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. ited a

the afghan system but they were cited as a major offender. they employed 1358 guards. they kept 27 legal bulletproofsd vehicles and use embassy vehicles for off-base not diplomatic purposes.nondmati how did your system of qualityst assurance catch that, or did yoh catch that? >> actually it did. it in essence the first we came across the information we immediately contacted their senior management >> 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 >> this is the re-evaluation we received since the one you have. >> the you have anything else? >> i am sure we have thousands of e-mails to provide reports on what we are doing. >> would you be willing to make a representative sample available to us? >> i can talk to your staff about what would be representative. >> they have any internal

audits? have you done any internal audits over the course of the term of the kabul plant? >> not specifically the kabul plant. we do internal audits all time. >> do they cover the kabul plant? >> no. >> you have been no internal assessment? >> no. >> finally, i was interested in your agreement that preference for black & veatch would be cost plus contracts but you say you use fixed price contract for your subcontract. what difference? >> the difference is in the works coat. we are asked to figure out how to get distribution, transmission and dollar generation. >> if the government still work with you preferred fixed-price -- fixed-price contract? >> we laid out some requirements

which is known conditions, adequately known condition is something we would consider. >> something you would consider but not pledge to? >> something we would consider. >> i have told you the biggest problem we face is security in afghanistan. that is an issue that has to be addressed. >> both of you in your testimony, in your written and oral testimony, we laid out some common sense claims to make life of 4 contractors, and be sensible things like making sure the ordnance is removed before the end, like access to topographical reports, taking proud -- cultural practice into consideration. your staff has raised these issues with the appropriate people in the government? why do we continue falling in line of the chairman mckelvy questions, why continue to do this? >> there has been improvement over time when you draw the

distinction between when we started doing work in afghanistan there has been a great improvement since then. there's still room for improvement with respect to consistency of standards we are asked to build to and design to across the life cycle of the project. there has been measurable improvement. >> i agree with that. one thing unlike to that is these types of common-sense measures happen more and more on framework contracts that agency would look and interact with contractors. some of the issues -- this is where there are contracts that are procured outside, a special be some projects that come up as mission critical where there is no time to really conduct any of these types of analyses and the temptation would be to the just get the out. this is something that hopefully the commission and others would

look into, what are reasons sinces where projects were just let out on a lump-sum without all of the common sense issues and also the linkage between these actions, the way it affects the supply chain and subcontractors as if these things happen and contractors fail, was the effect on the overall contracting community. >> let me ask a couple questions about security. we understand it was provided by a company called gee 4? >> that was one of the units. >> you no longer use them? >> they elected then 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 are not using gee 4?

>> my understanding is no but i will confirm that and let staff no. >> thank you. >> you mentioned there have been earthquakes in china and pakistan. where in pakistan? >> a major earthquake in pakistan in the mid 2,000s. >> but where? a pretty big country. >> was will broadcast around the world. >> the afghan border? >> i can't say exactly where. >> what about china? was that close to the border? >> no but seismic conditions in afghanistan were such that the risk of earthquake is similar or higher. >> one was the lesser earthquake in kabul? >> the last earthquake and kabul and i felt personally was just last year. it wasn't substantial.

regular tremors in afghanistan -- >> that is fine but when you go to california is much more -- >> of course. afghanistan is a severe seismic area. >> kabul? >> kabul included. kabul had a devastating earthquake in its history. >> one was that? >> in the last century. destroyed the famous walls of kabul. >> okay. question for several of the gentlemen. you said security was the biggest concern you have. mr. mckelvy, they you have any contracts right now? why did you bid on them? >> over time we have gotten better at doing work in afghanistan and we will bid on a fixed-price contract when the scope as well defined and we determined to schedule this achievable and it is within the fence, in the purview of the military. >> outside the fence?

