if we find that there was some differences, you know, significant differences of what was proposed as opposed to what dcaa is finding in these cost baselines, that will be taken into consideration, as i said, on our decision on whether or not we will exercise for the options for that work. or if we need to make some withhold as has been suggested by ms. stevenson. and we are not to doing so. as i mentioned, these are important if the whole thrust of logcap iv was to put emphasis on these business systems and they will be addressed in these proceedings as we move forward here and in a determination whether or not options will be exercise, as we awardees task orders. we are also working with dcaa on the audit of the iraqi task force. our contracting officers have shared the solicitation with dcaa to the input. we are still having some discussions on the extent of how much audit activity we think is needed versus what dcaa, but we

will work through the. you have my commitment and will continue to work with dcaa as we move forward. so i wanted to add those points and again, thank you for the commission's interest. it is an important area. when you take a look at the extent of the business systems issues we got across our contractor baseline but the root causes need to be identified in the end result. 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 interest with this afternoon's session. one, i didn't want to leave the impression that inadequate system is any different than an inadequate card system. 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 you asked, we will re-examine that. second thing is, commissioner shays, i want to stick about what you said about mr. ricci. i realize he has taken a lot

this way. but in our working relationship he is one of the people who has resolved a number of issues that we have had with contracting officers. although this one is one in which we disagree on. he actually has been the type we have been able to make a phone call and he helps resolve the. and so i did want to second what you had to say about mr. ricci. >> eighty. mr. ricci. >> i just want to say that i sincerely appreciate being invited over here to discuss the business systems as well as our interpretation 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 people look at proposing additional regulatory trade system that 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 almost kind of direction to the government folks to try to work with your industry, counterparts. and i think to the extent that dcma perhaps has not taken the strongest action that maybe could have over the years, part of it does go to that climate which we can work to change over time. thank you. >> that he. 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 that harrington.

and i am pleased that we are 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. >> take you all very much. and we will go to now our second panel. our second panel is bill ballhaus, president and ceo of dyncorp, david masson, executive director of compliance fluor government group. though walter and why do you stay skinny because then we will swear you in and take care of that what 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 stay standing if you would. is there anyone in your companies that you might want to respond to questions? we don't have to take their name now but if you want them to --

okay. so raising your 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 be thought? how do i pronounce your name? my thought. >> thank you. mr. methot, thank you for coming and we're going to start off with you. and then we'll just go down the line. and we are saying six to seven minutes would be our wish that seven minutes i would ask you to close but if you close before that that is all right also. anomic as a point this time. i don't think i will forget. if you have a closing, you will be able to do that, if you weren't asked a question and you want to put it on the record. mr. methot, you have the floor.

[inaudible] >> go chairman thibault, cochairman shays and members of the commission on wartime contracting and iraq and afghanistan. thank you for the opportunity to discuss flour's business system. my name is david thought and i serve as executive director for flour's government business segment. flour is 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 a smallest business segment was the government with 6% revenue performing work for the department of energy, state, homeland security and defense. flour has been actively supporting the u.s. government for over 60 years. throughout this period we have

supported the government needs including the manhattan project, the strategic petroleum reserve, missile defense infrastructure in alaska, the closure and remediation at doe facilities at fernald, ohio. disaster response and recovery support for fema in response to a natural disasters in hurricane katrina and rita and projects for several defense agencies in iraq and afghanistan. flour's ongoing projects consist of task orders under contract for the u.s. army corps of engineers, transatlantic program center and under the army's logcap iv program. flour was awarded the seatac to contract in january of 2004, and has performed work under 22 task orders between 2004 and 2008. we are still performing work under four of those task orders. flour was awarded three logcap iv contracts in july of 2007. the army contracting command has

completed eight task orders and flour has received four awards. flour's first word was in september 2008 for the expansion of afghanistan regional command east which consisted of the establishment and continuing life support for forward operating bases. this was followed by an additional award in october 2008 for calibration and repair services for military equipment in iraq and afghanistan. in december 2008, flour received an award for construction, and continuing life support of eight forward operating bases in afghanistan. recently, flour was awarded a task order for base life support and theater transportation functions for u.s. and coalition forces in the afghanistan north area of responsibility. the total value of a task order is over $7 billion over five years, including one based year with four, one year option extensions you are now looking

closely with the army to plan, coordinate the transition of this work. as the chief compliance officer of flour's government group i directly report to the president of fgg and have an independent reporting relationship of the corporate compliance officer to the audit committee of flour's board of directors, as well as the corporate compliance and ethics committee. i am a candle for ensuring flour complies with federal contracting requires and for planning 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 of our corporate business systems and indirect rate agreements. our business systems and processors are well-established and decide to support global execution of engineering procurement construction and to its customers. these systems are designed to support execution excellence and include effective internal controls and sound business

operations. fgg's businesses and have received hundreds of reviews over the years, and we are determined to be adequate by the u.s. government. historically, any business systems inc. internal control audit issues identified have been resolved with the government. where deficiencies were identified, timely corrective action plans were submitted to the government and an at an appropriate level of senior management attention and shirt and some addition. follow-up on to routinely and resulted in the business system. as chief compliance officer for fluor's government group i am proud of our tracker of performance and compliance across our government agencies. on behalf of our 2100 employees of fgg, 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 point that shaped the recommendation of my full senate and i would like to request that my full statement is included in the record. >> yes. >> yes. .1, contingency operations are different and offer unique challenges versus executing similar work in peaceful environments. at dyncorp international with our experience of supporting u.s. national security and foreign policy objectives around the world, we understand these unique challenges intimately and firsthand. point to, 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 number 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 environment to long days, weeks and months. this looks nothing like what you might say in domestic operations. these environments are a steer, hostile, and 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.

to date and 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 here 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 fallen and injured employees and their families. second on a topic of leadership, i was pleased to see that this was an area of the commission's interim report. a 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 end of his programs like logcap and gls, i personally selected our program leaders. similarly, i support the commission's interim finding on the need to deploy trained, dedicated contracting officer representative's and

administrative contracting officers to the field. the need for dedicated, well-trained leadership in wartime operations is apple pie 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 a profession with respect to program performance and compliance matters. now we realize the impracticality's of this 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 and

responsiveness is behind two additional recommendations, including my statement. first on the topic of business systems. i have recommended in 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 undefended eyes of 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 responsive and accountable in supporting contract within a physician. it can be penalizing to ask contractors to partially fund works to win the contract s. 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. >> mr. walter. thank you. i am the senior vice president of kbr with oversight responsibility for the business systems we're talking about here today. kbr looks forward to helping the commission identified lessons learnt 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 inherent in a war zone. as well as understanding the challenges proposed by competing governmental priorities inherent in a contingency contracting environment. kbr uses a variety of his systems to manage the day-to-day operations.

these include systems to acquire goods and services, and to estimate accumulate and report costs. incurred to provide the services to provide 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. dcaa and dcma are in our facilities throughout the world. we are in daily dialogue with government representatives to insure corporative communication and implement feedback in real time to provide transparency and to improve our services. for example, kbr leads interactive monthly meetings with representatives from dcma and dcaa regarded 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 people 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 expense of supporting military forces in the balkans. based on the volume, bass on the original logcap iii scope of work we anticipated that the point of work would be comparable. however, as everyone knows what happened in iraq was dramatically different. the magnitude and urgency of the logistical support needed in iraq presented new and extraordinary contracting challenges that any company with any business system would have faced. as you know the military and their contractors and countered a rapidly changing and increasingly perilous situation in iraq that it was in this environment that the initial levels of services required of kbr under the logcap iii contract evolved to meet the contingencies of the 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 was to the essential services that kbr would perform, the specific requirements 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 were going to develop solutions to wartime logistical challenges on the ground and in real-time to support the 211,000 servicemembers at over 215 sites throughout the theater. in this volatile situation, the pace of paperwork trilled the pace of demand for services and is led to further challenge is 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 things that can provide the services, few if any have experience with the 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 and

an extra in a 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 example of the contracting challenges that kbr faced at the outset of the iraq war. given the immediate needs of operation, kbr identified an urgent requirement for diesel, heavy-duty suvs. we went to the local dealerships in kuwait and we were charge the market rate of $43000 per vehicle. subsequently, kbr are working diligently to put a supply chain in place to procure these types of vehicles at a discounted rate 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 a contractor to the government's demand on its schedule. with regard to the application of business systems in this challenging and ever-changing environment, we identified the need in 2003 to upgrade our account system to keep pace with a significant increase and data requirements associated with

logcap iii. during the implication of this change, we invited dcaa to participate and observe the entire process. further, once the system if a magician was complete, kbr made presentations to dcaa personnel on its functionality and operation. our businesses and have a bald overtime. as security, communications and the acquisition workforce improved, 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 expenses in iraq and extensive history in government contracting the board has a somewhat unique perspective on the challenges faced by the military and its wartime contractors. perhaps the most vivid observation i make is that contractors are often faced with multiple and at times competing priorities from the government with respect to our contract. the military commander on the ground may express an immediate need with the urgency of real-time battlefield

necessities. both the army and the command and dcma 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 it may appear months or years later by stateside auditor. asked the contractor, we face the challenge of meeting the very real needs of the army, fighting the war, while also satisfying the important events 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. a second observation involves the nature of the auditing process. the current audit process for adequacy dirt termination contains to me subjective aspects that varies significantly between auditors

leading the contractor in an unattainable position to do greater like and objective criteria would provide contractors with an enhanced ability to meet and exceed the government expectations and would result in increased contractor efficiency for the government. >> mr. walter, if you can finish up in the next minute. >> i am finishing now. i look forward to answering your questions. [laughter] >> that is compliant. >> i wanted to catch my breath here. >> will start out with mike cochair, mr. thibault. >> i had a couple of points. i need a microphone, okay. thank you. i have a couple of points, three navy and then were questions and point and then i'm going to defer five minutes of my time to professor tiefer who has been leading the commission effort on logistical support. and since the three companies aren't logistical support, i thought that made sense but i am

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

little slow for dcaa to be getting to and looking at. so the 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 are only 6%, i am willing to bet you are going to be more than 6% in the future just on some simple math. but what i want to also point out is the other three, the most three recent reviews, billing, inadequate part, compensation, inadequate, that a september 2008 and february 2008 indirect cost and other direct cost which is primary they incurred cost 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.

you know, i share that. mr. ballhaus, i commend you for being here. i commend all of you for being here. thank you. what i want to share in this, and if i take one more minute, then charles, you only get four but i am wrapping up. 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. and what this is, is three responses to those most recent report that you talk about in your testimony. ms. stephenson talk about in her testimony. one for labor, one for billing system, and one for compensation system. corrective action plan. and what you have done. and for the record i think it is important that apel said that on two of them she has backed off her standard recommendation to do with old because she liked your corrective action plan. and your chief financial

officer, he is the one, i read it, i am very impressed it i was very curious. we put a regional director who is on our staff, current contracting 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 acknowledged that. and my question, which i think you can help with this, is i also commend you for having your chief financial officer, government compliant folk and all were there, when we talk about finances, he was representing the company. and that was very impressive. because he knew inside and out of the issues we were talking about. you primarily due government business. so to me that made all the sense in the world. and you are here.

