>> robert gates will outline the administration's spending request for his department for the next fiscal year. following secretary gates, representatives of the joint chiefs and military branches will provide additional details and answer questions from reporters. you can see this briefing live from the pentagon at 2 p.m. eastern on our companion network, c-span3. >> my concern is to be an agent for change. i mean, whether, you know, i be president is totally immaterial to me. the issue is to have a system by which the people have the right to choose whoever they think is the right person for, for that job. >> that's from an april 2010

conversation with mohamed elbaradei. now nearly a year later, egyptian president mubarak has stepped down as egypt undergoes a major change in government. see how it happened on the c-span video library, all searchable on your computer anytime. >> now, florida congressman connie mack on the security threat posed by venezuelan president hugo chavez. the chair of the house foreign affairs subcommittee on the western hemisphere also talks about u.s. policy toward latin america. from the conservative political action conference, this is about 35 minutes. ♪ [applause] >> thank you very much, ladies and gentlemen. i am jim roberts of radio america and just a personal note here, in 1974, january of 1974 i reported to the american conservative union as political

directer when the first, the very first cpac was being organized. and let me tell you, in that year we didn't know whether there would be a second c pack, let alone -- cpac let alone 36 more. and it has been an absolute source of amazement to see the way this conference has grown and become the central organization it has become for the conservative movement. so it's a great pleasure to be back here for my 37th year at cpac. [applause] it's my great pleasure and honor to introduce our next speaker, the honorable connie mack. [applause] congressman connie mack is a staunch defender of freedom who strongly believes that freedom matters and it works. congressman mack was first elected to the united states house of -- excuse me, to the united states house of representatives in 2004 to represent florida's 14th congressional district. he currently serves on two

committees, foreign affairs and oversight and government reform, which gives him an ideal platform from which to advocate for the ideals of freedom, security and prosperity. over the last six years, congressman mack has worked to support the free market system and to reduce the size and scope of the federal government's interference with our personal freedom. congressman mack believes that the private sector and not the government creates new jobs, and he's been a voc opponent of the countless financial sector bailouts including the failed stimulus plan, fannie mae and freddie mac takeover, he's also a leading critic of president obama's unconstitutional nationalized health care plan, obamacare, and was one of the first members of congress to introduce legislation to repeal it. because of his efforts to cut taxes and spending, congressman mack has been honored by the u.s. chamber of commerce, the national federation of independent business, americans for tax reform, the club for

growth and the american conservatives' union among many other organizations. as member of the foreign affairs committee and the chairman of the subcommittee on western hemisphere, congressman mack is working to promote freedom and stability throughout the region. recognizing the threat venezuela's communist president hugo chavez poses to the united states and our allies, congressman mack has been leading the fight to agreements -- to affirm the agreements with panama, colombia and south korea and strongly supports efforts to preserve free speech in a democratic ally in the middle east, israel. [applause] congressman mack was born and raised in southwest florida and is a graduate of the university of florida. he is the son of former u.s. senator connie mack and well-known cancer prevention advocate pris priscilla mack. he's the proud father of two children, addison and connie, and two stepchildren, jasari and jiana. i'd like to invoke just a moment

of personal privilege. in the year 2000, i came out with a book of washington baseball stories called "hardball on the hill." and the congressman's father who was then-senator connie mack, wrote the forward to the book. of and you might know this, but you might not know this. the congressman in addition to being a rising star in the republican party is the son of a very, very famous name in the world of baseball. his great, great grandfather -- or great grandfather, i should say, connie mack, was involved in major league baseball for 70 years as a player for the washington senators, and i gave him a book before coming on the stage that had a picture of his father catching for the washington senators in the year 1888. in a field called the swamp poodle grounds south of union station which is visible from the senate office buildings which is where, personally, i hope one day congressman mack

will have his office. he went on to be owner and manager of the philadelphia athletics for almost 50 years. they made a personal exemption for his father not to wear a baseball uniform. those of you who know baseball know all the managers wear the baseball uniform. he did not have to do that. one of the drawbacks, though, was he could not go on the field because he was not in uniform, so anytime he would question an umpire's call, the umpire would come over to the dugout and talk to mr. mack about the call. just a truly legendary figure in baseball. nine championship awards during his tenure, and when i was doing the book and interviewing senator mack, he told me that in the year 2000 he took his son to philadelphia for the republican national convention, and they went to veterans' park. it previously had been side park when the congressman's grandfather had managed the team, and there was a statue of connie mack.

and he pointed out to me that his name is really not connie mack. i don't know how many of you knew this. it's cornelius mcgillicuddy. [laughter] and when connie mack was playing for the washington senators, a sports writer for one of the local newspapers got sick and tired of having to deal with this big name, cornelius mcgillicuddy, and just arbitrarily shortened it to connie mack, and that's the way it's been since then. if there's been a cornelius in the family, it's been connie mack. the congressman has a son, so this will be connie mack v. so they went to veterans' stadium and looked at a statue of connie mack outside the stadium, and he said his son -- the congressman to be -- was struck by a plaque that had connie mack's creed on it which has since been known as the sportsmen's creed. and it reads as follows: i will

promise to play the game to the best of my ability at all times. i will always play to win, but if i lose, i will never look for excuses which would detract from my opponent's victory. i will always abide by the rules of the game on the diamond as well as in my daily life. i will never gloat in victory or pity myself in defeat. i will judge a teammate as an individual and never on the basis of his race or religion. folks, that's a very good creed for anybody, especially a united states congressman and, hopefully, in my opinion, a united states senator-to-be. [applause] let me welcome the honorable connie mack. [applause] ♪ only in america in red, white and blue. ♪ born in america -- >> thank you so much, jim. thank you for the introduction, and thank you for a walk down memory lane.

yes, i am cornelius harvey mcgillicuddy. [laughter] i want to say a special thank you to a great friend, a great conservative and great american. he is built cpac to what it is today. we all owe a huge thank you to our friend and mentor, david keene. [applause] david is a tough act to follow, but the right man to do it is the man who has been picked to do it. so i hope you'll join me in saying thank you for him taking the job. my fellow floridian, al. [applause] and, you know, there are 434 other members of the house and 100 senators. but it is no secret that i have a favorite. a great congresswoman from

california. and so my mind, our nation's great est congresswoman -- greatest congresswoman, my wife. i'm so proud of her and to be her husband. mary, are you here? [applause] hey, honey. will you be my valentine? [laughter] wait for it. okay. as barack obama might have said to his house majority two years ago, i won't keep you long. [laughter] [applause] it's a new day in congress. yes, they still have the white house and, yes, they still have the senate, but we now have the house. and in case somebody missed it, we're making sure the liberals know we're here. [applause] speaking not just for myself,

but for every old member and new, this time on spending, on deficits, on the size and scope of government, this time we mean to make cutting our goal and freedom our standard. [applause] we can't yet control the government. that'll take another election. but we can define the agenda. two years ago the liberals in washington turned towards socialism at home and apology abroad. our agenda is pride, is freedom and standing for america. ms. . [applause] in afghanistan and iraq where our troops are committed, the obama administration has signaled over and over ha there is nothing -- that there is nothing they want so much as to get out of town. well, let me tell you how i see

it. you don't send young americans to fight and possibly die in a far off land unless you are ready to let them win. [applause] the best way, the only way to protect freedom is to look ahead, be confident and, sure, speak softly but carry the biggest stick on the block. [applause] while we in the new house majority do all this, my assignment will be to focus on a clear and present danger rising in our own hemisphere. a danger that extends its strength and reach every day. a danger that this administration, like previous administrations, has not fully understood. i'm talking about hugo chavez and his campaign to destroy

freedom and democracy throughout latin america. [applause] to be toolings or or to be toolings r or -- for too long former administrations and the current have thought of chavez as the clown king of caracas, a bouncing baffoon gesturing evita-like from a conny entertaining throngs so he can rob them. but there's nothing funny about hugo chavez. oppression, aggression, terrorism and drugs, these are the tools of a thugocrat. these are the weapons of hugo chavez. with them chavez is making himself the osama win laden and the ahmadinejad of the western hemisphere. like bin laden for reasons known only to him, he has declared the united states to be his mortal enemy. and like ahmadinejad, he has at

his disposal the rights, privileges and resources of a state, a very, very wealthy state. and so years ago chavez launched a silent war on america and all that america stands for. the world of freedom, the world of democracy, the world of enterprise, the world of law. he is against that world. we are for it. we must act to preserve, protect and defend it every day. [applause] let's be clear about who hugo chavez is. he believes in intimidation and manipulation. he rules with an iron fist. as i said, he is a thugocrat. what has chavez done? what is he doing? and how should we respond? what he has done is simple, he

has systematically suppressed freedom and democracy, imposed socialism and exported his so-called bolivarian revolution throughout latin america. he has invented his own four-step system to gaining unlimited power. step one, win an election. or if you can't win as he couldn't, attempt a coup, go to prison, get out and steal an election. step two, change the constitution and give yourself broad new powers. he did this. then he stacked the electoral system in his favor, gave himself sweeping authority, and he began to socialize the economy. he seized control of venezuela's oil industry and banks and generators of electricity. he asserted control over food and consumer goods prices which brings us to step three, create a crisis. you can demand even greater power. in the soviet union the people

had a joke, and this is true. they said, what would happen if socialism came to the saharas? and then they would answer, soon sand would be in short supply. [laughter] that's the way it's been in socialist venezuela. oil production has fallen. refining capacity has deteriorated. the country must now import gasoline. shortages of electricity and food have become facts of life. chavez seized the coffee trade. now venezuela imports coffee be. inflation is well into double digits, and the economy is shrinking. chavez says he speaks for the poor, and he seems intent on making more of them. if you want to create an economic crisis, socialism is the one guaranteed way. [applause] in venezuela the crisis started

early. in 2002, four years into chavez's rule, a million people marched on the presidential palace in caracas demanding his ouster. they were reacting against the government. the top commander refused, chavez hired gunmen, 19 people died. chavez claimed that he had foiled a u.s.-ec neared coup -- u.s.-engineered coup, a charge that had been investigated and found false. but with opposition down, his economic power up, chavez rewarded friends and punished his enemies. in 2004 more than 2.4 million venezuelans signed a petition to recall chavez. so a chavez-allied web site published the names and national id numbers. soon those brave patriots could not get passports, national id

cards or work in the public sector. by 2009 chavez was forcing hundreds of radio and television stations out of business or into government hands, and new so-called media crimes were created for, in effect, pun everybodying anyone who -- punishing anyone who criticized chavez. and now we come to step four, declare yourself president for life. this september venezuela he is elections. by then those million marchers of 2002 had become most of the country. the opposition won a majority of votes cast. so in the hemisphere's other most productive lame duck session ever, the outgoing puppet majority rubber stamped the chavez plan b. the economists called the chavez -- the economist magazine called chavez a coup against the constitution.

the outgoing national assembly gave chavez full decree power for the next 18 months. they packed the supreme court. they extended government control to the internet and mobile phones. they made internet carriers subject to those same media crimes. it all adds up to, as the economist headlined, hugo chavez castrates the newly-elected legislature. economic and political oppression, that's what chavez has meant inside venezuela. what is he doing outside? that's where drugs, terrorism and aggression come in. last year the colombian government went to the organization of american states and laid out their neighbors' aggression by surrogate against their country. they told the oas that chavez had been providing safe harbor to 1500 marxist narco

terrorists. and not just safe harbor. since 2007 he had allowed more than 60 attacks from these camps against targets in colombia, more than an attack every day. chavez has even given oil to guerrillas to finance their anti-colombian war. colombia's not the only target of chavez's ambitions. be -- chavez uses oil to support fidel castro and former soviet-supported communist top man and now i again president of nicaragua, daniel orr ortega. he uses oil to help strongmen undermine democracy in their countries. remember that four-step process for taking power. along with discounted oil, he's worked with greater or lesser success to export that process to bolivia, ecuador and until the country's supreme court

stopped him, honduras. now, i have a, i've got a question, a couple of questions for the obama administration. first, why has the administration stood against constitutional democracies in honduras while protecting -- [applause] while protecting millennium challenge funds for the sandinistas in nicaragua? why? second, why are they supporting people who stand with fidel castro and hugo chavez instead of the people who stand for freedom? [applause] just to be clear, here is where i stand. when the world asks whose side is the united states on, everywhere and always our answer

must be we are on freedom's side. [applause] meanwhile, chavez has been playing in mexican politics. allegedly financing, allegedly giving financial backing to left-wing parties, giving support to terrorist groups bent on destabilizing the mexican government and perhaps bent on much more. as one prominent mexican now living in the u.s. told the san francisco examiner last year in his words now, members of the u.s. administration don't understand what's been brewing in mexico. he continued, there is a huge international interest to change mexico into a socialist/communist state. and a high-level mexican official told "the examiner" that with the backing of

dictators like chavez, submissive groups -- submersive groups will continue to try to destabilize mexico. no wonder the president of mexico, president calderon, has been quoted in one of the wikileaks release cables as imploring u.s. officials that latin america, in his words, needs a visible u.s. presence to counter chavez's influence. [applause] yes. and we must secure the border and stop the flow of terrorists and illegal drugs into the united states of america. [cheers and applause] mr. president, you must do this, and you must do it now. [applause]

you have heard how chavez has courted iran, diplomatic trips, a pledge of full military cooperation. according to the carnegie endowment for international peace, possibly providing uranium to the iranian atomic weapons program. and he may be helping to finance that program too. according to the former district attorney of manhattan in new york city, venezuela has an established financial system that iran can exploit to avoid economic sanks. sanctions. perhaps you've heard that chavez has established direct commercial flights between tehran and caracas. sounds innocent, right? no. except these are also establish withed safe houses in caracas for hamas and hezbollah terrorists, passengers on that tehran/caracas shuttle. what's the next step for

terrorists after caracas? we believe some go to the war zone inside mexico near our southern border. from there how many slip into here? where are they now? our government should know. it doesn't know. we're going to make them find out. [applause] everywhere around the world it's the same story. day and night chavez is cultivating alliances with countries that would like to undermine the u.s.' power and position to make the world a more dangerous place for us, russia, china, syria, libya, belarus, north korea. all are his diplomatic ports of call. meanwhile, venezuela has been a port of call for the russian navy, and now there's talk of basing uranium-supplied missiles in venezuela.