>> outside the fence. >> mr. mouzannar? >> we have one fixed-price project within the fence. the reason, because of the fence. >> but nothing outside. >> not in afghanistan. >> and you as well? >> correct. question on -- >> we couldn't hear your answer, mr. mccarron. >> no. >> the electrical equipment that you actually installed. was that to the u.s. or british standard? >> depends on circumstances. >> explain why the afghan news british standard when we leave -- >> we have made sure that it works. >> the interface -- >> right. >> that makes it more costly. anyone who has ever used it

knows interfaces -- well -- >> while we doing that? is usaid telling you to do that? >> no. >> for the piping we used thin pipe. we need to check the specifics but we are not doing standards overall. >> primarily british standards? >> primarily british. >> the criteria of for usa id is international standards and affect the most appropriate or best for the country. the afghan government require international standards. they want us to put in anything. >> it is not one 10 of that. >> definitely. >> what about you, mr mckelvy? >> the work we do is initially done to international building code and certain times in subsequent review we might be

asked to do to the united states code so there is -- >> is there a certain time? >> providers of the work we have done is international building code and some work in phoenix, task force power and subsequent review. note to recertified the wiring to says those standards. >> have they been asked for anything that is handed over to the afghans? >> not to my knowledge. >> we also in the same way we are required to follow the international building code so to the same answer and we are checking against the u.s. standards on all of our facilities. >> mr. mckelvy, i'm going to pick up on something my colleague stated with respect to another company. did i hear you correctly? that you have --

>> that is correct. >> they are alleged to have employed 1257 more guards than permitted, of 385 unregistered weapons and they are at camp edgar's which is pretty easy to figure out having been there with their of 2. >> this has come to our knowledge recently. >> we have had -- >> you mean to say you didn't notice a thing until you picked up the washington post? >> the blue hackle has done a good job for us. our people have been saved and we use them specifically in kabul and these allegations you are referring to are some in their security group is investigating right now. >> you had no inkling that this was going on even though kabul is as safe as anywhere in the country and camp edgar's is as safe as anywhere in kabul and you had not the slightest inkling -- how often do you run a check on these? >> we have security people in

the theater with corporate security who are currently and continually involved with those contractors so i would have to get you more information with regard if they found out before i heard about it personally but chances are they had been on top and way ahead of the press release. >> if they were on top and ahead of would be interested to share my fellow commissioners in seeing whatever report was being sent back giving your heads up because if this was going on a i am kind of puzzled why you continue to retain them. >> we will evaluate that. >> last question for each of you. in the past there have clearly been issues regarding how statements of work are defined by usaid or other clients. when you get and as a w. that is not clear have you gone back to

the u.s. government agency and said look, this is not clear, give me an instance of when you did that. i want to go through the line. give me an instance when you got a vague as a w. and said this is unworkable and will cost more money and will take longer and so on. >> i'm certain that happened on a very frequent basis because many of our project are soaked before the full details are known. sometimes a year or year and a half before troops arrive at the location so we come back and we can probably provide many examples where we ask clarifying questions and when will these people be there and so forth and in many casess the client cannot tell us that information due to funding allocations or actual wartime strategies. >> those circumstances, you still sign-on to the contract? >> we perceived cost plus contract and proceed on -- >> no use to you believe is a

blue logo would explain why they're doing but that is not your problem. >> when we cannot get answers we don't bid. we have never bid where the scope of work was not up to our level of -- >> in the last three years, the projects did you walk away from? >> million and half. >> give us an example. that would help. >> we typically ended joint-venture contract have gotten requests for proposals and we go back and forth all the time on defining what the project are before we finally arrive at something. one other comment i would like to make. there's an issue for contractors on cost plus. would you do is you agree to a given cost and if you go over that cause we don't get any more profit unless the government -- unless the government changes the work scope which always does. >> well -- [talking over each other] >> how often does the government not change the word?

20%? 30%? >> i don't know off the top of my head. i have no idea. >> frequent? infrequent? >> on the work scopes that we have had, even when there have been time frame delays in getting the work that we hold the costs. that is the best i can tell you. >> mr. mccarron? how about you? >> the clarification on all of their relationships with usaid, one example would be the ghazi school where initially usaid had a design competition for that school and then awarded the winner goes to implement the project and during that initial phase we went back to usaid and talk about efficiency and players and changed the design in consultation with and so they came back to us and told us we