why are you here versus your government compliance person? >> verse of all, thank you for the compliments. second of all, i am here because my name 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, with our role as a contractor, support 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 a response that you did into thick pieces of paper that you held up his we review many of those issues weekly with me. and so the fact that our cfo, mike moran, was knowledgeable and responsive author's note of that matters is no surprise to me. >> i'm going to cut you off

here. we will give mr. tiefer 12 minutes. before and then. >> i think mr. thibault for his extraordinary generosity. characteristic of him but extraordinary nevertheless it mr. walter. we her testimony this morning i april stephenson about the problems, and this is in the context of a drawdown of contractors in iraq. problems 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 quote we have looked at logcap as we close the spaces. that is the plan, close to camp, close the bases and shrink the footprint and the costs. the footprint, meaning the number of people, both contractors and soldiers.

that's the footprint. shrink it. . . o make logcap accountable. logcap in iraq means kbr and its subcontractors. can't mean anybody else.@@@@@@ >> i fact question that? >> i do not have access to the

final dcaa audit report that was associated. i do have bits and pieces of it. i do have the piece on the $1 billion of unsupported cost which i would like to make the comment that really is not an accurate statement where it is perceived as if it is an overbilling. what is is a disagreement between the kbr and the dcaa looking at an individual subcontracts with response to what does make adequate competition with respect to those particular items but i will look into the 300 million if i get the information, i will gladly provide a response to you. >> fair enough. i handed out some documents, i apologize for doing this over the last minute, we were in fact rushed from a trip in baghdad to the preparation of this 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 articles, it is a short question answered. you have an awareness of the strong figures for contractors and iraq? >> i am familiar with that, yes, sir. >> the next pages about the audit we just talked about. my only reason for including this culbert chart is to show sort of the vision of the logistics people how to carry out general odierno's order. that is this is a total sort of the craft down slide down, blight down of the contractor footprint and a break it down into u.s. people, iraqi people and the third country people of tce and and those add up to the graph. a glide down. now what happened after general odierno gave his january 31

order that's on the public record and "the washington post" is that there was in the following month and implementation, and i won't rush it. there is something -- you see the big unclassified stand at the top and it is a memo to your regional bye 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 begin a responsible drawdown and decrease the cost and footprint. the cost and the footprint. the footprint is the number of soldiers and contractors, he wants to freeze it. a couple of interesting things i want to lay the groundwork and then will ask you. the interesting things about this, it's directed at kbr. it's not directed at contractors generally, it's directed at kbr. kbr is, you want to be rough,

about half the contractors in iraq. it's not directed at 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 teams talked to the pco he said although it mentions the odierno order it is also because there had been a 50 million-dollar cost overrun and iraq and that that is why the fact lead to him saying we have to have a freeze, very forceful measures. are you familiar with any of this? >> i'm familiar with some of the pieces, sir. not all of the details. >> i appreciate your short answer. do you want to name what pieces are familiar? >> okay. when i was in iraq last time, this topic of conversation came up. we worked very closely with our contracting officer in theater. we did talk with kevin larkin

and one of the contract is on a free status there is a lot of additional work that goes on request to be about to perform additional work to be able to support the soldiers. in addition to be able to support the withdrawal. 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, shot down the camps, shutdown the housing units and move them to other locations. that is normally something kbr -- >> okay, a seattle is and locally. there was another thing we ran into. i mentioned the things at the top level. they also didn't -- they flew me out to forward operating base being closed down by the marines and the sunni triangle. and there we got the picture -- we saw the picture from the bottom and the top that senior and junior government officials were concerned about and are

seeking to guard against what they call the shell game. that kbr will move its employees between basis rather than demobilizing them out of theater because that is the real goal not to have them close based a and they go to base de to see if they can be tasked, close the base be and they move to see to wait if they are going to be tasked. that doesn't reduce the footprint and yet it seems the systems 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 -- one of the things i wanted to ask was when i see the internal control systems are not strong enough did you -- did you hear apr stephenson described this morning that she said internal control systems for labor are not adequate and

the recently gave you a statement of conditions, the state of conditions, you're familiar with that, dennis? >> yes, i am. >> i asked if she considered that a criticism of your existing systems. 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 theatre. the systems in place, the process these and expectations are different. so what we have when we got the initial statement of commissions and recommendations it said kbr does not take into consideration the existing staffing when it creates an administrative change letter or a cielo estimate. we disagreed with that and what i had asked the team to do is get the people from the estimating department to work dca auditor and demonstrate how they accomplish and utilize the

internal control process. >> well i'm glad you are familiar with this and the precision and the brevity of your answer is admirable. you're not stalling. i appreciate that. what i am most concerned about is it goes over and over proposing the duplicate feed, pete fi twice, paid a fee twice the are not -- their understanding is that these orders which you describe which are still coming in, they were coming in for projects to have electrician's come in and fix the problems caused a originally by the detective work on housing, not yours personally, kbr's. now you say change orders which are called acl, administrative change letters, and that as they are very concerned to put it mildly that is why they issued this.

you take the fee of the original contract acl even if the old labor is used to take it off the old contract 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 and have worked 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 leader steve sternly, a objectivity and dedication. and he has tried to pull the data together quickly since we came back from iraq and some of this is preliminary. what it shows is the lines at the bottom should add up to the one at the top. one shows the lines at the bottom one is the downward decline and non-pbr labor, that is the green dotted line that has a fast sloped down then there is the blue dotted line and that is almost level slightly downhill we estimate

6%, 6.2% of kbr labor. so the cuts are not coming from kbr. the new reductions are coming from the other contractors. is it possible -- you tell me what your understanding is. is that different from your understanding? >> part of the drawdown is where kbr as a result of discussions from kevin larkin and others we went through and performed a personnel reduction plan to reduce the number of personnel and theatre. at the same time while the drawdown of of iraq is happening, the requirements for air with statement of work or not necessarily happening at the same time so we still have the same footprint we still have to provide the same support for -- >> i am reminded my time is running out so why have a last quick question. the last piece of paper i have is your par and kbr language and it has a phrase called faces

without spaces that you still, it seems the faces are the personnel you have don't have waiting for work. you are not reducing like the other contractors instead you are keeping this pool of unassigned labor and it seems that is very contrary to general odierno's hopes for the footprint. >> i am not aware of that particular piece of legislation. i will find out about it and hopefully in the attendee period provide a response. >> let me just ask will there be a lot of answers where you're not aware of the -- argued the person that should be answering these questions or is their someone else that should be at this desk? >> sir, if we are talking about business systems i will be able to answer a majority of questions.

in response to a specific operational action taken by by lil' bo and his team in the future i may be aware of it but i would hate to miss quote the record. >> mr. henke. >> i would like to go after a line of questioning that frankly mystifies me and if i could start with a misunderstanding briefly you are each publicly traded companies, yes? >> yes. >> each comply, you are overseen by the fcc and other agencies and file financial statements and 10k and everything that goes along with that, right? you each have an external auditor, right? can you state the name of that audit firm that performs your external audit? >> it's a ernst and young. >> kpmg. >> so you have different audit firms. they provide a i assume each of you has an on qualified clean opinion on your financial

statements -- is that correct? >> that is true. >> well what the reaction be to your company's value much less your company's reputation if he were to lose that opinion to have either a qualified opinion or add a first opinion from your externals auditors which basically would say your books are not worthwhile would be the general sense of reaction to that? briefly. >> i will answer i think it would be significant i've think it would represent a lack of confidence in the financial systems. >> i agree with that. >> i would agree with that commissioner. >> so you each have a clean opinion if he would lose that opinion it would be probably one of your cfo's worst days making quite of a very serious thing i guess. but here is what i do not quite connect. if the standards are public companies here, government

accounting here than i can understand why it's so difficult to climb this mountain, to get green instead of redds and yellow but the piece i am trying to put together in my mind is a few or externally audited, clean opinions, sarbanes-oxley comply and i would imagine, so you're doing all of that but at the same time we can't produce -- is the same systems that run the financial statements that ron the french accounting systems what am i missing? do you got a good opinion but at the same time you have got systems that are not passing muster. what am i not getting? >> i will take that first and then give the other witness is a chance to respond. for our systems here it was discussed earlier today we have three systems that just ain't june were assessed as inadequate so this is a time issue for us and your analogy i think is a

good one, it is not only a cfo potential worse nightmare it is also ceo and something we take seriously. there were 19 findings across the three systems roughly 19 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 thibault has described we have approval or at least agreement from the dcaa on two of the three systems in corrective actions. the third is the compensation system and i believe there were five questions dcaa came back with that when i looked at than they were easily answerable, fixable and correctable. the issue that i see and this cannot this morning as well there is subjectivity in the approach to show or demonstrate compliance to a regulation and within the subject of city people can have a different opinion what it takes to be compliant. these rankings represent what

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

the auditor and we do have monthly meetings that we have had the past couple of years to discuss the specific issues being raised by and corrective action plan is required what are the steps we are taking, how are we progressing against the steps. >> roughly how much of the time to do 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 changes -- >> in the case 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 due remained status quo but they are a very small handful of those particular items. the other issues when the

auditor does raise a question and they identify with the issue is half the time it is simply getting people together to understand what the reality is and the contingency site, 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 in my back. >> mr. methot. >> from thus perspective i would agree with the first two witnesses comments in general of the three systems you see there in her fluor either an adequate or inadequate in part over the years there isn't one issue in there that isn't addressable. why aren't they complete, why are not the result? clearly there is a process you heard at length this morning and that process goes through a contracting officer and with

speed. we have monthly meetings with the dcaa officers and that review loss as well as our corporate administrative contracting officer and we attempt to resolve issues much of that our status reporting but quite frankly when it gets down to what it is a matter of an adjudication from a contract an officer and we provide all of the appropriate supporting data we need to provide an order for that individual to make a decision. >> i need to move to the next part of the question. mr. ballhaus, in your statement you say in some cases we may not have concurred with dcaa's findings but revised procedures for processing is as recommended by dcaa. >> that's correct. >> what is your philosophy operating? >> i agree of the 19th findings and i may not have the six sec'y ret but there's maybe two or three we didn't agree with. that said we decided to follow