sound familiar? and chavez is making moves that look like he wants to acquire nuclear weapons. add all that to chavez's global weapons buying spree including planes and submarines that have no defensive purpose, can we doubt what he has in be -- in mind? shrinking through the shadows of diplomatic back alleys throughout the world with a whispered, come on, he has been gathering a gang of thugs that, like himself, want to take down the american sheriff of what charles krauthammer once called the unipolar world. this is what i meant by a clear, present and developing danger. i mentioned oil politics giving out cheap oil to win influence and control in a country. there is someplace else he does this, right here in the united states of america.

and he has an accomplice. i'm sorry to say, a low man with a great name, joe kennedy. president john kennedy said, we will pay any price, bear any burden to insure that survival and be success of liberty. it is a disgrace that a nephew of the president who spoke those magnificent words and the son of his brother and attorney general, it is a disgrace that this man is the front man in chavez's oil for influence campaign here in the unite. [applause] here in the united states. [applause] joe kennedy hasn't paid any price, but he's taken one.

he defends himself by saying he opposes some of what chavez has done. so let me ask this question, when he says, "some," that sounds like one or two small details where he thinks chavez is wrong. which one or two small details? is it chavez's suppression of broadcasters and the press or the internet? does he include economic policies that have created shortages in food, coffee, gasoline, electricity and that have hit the venezuelan poor so hard, not to mention the double-digit inflation? do the "some" things include assuming dictatorial powers or backing murderous farc drug thugs or throwing dea agents out of the country or making venezuela an accomplice in the global drug trade? or working to undermine

democracy in so many nations of this hemisphere including on our southern border. or aiding and abetting the transit of terrorists or acquiring tanks, jets, submarines, missiles and bombs beyond any defensive need? which one of these two small things make up the some things that mr. kennedy opposes? you know, as you heard from the introduction, i come from a baseball family with a deep baseball heritage. so i take it personally, the insult to america's greatest game, that the chavez-controlled company that joe kennedy shrilled for, citgo, heads up in joe's hometown, boston. i'm talking about the giant citgo sign that looms over the hallowed green monster in boston's fenway park. if joe kennedy wants to show he is really concerned about some things that chavez is doing, he can see to it that boston, the

boston citgo sign is turned off. [cheers and applause] he can see to it that fenway park's citgo sign is covered up until freedom and democracy return to venezuela. [applause] and by the way, it wouldn't bother me if everyone in this office and everyone listening didn't purchase their gas from citgo. [applause] transforming vens wail loo into -- venezuela into an oil-rich cuba is what chavez has been doing, undermining u.s. security is what he is doing. what should we do? here's a partial list. last year and again this year i

have called on secretary of state clinton to put venezuela on our state sponsor of terrorism list. [cheers and applause] this should be done now. venezuela is the third largest supplier of oil to us after canada and saudi arabia. in other words, our money is financing chavez's war against us. we should do all we can to encourage an increase in canadian supply. we should open up domestic drilling. [cheers and applause] we should open up domestic drilling throughout the united states and in our waters, and then we should put a halt to buying chavez's oil!

[cheers and applause] by the way, here's an interesting fact. because of the high sulfur content, venezuela's oil is not in big demand on the global markets. if we don't buy it, chavez can't sell it. most of it, anyway. so let's not buy it. [applause] along with cutting off purchase of their petroleum, we should impose a full-scale economic embargo on the country now. [applause] chavez wants to work as one with ahmadinejad. we ought to treat him the way we treat ahmadinejad. [applause] no more happy handshakes at world conferences, no ignoring the menace of what chavez has called the iranian/venezuelan

axis of unity. then, too, we should get serious about communications to the people of latin america. we should launch an aggressive campaign to tell the people of that region that we support them, their democracy, their struggle to improve their lives and their fight for freedom. [applause] our story is the story that latin americans want to hear, not hugo chavez's story, and it's time we told it. it's time to be proud to be an american, a defender of freedom. [applause] we should let those know that we stand with them, so the congress should pass the panama and colombia free trade agreements early this year. [cheers and applause] and when latin americans stand

up for their constitutional processes and against chavez-style tactics as happened in honduras, american diplomats should stand with them. [applause] when there is a clear and present danger rising, we should meet it, not ignore it. and when heros for freedom put themselves on the line, heros like former colombian president uribe, we should support them in every way we can. [applause] it's time we stop apologizing for america. [applause] it's time that in this hemisphere and around the world we stand up for america and for the freedom and human dignity that america stands for. [applause] stand against america's enemies and stand with america's

friends. [applause] that, that is my message to you today. that is the direction we in the house will be working to move foreign relations in the next two years. that is what america should do, must do, and if we have anything to say about it, will do. [applause] with pride and clarity, not apologies; with determination and resolve, not deference, we will work for a foreign policy that embraces america's historic role. the friend of freedom wherever freedom is at stake. thank you. [applause] thank you, and god please you, and god bless america. [applause] ..

>> now more from the conservative political action conference hearing from former u.n. ambassador, john bolten. he comments on the obama administration handling of the situation. he comments about the u.s. relations to national security. this is about 25 minutes.

♪ [cheers and applause] >> thank you. [cheers and applause] thank you. [applause] thank you very much. thank you. well, it's a great pleasure to be here again today. i've spoken at almost every cpac since 18976 -- 1976, and i think this is the biggest we've ever seen. there is a good reason for that because we have a lot to do in the next two years. now, you've heard a lot of fascinating speeches over the past couple of days, but i want to shift the focus of attention here away from washington.

we meet today as we have met these past several days in the midst of a real international crisis. we've seen in tunisia, egypt, jordan, yemen, and perhaps elsewhere, fundamental forces unleash in the middle east that will have a profound impact on the united states all of our vital interests as they develop. now, this is a fact of life for the government of the united states. foreign policy does not play out the same way that domestic policy debates evolve. they don't wait on our schedule. indeed as humfhrey bogar darks

said it seems fate has taken a hand and whether our leadership can play the hand effectively in light of these developments, i'm worried not only do we face a crisis today, but we don't have a leadership in the white house that can deal with it. [applause] now, we watch the events in egypt and elsewhere, and we can have some degree of optimism about them. we can recognize many of the people are legitimately calling for democracy and liberty as we understand it. americans are realistic and pragmatic too, and they know it's the responsibility of our government to protect our interests and our values and our friends and our allies. when you hear wood row wilson

making the nation safe for democracy, never forget theodore roosevelt's response. first and foremost we must make the world safe for ourselves. [cheers and applause] so as we see what's happening in egypt, we have to have a careful and prudent approach to these developments because we've seen revolutionary situations go wrong too many times before. jean wrote about it compassionately looking at the carter add -- administration regime change going from two authoritarian regimes that were pro-american to two even more authoritarian

regimes that were anti-american. she cited in her essay a classic on representative government where it was said to have representative government, one, the people should be willing to receive it, two, that they should be willing and able to do what is necessary for its preservation, and three, that they should be willing and able to fulfill the duties and discharge the functions which it imposes upon them. we can wish the best for the peoples of egypt and all over the middle east and all over the world, but they still, like we did, have to pass john stuart mills three tests, and the evidence at this point of their ability to do so given some of the forces ranged against them, at least we have to understand is open to question. now, how has our president and his administration handled this crisis? well, much as in the same way as

its handled any other issue of security policy in the past two years, it's hesitant, inconsistent, confused, and just main wrong. [applause] it has swung one way and then the other. the government of egypt is stable, they have to resign now, they can stay until september, the government must leave now. i don't know what time it is in cairo, eight o'clock in the evening, we'll have to see what our government's position is at the moment, and then this week as if you thought it couldn't get any worse, the director of central intelligence announced probably mubarak would resign on thursday evening based on what? based on his reading of newspaper accounts. well, doesn't that make you feel confident? and then, we had the director of national intelligence, his nominal supervisor explain that

the egyptian --s muslim brotherhood in egypt was secular, a and violence. this is a foolish statement that any american intelligence official has ever made. [applause] here we have the director of national intelligence trying to decide if this organization is secular or not. let's see, its name is muslim brotherhood. any clues there? [laughter] some have called for general clapper to resign. in this administration, we could get somebody worse to replace him. [laughter] [applause] the fact is in the real world

and foreign policy and life more generally sometimes your core values and principles conflict with one another. everything doesn't always work out perfectly, and there's a conflict of values that work in the broader middle east today. let's look at the conflicts and see how our administration has handled them. one conflict, a real one looking down the road, is between a real established democracy in israel, the only real democracy in the middle east. [cheers and applause] and a hypothetical democracy in e just a minute. now, i'm pleased that the egyptian military said they would uphold their obligations which includes the camp david accord, but we have no guarantee down the road that will hold. worrying about israel, a real democracy, is a real, moral, and

legitimate obligation by the united states. plp we must -- [applause] we must also recognize democracy is more than just simply holding elections and counting votes. democracy is a way of life, a culture. it doesn't spring into exist enovernight. we have to acknowledge that a democratic election can produce negative results. we saw it in germany in the 1930s. we have seen it in the occupied territories, a subsidiary of the muslim brotherhood has taken control. if you want to see what the muslim brotherhood looks like when they take control of an arab state, look at hammsa in the gaza strip. they control effectively the

lebanese government, and just to take it out of the middle east for a minute, we've seen russia pass out of totalitarianism, and now passing out of representative gort back into authoritarianism. there's no guarantee you can keep things moving. let's focus on hamas for a second. it's iran, the central banker of world terrorism. you'll hear the experts say the shia muslims never cooperate with the muslims. tell somebody, because they didn't get that memo. [applause] the threat of this rising radicalism in the middle east endangers a whole range of

critical american interests, and even in egypt itself, let's not forget the christians. 10% -- [applause] 10% of the population, 8 million to 10 million people, imagine what would happen to them under strick radical islamic law and what would happen to their freedom of conscious. they haven't done any better under egypt's role. all this relationships with israel, our concern for our own economic stability given the amount of oil and natural gas that loyal families running regimes in the middle east produce, these are not hypothetical or abstract. these have a direct connection to our daily life, our hope for

economic recovery, and the idea that we're not -- that we should not be concerned about these developments in the middle east is just ignoring the reality of the effect they could have on our economy, but we have a president in office who doesn't understand. i think foreign affairs gets in the way of nationalizing our health care which is what his real priority is, but we need focused attention on these critical national security issues. we need attention now to what's going on in the middle east. [applause] president obama said yesterday that the way forward in egypt is that all voices must be heard

which is a passive way of saying the muslim brotherhood has to be allowed to participate in elections. i think this is the road to disaster. i think it should be the position of real prodemocracy forces to say that no one should participate in an electoral system as a political party unless you are a real political party. if you're a terrorist group or a totalitarian group that pretends to contest elections, but reserves the ability to use force or terrorism to overturn the election if you don't like the outcome disqualifies you from putting candidates forward, period. [applause] now, we have said this before. we sod hezbollah shouldn't participate in the elections in lebanon, but it did anyway, and now it controls the government that threatens israel across the blue line with rockets that can

range the entire country of israel. we said hamas couldn't participate, and they did. over polls that the bush administration had that hamas couldn't win, and they did. we faced this question before. we've answered it the right way, and then we've blown it. now, it looks like we're going to answer it the wrong way. guess what that means for the election in egypt, and not only in e just a minute, but re-- egypt, but regimes around the middle east. they won the parliament elections in 1990 that provoked the mim tear to stand in. nigeria could be in more trouble today more than egypt. this is a critical time where we need a president who understands the priorities of american national security and can implement them, not somebody who is worried about staying on top of the media's spin cycle.

[applause] now, let me turn from egypt to what else the administration is doing wrong in national security. we have focused in these past several days on critical budget decisions that congress is going to have to make in the next few months. i want to make the point here very clearly that in a time of increasing threats to american security around the world and greater uncertainty about the risks of terrorism and the proliferation of weapons of mass destruction, that this is not the time for indiscriminate budget cuts in our national defense budget. [applause] there is plenty of waste and fraud in our military spending, and it ought to be rooted out just as vigorously, maybe even more vigorously than the waste

and fraud on the civilian side of the government, but a dollar well spent on defense is much more important than a dollar well spent in the agriculture department. [applause] and while the obama administration has spent profusely on every domestic program it could find, it has already cut back our defense spending $300 billion, and last month proposed more cuts of $78 billion. the administration alone is on the way to crippling our capacity down the road. we don't need to add to the problem. there's plenty of areas in domestic spending we can cut. frankly, the entitlement programs we talk about and don't face up to. now is the time to face up to them.

