutes. >> the chairman, he will take care of whatever time he needs. >> i'm having a little problem with the microphone. chairman rush, ranking member read on a bench, vice chair schakowsky, members of the

subcommittee, i appreciate the opportunity to be here to discuss consumer protection regulatory reform, including president obama's far-reaching proposal to enhance consumer protection through the creation of a new consumer financial protection agency, the cfpa. as all of us in this room know, and as many of you on the panel articulated as mr. barr articulated the need for reform has become as painfully clear as consumers are now experiencing in these difficult economic times from the failure of regulation. all of us on the commission support the president's goal of delegating consumer protection, although some of us have different views as to the best means. thank you so much. see, we are good friends. although some of us have different views as to the best means of that. for my part, this initiative which enhances the resources and authority for the ftc and which creates the cfpa is clearly preferable to the status quo.

in any case, the commission will continue to vigorously protect consumers of financial services while this proposal is under discussion. if it is enacted is wrapping up. beyond that, we look forward to working collaboratively with the new agency. thank you so much. now i feel like i am at a press conference. >> in the last five years, we brought more than a hundred financial consumer protection cases and have recovered early half a billion dollars in the last decade for consumers. since i last testified before this subcommittee in late march, we have continued to aggressively pursue financial predators bringing 14 new cases in this area. in fact, today we are announcing destitution of an additional $8 million in consumer redress checks to americans who were deceived by mortgage, deceptive mortgage origination fees. and on june 1, using the new aba will need an authority that you gave us in the omnibus appropriations bill, we began a

room at king addressing mortgage modifications and foreclosure rescue scams which have become as all of you know all too common recently. and also addressing the entire mortgage lifecycle advertising, origination, appraisals and servicing, simply put, this will help ensure that consumers are not ripped off by bogus mortgages or false advertising. mr. chairman, president obama emphasized the importance of getting the ftc tools to increase resources, the ones that we need to stop practices that harm consumers and violate the law. first, the proposal grows our agency giving us a staff that we need to do the job that you all want us to do. currently we have just over 1100 ge's. that is down from about the aching every had in the late 1970s and early 1980s despite a considerable growth in the u.s. population and in our own responsibilities, including enforcing can spam, do not call, coppola, the children on my privacy protection act, and

other statutes. second, the proposal provides the ftc with apa notice and comment will making which is used by virtually every other agency in the federal government. it would strengthen the commission's ability to address widespread problems more quickly. third, the proposal authorizes the ftc to obtain civil penalties for violations of section five of the ftc act. this new barrel we believe would help deter would-be violators and help consumers, help protect consumers more effectively. i think something like 47 states attorneys general have binding authority, and by the way, finding that 40 was originally proposed by caspar weinberger when he was chairman of the federal trade commission under president nixon in the early 1970s. finally, the proposal authorizes the ftc to go after those who aid and abet others who violate the law. we would also urge congress as you consider this legislation to give both the ftc and the cfpa

the ability to bring civil penalty actions on our own which would put both of us on equal footing with other consumer protection agencies like the sec and the cftc and not make us as we do currently have to wait for the justice department to clear going for. that we expect that as with any bold and complex new initiative clarifications will be worked out as a legislator process moves forward. but from my perspective, the president's goal of streamlining the overline for protecting consumers were financial abuse is more than commendable. and eliminating the consumer protection oversight over non-banks and banks as mr. barr has alluded to is laudable and very, very critical. we do have some concerns, however, about the draft legislation, or the legislation in its initially drafted. although i am optimistic that we can work these out as the legislative process moves forward. so the proposal states that the fcc would have backstop

authority, but the draft legislation imposes review period that could require us to wait 120 days before filing certain cases. we also believe it would be helpful to make definitions in proposal terms such as credit and financial activity clearer. let me to your wife with an example. so suppose the ftc find a telemarketer making illegal calls to millions of consumers on the do not call registry urging them to purchase and the like advance fee credit card which are, i would say per se illegal, but almost always based but they often illegal. and suppose that a payment processor participated in a fraud. it is critical that we be able to bring action against all of the malefactors expeditiously. but it is unclear under the draft whether we would have the jurisdiction over the telemarketer offering a financial product, or the payment processor. and if so, whether the 120 day waiting period would come into play.

we have made much progress on several of these issues and will continue to made progress. but getting this right and allowing us to put an immediate halt to harmful practices is crucially important. having said that, with this committee involved in writing any legislation, i am confident that this is very, very important initiative will be considered, discussed, clarified and refined with all open issues resolved in favor of american consumers. we understand of course that under this proposal rulemaking authority in primary enforcement responsibly for financial products and services would go to the new agency, but we will continue to aggressively enforce these laws as a cop on the beat where necessary. as well as every law in our jurisdiction. we look forward to working with the administration in congress to reject one that best protects american consumers. i thank you for your time.

>> the chair thanks the gentleman, the chairman of the ftc, and the chair now recognizes himself for five minutes. for the purposes of questioning the witnesses. with the continuation of these financial crisis, we see more and more scam artists preying on desperate consumers trying to reduce their debts. . .