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

corrective action plans the next step would be for them to come in and assess the adequacy of the controls we put in place and that's something we will be ready for in the september timeframe and welcome it. >> dca. mr. gustitus. >> on the follow-up to that mr. walter if dyncorp finds this global why does kbr have to go from 2003 to 2009 with dcaa determination you haven't met the inadequacies of these systems. why is it so simple for mr. ballhaus and so complicated for you? >> well, i wish i knew the complete answer to that but i can tell you pt aretas share the same attitude. >> i don't see the action supporting the statement. >> not in the results on the table, ma'am -- >> where is that than if it isn't the results on the table? >> it's in the meetings we do hold with dcaa. for example in the accounting system the auditors have

identified we don't have policies and procedures with respect to unallowable costs and they identified we don't have procedures to updating cost accounting standards. we update the cost accounting standards disclosure statements annually. we do have a policy procedure in place we provide to the auditor several years ago the same for the on allowable cost yet the audit reports have not had the complete follow through as we've gone through. part of why hold the meetings is to try to push this particular requirement to try to get the answer to these items so that we can get down to, you know, people to make that yellow green. >> not only has yellow not become green on the purchasing system yellow has become red and you are saying you are doing everything you can to meet these terms and conditions having an adequate business system. how does the purchasing system go from yellow to red? >> the purchasing system went from yellow to red per

ms. stephenson's comment because of the cost of 159 flash report that came out that had of estimating as well as purchasing in that we had kept dcaa informed of the subcontracts we were competing. we had three competed every single contract on the iraq hit her for that particular task order. as dcaa came up with questions for the team in the forms of statement and conditions and recommendations they identified the had concerns with where we didn't always go with the low bid on subcontracts and on those where we didn't did or did it go with the low bid we provided the dcaa with documentation we sat down with the government and showed them with our recommendations were and the government came to us and said if you swap out the competitors here there is going to be some additional cost to the government you need to take into consideration so therefore the incumbent is actually a

lower-cost. we provided that the lower documentation and procurement files to the dcaa for those particular subcontracts. we also have subcontracts where dcaa saw we had bids higher than a subcontract where we had exercised options and recommendation was made we needed to go in and negotiate a lower price on exercisable options even though there was a foul that competed subcontractor. >> so you think dcaa is wrong and you are going to do what you want despite what dcaa says? and you are going to convince the dis them any -- you do a lot of walking with d.c. and a to make this code red cream? >> no, what we do in this particular item we have had a lot of challenges in the past because poor communication. when it came to task order 59 we subcontracting plan to identify which subcontracts we would weaken pete. we kept dcaa apprised of that

and they would not review because under their guidelines until they had a complete package they would not be able to audit the package for fear of ipt conflict of interest. we kept them informed and providing the documentation. at the time the house order was executed we issued this of contracts and had to continue performance the question is on the subcontracts that our existing and we are performing on the question is is there adequate price competition, did kbr procurement team and the turk who made the decision and worked with the government do the right thing so it is not a question of trying to tell them we are trying to lobby with somebody else it is the contingency environment we are working on. i can't recall those and say i am not going to reward the contract and not provide support to the soldier for the food service or the fire fighting which is what the contracts were so we are trying to work through but it's the event of the day

and fact you can't stop something. >> did you think that dcaa has been for you? do they treat you in more challenging way than they treat fluor or dyncorp? >> i can't answer that because i don't know -- >> they're pretty upset about kbr business systems. i don't think she's making it up from her perspective. so why do you think that this is -- >> i think it is a significant -- there is a significant impact of the war and trying to get things to move effectively. in doing that in the past we didn't have as i said good communication with the dcaa -- >> i only have two and a half minutes left. back in 2004 we talked about the utility or the mullen utility of withholds from contractors this morning. back in 2004 there was a

recommendation by contracting officer for 15% witold kbr. you were at the kbr because you were there in 2003. kbr objected to the crippled. i would say you might like objected and saw a waiver of the witold. phill law requires if you don't have a definitive contract and you wanted a waiver of the 15% withholding; is that right? that is right. >> we wanted a waiver of the withhold. yes, ma'am. >> so it ended up owing to the director in order to get the with cold, right? >> i believe that commitment to. >> so we are looking at the role of contracting any contingency environment and i want to ask you because i'm trying to get with the contractors and contingency environment have also for a barrel to some extent because of our concerns about the protection of the soldiers. it's important for me to know

whether anybody at kbr essentially argued the contract in chain of command that if you were subject to the 15% withhold and you didn't get the award you were looking for the need of the troops might be met. is that the reason your supportive of a way for and against the whittled you felt it would have a consequence to the soldiers in the field? >> we have had many discussions about that because there has been a lot of publicity about allegations associated with that. i do know i was at rock island and we were having a teeming conference when that came up. i was not in support of that because we have already had significant investment of our own working capital -- >> you were not in support of what? >> with old for two reasons. number one we had a significant investment of the working capital in the program and the second item was the fact the

reason for the delay and digitizing the task orders which is what caused the issue was the fact that from the end of 20 o2 through the beginning of 2003 there were significant numbers of tosk orders issued to support the escalation of the war. at the same time as 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 want to know whether you argued that the 15% withhold would affect the needs of the troops. >> i cannot recall making that argument, no. >> my time is up. >> i don't want to drop this because this is a key point. the key point is that the withholds don't happen because this is either a direct or

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

that. >> by your company? >> by my company. >> dca. >> you mentioned that you have had monthly meetings with dcaa mr. walter. >> have monthly meetings on systems and donner and fight dcaa. yes, sir. >> when did those meetings start? >> the initial meeting was associated with the procurement system and that one began in 2004. >> 2004. i am looking at this chart here and i see that dcaa has felt that your estimating systems have been inadequate in part since 2005. september, 2005. we are now in august of 2009. by my reckoning and by one you just said you have had 47 meetings with dcaa and you couldn't work it out where has

mr. ballhaus says he goes out of his way to work it out. were you guys stonewalling? why won't you work it out after 47 meetings? >> with respect to the estimating system the initial issue that was raised dealt with the ability to update proposals for actual costs incurred after a task order began. we worked closely with dcaa and closely with the army to figure out as the progress is progress in. >> you're incurring actable cost. as you are entering actual cost we have to be able to identify all of our cost or pricing data which includes actual cost we are including. as we were performing under task order 59 we were incurring costs. as we submitted the proposal to the government that proposal was then audited.

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

you obviously haven't satisfied the auditors. >> it is the issue still open on estimating are differences of judgments. >> but that is my point. after 47 meetings you still haven't sorted out. let's go to another one. billing. that is december of 06. now we are not talking about 47 meetings, we are talking about roughly 37 meetings. why haven't you sort of that one out? >> for the record with the procurement system that's the one that started out in 2004 and it wasn't a monthly meeting. for the estimating accounting and billing system goes started at the end of 2007. >> so for quite some time you didn't reach out to the speed at all is what you're telling me. >> no, sir. i believe we were trying to work out with dcaa. we had proposed many different ways to accomplish. but based on the environment we are working in --

>> the environment? what do you mean. this wasn't in 2003. i was in the government in 2003 and 2004 into the environment now is not what it was in 2003 and in 2004 and you know it. >> it is a different environment -- >> let's be honest cosby's -- it is not the particular environment but you are not been to tell me it is as on safe now has in 2003 and therefore you cannot deal with an environment these other companies seem able to deal with the environment. why is your environment so different? >> what we are working with, and i believe we do have open and honest dialogue with auditors and theatre. we are not trying to say we are not going to accept your changes we try to address the changes as they are presented to the sometimes we do get stuck behind the power eckert and right now estimating system is deficient

in the eyes of the dcaa because of the purchasing system review. >> what about the billing and accounting systems? >> the accounting system we have basically two items that we are trying to work through with the dcaa. the one deals with the discussion 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 the transfer cost. we have gone in and have provided updated descriptions. we provided training so our guys -- >> i have only two minutes and 20 seconds. can you give me the answers for the record what the differences are and what is holding you up from making accommodating the the dcaa on these other areas? my final question is to make a

statement people could withhold anything from a sub because after all you are relying on the subs. my question is why -- haven't you look for other suspects is the only one in the world for every particular tasks? last time i checked there are quite a few subs and people are dying to be sob's so if somebody isn't performing after all you are responsible for yourselves. i don't know whether you give them a limitation of liability or what. the government is in different to that. you are responsible as the prime and if your sub isn't performing you can't come back to the government and say this of isn't performing. you terminate for the fall and get another sub in affect. to what extent have you done that? have you fired a single and so how many have you fired? >> we have fired some saw this i would have to get the exact number but significant dollar amounts of subs particularly in 02 to 03 timeframe.

>> i am much more interested in recently. we talked about 03. i mean the last two years. >> i mentioned to the commissioner with the compete for task order 159 we've freakin' be did every single subcontract was out there. for those contracts where we had a new vendor that could come in with a lower price those were the ones we attempted to to replace. there were some identified where there were additional costs the government would incur which made it more economical for the government to continue with incumbent contractor so there has been a significant change in both the makeup of the subcontractors that do work for kbr. these contractors are normally on about a six month contract with six month option and if they are not performing we will reconvene at that particular subcontract. >> and you've done that. >> yes, sir. >> dca.

>> thank do. most my questions are for kbr in the statement read. i want to preface that by saying i am not anticontractor. i think that is true for all of us and i am not antikbr. in fact in reviewing this mission each of you three there are three comments i particularly supported and two of those were kbr. one was contractors ought to be involved at the inception of contingency conflict and i think i strongly agree with that. we talked about that internally and second is the government needs to speak with one voice so it's clear to the contractors were you can and cannot do. that leads to my first question to kbr and we talked a little about this already i think we all understand the exigencies of the inception of the war in iraq and afghanistan but a number have noted and it is clear we are now and these problems largely persist with regard to kbr in fact certain instances they have gotten worse so i was

struck by a post in your statement are not on page to our systems are regularly reviewed and approved by the government. when you mean by that is the systems are regularly reviewed and approved by d.c. in may, by dcaa, and doesn't that go to when you said earlier that the fact that the government doesn't speak with one voice in this instance allows kbr to be candid, to play dcma by dcaa and as you said the government has reviewed and approved your systems? >> it is not my intent to play one agency of another. but we do is when we have a system and a system approval for the current confines of the regulation of the state the administrative contracting officer determines the adequacy of the system. we are playing by the rules and doing our best to try to satisfy

the dcaa auditors with examples they present us with our corrective actions we have put in place that we are complying with the framework to guide lines. >> i appreciate that answer because i think by that answer and bite your statement here you have underscored for us what is the fundamental problem or at least a fundamental problem. probably the fundamental problem correct by this commission that if you could say and not offend your systems are regularly reviewed and approved by the government notwithstanding what we have heard from dcaa says a lot. let me ask specific questions. one is there was a tiger team and review we understand from the stephensons testimony of various subcontracting practices that kbr was involved and early on a threshold is what is kbr's and i'm going to ask this of the contractors if i have a chance

what is kbr philosophy about making the results of your internal reviews whatever you call them management reviews, whatever, available to the government when we are talking about tax payer money and when there might be evidence or fraud that your team has either on covered or substantiated? >> i would like to make a statement very clearly that of the individuals who have been identified as committing fraud for puerto rico those are management reviews completed by kbr for the voluntary disclosure program and through the ethics program we went to the department of justice to make sure 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 i mentioned in my statement as this thing took off there was a lot of things happening in the