[applause] at a broader strategic level tbloably, the administration has no clue what our strategic interests are. it doesn't know huh to deal with -- how to deal with russia. they want to push a reset button. they gave away critical resources by signing the t.a.r.p. treaty and cramming it through the senate in the lame duck session late last year. this is a treaty both politically and economically cripples our national defense. it reduces it to levels that make it difficult to sustain the nuclear umbrella we put over ourselves and allies to preserve peace and security since world war ii. it will reduce our ability to use our weapons capability, and

we now read the administration was prepared to undercut our ally, united kingdom, by giving away information on their weapon programs when they were not in the negotiation. what will come next? a bunch of new treaties, prevention of the arms race in outer space, decreasing gun control in the utes. it's all out there. they are just waiting for the opportunity. this is the danger of the administration's policy on russia. turn to china where they don't have a grand strategy there other. you see china building up military capabilities, submarines, adding to its ballistic missile forces, making assertive claims in the east and south china sea. you see china discriminating domestically against u.s. and

european investors in favor of its own citizens, violating its world trade organization obligation. you see an aggressive china manipulating our currency. what do you see the administration's response as? i don't know. i wish i could tell you the response so i could criticize it, but there isn't any response. [laughter] [applause] unfortunately, it just gets worse and worse. turning away from the international arena, we heard less from the administration and less from our own leaders in congress on the threat posed by proliferation by iran in north korea, the risks of venezuela having closer ties with russia.

venezuela has the second largest reserves of uranium after canada. think what that can do of the nuclear weapons program. think of russia turning to venezuela. think of the risk of iran or al-qaeda or hezbollah using venezuela as a base for activities in the hemisphere and in the united states as well. what's our answer to iran and north creigh? it's still the same thing the president said in his inaugust grail address -- inaugural address. he thinks two years later there's american dip employee mats are wandering the globe waiting to shake hands. it's not doing anything to protect us, and the global war on terrorism continues to floppedder. it's true that the administration has continued some policies from the bush administration, some of the

interrogation techniques. it's done it because reality forced it to do. every inclination by the administration was to do the opposite, and if they could get away with it, they would still try to close guantanamo bay. they are still committed to withdrawing forces in iraq, still committed to forces from afghanistan which simply reenforces the view in the middle east that america is withdrawing, that america is declining, that america is not a reliable ally. that is a cancer view which spreads throughout the world as leaders, friendly and adversary alike, take the measure of this president and see he is weak, and if he does not defend the

interests effectively, they recalibrate their policies to take advantage of that. i think that every indication we have is that the pace and scope of challenges to the united states and to our friends and allies will accelerate in the next two years or god forbid the next six years. [audience reacts] we have to turn this around. we have to continue to see america as an exceptional nation even if our current president does not. [applause] you know, sometimes a foreigner can see us better, and i'll offer you a toast that a frenchmen of all people, andre malroe gave when visiting the united states in 1962. he said i offer a toast to the

only nation that has waged war, but not worshiped it, that won the greatest power in the world, but not sought it; that brought the greatest weapon of death, but not wished to wield it, and may it inspire men with dreams worthy of its action. that is our america, but it is not barak obama's. [applause] >> we'll leave this event at this point as the commission on wartime contracts is looking at how they are spending u.s. dollars in afghanistan. this is live coverage on c-span2. it's just getting underway. >> the other commissioners at the day is clark content ervin

and i believe dove, dov will be here shortly. this is a continuation on our 24th session on afghan construction. we were looking into the planning, management, execution, accountability, and stainability of contract construction projects in afghanistan. there are literally thousands of these projects ranging from schools and clinics in afghan villages to power plants and training centers in afghan cities to dining facilities for u.s. and nato troops. they are all important and involve billions of taxpayer's dollars funneled through contractors through the department of defense and state or through the u.s. agency for international development. at our january 24th session, we heard from government folks, special inspector general for afghanistan reconstruction, aid, and witnesses from the army

corp. of engineer, and the air force center for engineering and the environment. we were also supposed to hear from the witnesses who are back today, but we got so involved in the first two panels that there wasn't enough time left in the room reservation to do justice to our guests. we apologize for the attendance of our third panel which is here today, and we thank you gentlemen for agreeing to talk with us and take our questions, and we thank you for not complaining for having to come back. our witness panel compromises construction contractors who carried out some major construction in afghanistan. michael, president, government, environment, and nuclear divisions, ch2m hill. charles -- sinar, executive vice

president environmental inc, and also appearing is bruce mckaren, regional sughs for project services. that is u.s. aid piece partner for the school project. i will note the united nations mr. mr. karen available today without the status, privileges, and immunities enjoyed by the u.n.. he is a u.n. official. again, gentlemen, thank you for your cooperation with the commission. another witness scheduled to speak on the 24th had prior commitments and couldn't join us today. his larry dewalker. we are making arrangement for him to appear in a future hearing. we have brief oral hearings of

their testimony. a written testimony was entered into the record last month. we will also accept any updated versions they may provide. we ask that the witnesses submit within 15 business days responses to any questions for the record and any additional information they may offer. now, if the witnesses would rise, i'll swear you in. raise your right hand. do you solemnly swear and affirm that the testimony you're about to give before this commission is the truth, the whole truth, and nothing but the truth? for the record our witnesses responded in the affirmative. mr. karen, please join us, and i thank you, and let the record show that as i've said they responded in the affirmative. i think we'll start with you mr. colby and your testimony. let me say you have 5 minutes given that you were having to

come back. if you run two more minutes, we'll allow it to happen, and i will definitely stop you after 7, and we'll finish by 11:30 because i know you have commitments, and that you can count on. >> thank you. chairman shays, distinguished members of the commission, i'm michael president of overseeing the division that executes our government contracts, and our work in iraq in afghanistan. on behalf of the 23,000 men and women, i'm pleased to participate in the discussion of wartime construction in iraq and afghanistan. i'll keep remarks short and ask my written statement be submitted for the record. it was my pleasure to meet both cochairs of the commission along with the commission staff in our corporate office in denver last june and participated in the commission hearing last july. ch2m hill has a long service to

the united states government and works on behalf of the army, navy, air force, epa, fema. we are in support of the federal government. since 2004, ch2m hill provided support to the u.s. military first in iraq and then afghanistan. this support embodies our corporate commitment to follow the dod clients in both peace and war. while we served numerous clients and provided the full range of construction services in iraq and afghanistan, the majority of our work results from three large contracts. first, an army corp. transatlantic contract from january 2004 until january 2009. second, from april 2006 until the present, ch2m hill also held an heavy engineering construction contract, and lastly since july 2009, we're a

subcontractor under log cap 4. i understand that many from the commission visited afghanistan last august as reference in the previous panel discussions and many were briefed on a project in kabul. on december 7, my government facilities and infrastructure group president met with general ted johnson, the kabul based cluster commander who is anxious to receive the last barracks being built for the client. they are scheduled for completion within the next two weeks. ch2m hill appreciates the work that this commission has done to ensure troops in iraq and afghanistan receive the support they need and that taxpayer dollars are spent wisely. we are committed to serving the facility, infrastructure, andly gist ticks needs to the wartime environment.

we are dedicated to protecting the men and women who fight for our interests. with that, i'll answer any questions the commission may have and share lessons learned from our work in afghanistan. thank you. >> thank you. >> chairman shays and distinguished members of the commission, thank you for our experience to share our reconstruction projects in afghanistan. my name is charles mouzannar and i work in environmental inc. amec is a focused supplier of energying and product management services for the world's natural resources, clean energy, environmental sectors. they maintain assets for its customers worldwide with sales

of approximately $4 billion. they are operations in the americas and united kiang dome and work for customers from the arctic to os trail australia. they employee 23,000 and more than 4,000 employees in the united states. the sales to the u.s. government for work performed in afghanistan were approximately $58 million. the commission has invited us to appear at this hearing to provide our perspective on recurring challenges relating to u.s. funded construction projects in afghanistan. some of the key challenges that we have encountered along with our recommendations for improvements are provided in our written statements. i want to briefly outline a few points we have presented. a clear and comprehensive scope of work, site surveys, and

geotechnical reports are a prerequisite for preparing reliable proposals for a firm fixed price on construction contracts. faced with aggressive deadlines, it appears the government is using firm fixed price on contracts, competed and awarded on the basis of lowest price possible when access is limited. the firm's method is effective when site conditions are known, conditions a stable, the supply chain is available, and the scope of work is reasonably defined. many of the projects currently needed across afghanistan do not conform to the above criteria, an we believe they could easily result in significant cost overruns, delays in contract performance, and the government's inability to achieve its mission on schedule

and at the desired cost. we recommend that acquisition officials reconsider the use of cost contracts by best value selection criteria for projects when site conditions are unknown, security conditions are unstable, the supply chain is unavailable, or the scope of work is not well defined. amec follows a local approach to delivering projects. we focus on planning through commissioning and has developed various designs that maximize the stainability of facilities and minimize operations and maintenance efforts required during the useful life of the facility. for project delivery, amec maximizes the use of afghan workers and engineers in the afghan foreign policy. since 2006, amec delivered prongs consistenting of a minimum of 25% of afghan workers

supervised by amec staff. we are proud to surpassed 5 million man hours on the afghan national defense university project without a recordable heflt and casted incident while also building a local and sustainable work force. we have positive results by training afghan workers and engineers, yet are challenged with balancing these goals against achieving contract schedule and cost requirements. we believe the government can achieve desired stainability goals for the afghan work force by setting aside projects that allow contractors time and funding to train and develop afghan workers and engineers. last, but not least, amec sees training as an integral part of training in afghanistan. they give training to maximize the effectiveness of the management team, build manageable relationships with the stake holders and supply

chain, and avoid incidents. we believe this approach is critical for government and contract and staff alike to successfully deliver projects in afghanistan. in closing, amec is proud and thankful for the opportunity to contribute to the reconstruction of the country of afghanistan. our ability to deliver projects in afghanistan during the current challenging circumstances reflects the contributions of all stake holders including the afghan end users, u.s. government, and the amec team supported by our afghan engineers and workers. thank you for the opportunity to brief the commission on amec's perspective on successfully delivering reconstruction projects in afghanistan and i'll be happy to answer any questions you may have. >> thank you. mr. van dyke. >> good morning -- >> is your mic on, sir? it's the mistake we all make. >> that's better. i'm bill van dyke, a wholly

owned subsidiary of black and veatch. i thank the mission for this opportunity to discuss my company's efforts in support of u.s.' mission in afghanistan. our corporation is a global provider of power, water, communications, and other infrastructure. as part of the worldwide reach, the company proudly supported u.s. government projects for more than 90 years. since august 2006 as a partner in the group black and veatch venture, we assisted the client in develops essential energy infrastructure in order to improve the economy and quality of life for the people of afghanistan. from 2006 until today, total megawatts of power generation

available for afghanistan have more than doubled, and us aid projects contributed to 90% of that increase. in december 2010, us-aid awarded them a separate contract for the helmond project for distribution in the south for the support of u.s. government policy. working in support of the mission to increase energy delivery to afghan's people and with afghan government organizations, black and veatch's dedicated professionals has successes. we provided advice to the government in negotiating power agreements with other countries. we developed a successful plan in just 35 days that enabled afghanistan utility to transmit 70 megawatts of imported power

to the northeast to a complex network of never before used existing facilities. we constructed the 105 megawatt power plant at a greenfield site northeast of kabul that provides the power for kabul and ultimately provides 100 jobs. we trained kandahar workers to overhaul their generating engines rather than shipping them out of the country. this enhanced the power program. projects currently underway enhances their ability to better manage loads from domestic hydropower, fossil fuel, and generation forces. in achieving successes, we've had challenges. in april 2010, our joint ventures living quarters in kandahar was destroyed by an improvised explosion device. we had to evacwase our forces,

afghan staff trained by black and veatch personnel continued to operate without interruption for weeks, a proven success in training for sustainable operations. in building the power plant, we had issues with the power gerkses we were unable to resolve. we addressed this issue in two ways. first of all, we figured out how to transmit power from pakistan to kabul to deliver power in january 2009, and that was far earlier than originally thought possible. second, black and veatch immediately stepped in to performing the remaining work on the plant delivering a full power for the winter 2009 to 2010 ahead of the scheduled at the time of the subcontract termination. u.s.-aid turned over ownership of the plant in june 2010.

the plant met all asks since it was -- requests since it was commissioned and we work 2.7 million person hours in building the facility without a serious safety incident. the cost of taking the project from an empty green field site to operation was by the u.s. army corp. engineers. it was discussed before the commission in january. the costs in 2008 after all major subcontract work was awarded was $260 million as noted in the report. the cost is precisely within the range of

>> i'll be pleased to answer your questions on these or any

other issues. >> thank you mr. van dyke. >> chairman shays and members the commission. i'm regional director of project services and formally from 2008 until december 2010, director of the operation cementer in afghanistan, and i'm honored to brief the commission on unops work in afghanistan. we were established by the u.n. national assembly with a mission to implement peace building, humanitarian operations. we deliver approximately $1 billion through project implementation annually and spends $60 million administering it. it's a fee basis and has no core funding from the united nations. during periods of conflict or crisis, unops has a physical presence on the ground and engages governments and local

communities. the services made the highest international standards. turning to afghanistan, unops had a delivery of infrastructure and other projects to the afghan people. it's funded by the afghan government and international community. one is the gazi boy school project. presently under construction, the project is funded by the u.s. government, u.s.-aid, and represents the best standards of construction in afghanistan. designed to meet the california building codes as well as the demand of a several thousand students, this is the best in the portfolio. after the problems in contracting, despite the real security related limitations, it's hard to implement projects in afghanistan. this is not meant to down play the security risk on the delivery of capital

infrastructure programs. side preparation is key within any construction project, but in afghanistan, there's the additional complexity of land ownership, ideal sites, and the remanents of explosives from war. there's a range from very poor to very good. the situation makes construction management more essential if the investment made by the international community is to be effective. security in afghanistan is a major consideration for unops. they have been impacted by threats and intimidation from the various antigovernment and criminal elements operating across the country. unops found through long and sometimes bitter experience that infrastructure is not effectively delivered in afghanistan without the serious social inclusion effort working in parallel as well as the provision of security forces. unops does not at present use

international security providers in afghanistan. we found that when allocate the appropriate resources, the national security forces and the minister of interior can be effective. they recently visited the project in kabul. that site is protected by interior on special assignment to unops. they have a close relationship with the u.n. government team and the ministries of finance, public works, rural rehabilitation and development and agriculture livestock. at present, over 80% of the project work is on agreements with the afghan government while the remainder is by lateral with australia, italy, sweden, and the usa. the close relationships between the unops and the afghan governments mean they are thoroughly involved in capacity building.