had to decide about american standard's so that was incorporated. in relation to developing the final design. >> is said to american standard's. how sensible are the american standards in the afghan context? >> in the case of the one i'm referring to the americans with disabilities act standards for the access language resulted in the link way between the buildings and main school building. >> are there many americans and those schools? >> no, but there are kids in wheelchairs -- >> it was an american law. >> thank you. >> thank you, mr. chairman. mr. van dyke, let's focus for a

second with respect to the canned our power initiative, on the plan you are to build. your opening statement alluded indirectly to the fact that another big construction firm was awarded a $51 million contract, different price for the other power plant in the industrial park. and you made and it is and charlie appropriate to make comparisons to show you are competitive in terms of what you charge. but what are want to ask is where you so uniquely positioned to use the words, justification for sole sourcing, so uniquely positioned that there could have been competition by the builder in the same industrial park of a

power plant and if there had been such competition within your unsatisfactory past performance ratings have been evaluated? >> all of our performance evaluations would have been raided and there are large number of them, many of them in the excellent and outstanding category so i would hope that would look and all of them. it is for usaid to say if they can get another qualified client, competitor, but i will say performed as i said before we have done a study of all requirements -- [talking over each other] >> we will take it as what was just asked and answered. but i want to focus on the fact that there are pieces of the can the harp our initiative. you and i had a dialogue about this in the first round.

as you say, her is not only the work for the turbine but on a substation. what i want to do, asked mr. fear if you could imagine those two pieces as distinct from the canned are part which had four pieces, could have been considered separate. they are 100 miles apart. there's no transmission line between them and the dialogue between him and me, and could one to four at this point and five and six be separate? and then i said again couldn't a potentially be separated here?

i have said they could be separable. he disagreed as to whether they should have been separated and so forth but we reached that point and what i want to ask, you must know -- i hope you know the major break down, on that project, would you tie the substation, at least at the two fifty-five million, at least eighty million in terms of that -- >> i don't carry the numbers in my head but it is not that high. >> can we ask for the cost breakdowns? >> let me talk to usaid about that. >> delay in prior projects not

only because only if the power initiative had been completed, but even more fundamental, the canada our project is urgent timewise, not like other projects because general david petraeus we are told in the most direct way, general david petraeus himself said he needed as soon as possible, he has a counterinsurgency to fight, the reason we got from usaid why they did that as terms of the counterinsurgency strategy, looking at the kabul power plant seems to me we have, ands by usaid and cigar not years ago but in january of 2010, usaid

afghanistan contended it was not able to remove the project forward because the contractor did not convey critical information promptly enough to be useful and at the end of the same paragraph the mission contended that had it known of the problems the contractor was experiencing, it could have intervened suitor to solve the problem. and we have usaid itself when it gave you a rating as i previously said and business relations to the kabul power plant. they failed, contractor had not notified of the construction delays and critical in a timely

matter. the same critique was put forth. by the cigar and usaid itself. >> we have comments from the latest. we stepped up what we did and got power to kabul earlier than anyone else. looking down the road, the one piece that was considered for the power initiative but was omitted, no fault of anybody was to have a transmission line in this period of time in the immediate period of time and,

the big user community around the city. the areas of security, to build a transmission line. they had to compete in the future or award it out in the future. i am not blaming you for doing this. since you are doing the work, in that transmission line. since you have a lot, to the transmission project? >> that is a decision for usaid but they have competition on the street for energy and water and indefinite contract.

they plan to award -- i expect there will be competition. >> you referred several things, we need to do something different from what you were doing. they were not building anything. using knowledge about already build systems, more difficult. engineers are very creative in how to use all of these, the same standard and our greatest engineers did figure out how to do that. is easier to sign it yourself and build it and figure out how to do something that is already in place. >> you helped draft the agreement?