2002, 2003 timeframe and the documentation was lacking in great part because we couldn't gather in a trend procurement professionals in theatre. >> since my time is limited are you saying you need the tiger team available to the personnel available to talk to? >> and have you provided to the dca the actual documentation the tiger team arrived at? >> what i explained is the tiger team role was to ensure the procurement files were current and accurate and complete so that tiger team provided, the prime dee dee caruthers the question about a memo cited in "the wall street journal" we cannot track down. i don't know what that is. i have not been able to provide that minow or anything about that memo to the sba. we have provided time sheets, the individuals, invoices from outside consultants to help us

get that period of time. >> your testimony is any and all documentation produced by the tiger team to the kbr management has in fact been provided dcaa to the rest of your knowledge? >> to the best of my knowledge. >> all right. could we clarify this? this is a point under oath and i am only saying that because that if this team put together documents that was available to management that was not shared with dcaa more question would be incorrect, so i want to have you -- and asking a second time because we are going to check it out and you will not be in doubt of our interest in this. so i would 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 activities in the tiger

team? >> before you answer the -- >> no, let him answer. >> okay. i want to add one more part to the question and the one more part to the question i am having déjà vu 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 was set up was to defer certain government decisions and they requested dcaa hold off on doing some work they wanted to do themselves. i was directly involved in communicating with the staff and so we agreed and the debate began shortly thereafter because the agreement was worked product would be provided and that is

the proper burbage anyone provided and the was a long drawn-out debate about -- and finally ended up conversations to get access to the people and that is where it is that but i will restate the question in the language of the land which is is there any of your work product that has not been provided to the government? >> i was very involved in the tiger team. i am also very involved in the dca audit of 23 and 2004 were this has come up a number of times. the purpose was to send experience procurement officials on a short-term basis so they can update the procurement files. that information has been provided to the dcaa. i am not aware of any special reports the tiger team put together and i was involved in this so i am not aware of any reports we have not provided to the dcaa. the only issue of contention is

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

provided, let me state, i'm going to restate this, as any and all information that the tiger group did that was presented to management the third memorandums, e-mails, special reports as you named it or any other document been provided to the dcaa, do they have all the documents any of the management team has received? >> based on the exceptional detail of your scope of a request i be able to check to make sure i have answered that. i do not believe we have provided every e-mail that says tiger team but i do believe we have provided all of the principal documents that identified that. >> i think it is better to qualify and then let me make this point, 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 i

wouldn't. >> and any documents you don't i would like you to inform the committee what documents you have not given. >> i will do that. >> i think a couple of minutes left. let me broaden this. what is the kbr position? let's forget the tiger team specifically. what is kbr's commission about making available to the government, speed in particular, the results of all internal reviews and management reviews regarding performance? and future? >> with regard 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 satisfied with the quality of the reviews 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 the sba our internal audit reports. >> mr. ballhaus, what is

dyncorp's position on this? >> by internal audit reports we do give dcaa reports, we don't give copies of the work product but we allow them to look at those and have access to them. >> mr. methot? >> the same with fluor. we generally provide listings of all of our internal audits and all of our management assessments performed during the years as part of different controls reviews and so, we generally do provide those and in some cases, we don't -- in most cases we do not provide the work product themselves. >> let me ask two final questions and i will continue this in the second round. the promise of logcap iv, the transition from logcap cccxxiv is that the taxpayers would see savings because the greater competition that would be induced by that and there have been a number of examples of

ready to suggest that hasn't happened yet and it may not have been going forward all of which is troubling as you might imagine and back to you mr. walter, we understand kbr made it very difficult, extremely difficult for the kbr employees who wish to do so to be employed on your success or by dyncorp to do so and the first kbr employees who advise that they were going to or had accepted positions with dyncorp or fired in order to leave kuwait within 48 hours and this included a number of employees with service to kbr. is our understanding correct? >> there are certain visa issues 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 process is 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 2-cd dyncorp. >> cingular saying in those instances where you fire people it is because they had a visa issues and not because the advice to the intended to work for dyncorp? >> once the employee uniques the decision to work for dyncorp, i have to find out how the employee is giving -- or how i am going to work the -- get the work done. once they tell us they are going to work for dyncorp it was our practice to terminate the employees of the date so that, you know, they could go work for dyncorp and 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 importance of getting all of those things lined up. >> let me ask one final question. the i.t. systems and the deletion of finals, it is our understanding that in the course of the transition again, from

all cap xxxii logcap for need extensive data on vehicles, it did that in fact happen did you delete the electronic files and so why did you do that and if you did that after i hear your explanation i presume there is a backup of that and i would like to know whether you'd make the back available. >> unfortunately, that is an operational issue. this is the first time i've heard that coming up and i have been involved in many briefings on the transition. i will have to talk to the transition team to give you that answer. >> said this particular issue you are completely unaware of? >> i've heard of many different challenges but i have never heard of that type of issue. >> thank you. >> as a quick question to mr. ballhaus. are you aware of the issue? >> no sir, i am not. >> okay. >> my question is sort of a follow-on to what commissioner

ervin said and i would like mr. ballhaus to respond in a more general way. but when contractors turnover its common for the incoming contractor of course to hire a lot of personnel from the outgoing existing contractor. i assume both in your estimating and labor systems you would include assumptions about how many of those folks you plan to hire. in preparing for cost proposals, and afterword of the transition plan would extend did you assume that you would hire the outgoing contractors' 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? >> let me answer this week, and our proposal for the kuwait task force orders we have a certain assumption and plan for mix of personnel and specifically i mean mix of exeat versus local nationals that was a different mix that was utilized by the incumbent and the was the plan and with the 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 to shift the mix so the labor cost savings could be achieved because with a lower mix to the total population is a lower-cost.

because of the compressed transition, we were forced to take on a larger percentage of the incumbent work force than we had planned. with a longer transition we are planning on more time for recruiting so we could change the mix of the workforce. 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 is one of the reasons why there wasn't a cost savings yet because we were not able to yet shift the mix that we will over time. then the other two areas if i could just address for a second on the kuwait task orders that led to an increase in our current proposed cost over the proposal were strictly attributable to scope. and specifically, relative to what was bid there was roughly 50% increase in the number of facilities that were asked to actually take on versus what we were asked to propose. and it's just natural as the number of facilities gross that,

you know, the cost of the program is going to grow and there was one of the nixon white think it had to do with shovels and managing a convoy of buses that was roughly double what we had proposed and so, as we adjusted the cost estimates for the true scope on the program that number went up also. so i wanted to just clarify on those additional points of scope and growth in addition to the mix issue. i apologize for going off track on the question. >> that's fine. >> the other 1i would like to reinforce what commissioner ervin said when he commented about the division finals and the destruction of any records and just clarify that a little so we get an accurate response back. i think it is our sense that the i.t. systems should prevent have systems that prevent the deletion of files and provide

backup in the course of that particular one it was reported kbr did in fact remove hard copies of extensive maintenance data and they also deleted the electronic files for such records. there was another incident not related to that, related to anitere field transition that existing project files were also not forthcoming 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 deletion of these files containing governor data and does the back up of deleted files, if so is kbr prepared to turn those over? so, i know you are going to provide that for the record, but i am very interested in that.

the last question for this round that all i have, kind of a softball, and i would like responses from any or all of you, and that is mr. walter, in your testimony, and you made reference in your oral presentation also, it would be helpful if the commission will identify means that will allow the government to speak with a single voice in and disrupting contractors. i would like to hear how you would propose, and mr. ballhaus and mr. methot, also, if you are interested how you would propose that would be done to simplify your life. >> to simplify our life the single voice, however the government develops it, but work for us. as i sit in my testimony, i do take guidance and direction from

aco in the theatre and from direct officers and i get input from dcaa and we do our best and as i try to answer the questions for one individual and to satisfy their interpretation how something should be done, i oftentimes go a right of another person's interpretation. within the contingency environment it is not just the bullets flying, etc.. it's also a very significant transition in pact. .. 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 >> i think the single voice would be helpful. i think for me, as i just reflect on the challenges that we are trying to work through, timeliness and urgency would be the characteristic that i would like to see shifted and changed most. i think you know most victims can worker fallin it depends on the people better and 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 that if across the

board between government and contractors there is accountability, focus and timeliness of response things would work a lot better so as i mentioned, a recommendation around standards for response, standards and terms of timeline of response and follow up on assessments like our 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 have had in the past clearly fall between a subjective evaluation process that leads to differences of opinion, differences of opinions between the contractor and the government and between the two government agencies. clearly, one single voice would get rid of that kind of situation and lead to more

timely determinations of adequacy and reduce the confusion that exists today. >> thank you. >> speaking with one voice doesn't mean it would necessarily be the cna's position. it might be dcaa's position and so, mr. walter in your statement when you said our systems are regularly reviewed and approved by the government that was dcma and if you did d.c. aa it would more likely be it would be disapproved by the government. i think of all the things that i have heard today, i think that is the most telling because it does illustrate the problem that we had and it was in the comments and i thank him for relief making it clear. the only reason i am repeating it is, in the mix of other things like you are under oath

and the tiger team and all of that, i don't want the basic point to be missed. i am wrestling with the fact that somehow we had this conversation with mr., commissioner zakheim to which we were referring to those charts and they are all yellow. somehow it seems like a matter of fact conversation. they are all yellow. therefore, case closed. i have always feel like i am the youngest of four boys and i tell people, my oldest brother is the most intelligent and i am this mardis. and it is because i learned from all of the mistakes my brothers made so i didn't make the stupid mistakes they made. i probably did a few others but i learned a lot, so i am thinking you are to partners mr. walters on the dais, there are new were kids on the block then they learned from the bad

habit i think they kbr got into and that was basically go with dcma and forget to dcaa and we will just tough it through. i think the better approach is even if you disagree try to comply. i think that is one of the lessons that i am saying out there. we all support contrasting. we all know that it is indispensable. if we voted in congress to have the military be the tip of the spear then we don't want them to be cuts. we may not want them to be security guards in every instance. maybe in some hollywood. we don't want them building buildings. we don't want them doing things the contractors can do so we don't need to be 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 has happened in the past and somehow what i have been hearing is, well that is the way we did it. i have been stunned to learn and i am naïve about this, that subcontractors basically are not possible. 70% of all the workers are subcontracted. how convenient. i am stunned by the fact that people can put in three hours or four hours as a contractor on plumbing or electrical work and charge for 12. that is an outrage and when i ask people about it, they say that is the kind of the way we do it or wiley have 12 plumber slen may only need to and we charge for 12. then when i am asking people why this happened they said it is the contract that they have to be on duty 12 hours at a time. what i want to ask each of you, if you, and i'm going to give you some choices. if you and maybe it is 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 one right there, and you know the troops are leaving, would you renovate that new dining facility until the government, are you sure you want me to do this because you don't need it? i would like to know if you had 12 people assigned to do the job of too, would you say well we have 12, that is what the contract is or would you come back proactively and say, we only need two in by the way we don't need to charge you for 12 hours. we will have one person of the five that are there on call and the other three we will put on an eight hour day. i want you to tell me what your approach would be with the government and i am going to go down the line and have you respond. >> the way we would approach that is in your first example if there is a dining hall facility

there and we are as to build one right next to it, clearly we would ask if that was what was necessary, only because we are taxpayers too and stewards of the taxpayer dollar. if we are directed to do it under the task order and we are contacted to do that, of course we are going to build the facility. in your other example, if we have got multiple servicemen assigned, electricians a sign, whatever it the example is and we don't have sufficient people we are not going to charge for work not performed, but again we are new kids on the block. again, this is a philosophy. clearly we go to where the contract thing offers-- and deft are you sure you want us to do this, so clearly that is a philosophical approach of hey, we have got to protect the taxpayers' dollars. >> sir, we do the right thing.