we invested in the necessary training and systems to ensure the best practice is observed in infrastructure, project management. in wartime contracting, operational imperatives arrive that load to cutting corners. we have ensured we have the procedures in place to respond to project demands in an accountable manner. unpos observed for some years the investment in afghanistan has not included the concept of maintainability. unops design teams composed of local engineers ensures this is appropriate. recent experience emphasizes the need for safe buildings. the ghazi boy school that the commission soon visited is an example of safe high-quality maintainable and appropriate construction. this was not the case at the

start of the project. we had to remove the initial contractor, not an ideal situation, but it led to a new contractedder to meet the deadlines on time. i hope my written statement has shown wartime construction in afghanistan has contract management to locations of specific challenges like security threats. the international's ongoing investment in the area indicatings the important contribution to peace building, humanitarian, and development objectives provided by infrastructure development. if also demonstrates that results can be achieved even in the most challenging environments. thank you again for the opportunity to brief the commission on this important subject, and i stand ready to answer any questions. >> thank you. let me tell you the order we'll proceed. we'll start with commissioner ervin, and then commission ehank

-- henke and then myself. >> thank you, mr. chairman. i want to echo the chairman's comments at the beginning by thanking all four of you for being at the first hearing and returning for this one. we know how busy everyone is and thank you for accommodating our schedule. as you know. mr. van dyke, i want to spend the bulk of my time talking with you on the issue. just to get the facts on the record for those not present at the last hearing, there was a $266 million sole source contract awarded to black and veatch to provide power to kandahar, the real heart of the insurgency, and this was done in december of 2010 against a backdrop of having complained a number of times about your

performance under the 2006 contract to provide power to kabul that the contract originally was projected to cost $100 million that ballooned to $300 million, and there were overruns in terms of time. the project was a year behind schedule. now, it is not fair, it seems to me, to blip black and veatch to issue the sole source contract. i think it is fair, though, whether you have any better justification for it than we were provided last time. we spent time talking about this november 29, 2010 justification that aid prepared for that kandahar contract, and there's two terms used in it to justify it. first, they say that you were uniquely qualified to perform this work, and then the term uniquely positioned is used. if you really read this document as i'm sure you have, it seems to me, really the ultimate reason why black and veatch was

chosessen is because you were uniquely positioned meaning you were the only contractor on site. it also says that to get other contractors in would have taken a tremendous amount of time even though, again, you were sited just months earlier for being a year behind schedule with regard to kabul. >> commissioner ervin, there was a lot in that preamble. just one correction, the award was to black and veatch and not the joint venture, and it was to us directly. i think that -- i haven't seen the justification that our client wrote, but i believe we were both qualified and positioned. one thing that is not clear to the commission is that we had done an expensive study of power needs including projects necessary in the south for five provinces that included capped hair and helmand. we had a good understanding of

the work up front, and that's important to know. the other thing that's important is you talked about past issues by u.s.-aid. you heard what we did sin that time, and i remember i was asked at the last hearing whether people were using evaluations of their contractors, and our latest evaluation is very, very positive, and i'd like to read just one comment from it. the execution of the power plant resulted in a high quality state of the art pour plant capable of meeting all requirements and providing reliable power for 6,000 afghan citizens for years to come. this was given to us -- the date that we received it was 2010 in may. >> what's the date of it? you received it in may of 2010, but what's the date of the document? >> it reports on 2008 to 2009.

>> we'd like a copy of that. >> i'll get you a copy of that. >> thank you. now, you say you did a number of things between march 20, 2009, the last document that we have from aid complaining about your performance in kabul. between then in december 2010 when the kandahar plant contract was awarded to you, can you describe in document what improvements and performance you're referring to? >> some are in my original statement, so i'll go back to them. if you recall in the report, one the short term reasons for building the plant was fear that you couldn't get power through the neap -- nep power system, we were asked by the afghan government through u.s.-aid how can we get power? the creative engineers figured out how to do it in 35 days.

.. >> my time is limited. let me stop you there. you have any reason as to why the work could not have been broken up into discrete parts? why was it necessary?

>> the fact is that's exactly what usaid has asked us to do. we are a power generating company and that's what we do for living, and we're going to break up the work into parts. we're going to competitively did it and award did some competition. >> isn't that a function of the government ought to perform rather than the contractor bidding out the work? >> i think the major question is does the government have the ability to do the technical detail of dividing up technical work scope like a whole energy distribution transmission, generation system for the south. that's what we were asked to do. >> let me ask you about security. you talk in your statement about having the single biggest challenge that you have to get the work done with regard to kandahar. we understand that your security firm is blue heckel, is that right? >> that's the security firm we have at the tarakhil power plant right and which is the only job would have. tarakhil not mentioned anywhere here, we are providing training

for operations and maintenance today, and so the only direct contractor we have is blue hackle. we have no contractors speedy's i understand that. spent we have no contractors. >> let's talk about the blue hackle contractor that you had at the kabul plant. we understand that the afghan government has called the contractor the major offender. is that right? can you give us any details as to what's behind the afghan government judgment? >> we're aware that there have been discussions with blue hackle and we've seen the press releases that relate to those things. blue hackle is to license to do work and provide license -- provide services at this point. so we are using them. we understand usaid is -- >> yes. my time is limited. if any and the afghan government determines that blue hackle can no longer perform this function, what are your plans to provide additional --

>> we are working with usaid, the ministry with interior in afghanistan, with our own working contractors, people doing the work to forget what are path forward is on security across the board. we do not have firm answers yet because i think this commission needs to understand is the security issues in afghanistan are evolving daily. i think dr. shah has been there this week. i know mr. thier is on his way back today. and we will talk with him about what they have learned, but there are not yet solution spent final question, the fact you don't have the contractor right now with regard to the kandahar plant, that surely poses some threat to the ability to perform with eye contact? >> we have some time because we are getting the equipment and subcontractors in place. we have some time but there's a window within which things need to be worked through. >> and what is the window? >> i would say the next six to eight weeks. >> thank you very much.

>> thank you. dr. zakheim. >> thanks very much, mr. chairman. and thank you all for being here. i've got a few questions as well, a few from where my colleague left off. the first, mr. mccarron, did i hear you correctly that didn't think security was enough of a bar to your succeeding at what you've been asked to do? [inaudible] >> h.r. mic on? >> it is now. i was trying to indicate the security -- we can still chase right things in afghanistan as long as they are the proper risk analysis and make the proper measures to address the security? >> you believe you have, i take it? >> it's very difficult to say. at the moment we seem to have a very good record in the last two and a half years while i was

director of the operations center. we just a few incidents, and i'm very thankful for that. but anytime things can go wrong. i think even today it was a big ied explosion. so you never know when something is going to go wrong. >> i take it all of you gentlemen support the idea of going to -- can you hear me now? just hold on one second. thank you for letting us know that. could we have staff sit in the back of the room, and if you can't hear, please let us know so the general audience can. i'll try again. is that better? >> can you hear the witnesses or the issue not -- >> canyon in the back now? still not. >> go for a. >> i take it you all support the

idea of moving to cost-plus contract because of the security situation, is that correct? it is not. does anybody disagree with that? are you comfortable with the term fixed price? >> we actually did out subcontractors worked on a price basis. we do a lot of -- mr. mouzannar mentioned which is we try to specify the work scope that is biddable with no conditions so that it can be bid. in terms of subcontracting we do go from first -- fixed contracting. >> but for your own contracts you prefer what? >> cost-plus is appropriate. >> let me ask you this. given that the security situation has pretty much been the same since about 2005, and you've had overruns, but the security situation is no better. why do you continue to bid on

fixed-price contracts? why did you bid on the 2010 contract? you're not going to lose money. unite in the business to lose money. supposed the government complied with all its requirements, given the secret he situation it would be your neck, wouldn't? so why do you being? >> the contract we have is a cost-plus contract. and i guess -- >> you wouldn't did if it was fixed-price? >> not on this particular work, no. >> okay. let me ask you this. the report of the sigar folks point out a number of things that were not a ids responsibility of, but yours are taken with subcontractors. you have ever had trouble doing things in time. do you have the same situation today? are all your subs lined up ?-que?-quex hasn't been any delays at all since you signed

on nearly a year now and? >> actually, the contract was signed on december 4 of 2010. so we have a couple of months, we have projects out for bid. we are getting back speculative anybody lined up and? >> yet, we have one contract ready to order. >> mr. mccarron, do you see yourself as a contractor century century have to raise your own money? >> interesting question. people have pondered over that for some time. no, we don't. unops, it has an implementation mandate from the u.n., and it doesn't have a political policy mandate. >> neither does any contractor i've ever heard. >> and we do approach things in a business like manner. we have to be efficient. we have to be very tight on our

margins, and we have to perform. >> every contractor does that as well, right? >> but we don't have -- spent apart from that. >> apart from that we are a not-for-profit organization. >> but not for profits also have contracts, correct and they are contractors, greg? >> that's correct. we are supervised -- >> who checks your books? >> the executive board of unops, as well as the united nations board. speaks of the audit all your books? >> they do. >> and your accountable to the? >> yes, for the last two years. >> i've got a couple of minutes left. let me ask mr. mouzannar, when you hire a sub to provide

security, how do you go about that? >> ensure. what we do, typically we have our internal security department here they might be a global contractor. we are practically -- we have a regimented internal, how do we vet and audit internally the procurement process. so in essence first we go through the typical financial business requirements but we physically go and visit with the locations and make sure that the contract has the appropriate systems and procedures that meet our requirements. >> that's a.i.d. ever come out and see your people in the feel? >> we don't work for a.i.d. >> black impeach, sorry. today, and see your people in the feel? >> yes. >> how often spirit it depends on the project.

they been up to visit the projects where we're doing the iraqi power competition project so they come as necessary. >> what you define as necessary? >> at the tarakhil plant they were out their weekly as we're finishing to plant. i think they been up to the reactive our company probably three or four times in the last six months. i would have to check. >> sigar says they provide quality control. >> i think if you carefully read cigars report, he talked about quality assurance, but the main issue was on an indication. been no allegation that tarakhil power plant had any quality issues but it is a high quality plant. >> i guess i'm puzzled with these folks coming out every week, how come there's no indication? >> i think the communication improved a lot after january 2009. spirit that maybe but i still don't understand how there can be no indication prior to that.

can you explain it to me. >> i don't think there was no indication. i think we improved communication. by the time we told the client that we would completed in 2009, in fact we -- >> you mean a year late? >> after we had the issue with the client. we did complete it late, but we did get our from the northern countries, uzbekistan, much earlier than anybody predicted and that was equivalent to the amount of power that would've been from the tarakhil power plant. >> thank you. my time is up. >> professor tiefer. >> thank you, mr. chairman. although chairman thibault could not be here today, i just want to acknowledge that like our previous panel on construction, i draw on his valuable leadership. he went out there. he saw these projects for

himself. he was even correcting witnesses who may not even have seen those projects as much as he had seen them. so i can believe and follow his leadership. i want to build on commissioner ervin's recap, which was at the last hearing, as he said. we question aig about its sole-sourcing of the kandahar power initiative to black & veatch. this past december. at the last hearing sigar said it had an investigation of the kabul power plant coming, and what i understand to be a preliminary inquiry of the kandahar power award. and that i have questions about prior projects because if that project had been completed, black & veatch might have problems in the competition due to a history of unsatisfactory past performance here so, let me

start with one of the energy projects that interests me. which was, mr. van, about your unsatisfactory past performance on aids project to assess a natural gas deal. for those trying to follow this, a.i.d. formally rated you after a year of the project over all as unsatisfactory, which is the rate on a scale from zero to five, and they rated it zero. i come in particular, they said my understanding is the position was that over all the contractor has to date that an unsatisfactory job in getting the project started. delays were due to

unsatisfactory planning, about various things, and that the contractor missed every milestone date in its revised workplan. lack of coordination between offices also added to delays. my question is, do you at least acknowledge that you did get that overall unsatisfactory rating that would count against you in competition for new projects and kandahar? >> we did get a rating partly to the project. the client later terminate the contract for its own convenience and we are in the process of settling that oath with usaid and subcontractor. i think the view of the project is a little different today than it was and the time to read that. if you look at the sigar report in january 2010. >> okay. now let's go on -- thank you and i appreciate the brief answer. let's take the kabul power plant where you were given in the

course of its construction, and you discuss back and forth an argument you have about why your performance wasn't why aids appear but a.i.d. rated you formally poor and unsatisfacto unsatisfactory. it had four ratings and as i understand, you got one unsatisfactory, to force, and one fair. i have to say i teach at the university of baltimore moscow and i have a diverse class there. but even the worst student in my class, when you rate on a scale from zero to five that's better than getting zero, two ones, and one-2. the key here was scheduled that they thought that the delays in the schedule of the plan could be attributed to the following performance deficiencies of the prime contractor, including

again that the contractor has missed several scheduled milestones. did they give you ratings like that, and was a critical in that way of your missing milestones? >> they gave us those ratings partway through the project. i read to you and i were read against their latest one which is the execution of the powerpoint have resulted in a high quality state-of-the-art power plant capable of meeting all technical requirements and able to provide reliable power for up to 600,000 afghan citizens for many years to come. i think the other thing you need to realize is, as i said in my statement, when we had issues with a subcontractor we stepped up and solve the problem and we did it two ways. one was to get power from uzbekistan much earlier than anybody got to kabul. >> i understand. spent and the second issue was that we did step in and finish the plant faster speed and i understand after that rating, yes. let me ask because commissioner ervin focus well on the fact

that the jna for sole-sourcing is said that you were -- sole-sourcing the kandahar power initiative that you are uniquely positioned. i want to start -- this had two parts, and i discussed at the last panel with mr. thier, the a.i.d. chief, and he agreed, you knows it was possible to separate into two halves, 1100 miles away, diesel plant in kandahar. what i want to ask about first is the damn part. although there have been previous work -- the dam part. in 2009, louis berger completed rehabilitation of the second of two working turbines at the power plant.

the work was not done primarily by you at the power plant, but louis berger. isn't that right, in fact, you have said you don't want to take responsibility for the problems of your partner at that plant. haven't you said that you deny you ate any responsibility for the problems with the kajaki dam because you certainly berger handled that part of a joint contract? >> it's a long question, mr. tiefer. let me clarify one thing. 6% of the total cost of the kandahar project is the kajaki dam. 6% of the major part of the work that has to be done in kandahar -- excuse me, kajaki dam, nobody else has done that were. i told you at the beginning, we've done an extensive study of the power demands, to aid the projects necessary in the south. there are 11 separate projects

in the recently awarded contract. we did not do the work on the dam that was done prior, but we do to hydropower work. we are a power company. >> i think you did not do the work that was done prior? >> that's correct. >> you are not uniquely positioned to follow up that were. my time is almost expired. >> mr. van dyke, he referred to a later review. what is the date of that? >> it's the one we received -- i told you we received it in me. it's 2008-nine. >> can you make that available to our staff? was there anything in that review that was not couple of entry? >> they acknowledge that early on in the project we had difficulties but we have stepped up and solve for them. so yes, they did talk about them spend back if you would allow one of our staff to take that, would like to -- >> i can e-mail it to you. >> no know. we want to make a reference to it. if one of the staff would get that document, please.