>> we're talking about two things. getting power down to the transmission line -- [talking over each other] >> we advised them. didn't actually build anything or design anything. >> we were consultants on a power purchase agreement. we told people how to integrate transmission lines. that is a more difficult project than just designing and building in yourself. >> your statement mentions very clearly april of 2010 your guest house in canada are was destroyed by an improvised explosive device and you had to evacuate injured expatriates' from the area so you had to leave. in a minute or so tell us about that incident. >> what happened was a van laden with explosives made it past the

first line of defense and the security that was there, all these other things made it to the gates of the quarter's end at that point they detonated the fan. i have to show you the picture. >> show the picture for the record. >> you got the picture? i don't think you can see it but that gives you some idea of the explosion. there were five people in the house at the time. three were injured. two were not. one never returned to work. we evacuated them to the military base and by helicopter, injured party is to dubai. i believe blue hackle was providing that security. it was a shared compound. i would have to check who was

providing the. >> shared by yourself and others. >> it was their security contractor. i would have to double check. >> you make a clear pecking order. private security companies have proven to be more reliable than afghan own private security companies. >> that is correct. >> where would you put afghan security forces? and afghan soldiers? where would you put afghan government security? >> not sure i could categorize them. we don't know much about afghan security forces. we are able to see demonstrated results for private security forms and we haven't seen demonstrated track record on security forces. >> any views on afghan security

forces? >> we believe obviously at some point it would be a good idea to turn over security to the afghan but at the moment i don't believe they are ready yet. >> your view is current capability at the current level of corruption are not viable? >> and no recourses for us for afghan elements. >> but the afghan government -- >> that is correct. >> we are working through how to provide security. i can't tell you all the answers. >> how do you view afghan security forces? >> everyone agrees the ministry of the interior does not have people to do the job right so how do we get there? >> three people, three companies have private security. you are different in that you have by choice, like you to explain, you use afghan security

forces and use a we found that allocated appropriate resources that it can be effective? why did you choose afghan security, of private security? >> that is correct. we had success with the ministry of interior especially over the years and we found it is not always easy. we have to maintain a close liaison with the ministry and particular forces that operate within this. we call it a quick reaction force. they are dedicated to us so we can establish a rapport with the same -- and so has been -- i would like to add i would like to make public at the table in order of magnitude smaller and the project for the ministry. .. 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 >> or whatever. and so we have no reason to change that.blic but we, we're not, we don't sort of just sit back and let it happen.t it does require a lot of work. we have to have our own in-houe specialty people and also rely on close coordination with thei united nations department ofl safety and security in o afghanistanur and their contacts to makeo sure we've got a different resource. >> arecu you in a different thrt environment? are you in a low threat and everyone else is in the high threat and that's what makes it different? >> i don't believe so. >> okay.

>> we're building roads in kandahar -- >> and all of that, all of your activities with afghan national security forces? >> that's correct. >> you found them to be suitable, and if you're there building a school or a road to give the afghan government more capability, you find it at least logically consistent that youdin want to use of afghan security forces at their current state of capability? >> we do.bili >> okay. let me just make an observation. it seems to me that we're asking companies, organizations to go outside the wire, to step outside the wire, outside the fence and go into a war zone, simply.t we call it a counterinsurgency, a contingency, but the bottom line is it's a war zone. so we're asking noncombatants like yourselves and yourc employees and your subcontractors to step outside and go into this war zone andomb build something in an environment where someone else wants to blow it up or kill yous i think that's about as simply as i can conceive of it.

that environment we're bringing to bear an element ofk national power if afghanistan, private industry, private expertise to bring things about that we want to have. a in that environment where we're having, i'll be euphemistic to say we're having challenges with private security, and we're having challenges with afghan security, would preferc security -- would you preferse security to be providedcu by u.. or coalition troops? they've been referred to before this commission as the gold standard for security.s all else being equal, wouldn't you rather, wouldn't you prefera doing your work guarded by u.s. troops, mr. mckelvy? >> by and large, that is therk case on many of our projects where the project is on site and weat totally encircled -- we are totally encircled by u.s. forces. >> inside the wire.. tell me about outside the wire. >> if it could be provided with the resources, that would be

preferable. >> okay.s >> depending, again, on the type of project, our business is to keep a low profile. we don't want to get to the point where we change that.c but yet at the same time youness should have a reliable security system there that we could vet -- >> yep. >> -- and --han >> would you prefer u.s. troops? >> not necessarily. sec you know, we need to keep low profile. >> mr. van dyke?yo >> you've asked what seems like a simple question, and it's a complex answer. we have to work with people in kandahar to generate power. we have to work with dabs, thes utility, to build the things we're going to build, so we hava to interact with them. there's some thought that having the u.s. military present makes things higher profile for. attack.ught so what we need to think ma through, and we do not have the answers, is how we go about doing that. youe know, sometimes in all of this discussion we lose sight of the human element in all these things.