we are-- a significant piece of our business is training and mentoring and we work ourselves out of business over time. that is the intent of a big piece of our business so we aren't used to working through a program, working down to try and do the right thing. over the last year i can give you examples of where we have laid people off on cost plus programs tried to get costs out of the system so that we could have been delivered to the government a more cost-effective better value system so the example you raised, it is a hypothetical example but to me that doesn't pass the assufi test, doing the right thing. we would come forward and saying that is not something we would be interested in. >> with respect your examples are that is a case where the government is speaking with one voice would be great. and door logcap contract we did renovated dining facility, and

we did what we thought was a fantastic job on that dining facility. at the same time under a separate contract for under separate agency, they requested, sent out a solicitation to a number of groups that said we would like people to bid on this particular work. we did on that work and we won the race separate organization of the company. so, having that one government agency working for one voice working there would have helped to avoid any potential concerns that he would have on that. >> two dod agencies, two different dod agencies? >> it was one department. it was the dod that was testing with that it was probably the army in both cases, right? >> koret, so it was the army in both cases and nobody from kbr went to nobody senior in the army and said what in god's name are you doing? >> we did not have the visibility into the details.

we didn't go with the planning was. >> but you knew-- excuse me, may i? he knew that they were asking for a new facility. do you that you just renovated a facility. you are going to tell me that you have no one in the army to go to come to save the taxpayer money? >> the way that kbr has been forced sense-- to set up the log trap contract, we are not allowed to be able to set up marketing brisé with the people that we have on logcap. they do what they are told to do by the customer in theater. the work to build. >> this is not marketing. this is going from a senior officials such as yourself to a senior official in the department of the army and saying this is nuts. this has nothing to do with marketing. in fact it is walking away from something. i don't understand why do you guys simply did not go to the

undersecretary or deputy undersecretary or a four star or three star and say do you and the army realize what you have just done? >> with all of the publicity and all the information that is out there today, it makes it seem as though that is a crystal clear question that should be answered. at the time this was the dining facility that was billed was built under a corps of engineers contract to provide a building. one of many types of construction we have done throughout theater that we have bid on. >> can i just point out, haven't you had criticism from several award the boards that you don't practically seek cost savings? the answer is yes, by the way. >> i would have to go back to the award fee. >> it is yes. >> let me just add mr. walter with this question. it is there anyone feikert either who worked for kbr or was

eight kbr subas a result of the work of the tiger team? i will repeat it again. >> i am just trying to think, sir. >> this is not a trick question. it is something we want on the record. was there anyone fired who either worked for kbr or wasik kbr so, 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 do you think that will take? >> i should be able to get it done within the ten days to request. >> why don't you in the next five days because he will be able to go back to your office and someone will know, so he can get that back in the next five years i would appreciate it. >> i would be happy to do that. >> technology. i just want to wrap up what we were saying before mr. ballhaus. 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 kind of chief financial officer, with no disrespect for all the other critical positions in the company, take a personal interest in contrasting financial issues and the like. including interfaced with the government at all levels. your chief financial officer, dcaa manager person, she said that she met regularly. whenever she had an issue she would pick up the phone and talk to your chief financial officer. not the government compliance, you know, deputy director or something like that even though they go to that person than that person as critical. he said let's help them, so i share that. i just have a couple of items. mr. walter, i would ask you, i

think and that we agreed on commissioner gustitus's question relative to what is there any discussion about the company's ability to feed and house troops? was there any that they would deny work, couldn't do the work due to a whiffle? when we visited a couple of locations, and i don't know of it is to wear three that were given to us. maybe they were given to some others. i see some head knots. i have not seen correspondence. i don't know who said what said, who said something along the lines that if a whiffle is taken, specifically that the company could be put under financial stress. i believe those were the words used, and so-and-so and so-and-so and the company, and

this was written and signed by someone in the company, it could impact our ability, and by making this part of but it means the same thing, to house and feed so i would ask you, in your research on this for the record, go back and take a look and see if it is there. i am not trying to box you in. >> i won't be box. i will find the answer. >> because i have seen it and we'll have files and folders and i have it somewhere in a folder. part of why i lead in with my next to last year, part of why i lead in with the question to mr. ballhaus is, what may just be candid. after our last hearing we got quite a letter from the president of kbr and we as a commission discussed it, and i

got beat up a bid for jumping up vendors ponding really quiken not talking about it. the point that because, there were numerous items in there that we could have gone back and forth to clarify and got into this proverbial, that the contest about will you really said this but it could have been this or that is not correct something like that so i was kind of consciously sitting on my hands as i was getting pummeled but then time elapsed, so we wrote a letter to your president after about a month, and it has been out there, i will make a number up, six are seven weeks. we said to him, we would be glad to discuss anything that is of concern which you but we would really like-- the commission wants to meet with you, the president, because we would like the opportunity, and i am paraphrasing, to get a constructive dialogue going and

be made that offer in the letter. we have heard nothing back. now, what i am trying to make the point is, if you take any of the message back, and i know that you know, it has sort have been built walter day and i commend you for that, for staying, and giving good answers, but it is that we would like to engaged-- kbr is an important supplier we would like to work with and understand. we are trying to be prospective. sometimes you live in the past of the present but the issues in order to identify what can be done in the future and we would like to do that so if he would take that message back, i have seen that the individual sitting behind you shaking his head back and forth and running back and forth. i would be glad to e-mailed the letter asking for that session. >> if you could because everything with a wartime commission, as i said in my written testimony, we have made

every effort to try to be as cooperative and provide as much information to the commission as we could. we met with you went away, met with you in iraq. >> i have no qualms about that. i have got a lot of opinions i'm willing to share and i have but as for the letter that came in to the commission to where president, i have not seen it. >> it was signed by the two cochairs, myself and mr. shays. i accept that you have not seen it but if you take a singular message back, we are trying to engage in a dialogue and we are going to ask for is mr. methot and we appreciate you being here. no disrespect -- both are knowledgeable about the company but we are going to be asking the same thing. there is the reason. because the them taxes. this is really important to us, so if you could take that back, i will be glad, tomorrow morning or tomorrow afternoon to e-mail

that to you. >> okay. >> alright come thanks. >> i get another five minutes? thank you for giving me your five minutes. >> mr. methot, i would mostly like to deal with questions for the record afterwards. i think you are about to face the transition in afghanistan. we study the one in kuwait. it was hell and everyone agreed one of the few agreements on all corporate sites and the government side, they all agreed afghanistan would be held to have to transition so i am curious about your plans and also the process of becoming a government contractor. are you going to follow the route over the water falls into, or are you going to take the trouble of learning government contracting and set things up right? they both thought they would neither of them did. questions for the record.

mr. walter, i have a request for you to provide information. the last page as this chart. i am not going to question you in detail about it. just the range of movement of kbr people. it looks like a big movement, this that? until you look, it is the area between 20,021,000 it is not even the whole area. it is like a very small movement. now, what we would like is if you would arrange that mr. sternly could get the weekly briefing that you already gave the pco on personnel. this is one-- not one maury gidget of work. and if he could talk to the personnel people on the part. not you, although you are welcome or someone in the room.

the part can only be understood by people who are immersed in it. we want to understand it, he wants to understand it. at grable? >> it is agreeable. >> third we have questions from my fellow commissioners and i feel i let them down because they asked questions about your transitions in kuwait, and these are sort of, i am not sure what the format will be but they are for both mr. ballhaus and mr. walter. first of all the notion that you fired people when they were going to quit or when they were going to work for the of the company, that is nonsense. as in any transition between an incumbent and contractor the people doing the work went to know whether they will still be able to keep their jobs when the new contractor comes in. if you are coming in, will i continue work for you? there are places where the incumbent and contractor are like a revolving door and the same people do the work.

we all know and government contracts and, i hope you know that. i teach at the university of baltimore law schools. you are firing people would just wanted to know, will i be able to keep my job? this first-hand. patai-- person taken as a round was the deputy and he also was asking the question and telling us about what happened with the computer records in the paper records that were destroyed. he said yes we removed our proprietary information. i don't want to get a qfr's that says we double their proprietary information. come off it. so we might want, the people with more stars on their shoulders then me could decide this, not just ufr on the subject. it might be a breathing or a breathing tours that for the people who did the transition deal with the actual issues that we got from a very responsible government officials. are you agreeable to something

like a staff briefing? psi hymn. >> mr. ballhaus? >> i am agreeable and can i make one comment? >> 57 seconds. i thank staff briefings are very useful and i like getting briefings on my team but i went in the country myself then met with some earmarks and was there the week of june when the transition went into effect and i saw the challenges that our team face, eyes of the issues that we had but their remarks and the feedback i got from our team was very positive. and i went and met with tommy and he was positive also and he gave us some issues and concerns that needed to be worked out, issues that happened on the transition and concerns looking forward so while i am agreeable to the staff briefings i personally think there is a lot of value to going in the country. >> now want to find out about things that have been denied here. the last thing for you

mr. walter. it is about the 15% withhold back in 05. supposedly are able to find the letter that we think, the mysterious letter in which what happened with the contracting officer when you made orally the suggestion that this would have strategic impact, they but strategic affects. you said give me a rough. you gave him a letter, a letter useful for going over his or her head. if we find this mysterious letter, would you allow our staff to interview the officials if they are still a brown, who were involved in the letter? i don't want to just-- i don't want to play this under oath. and then become lost in time. >> i believe we are talking about the same thing, that commissioner debo west about and i said i would go back and try to find that information. >> i am saying if there is such a letter can we interview those

who were 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. speeches by the nature of having a congressional meeting in this room, can come across a certain way, but part of the come up part of the charter of this commission at least as we interpret it, to let people know how significant the contribution of contractors is to american objectives and 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, mr. methot can you tell us have any floor employees been killed in the war are are you to new? >> currently we have had no

floor employees killed. >> mr. walter, how many kbr employees? >> i can't give you an exact number unfortunately. i don't have the exact number but it is over 100 but i will give you the exact number. that is something we take very seriously and we don't want to misrepresent the number but it does cross multiple contracts, not just the logcap contract we are talking about here. >> right. mr. ballhaus? >> sir, we have lost 65. that includes 12 from one of our joint ventures and he will note from our written testimony that that is up. we lost an employee last week that had a heart attack in kandahar. >> it is an easy question, it is an end of the day softball question but i don't want to underemphasize the point that contractors employees are sacrificing in being killed in this current conflict as well. you can't find that in a box at