>> i would just like to see it now if possible. >> can i just interrupt? >> as long as i have a copy back you can ask me any question. >> one seconds. we're going to make a copy for the commission members right now if we would. and they will get it right back to you. will not ask any question about and to get a copy back. >> mr. chairman, you are referring to the evaluation, cracked? >> no. that was 2008-9. >> that was the species referring to an earlier one. >> this is the one -- >> yes. >> thank you. you will get a copy back. >> okay. >> mr. hanky, please. >> i would like to ask each of you some questions about security. mr. mckelvy, in your statement you say security risk is our

first concern and along with safety and remains our primary concern throughout projects life. mr. mouzannar, you talk about access and you can't get to do site surveys and tell they are secure. and unexploded ordnance in getting a progress. mr. van dyke, you clearly state that your largest single challenge is the security environment in afghanistan. and mr. mccarron you say in your statement that your staff have been directly impacted by abductions, ieds, threats and intimidation from various anti-government and criminal elements in the country. so i would like to ask each of you just were simple yes or no answer to the question of come is security your number one, your foremost challenge and operating in afghanistan? >> yes. >> yes. >> yes. >> yes. >> with that as background, how

would you assess, how do you assess as a company trying to execute contracts, how do you assess the extent of your reliance on your security provision, your security contractors or in your case, mr. mccarron, afghan forces that torture projects? if you had to assess your extent of reliance on a scale from one to five, one being not reliant if there was no security tomorrow, my projects would continue unimpeded, 25, heavily dependent, extremely reliant on that security. without that security it would come to a stop. just give me a numerical assessment of your extent of reliance and discuss for a few seconds the impact of that on your company. transport? >> i would say it is probably a format. for ch2m hill he'll reconsider the security of our people.

there's many opportunities that we will not pursue if we deem them to dangers. so we really look to come in this case, the professional security companies to provide security for us. and should they become not available then we would reassess our interest and working in afghanistan. >> does that mean one of the options would be leaving? >> that's correct. >> mr. mouzannar? >> i would echo the same comment made by mr. mckelvy, except that -- >> numerically? >> i would say more of a fight for us except projects out there, one which you would refer to as within the wire and others outside the why. obviously, within the wire such as at bagram, it would be a less of an issue, especially with fixed wing flights going in and out of these bases. so for the outside of the wire, a definite five. about a three for others.

>> okay. think. you are drawing a distinction between whether you're behind a fence with u.s. forces or whether you're outside the wire, is that your distinction? >> none of our work is inside the wire. so i would say we're in a fortified range. security is very important to us. the situation is changing so weird we are working on solving the problems but our first requirement is keeping our people safe. >> thank you. mr. mccarron? >> similarly with unops, how i figure as well, for the five. and, of course, priority is the case to keep people safe. we operate umbrella under the united nation secured also. so it's not just unops decided on its contractors. it's the whole of the united nations that we have to listen to in terms of safety and security and where we can put our people. that does complicate where we can send our staff are. >> with the understanding that

security is your number one challenge, but you are all extremely reliant on security, how do you as a company, the three of you are contracting subcontracting for that security, how do you as a company ensure the quality of your private security? what vetting process if you go through, to what standards do you look? to your contractors have, your security contractors, do they have certain professional standards that you hold into? how do you ensure the quality, transport? >> thank you. similar to what we said before we have an internal group that does an assessment of the companies that we had to choose from. in the case of afghanistan, we have three different companies that we use across the country based on what our investigation has found, their strengths are regionally. >> what are the company's? >> we use all of, blue hackle and cohort. what we found when we first went

into the country is we use companies that were already in use in the area and that we got a good feedback from others as well as the u.s. government who uses the same countries to a certain extent from time to time. so they were prequalified in that respect, and they continue to serve us well over the last three years. >> to your companies subscribe to what people refer to as the swish initiatives for private security? >> i'm not familiar with the swish and it is but i'm sure our security folks are. >> as i indicated earlier we have a very regimented security process that goes through prequalification, and that is only receiving documents but also on the spot looking at facilities. we ought all the way to the mechanic that is changing the tire, making sure they have processes and systems and very regimented reporting that we would get. we have an internal security, corporate security group that does all of that, and keeps close tabs on that.

the other piece of the puzzle is when we go to different regions, we look at establishing companies that are there from our prequalified a list of companies because of the knowledge on the ground in being able to get. >> thank you. mr. van dyke. >> we have a corporate security operation that helps us figure out what we need to do. we have individuals in afghanistan who have security background to help us also if i were contractors. >> black & veatch employee's? >> yes. we routinely keep in touch with the region secure the officer with what's going on in the area. and we evaluate contractors based on past expense and past practice. >> and with unops we have an in house security team of some internationals but mostly afghans who know the security environment. we have close liaison with the minister of interior. ..

>> they were cited as a major offender. they employed 1, 358 guards more than they're allowed, they used embassy vehicles for off-base, nondiplomatic purposes. how dud your system -- did your system of quality assurance not catch that? or did it catch that? >> in essence, it did. we immediately contacted senior management -- >> well, you came across the slip, the press report? >> obviously, in terms of --

>> yeah. >> they have two different -- >> you came across what information? >> >> well, we had, obviously, seen -- >> okay. so you saw it in the press and then responded? >> correct. >> okay. so your quality assurance system found none of it before, right? >> well, again -- >> is that right? >> correct. >> so you saw it in be the press, and then what'd you co? >> as you know, in the press, you can get all kinds of free reports that come out. >> right. >> so there were a lot of discussions in terms of the information. >> uh-huh. >> and at that point we had the change in security subcontractor from the one site that they're operating at with a different company. although my understanding now -- >> you said you fired -- >> no, we did -- it was almost a request from their part because they were still trying to resoft the issues with -- resolve of the issues with the presidential decree that was -- >> okay. >> so, in essence, it was a

request that they came back, you know, to try to -- >> okay. but you told me your system checks down to the guy who changes the tires. >> sure. >> but you found none of these -- your system of checking your subcontractor found none of these discrepancies before the press picked it up? >> my understanding is different groups that operate in afghanistan in support of the u.s. government -- >> who operates for you? >> >> we have a whole group within g force that we interact with -- >> i'm over my time but one brief last question, just yes or no. do your private security providers, are they on fixed price, lowest-price acceptable contractsome? >> yes. best value selection. >> best value, not lp today? >> no. >> sir?

>> doesn't apply. >> okay. so yours are fixed price? >> they are. we provide the scope of work. we actually develop the scope of work and provide pricing for providing the resources. >> thank you. my time is expired. >> gentlemen, again, thank you for being here. i -- we're going to be issuing our second interim report next week, and it's focused on legislative changes, some regulatory changes, maybe an executive order or two. um, we, we're wrestling with a lot of issues that i'm sure you wrestle with as contractors. first off, the combination of participants or, basically, the military, our government civil servants, contractors. then you have, obviously, contractors who are domestic to the united states and overseas. we wrestle with the fact that

we'd like to know what that balance is and nearly half as many military, we have an equal number of contractors. we started out thinking that we just needed to oversee contractors better and manage them better, and that was a management issue. then we began to realize that if we couldn't properly manage them, maybe we shouldn't do it. and it gets into this whole issue of waste, fraud and abuse. you have waste in projects badly done, but you have waste in projects that are not sustainable, not culturally appropriate and so on. we've seen a significant number of projects we believe are not sustainable, and you wonder culturally absurd. why would we build an atrium in a school building?

the heating costs? you've got to, basically, bring in the diesel fuel and so on. when you see something that appears to be so stupid, why would we do it, and what is the obligation for contractor when you're asked by a gooft to do it? >> mr. chairman, the atrium that you refer to is actually not an atrium. i provided a supplementary -- >> let me back up. forget the atrium. >> okay. [laughter] u.s. standards. why? >> there were two major earthquakes, one in china, one in pakistan. we don't see buildings we build kill children. and so usaid decided to impose the seismic design conditions to

the california building code on the structure. that, then, determined -- because the site limitations, we were going to a three-story building. that then determined -- >> why would you build a three-story building? why not one story? why three stories? why would we do that? do you have to use steel to build a three-story building? >> yes, we do. it's a reinforced concrete structure. and we're servicing over 5,000 students and on a limited site. the ghazi school is hoe candidated within -- located within a short distance of the parliament, the old part of the city. so the available land was -- >> why a school for 5,000 students? >> that's the number of children that are being serviced at the moment. >> why not two schools, why not three? i'm just trying to understand why we would build buildings like this that then have huge energy costs, etc. so, i mean, isn't there a part of you that says maybe that wasn't the way to go?

you're going to build what you're paid to build, but what we're trying to do is wrestle with, what is the role of a contractor when we are doing things that, you know, are so different than what's there? what is the role of the contractor? mr. mckelvey, what is the role of the contractor? >> i think we have the responsibility to point out issues that are not culturally appropriate through the process of construction. when you look back on our experience in afghanistan, certainly several years ago there was quite a bit of united states standard being put into projects that, perhaps, was not applicable, i think was mentioned on the last panel. >> let me go through this a little more quickly. what is the rolesome. >> well, our role is to bring in design the engineering to try to min nice poise the instances where you need the very extensive operation and maintenance. it's keeping it basic, keeping it simple. that's our rule. >> keeping it basic, keeping it

similar l. mr. van ciek? -- van dyke? >> i would add that it's also our job to operate with the training. >> mr. mckelvey, is there an instance when you had a conflict with what you were being asked to do because you thought it was culturally insensitive, not sustainable? any examples you can share with us? >> there's been examples where we installed on an international building code and we've been asked to change to the other codes. >> so you did it? >> that's correct. >> so there's nothing, you're not given a document that allows you to put a protest in or at least be on record as saying this does not make sense? >> no, there's dialogue with the client, dialogue with the team that we feel --

>> how do you document it? if i were a contractor and i was being asked to do something i thought didn't make sense, i would at least want some documentation. >> there's documentation in correspondence. >> would you give us any documentation where you've actually said this doesn't make sense? >> we'll provide that for you. >> thank you very much. i'll ask you the same question. >> same situation. i think the work that we're doing in afghanistan predominantly is with afcee. there's a lot of that communication. and beyond the client/contractor communication, we periodically get together as contractors and share lessons learned. actually there's some good case studies that we'd be happy to share how the contracting community worked with afcee, come back with some standard designs. >> i'd like an example where maybe you have objected to something being done. you know, whether you did it or not, once you've gone on record, you're going to do it. but i'd like an example of it.