and i mentioned we have a lot of dedicated people working ondisc this. >> okay. >> i have one person who toldeme me, i came to thank her fora helping get that power down from the north, and she lookedon straight at me, and she said, i came to this company to make a difference, and that project makes a difference. >> okay.me would you prefer u.s.-providedka security? >> i think i need to think that through. spe that's what we're working on right now. >> mr. mccarron? >> it is a very complex situation, and sometimes the insurgent motivation is not just necessarily there just to kill people or blow things up.ion. so you really have to analyze each on a case-by-case basis. we found, as i mentioned in my statement, about the need for social inclusion, the engagement of the local community in the whole effort. m there has been a deterioration e in the fabric of afghan society, and a lot of the criminalef taliban are not respecting the elders and things. that's seen a drop in security standards as well.

but effective engagement with the community is key. it's not always good to have th guy with the shiniest gun standing there -- >> and u.s. security might not support that.y. >> exactly, yeah. >> thank you very much. >> thank you. done with my questions,h we're going to give you each time to just make some closingt comments, and then we'll adjour here.i' security is ac huge issue. it's one of the reasons why, evidently, you want a cost-plus when. you're outside rather than inside, major factor.o is the lack of literate afghans an issue that presents a uniquec challenge?ans it's said that 15% illiterate -- are literate. therech are estimates that it's smaller and that it's fifth grade level, really not that high. so does literacy play into part of the challenge of doing your work, mr. mckelvy?

>> it's certainly a challenge when you get into craft labor on construction projects, when you have workers that cannot speaky? or communicate with -- >> so the answer's yes? >> yes. >> mr. mouzannar? >> yes. >> it can be overcome. >> by teaching them to read? >> for example, we use dari,in english and graphics. >> but it presents a challenge. >> it's a challenge, but it can be overcome. >> mr. mccarron? >> i would say education is one of the key areas, otherwise it's too easy to pay someone $60 a month and they'll carry an ak-4, for the be -- for the taliban.y >> thank you.a isn't one of the challenges thae you end up hiring an outfit that has some literacy to it, and tha challenge that we saw in afghanistan was that you have 85% of the population that t thinks that 15% get some real

special advantages because they, theyt have -- they're literate is that an issue as well? be in other words, that you end up just focusing on a few rathes than the vast majority of afghans? who would like to answer that question? thank you. >> if i can mention, i think th. biggest thing in here, and it's in my written statement, is, obviously, the afghan-first policy is an important be one,bi and i think companies likement ourselves, in essence, what we're doing out there is to try to bring the level of expertiser technology into the country. what comes in the way is there are a lot of almost one size fits all type of an approach of procurement. you have a very tight schedule, you know, very competitive environment. there are no specific projects that are designed solely for the purpose of training the afghan work force. >> okay. >> give us some projects where

maybe the schedule is a bit more relaxed --wo >> as part of the cost incorporates helping to educatee >> exactly.ybe and that's the work force that later on is going to come p forward and take over thear oim. >> i get it.'s t and, mr. van dyke, i'm understanding that's what you'vo tried to do in if your area. the advantage of fixed price is that 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,a basically, have to go with it. but the disadvantage with thedo fixed cost is that if you don't know your cost, isn't it likely that you're just going to have to bid higher just to leave ano margin, yow u can't be as precis so you're going to bid in favord of making sure you can make the costs go higher?bid >> question is, if you have to bid on the fixed price of something you're not certain about, is it like it's going to cost the government more money?