"the washington post" as easily as you might the number of troops that have been killed but i don't want that to go on the remarks today in that context. thanks. >> thank you. >> thank you. not to beat a dead horse but i do have to make this one point, which is that dcma and dcaa did agree on one important item back in 2004 and that was their analysis that haliburton can financially back kbr on the 15% withhold. that with an issue as to whether kbr could sustain itself to the 50% that haliburton was under contract to back them and those two agencies agreed that haliburton could do that and would do that but then they went on to say that they thought that the 15% withhold would likely be passed on to the subcontractors and that that would affect the troops, so i want somehow, those two agencies got the notion that there was going to be some

effect on the withhold, with respect to the troops so that is just an fyi. looking at with colds, i want to talk to each one of you about what the significance of it with cold this. we were pushing here for the agencies to be more aggressive in using withhold's, business systems can't be deemed adequate then we have got to use withhold's. we have that use a carrot or a stick to make this happen and the question is, what effect do with pol pot have on you? i know it is a pretty general question because it depends on the size of the withhold but let's say a significant with cold. what does that mean to you mr. methot? >> i can tell you it gets our attention right away. what does happen to us before and i think ms. stevenson testified to that this morning and we are working hard to resolve issues that they brought

up. >> mr. ballhaus? >> i think the term used this morning was a sledgehammer. it does not have to be a big with cold to catch a contractors attention. we have on one program $80.5 million withhold that has been with us for seven months and in this instance it is a case where we believe we properly responded to all of the concerns raised back in february get there is no response an indication of how the withhold well and. that is one that not only like a sledgehammer, but in terms of the. or the state to hold contractors accountable i absolutely support it. >> mr. walter? >> i agree with bill on this point. kbr's withhold's have been on specific items. for those items that we have may have raised the question we have agreed in some circumstances not

to build a government costs. on the other ones, we are going to the entire process where we believe that the costs were incurred reasonably and legitimately and we are pursuing those. as for a system withhold if there is going to be a change to the way that their rules are written so that there is a system withhold what they do ask is that we do make sure, as a said in my testimony that we do have subjective standards or objective standards we can measure those against. >> do you believe there is a lot behind it right now with the withhold with an in an adequate business system? is that kbr's opinion? >> that would be our opinion. >> your lawyer is saying that would be your opinion, that there's not sufficient regulatory authority. >> okay. could you rephrase the question?

>> is there sufficient regulatory authority to, for the government to exercise with cold's with respect to an adequate-- >> with the experience i have had, i have not seen that it is there and as i've read through the regulations, i don't see it there. >> does not surprise me that you have not seen it is their censure business systems have been approved by dcma. let me just piggyback very briefly on what commissioner shays said, which is going to this responsibility of contractors to seek cost savings and i just want to make sure that, to ask each of you, do you believe that you have and affirmative duty to the government to seek cost savings on behalf of the government, whether or not it is explicitly stated in your contract?

>> absolutely. >> yes. >> yes. >> okay, good to hear that and let me just close quickly by saying mr. ballhaus i just want to put you on notice that we are gravely concerned about this major cost increase on the task, on logcap iv, the 70% increase, and one thing we are really committed to is the following logcap iv and the transition very seriously and in great detail, e1 notice to mr. methot that we are going to be looking closely into logcap for and we want to know why there's the 70% cost increase and find out whether it was legitimate or not. >> absolutely and we would be happy to meet with the commission then i can even make remarks that all anfal one question that that would be helpful. >> we will do it with the commission later. thank you. >> i could provide some of that

information on the record right now. >> absolutely. >> then, let's do it. >> i think i tried to get to this earlier in one of the previous questions. >> this is an important question so you have whatever time you need and you could follow up if you like. >> absolutely. i would characterize it in three buckets in terms of the cost growth, each of which is scope driven. one that i mentioned earlier had to do with the transition where the transition time lance got compressed unchanged from what we have proposed and as a result of that it caused this to adjust our labor and stephon profiles, where we had to go with a higher percentage of expats, then local nationals. that has the direct cost implications of being directed to move to a more aggressive timeline, that was one buchan of cost of got adjusted. >> can you tell us from what it what?

>> may be one of your experts could. >> i can get you that information but i think the relevant piece of data though is that it forced us into a profile that looked very different from what we had it. we had it a ten to 15% range in terms of expats and we are now at about 50. we will work that makes overtime to support the transition and to meet the transition timelines. that was the workforce we had to accommodate and have in place so that is one big bucket. >> let me just ask you, are the expats charging more than they did on the contract? >> no they are not. my understanding is that we transitioned employees at the same salaries from what they were paying it kbr. it is above what we had in our proposal because of the mix issue, because of the mix issue. in the other two buckets are direct scope items and in the proposal we had proposed o&m

four bleeped 165 facilities and the actual number we are supporting is close to 15% higher than that and that has a direct 50%. then the third item has to do with shuttle services and i don't have the specifics. >> those taxes-- [inaudible] it was formerly done by the government, ride? >> correct and this has big ripple effects for goeth not only ties to the cost of a program and by the way i do think we will see cost reductions over time that come from the competition and when we are able to adjust the skill mixing get to what we have proposed and our proposal we will see the cost reductions. we are it motivated to do it because we know if we don't do it and we don't meet our obligations and we are not cost competitive there is an opportunity for the government to recompete us and replace the

so this notion of competition, i will tell you personally it is very motivating for us. >> what percentage of the 70% is attributable to the increase in this scope, the direct scope? >> all of the increase. my understanding is all of the increase-- >> you have got three buckets. the first bucket with the transition timeline with the expats, and the skill mix. the second set is the o&m. what percentage of that increase in facilities is attributable to the 70%? >> i will have to give you the specific data. i think it is in the 30 to 40% range of the total cost increase but i would be happy to submit-- it is a very simple story and i would be happy to a supply to the commission. >> commissioner zakheim. >> commissioner ballhaus did i hear you correctly when you said you opened your internal audits to dcaa? >> yes.

>> mr. methot you said as i recall that the kind of lister ata if you don't open them. >> that is correct. >> you open them and to list them. what do you do, mr. walter? >> we do the same thing. we provide aid listing of our internal audits to the dcaa each year but we do not provide the results of the internal audit. >> , do you show it to them? >> we show it to them. mr. walter, they practically show or reactive we show and you don't show up at all. it is that correct? >> that is correct. >> can you tell me why? i don't understand. >> the audit reports themselves are very subjective in nature. we to provide the editors with all of the factual information that the internal auditors will look at but since their

information contained in there is very subjective in nature, we don't provide the details of the internal audit. >> okay, so i assume there for that kbr's audits are more subjective to the other to companies? >> i have never seen their audit reports. >> ken deibel into this? >> by all means. >> i don't want to leave a misimpression of internal auditors. let's be fair to them. they are not subjective. maybe you will tell me i-- you are an internal auditor. i have that the opportunity to see internal audit papers. i realize everyone throws out, we have this newport news thing and trying to find some middle ground that their companies that will accommodate by sitting down and saying go ahead and read and something tweaks you, we will make the editor is available. there are companies that give you a list and say something by

such a title which really happens, let's just call it like it is, it rarely happens where someone says that is the fiman that someone is working on. so, but you are not the only company mr. ballhaus that does it but that is not giving them the work papers and everything else but there is a precision. opinions are based on data that is gathered in a structured matter. they have internal audit standards that internal auditors been a lot of time down in orlando, florida at the audit institute for the internal auditors getting trained, train, trained so it is just unfair. i never was an internal auditor but i've worked with a lot of governments of auditors. it is unfair to say there's objective. >> i certainly align myself with what michael commissioner just said, but let me just point out that i am-- just as a taxpayer

and an individual, boy i am i am comfortable with your answer, not just because of what mike just said but because these two other companies are pretty big companies and they don't seem to have the problem you have. i want to state for the record my extreme discomfort. mr. methot on page 7 of your testimony you talked about the fact that after katrina gis started a program to really get subcontractor pricing for guo have you done something similar or are you planning to do something similar in iraq and afghanistan? >> we will do what is necessary given the pace of the work. again, as we are growing rather rapidly as i described earlier, the pace of contract awards, we are catching up to in terms of getting our complaint systems in place so i am making those analyses right now to determine what kind of similar actions do i need to take in order to ensure we are watching taxpayer

dollars because clearly when you award something in in urging compelling and very much, you are going to look at things differently, so we will be watching closely. >> what you did say you were doing for sure is, on the same page, you are scanning all the purchase orders and subcontract files. you are doing that now. that is what you say, correct? >> that is correct. >> mr. ballhaus are you doing that or contemplating doing something like that? >> sir, i would actually have to check on that. i would be surprised if we are not. >> mr. walter, do you do that? you have been around for seven years. >> yes sir we do have a procurement team that reduce the predicament files. they do internal evaluations and the results are shared with the government auditors. >> so you were scanning all the purchase orders? the floor is doing it and

apparently dyncorp is looking into it, thinks they do it. are you guys doing it in the subcontract files? >> scanning them and making them digitally available? yes sir, we are doing that. >> that will be all for me now. >> just to clarify, we do to it. >> mr. ervin. commissioner ervin. >> i will be very brief. first i want to just clarify what i interested to be the outcome of the exchange that commissioner gustitus had with you. my recollection was whether each of you agreed were sledgehammers, that they were real incentives and all of you agree to that of course. i think i heard you for the second time mr. ballhaus go for there to say that you support as a matter of policy withhold's in order to incentivize contract performance, is that right?