>> i meant more of an example of a positive situation where all together came in. i would have to research to see if there were instances where we came back and said, no, it doesn't make sense. >> mr. van dyke? >> i can think of two recommendations for change. one was the one i mentioned in my statement where engines in kandahar were being shipped out for overhaul and we trained them to overhaul them themselves. the second is the issue with the kabul plant where we recommended if you're going to have the capability, wait for a while to use it until you get people trained on operating a diesel plant. and i could go into why as you want the details. >> thank you. >> i'd like to, perhaps, propose the kabul women's university -- sorry, kabul university women's dormitory as an example of where appropriate policy has been put in place and that the building was not only refurbished, but

the infrastructure was established, the training, the personnel to insure that the facility was looked after and maintained, that students were enrolled and seen through to their graduation. so it was fully working before it was handed over, so the ministry of higher education had the capacity to keep it going. too often we build nice, shiny buildings and hand them over -- >> the sustainability is appreciated, but i just wanted to ask do you have any example of where you were asked to do something that you thought was wasteful or inappropriate and, therefore, went on record as saying we shouldn't do this? >> not so far. >> okay. well, what's a little unsettling about your answers is that we know there are a number, and the fact that somehow you're not encouraged to do that and wouldn't, you know, want to be on record documented we didn't want to do this, this and this, i would have found a all littlee

encouraging. going to -- >> thank you, mr. chairman. mr. van dyke, thank you for making this document available to us. it is an evaluation that -- i can't find a date here, but it appears it had to have been done sometime after 8/31/2009 because that's the final completion date of the kabul project. and as you say, it does give an overall rating of good to black & veatch and commends you for the work you did. i would just note for the record, though, that it's not a bouquet. the two issues that were highlighted earlier, cost overruns and time delays are noted here. the rating was given a two, a fair. and it's interesting what it says here -- >> can i interrupt a second? we're all going to be taking on eight-minute questions, so you may start over again. >> thank you. since your cost records and documentation was very good and

complete in line with requirements and good cost control practices, so you were given kudos for keeping record properly. it goes on to say, however, the project budget escalated substantially from original estimates, that's the 100 million to 300 million or whether or notes. >> to the initial estimates were in the 40-240-290 range. >> [inaudible] >> 2-300. it's actually a little under that, but that's what the cost estimate was. so it did go up, and that was a result of the subcontract issue i talked about. that is the subject of a dispute resolution, and we've been asked not to talk about it further until the dispute is resolved. >> even asked by a.i.d.? >> no, no. i sent a note to you, maybe you haven't seen it. we have a dispute that is being resolved before the international chamber of

commerce arbitration panel, they've asked both parties motto talk publicly about the issue before it's resolved. >> i look forward to following up on that. >> with by the way, nobody would be happier than i to talk more about that, but i do need to respect what the arbitration tribunal found. >> i appreciate that. we'll talk to the panel about that. it also notes, of course, the timeliness issue. >> yes. >> you've been very transparent and forthcoming, and i appreciate that. in that spirit, are there other -- presumably there are -- are this other documents; letters, memos, etc., from a.i.d. to black & veatch between the last communication that we had, march 2009, and december 2010 when the kandahar plant was -- other than -- >> this is the only evaluation we received since the one that you had. >> do you have any other communications other than evaluations -- letters, memos,

e-mails, anything? >> i'm sure we have thousands of letters and e-mails. we provide them with daily and weekly reports. >> would you be willing to make a representative sample of those documents available? >> i guess i could talk to your staff about what would be representative. >> do you have any internal audits? are you done any -- have you done any internal audits of the kabul plant? >> not specifically the kabul plant. >> do any of those audits cover the kabul plant? >> no, they did not. >> so you haven't done any internal assessments of the kabul plant? i find that hard to believe. >> no. >> okay. finally, i was interested in your agreement that the preference for black & veatch would be cost-plus contracts, but you say that you use firm-fixed contracts for your subcontracting. why the difference there? >> well, i think the difference is in the work scope. you're asked -- we are asked to

go figure out how to get distribution, transmission and dollar generation -- >> all right, let me stop you there. >> yeah. >> is the government -- [inaudible] would you prefer to have firm-fixed contracts? >> if many musen art laid out some requirements, you can get adequately known conditions. that would be something we would consider. >> but not pledge to? >> something we'd consider. i've told you all very honestly that the biggest problem we face is security in afghanistan, and that's an issue that has to be addressed. >> both of you in your testimony, in your written testimony, your oral testimony, you've laid out to me some really common sense call things that would make life for contractors easier. thing like making sure the ordnance is removed beforehand, giving you access to topographic

reports, taking cultural practices into consideration, etc. presumably, you two, your staffs, have raised these issues with the appropriate people in the united states government, right? and if so, what's the answer to that? why do we continue to do this? following the line of the chairman's questions. >> i think there has been improvement over time. when you draw the distinct between when we with all, together with afcee, for example, started doing work in afghanistan, there's been a great improvement since then. there's still room for improvement with respect to consistency of standards that we're asked to build to and design to across the life cycle of the project, but there has been measurable improvement. >> i agree with that. one thing i'd like to add is, also, i think these types of common sense measures happen more and more on idiqs or framework contracts where an agency would work and interact with contractors. i think some of the issues, is where there are one-off contracts that are procured outside these idiys.

-- idiqs. especially there are some projects that come up as urgent or mission critical where there is no time to conduct any of these types of analyses. and i think the temptation would be to just get them out. and i think this is something that, hopefully, the commission and others would look into, is what are these instances where projects were just let out on a lump sum without that, you know, all of the common sense issue. and then, also, the linkage between these actions, the way it afejts -- effects the supply chain and subcontractors if these things happen and the contractors fail, what is the effect on the community. >> thank you. and finally let me ask you a couple questions about security. we understand security for you is provided by a company called g4? >> that's one of the units. olive group is the current

company that is helping us out. >> with so you no longer use g4? >> they elected that they were going to retract because of the presidential decree that was going on, so they were practically pulling out at the time. so we went in with a different company. >> so you're not -- just to be clear, you're not using g4. >> i'll have to double check. my understanding is, no, but i will confirm that and let the staff know. >> thank you. >> mr. mccarron, you mentioned earthquakes in china and pakistan. where in pakistan? >> there were, it was major earthquake in pakistan in the mid 2000s. >> but where? that's a pretty big country. >> exactly. but i can't tell you -- it was very well broadcast. >> was it close to the afghan border? >> i'm sorry, i can't say exactly where. >> what about china? was that close to the afghan

border? >> no. but the seismic conditions in afghanistan are such that the risk of earthquake is similar or higher. >> when was the last earthquake in be kabul? i'm just curious. >> the last earthquake in kabul that i felt personally was just last year. but not, of course, wasn't substantial. but there's regular tremors in afghanistan -- >> that's finement but when you go to california standards, it's much more than tremors, right? >> yes, of course. but afghanistan is a severe seismic area. >> kabul? >> and kabul included. kabul has had a devastating earthquake in its history. >> when was that? >> it was in the last century where it destroyed the famous walls of kabul. >> that's a while ago. okay. question for several of you gentlemen. you all said that security was the biggest concern you have.

mr. mckelvey, do you have any firm-fixed price contracts right now? >> yes, we do. >> why'd you bid on them? >> we've gotten better at doing work in afghanistan, and we will bid on a contract when we determine that the schedule is achievable and it's within the fence, so to speak, it's within the purview of the military. >> outside the fence -- >> outside the fence we would not. >> okay. >> we have one firm-fixed price project that is within the fence, inside the fence, and the reason because -- >> right. it's in the fence. but you have nothing else? >> not in afghanistan. >> and you as well? >> correct. >> and you, mr. mccarron? all right. question on -- >> mr. mccarron, we couldn't hear your answer. >> he said no. >> thank you. >> the electrical equipment that you actually install, was that t to the u.s. or to the british standard, mr. van dyke? >> it depends on the

circumstances, primarily u.s. standard. >> can you explain to me why since the afghans use british standard? when we leaf -- >> well, i think we have made sure the interfaces work. >> the interfaces worksome. >> right. >> but if afghans -- but that makes it more costly. obviously, anyone who's ever used a shaver in london knows an interface -- why are we doing that? is a.i.d. telling you to do that? >> no, they're not, and be i actually have to retract what i said because i i know, for example, on the piping for the kabul power plant, we used dim piping. so i need to probably check the specifics, but i don't think we're doing u.s. standards overall. >> uh-huh. primarily british standards? >> i think primarily, yes. >> okay. mr. mccarron? >> i think the criteria is international standards and that it'll take the most appropriate or the best for the country. generally, the international community and the afghan government require international standards.

they don't want us to put in any old thing. >> those tend to be not one concern. [inaudible] >> definitely not. >> the american. how about you, mr. mckelveysome. >> the work that we do is initially done to the international building code and certain times we might be asked to do it to the nec code in the united states. >> i how often is certain timesesome. >> well, the preponderance of the work we've done is to the international building code. on some of our work recently at camp phoenix we were asked to recertify the wiring to nec twows -- 2000 standards. >> not to my knowledge. >> we also in the same way we are required to follow the international building code. so it's practically the same, the same answer. and, yes, we are checking

against, say, the u.s. standards on all of our facilities. >> okay. mr. mckelvey, i'm going to pick up on something that my colleague, commissioner henke, stated with respect to a different company. did i hear you correctly, you've got blue hackles as a subsome. subsome -- sub? >> that's correct. >> well, they, apparently, have employed 385 unregistered weapons, et, etc., and they're at camp eggers which is pretty easy to figure out having been there what they're up to. how come they're still your subs? >> this has come to our knowledge just recently -- >> you mean because of the article in "the washington post"? >> that's correct. >> with you mean to say you didn't notice a thing until you picked up "the washington post"? >> well, what i can say is the blue hackle has done a good job for us, and we use them specifically in kabul. and these allegations that you're referring to are

something that our security brief is investigating right now. >> so you had absolutely no ink inkling this was going on even though kabul was as safe as anywhere in the country and camp camp -- how often do you guys run a check on these folks? >> we have security people that are in the theater with corporate security who are currently, you know, and continually involved with those contractors. so i'd have to get you more information in regard to if they found out before i heard about it personally. but chances are they've been on top of it way ahead of the press release. >> be okay. if they were on top of it, i'd certainly be interested and i'm sure my fellow commissioners would be in seeing whatever report was sent back giving you a heads up. because if this was going on, i'm kind of puzzled -- and maybe it's just me -- but i'm puzzled why you continue to retain them. >> well, we'll certainly evaluate that. >> okay.

last question. for each of you. in the past there have, clearly, been issues regarding house statements of -- how statements of work are defined by a.i.d. or your other clients. when you get an s.o.w. that's not clear, have you gone back to the u.s. government agency and said, look, this is not clear? be can you give me an instance of when you do that? i want to go through the line. mr. mckelvey, can you give me an instance after when you said this is just unworkable, and it's going to take longer, etc., etc. >> i'm certain that happens on a frequent basis because of the contingent environment. many of our projects are scoped before the full details are known, sometimes even a year to a year and a half before troops arrive at the location, for example. so we've come back, and we've, we can probably provide you many examples where we've asked clarifying questions on scopes of work as how many people, when

will those people be there, etc. and so forth, and in many causes the client -- cases the client cannot tell us that due to wartime strategies. >> and those circumstances you still sign on to the contract? >> we proceed, those are cost-plus contracts, and we proceed on -- >> then it's no-lose for you. the government, of course, has to explain why they're doing that, but that's not your problem. >> that's right. >> from our standpoint when we cannot get answers, we don't bid. we have never bid a project where the scope of work was not up to our, you know, level of -- >> in the last three years, how many projects did you walk away from? >> about a billion and a half maybe. >> oh. if you could give us any examples of that, that'd be helpful. >> sure. >> mr. van dyke? >> we typically, under our joint venture contract, have gotten requests for proposals, and we go pack and forth on declining what the projects are before we finally arrive at something. one other comment i'd like to make, there is an issue for contractors on cost-plus.

what you do is you agree to a given cost, and if you go over that cost, you don't get any more product. >> unless the government gives you new instruction. >> unless the government changes the work scope. >> which it always does? >> well, not always. >> how often does the government not change the work scope. what percent of the time, 10, 20, 30? >> sir, i don't have that off the top of my head. >> oh, give me a rough -- >> i have no idea. >> but it's frequent? infrequent? >> i can tell you that on the work scopes that we've had even when there have been time frame delays in getting the work done, we've held the cost. that's the best i can tell you. >> mr. mccarron, how about you? s.o.w.s, what do you do? >> well -- [inaudible] on all of our relationships with usaid, one example would be the ghazi school -- >> yeah. >> where initially usaid had a design competition for that school and then awarded the

winner. and then come to unops and during that initial phase we went pack to usaid and talked about solar efficiency and we changed the design in consultation with them. they came back to us and told us that we had to have disabled access, for instance, to american standards. and so that was incorporated. so it was to and fro in relation to developing the final design for the ghazi school. >> you said to american standards, how sensible are all these american standards in the afghan context? >> well, in the case of the one i'm referring to, the americans with disabilities act standard for the access ramp which resulted in the linkway between the buildings, the main school buildings. >> are there many americans in those schools? >> no. but there's kids in wheelchairs that need to be able --

>> americans with disabilities act, last time i checked, that was an american law. thank you. >> [inaudible] >> thank, mr. chairman. mr. van dyke, let's focus for a second with respect to the kandahar power initiative on the kandahar diesel plant that you're to build. your opening statement alluded indirectly to the fact that iap, another big construction firm, was awarded a $51 million contract, fixed-firm price, for the other power plant in the kandahar industrial park. and be you made, and it's entirely appropriate for you to make comparisons to show you are competitive in terms of what you

charge. but what i want to ask is were you so uniquely positioned to use the words, the justification for sole sourcing, so uniquely positioned that there couldn't have been competition by iap, the builder in the same industrial park of a power plant, and if there had been such competition, wouldn't your unsatisfactory past performance ratings have been evaluated? >> i think that all of our performance, past performance evaluations would have been rated, and there are a large number of them, many of them in the excellent and outstanding category. so i would hope they would look at all of them, number one. number two, it's for usaid to say if they could get another qualified client, or competitor, but i will tell you what i said before, we had done an extensive study of all the requirements defining -- >> thank you. thank you. i know, mr. van dyke. i was -- we'll take it that you're not -- we'll take it as

what was just asked and answered. ..