i'll start with you,gove mr. mckelvy. >> if scope is really uncertain would drive you, as you say, the lump sum of the fixed price up to cover thedriv inconsistencies, then in thea competitive bid process, you'll probably not get the project anyway. for us when the circumstances - >> is this a yes? is your answer, yes, that it's going to be a higher cost?n >> if scope is uncertain, yes, it would be a higher cost.be >> and i'm assuming all of you agree with that. i'm wrestling with how you have a variable price contract withe fixed subs. what is the incentive for the sub to come in low and for you to take a low fixed price,at i mr. van dyke? >> we're focused on can the sube perform the work. >> that's not what i asked. >> okay, i'm sorry. >> let me ask someone else.i mr. mouzannar? >> yes. >> if you are, you are a variable price and be you are bidding fixed price, what is the incentive and how can the yes government be certain thatu

you're going to pick a low fixed price?gett why wouldn't you just accept pretty much whatever you got? >> sure. 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 a best value, this it takes intos consideration. >> you're saying, though, it's not that project but the next one, and that seems reasonablejt to me. what is the markup that you get, each of you, you get from a sub? in other words, what do youu ge charge when a sub comes in with a fixed price? what do you a add to it, mr. mckelvy?ge >> well, i can't give you a specific number -- >> give me a range. >> anywhere from 5-10%, 12%,p 15% -- >> does it get up as high as 20w >> no.e >> mr. mouzannar? >> again, we price projects on a case by case.h this seems to be in line with the industry. >> 5-15%?

closer to 15 than 5? >> not really. again, this is on a case by case -- >> this is not a difficult? question. >> it is -- aga >> no, hold on.-by no, no.k o i need to get a good answer here. when you come in, what do you add to the sub when you give it to the government?i is it 5, 10, 15%?give we're going to go back to the government.? you're all under oath. is not a game. >> sure. >> i know you know that. i want a better answer. >> yeah.rnme we typically conduct a veryn total risk management processn where we price the different uncertainties on each one, the technicalto certainty, etc. -- >> that's not what i asked. >> 5-15% would be the range. >> mr. van dyke? is. >> 5-10% which includes costs. >> okay.des mr. mccarron? >> unops is on 7% direct costs on project value. but that 7% can go up and down according to the risk profile as

well. >> mr. mccarron, i view you as usaid at the u.n. in other words, to me -- and thisa is not a criticism, it's - and maybe you just -- i'm not a passing judgment that way either.sm, but, basically, you're being-- given money from the u.s. government. it's funneled, and i don't meano that in a negative way, but it's passed through usaid, but in essence, you're doing just whate usaid is. and i'm making the assumption they're using you because theyg don't have the resources to dojs it themselves, so they're turning to you.e is that an accurate way to think of you? is. >> that would be oneyo scenarioe we have at various times hadnk even larger projects than the current relationship with usaid in kabul, for instance.ious where we focus on implementation. as i said before in theion statement, we implement, we, provide the professionalnsta services to insure the projects can be implemented.re >> you provide professional services that usaid does notssu

have? >> well -- [inaudible] >> mr. mccarron, you're not, you know, i realize you don't. want to criticize usaid. we on this panel recognize that we, basically, pour -- pulled usaid apart in the last two decades so that they've become pretty much a contracting to organization without the expertise. so i just want to know for theuc testimony, you have in, you have people within your staff thatt a can do a lot of the critique and oversight of the projects, isiny that your, your common --n >> yeah, that's correct. we have architects, engineers, the whole suite of professionals needed to implement. >> is there any last questiona the commissioner needs to aske f before we go? >>p >> gentlemen, again, for the umpteenth time, but we -- i'm sorry. okay. again, for the umpteenth time,o we thank you for coming back so. graciously, and we do appreciatt

it.t and now we do want to leave you the opportunity to make anyng final statement that kwr0ud likp to make. >> i'd like to thank the commission for this opportunity for us to speak this morning and to interact on the important projects in afghanistan. we'd like to thank you for thea privilege, the u.s. government fori the privilege of supportine the department of defense in these projects in the contingent environment. these are the most importantgove projects.t we've been involved in over 60 projects in the contingent environment since 2004 and look to continue to do this.. i believe there'll be continuing challenges in the, in thes contingent environment between cost, quality and schedule with respect to firm-fixed price contracting in coordination with the afghan first initiative.e and so, perhaps, through consistent quality standards anc design standards and construction standards from inception through operations and maintenance, we'll see continuous improvement that we've seen recently together with afcee and the corps of engineers. thank you.l >> thank you, mr. mckelvy.