>> i do and as evidence of that on the logcap task we have signed up and agree to a withhold on the portion of the work that has not been definitize until we get it to fenech ties with the customer curve. >> did i understand you, whatever objective standards are set, that you two for kbr supports the notion of withhold's as a matter policy? >> yes sir. >> mr. methot come up for the floor? >> could you repeat the question. >> the question is not whether withhold's are hammers but as a matter of policy it supports the policy? >> we do. >> hopefully that will have impact as to whether they think they can do it. second then finally shuette want to get into, we got into it a little bit with commissioner tiefer but i was unclear as to where we left it. this whole issue of the transition, back to the

transition but this time of moving employees around. this is really a question for you mr. walter four kbr. can you and do you represent to the best of your knowledge speaking on behalf of kbr, that there isn't a transfer of kbr employees, waiting for work, irrespective of this direction of general odierno that there be a significant drawdown a footprint to match the drawdown of military personnel? >> there are certain individuals and certain skill sets that were recruiting for a year currently. if we do have an opening for a specific skill set that is an open position at a location, wherever, then we will transfer that person over there so that particular activity can be taking care of. >> but unless and until there is either a position or a solicitation for a position for

want of a better word, you are not simply waiting for people to wait on the clock until such things happen? >> we have requisitions open for i don't know the exact number but it is in the thousands, of positions for services in the theater, so there are threats of we have an individual who has the skill set that wants to stay with kbr ended a particular skill in another location i innocents will not have to spend the cost to transition entrain somebody and ship them into a theater. so to the extent that it makes the existing statement unaccomplishable 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 pulled in a dozen different directions in accomplishing your mission. i have a short statement, comment and then i would like to ask a question. i'm going to read from a joint publication 4-10, operational contract support dated october 2008. i don't know if you have seen it. but let me read one paragraph here. and then i will ask a question of all of you. the continual introduction of high-tech equipment coupled with forestructure in manning productions and the high operating tempo that military forces will often be significantly augmented with

contractors support. to do this, contracts support the integration and contractor management must be integrated into military planning 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 planning process. my question to each one of you is, have any of you been asked by centcom, the joint staff, the army staff, osd, anybody to participate in the planning process whether that be planning in a peers sends, in training, in exercises or in briefings? any of you? >> i am not aware of any.

>> i am only aware of one example where we have been asked to do that. >> could you elaborate? >> yeah, it is on the police training site where we had been asked to provide their input send our thoughts around the police training program and specifically in afghanistan and given our queue how it could be improved. that is the only incident that i can specifically think of. >> mr. methot? >> ha i am not aware of any request to participate in that plan. >> why i think this is a big hole in the whole operation. if you guys are dival, not just you but all contractors, are not involved in the planning process as we go to war, whether it is going out to leavenworth and teaching a class, or whether it is going out to fort irwin, when the unit is running up for the

plant, i think our government is making a huge mistake. that is the end of my comment. >> when we met with the secretary of the army, secretary geren, he made a very strong point about how he is trying to change the culture of the military so that they value the contract could aspect that is inherent know what the department of defense, where half of the personnel are contractors and not men and women in uniform. and come up part of that is to recognize that, by the status of, that you can be a general or an admiral by going this route, instead of just becoming come up being a colonel and so on, and

he also made a point to us that he thinks that even in military exercises contractors should participate in the military exercises. and i am wondering if any of the three of you have never been invited to participate in a military exercise? >> in a military exercise we have had contracts where we would basically set up the facility where the exercise is going to be. but not in the planning, not in the planning, sir. >> in the planning you didn't participate? [inaudible] >> that was the question you were basically driving at but i want to just be clear that this is something that, as the secretary who is leaving believe

strongly should that happen and the nodding of your heads indicate that none of you have been invited to participate in that way, but would you like to? and, do you think there is value in europe doing that? >> absolutely. >> absolutely, yes. >> yes. >> i am struck by the fact that the military has an oath of office and i am wondering if there should be serious consideration being given that contractors, first off you have an oath that you would apply to any of your workers? let me go right down the line. >> no. >> no. >> no. >> do you think that there could be dalia, for instance part of the oath could relate to this question related to ms. gustitus

question, do you think your company has an affirmative duty to seek cost savings on behalf of the government whether not it is explicitly stated in your contract and i think all of you said yes. but i would wonder if you actually have part of your written documents provided to your workers and whether that is part of your training? i suspect it isn't necessarily there. so, let me ask you though, is it part-- could you each show was a document that says part of your responsibility is to provide cost savings not to the company, but did the government. i would like to go to each of the. >> i could not show you a document that showed that. >> it is not a question, i am just testing. it is a one-page strategic for our company and there is a bullet, one of our focus areas

is a lean enterprise so well it doesn't use those words-- >> that is not using the words i'm getting too. >> but it does represent the intent. >> i have not seen it in print. >> i am just wondering, it's you think it would be valuable one to have this part of the written document given to your employees to say we are looking for cost savings for the company in clearly cost savings for the government and any time you see ways that are company could save money even if that meant reducing our workforce, that we have an obligation to share that with the government? do you see any value in that into have part of the written arguments and part of your training to your employees? >> we would be willing to do that. >> we would be willing to do it. i think there's something more important than that oath, sir and it is a leadership driving

that concept from the top. without it, the oath is irrelevant. >> the only thing is, whether it is an oath or a written document you would just state a priority of the company that would be clear to your employees of the wouldn't be looked at as traitors to your company of they said, do you know what? we are going to reduce the income to the company by one-third because we don't need one third of these employees rather than being considered unfaithful they would be considered faithful to the government and it would be part of the ethics of your company. mr. walter? >> i don't see that we would have any issues in building that type of the thing into our training. >> the only reason i am thinking it is, if you are an inherent part of the military effort it strikes me that that might be a positive way to go. why know that we focus more, mr. walters, with you because your company has been in business longer and we don't like yellow. we suspect that the other

companies are learning by some of your mistakes. we hope that your company is going to reevaluate how they have done things in the past versus how they do things in the future and but we do know that all of you have responded in a very sincere way and we all know that you were a value to your company and we know that the work that your men and women do for our country is extraordinarily valient and i will repeat the comment i made in my opening statement, and that is that the military appreciates what each of you do for them and that goes along way with us. we would just like to make sure it is cost-effective in the process. mr. co-chairman if you would like to make a closing comment? >> i would just like to make sure that each has an opportunity of they have any final comment that they want to make, commissioner shays, my cochair said if i miss that the aye of the blame so maybe beacon star with key mr. methot.

>> let me just say as the new kid on the block we are happy to be here and proud to serve, much like the military would say. we do believe we are in integral part of the military operation support to the soldier in the field and sometimes austere conditions. it is not easy. it is not easy to find people to go over that once worked in that environment but we are 100% committed to ensuring that its corporate business systems are adequate and meet the requirements and expectations of our customers, whether it is dcaa or dcma or the army contract in command. we have a lot of customers when we say the government is our customer and we are here to please everyone of those. well we are the new kid on the ploch i just want to say we are very happy to be here and we take everything you have said seriously and we will do you

proud. >> we are not a new kid on the block. we have been in this business since right after world war ii including operating in war zones in contingency operations and we have been in iraq for several years. we have been in afghanistan for several years ago we have been in places like africa and colombia so we are not the new kid on the block. i do very much appreciate "the commission is taking on. these are significant issues. they are hard issues but they are all fixable and the dressable. i hope we got across today or i got across today the point that reflects the characteristic of our culture for khallad bancorp it is to perform and support the warfighter and do with the right way. that there isn't a separation between performance incompliant. it is one integrated thought. that is our job come to perform and satisfy the warfighter and to have the right way and i just want to thank the commission for your time today.

thank you very much. >> thank you. i reiterate many of the same feelings. .. 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]

topics at today's state department briefing include relations with egypt. the president of the country mubarak meets with president obama tuesday. we will also hear about the upcoming presidential election in afghanistan. a programming note, due to technical problems we can only show a portion of this briefing beginning with the question on american hikers detained in iran

[inaudible] -- the u.s. citizens. was there any reason why? [inaudible] >> you know, i think we just tied together a number of threats we have been concerned about obviously the most recent case involving the three americans who wandered across the border from iraq. on that situation we continue to demand the swiss be given access to these three individuals. >> i'm just -- >> was it anniversary or just a date or something coming up? >> no, just ongoing concern about the status of americans. >> and then on the mo gouarec -- mubarak meeting was he able to

get anything on the egyptians taking incremental steps towards normalizing relations with israel? >> of course egypt -- >> i realize -- >> f-ing obviously they compared notes. we have ongoing consultations with the parties in the regions, so do the egyptians. i think it was an effort to compare notes not only on where we feel the parties are but with a well prepared to do as we have said we are trying to work hard to break conditions for negotiations to continue and we hope to have this phase, this process complete and the next few weeks. >> but is egypt willing to use this influence with countries that do not have relations with israel to push them to take these -- >> i think egypt and the united states shared the view we have to have parallel steps here and i think they share the view -- [inaudible]

as the israelis focus on settlements as the palestinians strengthen their position and take steps to improve the security situation, you know, improved the stability in the areas they control, work on ending incitement of violence and we agree that there will need to be steps by a the countries, gestures but move towards normalization of relations between israel and the rest of the region. >> and [inaudible] newark international airport and demonstrations of around india against the united states. bald was the reason? was their something, that found some kind of underground

connections or why -- he was in the u.s. dozens of times in the past and there was no problem at all. >> i actually think that the ambassador, our ambassador to india put out a statement on this case. beyond that i think i will defer to the department of homeland security. >> are you a thinking [inaudible] harassment, he feels since he was coming round the usa [inaudible] >> i am not equipped to comment on the case at this point. >> this has gone back to an older issue but it is again a new u.s. ambassador is starting in london and the mayor of london's office as well as members of the london assembly are calling for the u.s. to reevaluate its policy on congestion fees for the city and

what the united states to pay 3.5 million pounds of fees' they say the united states owes. >> is there any change of policy coming or would you consider changing policy based on new ambassador? >> our policy does not change with the change of ambassador. >> what is the policy? >> i will take that question. i know the issue is a complicated question and goes to the heart of reciprocal arrangements and diplomatic issues. i will take the question. >> can you tell on the trip to sudan? he had comments relatively recently that stock many talking about how sections started making his job ec and talking about the nature of the genocide or not genocide in darfur. do you think he will be pushing a new type of policy or any new type of engagement with saddam

once he is there? >> i think we are getting close to the point where we will announce in the new policy approach on saddam. i would expect that in the next couple of weeks so i think you will see the fruits of general and leader emerge shortly. >> you did say he was not going to khartoum sunday is not expected -- >> i am not aware he was going to khartoum. >> so he doesn't plan to meet with any members of the bushier site of the government? >> he might meet with some of the government will -- i think that is what we had in the announcement. in egypt he will meet not only the egyptian foreign minister but also sudanese presidential adviser libyans eckert to become the general people's committee for foreign liaison, national