>> one to four, the first four, and five and six these separate. and then i said again, couldn't they potentially be separated? mr. thier, yes dear i said they could be separable. keep disagreed as to whether they should have been separated and so forth but we reached that point. what i want to ask, you must know, or i hope you know, the major breakdowns cost twice of that project. wouldn't be substation and the dam been at least out of the 255 million, 80 million, at least 89 in terms of cost breakdowns? >> i don't care the numbers in my head but my recollection is it was not that high. >> okay.

among other questions for the record can ask for the cost breakdowns? >> i think usaid needs to provide those, but let me talk to usaid about that. >> okay. now, i want to go to the issue of delay in your prior projects. not only because this has to do with how it would have been if kandahar power initiative had been competed, but even more fundamentally the kandahar project is urgent timewise, not like other projects, because general petraeus himself we were told by a.i.d. in the most direct way, general petraeus himself said he needs it as soon as possible, he's got a counterinsurgency to fight in kandahar province. that's the reason that we got from a.i.d. as to why they sole source it at why. the extreme urgency as part of a counterinsurgency strategy and they allude to that end the jna.

looking at a kabul power plant seems to me that we have comments by a.i.d. i.t. and sigar. i'm reading from sigar, not years ago but in january of 2010. they said usaid afghanistan contended it was unable to assist the contractor in the the the forward because the contractor did not convey critical information to the mission promptly enough to be useful. they say the nation any a.i.d., and ted had it known all the problems contract was experiencing, it could have intervened sooner to help solve the problems? >> so we have sigar on this. we had a.i.d. ig on this come and we're finally a.i.d. itself when it the view i rating as i previously said on business

relations from a kabul power plant. the contractor failed to maintain proper business relations with usaid, for instance, the contractor has not notified usaid of construction delays and other critical issues in a timely manner so that corrective action could be taken to expedite performance. do you acknowledge that this same critique of you has been put forth that delay critique because you didn't want to be the bearer of bad news for usaid, by the a.i.d. a.i.d., sigar and a.i.d. itself speak was what i would call your attention to, commissioner tiefer, and the subsequent work we've done, you have comments from this latest evaluation of us, we changed what we did. we stepped up what we did. we got power to couple earlier than anyone thought in the northeast, and we finished the plan. i think that speaks for itself. speemac looking down the road, there's one piece at one time

had been considered for the kandahar power initiative, but was automated, no fault of anybody. that was to have a transmission line built in that period of time, the media period of time between the kajaki dam and helmand. the user community which is around the city of kandahar. and my understanding is that a.i.d. would have liked to have had such transmission in areas as security is so poor in area you want to put on anybody to try to build a transmission line at this time. so that means they're going to have to compete it out in the future, rather they will have to award it out in the future. i'm, this is a practical matter. rtu positions since you're going to be doing the work at the helmand and other transmission line and you're going to be doing the work at the kandahar

and of the line, haven't you positioned yourself so that you basically have a lock when if i come to award the transition? >> commissioner tiefer, i think that's a position for usaid but i would say they have competition on the street right now for energy and water. i think they plan to award at least five specified. so i suspect there will be competition speemac thank you mr. guerre. doctors implant has a question speemac -- doctors that -- that's fundamentally different if you are doing something very, very different from what you were doing in kandahar, correct? you were advising the government. you weren't building -- >> what we had to do was use knowledge of how already built systems work. that's sometimes more difficult to our engineers had to be very creative internet how to use all of these facilities that have been built by a bunch of

different donors that were not to the standards that you talk about where they're all the same standard. and our creative engineers did figure out how to do that. frankly, it's easier to design and all yourself and don't have to figure how do you do something that's already in place. >> did you help draft the agreements based on that knowledge? >> would talk about two different things. getting the power down -- >> i'm not asking about -- >> we advise them on how? we were consultants on the power purchase agreements. we told people how to integrate the transmission lines on moving the power down. as i told you, that's a more difficult project than just designing and building it yourself. >> thanks. >> mr. henke. >> mr. van dyke, your statement mentions very clearly april 2010 your guesthouse in kandahar was

described by an explosive device. and deny to be exactly injured and all other expatriates from the area. so expats had to bug out and leave. >> yes. >> can you tell us about the incident? >> what happened is been laden with explosives made it past the personal line of defense and the security that was there. they made it to the gate of the quarters, and at that point they succeeded in detonating the van. and i haven't shown you the pictures. >> can you show us the picture for the record, please? >> brian, do you have the picture? i don't think you can see from there but that gives you some idea of the explosion. so there were five people in the house at the time, three were injured. to were not. one of them was severely injured and will probably never return to work. so we evacuated them first to

the base, the military base, and then by helicopter to kandahar -- stephen, the kabul and then finally for the injured parties out to dubai. >> who was providing security? >> i believe blue hackle. that was not our security by the way. it was a shared compound and i would have to check it was providing it at the time speak of shared by yourself and -- >> other subcontractors. and it was their security contractor, not ours. i would have to double check but i will if you like. >> mr. mckelvy communicate clear pecking order. use the ex-pat private streak of us have proven to be much more reliable than afghan own private security companies. is that correct? >> yes, that's correct. >> in the picking order where would you put afghan security forces, meaning afghan police and afghan soldiers? where would you put afghan government security? >> i'm not sure that i could

categorize them specifically. we just don't know that much about afghan security forces. so internally we are able to see demonstrated results in a private security firms, ex-pat privacy breeder's cup and we have seen a demonstrated track record. >> mr. mouzannar, any use on afghan security forces? >> we believe that obviously at some point it would be a good idea to turn over the security to the afghans, but at the moment i repeat that they are not ready yet. >> so your view is they are current capability, they are not viable? >> and also come and no recourse is for us to vet afghan elements. >> you can vet your subs but you cannot the afghan government? >> that's correct. >> mr. van dyke? >> we're working through how we will provide security. i can't tell you all the answers right now. >> how do you afghan city forces? >> i think everybody agrees that

the minister does not have the level of people to do it right now so the question is how do we get there. >> so three companies here have private security, mr. mccarron, you're different in that you have high choice, by deliberate choice for a reason i would like you to explain, you use afghan security forces and you say we have found that, the a n. s. f. can be effective. why did you choose afghan security, not private security? >> that is correct. we've had success with using minister of interior, especially over the years. we found of course it's not always easy. we have to maintain liaison with the ministry. and with the particular forces we call it -- they are dedicated to us. so we can establish a report with that team to travel with all of our missions.

it has been effective. but i would like to add i think compared to my colleagues here at the table, we are probably in order of magnitude smaller than the projects they are administering. >> but why do you choose, why is it consistent in your view to choose government security oversight? >> i think it is certainly meets with the cited objectives of the afghan government to be responsible for their own security. it's been developed over the years, and with the relationship with the afghan government and that most of the work we do is through the ministry of finance or the relevant line ministries looking out for public works or whatever. and so we have a reason to change that. -- we have no reason to change that. we don't sit back and let it happen. it does require a lot of work. we have to have our own in house specialty people, and also rely

on our close coordination with the united nations department of safety and security in afghanistan and their context to make sure what we've got is an effective resource. >> are you any different threat environment? is what you are working on is a low threat and that makes it different? >> i don't believe so. we are operating throughout afghanistan. we are building roads in kandahar. >> all of your activities with afghan national security force, you found them to be suitable. if you're they're building a school or building a road to get the afghan government more capability, you find at least logically consistent that you want to use afghan security forces after curtis david capability? >> we to. >> let me make an observation. it seems to me that we're asking companies, organizations to go outside the wire, step outside of our, outside the fence and go into a war zone.

we call it a counterinsurgency. we call it a contingency. the bottom line is it's a war zone. so we are asking noncombatants like yourselves and your employees and your subcontractors, step outside and go into this war zone and build something in an environment where someone else wants to blow it up or give you. i think that's about as simply as i can conceive of it. in that environment we are bringing to bear an element of national power in afghanistan, private industry, private expertise to bring things about that we want to have. in that environment where we are having, i'll be euphemistic to say we having challenges with private security and having challenges with afghan security, would you prefer security to be provided by u.s. or coalition troops? they been referred to before this commission as the gold standard for security. all else being equal wouldn't you rather, would you prefer doing your work guarded by u.s.

troops, mr. mckelvy? >> by and large that is the case on many of our projects where the project is on site and we are totally encircled by u.s. forces inside the wire. >> tell me about outside the wire spee-2 if it could be provided with the resources that be preferable speak out okay. >> depending again on the type of projects, sometimes our way of engaging are doing business is to keep a low profile. obvious in some cases our business model is we use 95% afghan workers. we don't want to get to the point where we change that. but yet at the same time he should have a reliable security system there that we could vet. >> would you prefer u.s. troops? >> not necessarily. we need to keep a low profile. >> mr. van dyke? >> it's a complex and went to work with people in kandahar to generate power. we have to work with the utility

to build the things are going to build we have to interact with them. there's some thought that having the u.s. military presence makes things a higher profile for attack. so what we need to think through come and we're working through it today, we do not have the answer is how we go about doing that. you know, sometimes in all this discussion we lose sight of the human element in all these things. and i mentioned we have a lot of dedicated people working on this. i have one person who told me, i came to thank her for helping get that power down from the north and she looked straight at me and she said you don't need to thank me. i came to this company to make a difference and that projects makes a difference speak up would you provide -- rather have u.s. security? >> that's a weird thinking through now. >> it is a very complex situation. sometimes the insurgent motivation is not just necessary there to kill people or blow things up.

so you'll have to analyze each on a case-by-case basis. as i mentioned in my statement about the need for social inclusion, the engagement of the local community and the whole effort, it has been a deterioration in afghan society and a lot of the criminal taliban, are not respecting the elders and things, that's seen a drop in security as well. effective engagement with the team unity is the key. it's not always good to have a guy with a shiny is a gun standing there. >> uscg might not support that? >> exactly. >> when i'm done with my questions we're going to give you each time to just make some closing comments and then we will adjourn. security is a huge issue. it's one of the reasons why evidently you want a cost-plus when you're outside rather than inside. a major factor.

is a lack of the letter afghans an issue that presents a unique challenge? it said that 15% are the direct. there are estimates of smaller into its fifth grade level, really not that high. so does little see play into part of the challenge of doing your work? mr. mckelvy? >> its early challenge when you get into craft labor on construction projects, when you have workers that cannot speak or communicate -- >> so the answer is yes? >> yes. >> mr. mouzannar? >> yes. >> it is an issue and it can be overcome. >> by what, teaching and to reach? >> trade people at tarakhil, we use english and graphics. >> but it presents a challenge of? >> it is a challenge but it can be overcome. >> i was a education is of the key areas, otherwise it's too easy to face with $60 a month

and they carry an ak-47 for the taliban. >> isn't one of the challenges of getting subs that you end up hiring an outfit that has some later see to it, and there are very few of them. and the challenge that we saw in afghanistan was that you had 85% of the population that thinks that 15% get some real special advantages because they have passionate they are literate. is that an issue as well? in other words, that you in a just focusing on the few rather than the vast majority of afghans. who would like to answer that question? >> if i can mention, i think the biggest thing here, and it's in my written statement, is obviously the afghan first policy is an important one. and i think companies like ourselves in essence what we're doing out there is to try to bring the level of expertise and

technology into the country. what comes in the way is there are a lot of almost one size fits all type of an approach procurement when you have very tight schedule, very competitive environment. there are no specific projects that are designed solely for the purpose of training the afghan workforce. give us some projects where maybe the schedule is a bit more relaxed. >> part of the cost incorporates helping to educate. >> exactly. that's the workforce that later on they will come forward. >> mr. dyke on i'm understanding that's what you're trying to do in your area. the advantage of fixed-price is we know what it's going to cost. the advantage of a variable price is that you don't know what it's going to cost so we basically have to go with it. but the dissident with a fixed cost is if you don't know your cost, is it likely you're just

going to have to bid higher just to leave a margin because you can't be as resized so you'll bid in favor of making sure you can cover yourself if the costs go higher? the question is, if you have to bid on a fixed price for something that you're not certain about, isn't likely that it is going to cost the government more money? i will start with you, transpo transport. >> if it is uncertain which would drive you as you say to jack the lump sum or the fixed-price up to cover their inconsistencies, then in the competitive bid process you're probably not get the project anyway. for us when the circumstances -- >> is that a yes? is your answer yes, it will be higher cost? >> if it is uncertain, yes. >> and i'm assuming all of you would agree with that. i'm wrestling with how you have a variable price contract with fixed subs. what is the incentive for the sub to come in low enough for

you to take a low fixed price, mr. van dyke? >> we are focused on can the sub perform the work. >> that's not what i asked. >> i'm sorry. >> let me ask someone else. mr. mccarroll? >> yes. >> if you are a variable price and you are getting fixed-price, what is the incentive and how can the government be certain that you will get, pick a low fixed price? why wouldn't you just accept pretty much whatever you can't? >> the incentive for us is the next project. that's as basic as it comes. when the government selects on the next type of a project, especially on the best value, this is what it takes into consideration what we have -- >> you're saying though it's not that project but the next one. and that seems reasonable, but what is the markup that you get come each of you, you get from a sub? in other words, what do you charge when he said comes in with a fixed-price, what do you add to it, mr. mckelvy?

>> i can't give you a specific number. anywhere from five to 10%, 12%, 15%. it depends on the scope of the work. >> do you get as high as 20? >> no. >> this range seems to be in line with the industry. >> 15%? closer to 15 than five? >> not really but again this is on a case-by-case basis speak of this is not a difficult question. hold on. i'm going to give myself more time if i need, because i need a good answer here. when you come in, what do you add to the sub when you give it to the government? is at five, 10, 15%? we're going to go back to the government. you're all under oath. this is not again. i know you know that. i want a better answer speaker we typically conduct a very total risk management causes. we price the different uncertainties on each, the

technical security, et cetera. five to 15% would be the range. >> five to 10% which includes costs. >> mr. mccarron? >> 7% plus direct costs on project valued. but that 7% can go up and down according to the risk profile as well. >> mr. mccarron, i view you as usaid and the human. in other words, to me, and this is not a criticism, maybe -- i'm passing judgment that what you do. but basically you're giving money from the u.s. government. it's final, i don't mean in a negative way but it is passed to usaid, but a messenger doing just what you just what usaid is, and i'm making the assumption that they are using you because they'll have the resources to do it themselves and so they're turning to you, is that an accurate way to think of you?

>> that would be one scenario. we have at various times had even larger projects than the current relationship with usaid, and kabul for instance. what we focus on implementation. as i said before in a statement, we implement, provide the professional services to assure the project's biggest you provide professional services that usaid does not have. mr. mccarron, i realize you don't want to criticize usaid. me on this panel recognize that we basically for usaid -- tore usaid apart so they have become pretty much a contracting organization without the expertise. so i just want to know from the testimony, you have people within your staff that can do a lot of the critique and oversight of projects, is that your common cause?