>> again, thank you very much for the opportunity to appear in front of the commission. this is an important exercise for us because the only way we're going to share lessons learned through these types of conversations, and we're hopeful that with your work, a lot oft these obstacles that we face on a day-to-day basis will go away. one last thing i'd like to mention is the fact that, you on know, it's very easy to look atb bad projects and be then you sea them onw a daily basis almost in the media and ore venues. -- other venues. i just wanted to point out that work does not happen byme accident, and there are literally thousands of very good engineers and construction specialists and support staff that work almost around the clock to make projects like than happen in a very challengingppor environment. so i'd like to urge you, also,t to look at the success stories and be able to bring these outo also to the open and thank you very much. >> thank you. thank you. >> chairman shays and o

commissioners, we greatly appreciate the chance to appeary before this commission and set some of the facts straight on our projects.and a couple of things in my mind. one, doubling, more than doubling of the power brought into afghanistan either through local generation or from outside inin four years is a tremendous accomplishment. and 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, what's i important to you about electricity?hu and her answer was, it enables f me to keep scorpions away from my baby at night. one of our workers on the plant cameb to work with a big smile n his face one day, and one of ouw people said to him, why are you looking so happy today?e he said, because we had power for four hours, we could pump water, we could bathe and wash our clothes. hou doubling the electrical power means a lot of keeping scorpions away and clean clothes and cleas bodies.ling and i think it's important thato we remember that. as i told you, the biggest

single challenge we face isp security.we r our company is very committed to going forward with the projects we have subject to keeping our people safe. we thank you very much for these opportunity to appear. >> thank you.g fo >> chairman shays, members of the commission, i'd also like tg thank o you for the opportunityo appear today, and i'd also like to assure you that if any time you require any furtherrs o information, especially about afghanistan, i'd be very pleased to assist. thank you. >> thank you all very much. we are going to close thisw hearing. thank you. thank you, guys. [inaudible conversations]

>> up next on c span 2, hillary clinton talks to reporters about proposed cuts to the state department's budget.

>> a couple of live hearings today on c-span3 to tell you about, jacob lew will testify on the president's 2012 budget request. live coverage of the house budget committee begins at 10 eastern. later in the day, kathleen sebelius will take questions about the president's requests for hhs for 2012, that includes mandatory spending for medicare and medicaid. she'll be at the senate finance committee, and that's live at 2:30 eastern. >> when i was sworn in as president, i pledged to cut the deficit in half by the end of my first term. the budget i'm proposing today meets that pledge. >> president obama sent congress a $3.7 trillion budget that would reduce the deficit by clash 1.1 trillion over the next ten years. this week hear the details from the administration including cabinet officials and watch

reaction from house and senate members online at the c-span video library. search, watch, clip and share anytime. it's washington your way. >> secretary of state hillary clinton spoke with reporters at the u.s. capitol following a meeting with house speaker john boehner. they talked about the federal spending levels for the rest of this fiscal year and the president's 2012 budget request. secretary clinton said that proposed cuts by house republicans would be, quote, detrimental to america's national security. this is 15 minutes. >> came out of a very productive meeting and be lunch with the speaker. i greatly appreciated his gracious hospitality and the opportunity we had to cover so many issues on the minds of members of congress, the administration, the american public and, indeed, the world. as we discussed, this has been a historic several days. all of us have been inspired to

see the egyptian people lay claim to their own future. it's also clear that egyptians have a great deal of work to do in order to get the full promise and potential of their efforts realized as they look toward a future that will give each egyptian the right to fulfill his or her god-given potential. and we look forward to working with the congress in the coming days to insure that we have the funding and the authorities necessary to support the egyptian people. events in egypt show how important it is that we have a global diplomatic presence. a presence that will be ready to handle crises, prevent conflicts, protect american citizens overseas and protect american economic and strategic interests. now, you see this not just i in egypt, not just in afghanistan, not just in yemen, but in mexico and so many other places around

the world where our diplomats and development professionals are working every single day to promote america's security, interests and values. the state department and usaid are on the front lines of just about every national security challenge we face, and we are promoting american jobs and advancing economic opportunity for americans as well. to be successful at these vital tasks, we need the resources to do the job. otherwise we will pay a higher price later in crises that are allowed to simmer and boil over into conflicts. i was very clear with the speaker about the deep concerns we have regarding the fy-'11 spending bill moving to the house floor this week and what