cooperation and arab league secretary general. so, general gration in the conduct of his duties meets with officials of the sudanese government as you would expect in terms of dealing with them on a range of issues in what happened in darfur and with the north and south dialogue. he will not meet with president busheir. >> on burma [inaudible] what is the comment on that and do you think it would have any impact on the processing burma? >> well first of all we are grateful to center web for his efforts to secure the release of mr. yetta and he is currently in a hospital being treated in bangkok and obviously the consular officials are in close contact with him and providing whatever support is necessary. i don't think that this is by

itself going to have an impact on our ongoing review. obviously as we look at the current situation we remain very concerned about the continued detainment of [inaudible] and more than 2100 prisoners in detention and we continue to look for signs the burmese government is prepared to embark on a meaningful dialogue along with the rest of the space opposition and obviously burma needs to have a dialogue with, you know, a full range of ethnic minority leaders in burma and move towards a peaceful transition to genuine democracy and national reconciliation so we will be looking for signs that burma is fundamentally changing its approach and policies. i don't think that mr. yetta's release is an indication of

that. >> do you think the u.s. will send somebody to iran to get out of iran? >> i would not anticipate that. yes? >> you mentioned that during the talks between secretary clinton and president mubarak 1:00 today in washington there was mention that they talked about democracy and human rights in egypt. what do the united states think of a democracy and human rights record in egypt? >> this is an ongoing source of concern to the united states and it is part of our dialogue, ongoing dialogue with egypt. it is something that we raise in every high level meeting that we have. we would like to see egypt embark on a path to expend

political dialogue and its country, expand political participation in the egyptian political process, and we will continue to raise these issues with egypt and this? >> just a follow up on burma. there seems actually to have been some signals from the secretary of state clinton that she is pro easing the sanctions on burma. would you be able to get any information would trigger see betsy from burma to initiate this? >> why mean, we have had an ongoing policy review. obviously we are taking into account what is happening in burma and as we have expressed significant concern, you know, following the trial this is not a timetable on when we are going to finish that review.

secretary clinton talked to senator web yesterday and the to i think will get together when senator web returns to washington and obviously burmese leadership having just met with she herself i think the secretary will look forward to having a full discussion with senator web getting his impressions based on his meetings and that will inform what we think is both feasible and advisable in terms of our future policy with respect to burma. >> of columbia have you had any contact with allegations by the fact honduras and also do you have any updates on the military agreement with columbia? >> well, first of all the situation in honduras there is a delegation from the day facto

regime. it is our promise of billions, not members of the regime itself but they are on the route to washington and i would expect there will be meetings not only at the oas tomorrow but with acting assistant secretary of state craig kelly during which we will continue to encourage the facto regime that the process is the best chance honduras has to move towards a new government. >> and in colombia? >> can we stay on honduras? there have been some charges that the u.s. knew about the planned to of president elias because of the plane that was carrying him stopped at the airbase that houses u.s. troops. can you respond to those charges? >> the air base belongs to honduras. it is run by and operated by the honduran air force and they make decisions about its use.

military personnel were not involved in the flight that carried the president to costa rica on june 28. task force bravo members had no knowledge of any part in the decisions made for the plan to land, refuel or take off. in light of the june 28 to the 600 american soldiers, sailors and airmen space so chicano as part of the atf bravo have ceased conducting the operations and exercises with the honduran military. >> so, the u.s. troops on the base and a administration didn't know about the flight until after president zelaya had already taken off from the air base? >> the emerging crisis in honduras and think at the ambassadorial level we expressed concerns to honduran authorities prior to the coop. i don't think we have advanced

knowledge of what took place. >> on columbia, united states and colombia have reached provisional agreements on a referendum that means there is a text agreed to on both sides reviewing the draft. prior to signature this bilateral agreement seeks to ensure effective bilateral cooperation for activities undertaken in colombia to address security concerns such as illegal narcotics trafficking, he illegal armed groups, and terrorism. in fact i think that the secretary and a colombian foreign minister will meet tomorrow and i think they will have more to say about the bilateral agreement. >> we had some criticism [inaudible] >> shore, and we have and will continue to talk with other governments about the nature of this agreement.

i believe the colombian agreement has and will continue to do the same thing. >> yes? >> the u.s. and military helicopter did you get any reaction from the chinese government on that? >> i am not aware we have had a particular reaction from the chinese government, but you are quite right as weak signal on friday we were prepared to offer offer additional assistance to taiwan in typhoon in fact the united states has delivered plastic sheeting for your use and temporary shelters. the delivery happened yesterday. and today there was a shipment of water purification supplies. u.s. helicopters, including heavy lift helicopters, have arrived in taiwan and will be supporting these relief efforts. to be clear, these are u.s. helicopters and they are piloted by the u.s. group. david? >> yes, p.j., you take on the return of afghanistan of this

general dostum a warlord who was accused of human-rights abuses early in the conflict? >> we have made clear to the government of afghanistan our serious concerns regarding the return of mr. dostum and any prospective role in today's afghanistan. and i think that president obama had earlier, based on an earlier story, had asked that the national security team gather further information on his background, including concerns that he might have involved in the deaths of a significant number of taliban prisoners of war a few years ago, and that the team is continuing to gathered that information. >> of afghanistan? >> yes. >> over the weekend there was a presidential debate for the first in afghanistan, three candidates. how do you see this as part of the democracy growing over their?

and secondly update on holbrook's visit in that region? >> i think obviously we welcome the debate and in fact i think some time before the day is over you will have a statement from secretary clinton on congratulating afghanistan for a very healthy debate during this political process and calling on afghanistan to do every thing in its power to have free and fair election. obviously under very difficult circumstances. that will produce a government that the people of afghanistan can believe in. >> on that -- on that shah rukh

khan story, this was the third incident in the u.s. in recent days. last month former president of india was detained but these people happen to be lastname, and so are muslims. anything to do? >> i wouldn't read anything into that. obviously we have close relationships with muslims around the world. it's one of the reasons the president felt special about the outreach to the muslims around the world as we did in his speech in cairo. and so i think there is an ongoing effort to obviously have policies that reflect that outreach but at the same time meets the security concerns. the united states. >> dostum. >> all the way in the back. we will go from back to front. >> quick follow-up on taiwan. i mean, was china informed or be consulted with before sending u.s. troops into taiwan? was chinese government informed

of or been consulted with before sending u.s. troops in to tie one? >> i don't believe that we felt it was necessary to inform china in advance. obviously, this is a serious humanitarian situation that taiwan is facing. we have provided this kind of support in the past and we are happy to be able to do it this time as well. yes? >> chinese six-part talks on foia. wu dawei visited number three on monday. did china and for you about his visiting? >> i am not aware of that. >> on tomorrow's talks between president obama and president mubarak and the second question is i called the white house this morning and was told they will not, there won't be a press

conference. why is it sometimes there is a press conference when there is a president coming to a the united states and have talks with president and sometimes not? >> i will comment on the first part and dever to the white house on the second part but not easily reflecting the secretary met with president mubarak today. she will be involved with the president in the meeting tomorrow and i would expect the discussion tomorrow will very much track the discussion today. the status of the middle east peace process. what we are trying to do and egypt is also doing in the region in support of other regional bilateral issues. i think that probably the correct situation in the region is the global economic situation they won't come up, but i will defer to the white house in terms of this -- >> just a last question you said that you will for the second

part of my question referred me to the white house but when i called this morning but the egyptian embassy they said it would be hard for you to attend a meeting at the four seasons hotel because the media attendance will be determined by the egyptian government. so it won't be -- it was not open for everyone. >> are you talking for today? >> yes, today. >> the media rules for today were said by the egyptian government. >> why is that? >> because the meeting was happening in essence on their turf. >> so it was initiated by the egyptian government? >> yes. it was the president meeting with the united states and -- >> are using the four seasons as the egyptian sovereign terrie? [laughter] well, i mean, just because a head of state is staying in a hotel, does that mean that the facility -- >> i think that the egyptians have a fine embassy, which is

sovereign and egyptian territory. >> can i -- >> could you comment on these recent overtures by the north korea to resume the trips to speak to a goodwill gesture on their part falcon on the release and lisa and gloor rubber and does it -- does this mean the sanctions are working, how do you interpret this? >> it is a fair question. first of all, you know, i don't have a crystal ball, so you know, anyone who considers himself or herself in north korea watcher in that shrugging their shoulders and singing what's going on. who knows. clearly these are welcome steps in and of themselves as discrete gestures.

obviously getting journalists that was very important to us. obviously small gestures that might open the door for a renewed dialogue between north korea and south korea is a welcome step. one might infer that north korea's feeling some pressure whether it is political pressure, economic pressure, or a combination of two. obviously as ambassador goldberg said last week we continue to work with others in the region to implement u.n. security council resolutions and act to apply that kind of pressure to get north korea's attention. that said these marginal steps in and of themselves are not enough. we continue to reiterate what north korea has to do. we expect them to abide by their obligations, international

obligations by their agreement under the 2005 agreement. we want to see them take definitive steps, irreversible steps towards denuclearization. that will be the kind of steps that show that they have made a fundamental calculation to move in a different direction than they currently have. that's what we are looking for. david? >> just wondering if you have any reaction to some apparently terrorist violence in the russian caucasus region, ingushetia. >> i think we are aware of that but i will see what we have on reaction. [inaudible] >> identify ourselves with that statement. >> on iraq to you have any thoughts or concerns on the scheduling of a referendum on the sofa and security to all? >> this is a matter for the iraqi government. >> and?

>> it's an internal matter for the iraqi government. >> i'm sorry that the referendum, that would be a vote. >> yeah. >> and that has to do with the iraqi people -- >> a vote by the iraqi people conducted by the iraqi government -- >> you have any concerns if it gets defeated? >> well, let's -- we obviously support implementation of the agreements between the united states and iraq and -- but this is an iraqi matter. >> so in other words -- >> i'm not trying to signal any specific concern here, just this is an internal matter. >> but surely you would like to see it approved in the referendum, right? you are not helping it goes down in defeat? >> we certainly are working hard with the iraqi government on implementation of the sofa, and movement towards a strategic framework agreement that we are reaching with them in the past year.

>> right, but that took an awful lot of negotiation and time and if it is about to get -- if all of that is about to be destroyed -- >> i think now you are leading a little bit into conjecture. >> i'm discussing what you think about the idea of this going to a referendum. i mean, is and -- don't use -- you negotiate this with the government. of the people now are able to come out and see to it is that not a problem for -- or does that not pose a potential problem? >> i will take this question but i believe that this step is consistent with the framework agreement but i will take that question. [inaudible conversations]

how is c-span funded? >> the u.s. government. >> private benefactors. >> i don't know. i think some of it is government raised. >> it's not public funding. >> probably donations. >> i want to say from me, my tax dollars. >> how is c-span funded? america's cable companies created c-span as a public service. a private business initiatives the 60 government mandate, no