>> yes. we are architects, engineers, a whole suite of professionals needed to implement. >> any class question? gentlemen, again, for the umpteenth time, -- i'm sorry. okay. again, for the umpteenth time we thank you are coming back so graciously, and we do appreciate it. and now we do want to leave you the opportunity to make any final statement if you would like to say. >> i would like to thank the commission for this opportunity for us to speak this morning and to interact on the important projects in afghanistan. we would like to thank you for the privilege, the u.s. government, for the privilege of supporting the u.s. department of defense. these are the most important projects for. >> translator: . we've been evolving over 60 projects since 2004 and look to continue to do this. i believe that would be continuing challenges in the continued environment between

cost, quad and schedule with respect to firm fixed price contract inclination with the afghan first initiative. and so perhaps through consistent quality standards and design standards and construction standards from inception through operations and maintenance, we will seek improvement that we will see. >> thank you. >> thank you very much for the opportunity to appear in front of the commission. this is an in porton exercise for us because the only way we can share lessons learned is through these types of conversations, and we're hopeful with your work a lot of these obstacles that we face on a day-to-day basis, will go away. one last thing i would like to mention is the fact that it's very easy to look at bat projects, and then you see them on a daily basis almost in the media, and other venues. i just wanted to point out that work doesn't happen by accident,

and there are literally thousands of very good engineers and construction specials and support staff that work almost around the clock to make projects like that happen in a very challenging environment. so i like to urge you to also look at the success stories and be able to bring these out into the open. and thank you very much. >> thank you. >> chairman shays and commissioners, we greatly appreciate the chance to sit here before this commission and set some of the facts straight on our projects. a couple of things in my mind, wind, doubling, more than doubling the power brought into afghanistan either through local generation or from outside in four years is a tremendous accomplishment. i think it's important to think of it in human terms. one of our female engineers asked a mother in afghanistan while she was there was important to you about electricity. and her answer was it enables me to keep scorpions away from my baby at night. one of our workers on the four

to five to work with a smile on his face when they. someone asked him why he was looking so happy and he said because we had powers last night for four hours. we could pump water, bathe and wash our clothes. doubling the power into the country means a lot of keeping scorpions away in clean clothes and clean bodies. and i think it's important that we remember that. as i told you, the biggest single challenge we face is security. our company is very committed to going forward with the projects we have, subject to keeping our people say. we thank you very much for the opportunity to appear. >> thank you. >> chairman shays, members of the commission on also like to thank you for the opportunity to appear today and i would also like to show you that if at anytime you require any further information, i would be very pleased to assist. thank you. >> thank you all very much. we are going close this hearing. thank you. thank you, guys.

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>> we are focus >> my concern though be an agent for change. whether i be president of egypt is not is immaterial to me. that is not the issue. the issue is for people to have the right who ever they think is the right person for that job speak of that april 2010 conversation. now nearly a year later egyptian

president mubarak has stepped down as egypt undergoes a major change in government. see how it happened on the c-span video library, all searchable on your computer anytime. >> with me on the panel -- >> the u.s. economy and the impact of china. public television's judy woodruff spoke to him and his half our discussion hosted by atlantic magazine. >> and ken lieberthal who's with the brookings institution is the head of the china senate. we're going to start by listening to john who will set up our first question which will be about china. >> i think two of the trends we're likely to see in the years to come will be first and foremost greater of sports -- exports. you see a currency against which

our people are better able to compete. and you will see more of demand for our products, which will be i think hope to small and medium-size enterprise. but today aren't just thinking about where china is going to have that might factor into the business plan. i think this will be a significant transformation in our export sector in the years ahead. second, will be chinese investments when you're in the united states. we've seen that wave after wave as we go back to european countries investing here in the united states one urges ago, 200 years ago. and more recently japan, 20 to 25 years ago. and i think the next wave will be chinese investment. they have invested just under $3 billion, probably $2.7 billion to date, mostly smaller portfolio investments here in the united states but i think you will see because of their cash position a lot more in the way of investment here,

that will likely be somewhat attractive to governors and mayors. i think that is a trend that will have positive implications for our nation speak out okay. can, let me start with you. respond to that. i thought that was a slightly sort of unusual, unused optimistic take on china, but chinese economy means for the u.s. presenting it as an opportunity for u.s. exporters rather than as a threat to u.s. companies. what's your own take on that? is that a valid way of looking at china? are you more pessimistic? >> i said i think ambassador has it exactly right. what most americans don't appreciate is that china has been america's most rapidly growing export market for the last seven or eight years. it is i think it's our second or

-- i guess a third largest export market over all once you eliminate canada and mexico come you get china. americans can look forward i think if we get the right linkages me. the chinese are looking to do a lot of infrastructure investment in the united states, especially in our clean infrastructure, high-speed rail, high-efficiency coal-fired power plants, a whole series of big ticket items. as the ambassador said that a lot of dash. we need to get the linkages set up right so those investments can so effectively. >> but what about the trade policy dimension of this? many u.s. exporters complain that doing this in china is not an easy thing to do. >> investing in china is sometimes worthwhile and sometimes very difficult. i think the chinese have actually in the last two years have become more protectionist. so that's something we have to work very hard on. they should play by the same rules everyone else does. there's another story here which

is the exchange rate issue, and the chinese exchange rate in comparison with the u.s. dollar is undervalued. there's a question about that. the question is what would happen if they revalued it by 15 or 20%, roughly what most would bring up to where it should be. the reality is probably nothing measurable if the u.s.-china trade balance. that would have a tremendous positive effect on global ballots is that it would be great for brazil and many others. but in the u.s.-china trade balance for a lot of reasons it would have a minuscule if any of that. so i think that a lot of our media treatment that sees china as an economic threat rather than opportunity, and sees the exchange rate issue as the number one issue that we need to address to get our trade balance right, really frankly don't capture what's going on out there speak of that's very interesting.

i'm a little surprised that you, ken, says the exchange rate factor is not front and center on the trade balance issue. you're a finance specialist. how does that strike you? >> i was going to react in a couple of ways. one is i know that if you freed up the chinese exchange rate from a trade perspective, we have to appreciate. i also know that if you opened up chinese capital markets and gave their citizens the right to move offshore, i think the currency could very well go the other way. we are in the process of bringing the chinese into the global trading system. that is an accomplishment on the order of rebuilding europe after world war ii. some think we should sweat the small things, bilateral exchange rates, bilateral trade flows. when the big things are at stake. the chinese are managing large,

rural, urban migration. they have problems -- they don't have capital markets. they don't have money markets. trade is only part of the picture. i think it is overemphasized. >> brian, what's your take on this? the administration sometimes is accused of being too aggressive on the exchange rate. for the reason that vincent indicated it but i think more often is being criticized been too soft and refusing to put its foot down on the exchange rate. i'm hearing the exchange rate link to the trade balance is not bad, it's not that important anyway. speak of you are certainly right that we're criticizing both sides of that issue and i sort anticipate that will continue going forward. and specifically with respect exchange rate policy, the administrator's perspective, secretary geithner speaks on the exchange rate and i won't comment very specifically on the. what i would just more generally is i do think as we look at

china and rebalancing the global economy, i do think there are opportunities and challenges in his face. i think from our perspective we just had a successful visit from president hu here, but we had an opportunity to engage with u.s. companies both on the opportunities, and we saw a set of deals that were agreed to that will help u.s. countries expand in china, create jobs here in the united states but also we had an open discussion about the challenges companies are having a great the chinese market, some of the challenges that both ken and vince talked about. i think that from the perspective of the administration, when we think about an overall economic strategy, it's about how can we lay the foundation here in the united states to have a competitive economy over the long-term to attract investment in areas like high-speed rail and others that investor husband talk about. and also companies more effectively compete in global

markets. in china but also across the world. so some of the things that depress as highlighted in a state of the union around upgrading our infrastructure here in the united states were forming -- reform the corporate tax code to bring it in line with some of our global counterparts, those are part of an overall strategy to try to please any more competitive position going forward spee-2 if i could add a word to that. the most fundamental shaper of u.s.-china relations over the next decade, outside of history security issues, north korea and whether that collapse is, set that aside, the most fundamental set of forces shaping that relationship will be how successful is china in its effort to restructure its domestic economy, and is trying to restructure it on a major way. exactly how successful is the united states in restructuring its domestic economy? both of us over the coming five years have to do a tremendous

amount. what each of us would like to do, what the president would like to you and what hu jintao would like you to make d.c. comics work much were effectively together, reduce a lot of the current frictions if they work. so each of us has a tremendous interest and the other side success of restructuring their domestic economy. to the extent that each side falls short we will have more problems. >> let me take a parochial financial market perspective on this. without an eight minute discussion in china no one has said reserves. but the fact is insurance of the adjustments coming forward, the chinese because of their strategy of export led growth, have to buy large quantities of u.s. the government securities. we are not in the of creating lots of u.s. government securities. as china makes its adjustment in terms of exchange rate in opening up its own capital markets, we had better be on a glide path that makes us less reliant on them, because they

will not be there to by our government debt in the way they are now. >> their service macro adjustment issue which i would like to come back to. let's give it away from china here to brian, if i can come back to youcan't imagine the present state of union speech which was principally on economic policy, on jobs, innovation and so forth that he covered an amazingly wide agenda of issues and proposals. and i would be traced to know what your own sense of priorities, you know, on this list might be. i mean, you can't do everything. and effect it's going to be difficult for president obama to do anything for the next two years with the present climate of forces in congress. if you had to set priorities and say, these are the two or three key things where we can make progress and must make progress, what would they be? >> i think what you heard from the president in the state of

the union was an identification of three principal areas. he talked about out educating come out innovating, outbuilding the rest of the world. and implicit in that is a set of policies in each one of those areas that we think could help lay the foundation for stronger, more sustainable u.s. growth. so if you take each of them in turn i think what's important about them is both that they are central to long-term economic growth, to maintain u.s. productivity growth and growth in wages here in the united states. but also that there are opportunities for actual bipartisan movement on each of them. i think that what should be heartening is if you look at the tax deal that we agreed to at the end of december, there were a lot of people who thought it was impossible. there was an opportunity and were able to come together. notwithstanding the challenges that are no doubt there, i think we do have an opportunity to move forward together. just very quickly in each area, on education it is about

reforming our system to catch up. we have lost ground. we are now ninth in the world in this year of our workers of college education. that's unacceptable and we know that there are a set of steps that we can take to get ourselves back on track to advance the class and i think we can do that. on innovation, the president talked a lot about the importance of investing in basic research. and while we do put ourselves on an overall path, to reduce the growth of debt and reduce our deficit, we still need to make the core investments in things like basic research from and things like having a national wireless network that can help unleash innovations in areas like health information technology. and in the last one is outbuilding and that is about upgrading our basic infrastructure. we have an infrastructure in the

united states that is bill for 20 century economy. we know what we need to do. we know what those investments are. you heard the vice president yesterday talk about investing in high-speed rail, which is a big opportunity for this country. in terms of prioritization i think those are the areas. >> what was your reaction to that, that list of objectives and policies in the state of the union? doesn't make sense to you? >> to take a parochial financial market interest, i was were that out educating, out innovating would lead to another out which is out of borrowing. and the plain fact is we have an intricate opaque tax system. which is associated a lot with avoidance. with corporate tax rates that are on the high end of the oecd. we've got to think about ways to generate more revenue but

without the deficiency drives currently associated with the current sacking superstructure of our government. and so i think that the most reassuring thing would be to understand on the spending side, you bought to return on capital and you get a return from infrastructure, from education and the like that but as a part of it is to understand that there's a dead weight cost of raising money to do those things. we have to balance the return on our spending with the economic inefficiencies. we pull down the economy as a consequence of from the way we fund those. >> can't i come back -- the president did talk about borrowing to keep didn't talk about we need to talk about debt and done. he was i felt a little perfunctory on the tax reform. is a brief reference to it, and let me say two things about

that. first, i think with respect to spinney, i think what the president did layout was an economically which was about investing in areas of the economy where you can get a higher return. ending aggressive about cutting where you can. and he proposed to freeze the discretion spending outside of security for five years which is a disappointing device to do exactly that. if you're going to make a choice to invest in an area like education or basic research where you can get a high return you have to cut in other areas. and because you're freezing the economy grows, you i ask you going to reduce spending over a decade about $400 billion. so i think we have a theory on how to constrain the size of government, but it has to be focus on how to make the u.s. competitive and it has to be about jobs and wages for american workers. >> i was in corporate tax reform

the president and administration of very serious about trying to move forward and do something our corporate tax reform. what you heard from the president both in the state of the union and yesterday in at the chamber of commerce was a commitment to take on some of the inefficiencies that vincent talk about. we have a system with a statutory rate is at the height oecd countries, but revenue collection is at the middle of the bottom. and that is a function of the fact that our corporate tax system isn't working. speak at the same is the true with the individual tax by the way. that also suffers from relatively high rates and relatively low revenue collection. >> and no question that there is opportunity for reform there, too big and i think what you're the president say in the state of union was we need to be vigorous about cutting spending whatever it is, whether discretionary spending or our spending our health care system.

we -- i think there's something you see the administration focus on this year. >> so the framing of the issue that vincent proposes, which is to think about this squarely on this agenda. you agree with that? curbing public borrowing isn't aspect of assuring sound, long-term prospects? >> absolutely. there's a question that my former boss, larry summers uses a the greatest nation in the country can't be the greatest borrower forever. and it is absolutely part of our long-term competitiveness to be on a sustainable fiscal trajectory. but at the same time it is mindless to try to reduce that in the immediate term and cut off the legs of an economic recovery. because we do know that the pace of economic growth and the capacity to constrain our fiscal

problems are interrelated. and so you need to have a strategy where you can do both, and i think that what the present was outlining was exactly that. >> vince, i want to come back to you and ask a question about the legacy of the great recession. i mean, we are in a recovery mode at the moment and it's a halting recovery, a bit disappointing on the jobsite. and in many ways this was to be expected because of the nature of the recession, the severity, financial crunch we are going to. i wonder if i could ask and then the other members of the panel as well to talk about the legacy of the recession and whether we are dealing with this adequately. in other words, what's the unfinished business? especially in finance as we move forward. we're not going to get back to rapid growth until we dealt with these loose ends but what do you think of this? >> so the bad news we are about on track.

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