. >> about the fy-'11 bill. over the coming days and weeks, i will be meeting with members of congress and testifying on the hill to highlight the president's 2012 budget. how we reach 2012 is just as critical. we need to insure that 2011 and the process surrounding it doesn't pull the rug out from under the civilian experts that are working in every corner of the world to pursue america's security and interests. i thank the speaker for his leadership on egypt and in the very constructive advice and counsel that he has provided to the administration. i remain hopeful that when members consider the national be security and be -- the national security and economic consequences of these cuts, they will chart a different course. it is somewhat frustrating when what usaid and the state department are doing in these front line states is not

classified as security. and there is a different category for security discretionary funding than what is called nonsecurity discretionary funding. and, of course, you talk to any member of a prt in iraq or moving in with the marines in kandahar, and they clearly are part of our national security efforts in those countries. we can still reach a reasonable bipartisan consensus and move forward together. we worked closely with the last congress to protect our security and advance our values and interests, and i'm confident we can work with this one as well. so happy valentine's day, and i'd be glad to take -- [inaudible conversations] >> madam secretary, madam secretary? [inaudible conversations] >> madam secretary? >> thank you, madam secretary. you were first lady 15 yearsing ago when we had a republican

congress that proposed some very deep cuts particularly in the diplomacy and foreign aid sectors. is this reminiscent of that, and did you communicate that to the speaker today? >> well, i think what we learned and, certainly, i think the lessons from the '90s are very important today is that we cannot recede from our presence anywhere in the world. what we're living through is a historic period where all kinds of changes, some of them in support of american values and some of them directly opposed to american values, are occurring. and i think it's important not to have to keep learning those lessons. you know, one of the reasons we're in afghanistan today is because we left after the soviet union left and fell. and we learned that lesson. and it is expensive, it's particularly painful when we see young men and women losing tear

lives, being injury -- losing their lives, being injured in the pursuit of american security, interest and values, but we can't go back to where we don't have a strong american presence in order to assert american leadership and influence the course of events. so i'm hoping that we will be given the resources that we need in order to fulfill the mission. i'll just give you one quick example. in iraq as our troops leave, there will be a savings in direct military expenditures that will total about $45 billion. we're asking for about 4 billion to make sure we have a civilian presence o continue working with the iraqi government in order that the enormous sacrifice that our men and women in uniform made and that this country made to try to give iraqis the opportunity to chart their own

democratic future is not lost. because we are not the only country that is going to be in a position to influence what happens to iraq in the future. so i give that as up with example because i think -- as one example because i think it's a stark one. we will be saving many billions of dollars, and in return we need a commitment and investment of far fewer billions of dollars in order to establish the robust civilian presence that is required. >> madam secretary, nbc news reports there's thousands in the streets all around iran right now. the opposition of party headquarters is possibly under or siege. there are thousands of protesters, internet lines are being jammed, phone lines are being jammed, what's your message to the iranian industries tonight? >> well, first, let me very clearly and directly support the aspirations of the people who are in the streets in iran today. all through the crisis in egypt we had three very consistent

messages. we were against violence, and we stated it often, and we communicated it correctly to egyptian authorities. secondly, we supported the universal human rights of the egyptian people. and, third, we stood for political change that would result in positive outcomes that would give the egyptian people a better economic and political future. we believe the same for iran. we are against violence, and we would call to account the iranian government that is once again using it security forces and resorting to violence to prevent the free expression of ideas from their own people. secondly, we support the universal human rights of the iranian people. they deserve to have the same rights that they saw being played out in egypt and that are part of their own birthright.

and thirdly, we think that there needs to be a commitment to open up the political system in iran, to hear the voices of the opposition and civil society. and i would add that what we see happening in iran today is a testament to the courage of the iranian people and be an indictment of the hypocrisy of the iranian regime, a regime which over the last three weeks has constantly hailed what went on in egypt. and now when given the opportunity to afford their people the same rights as they called for on behalf of the egyptian people, once again illustrate their true nature. so our message has been consistent, and it remains the same, and we wish the opposition and the brave people in the streets across cities in iran, you know, the same opportunity that they saw their egyptian counterparts seize in the last week.

>> madam secretary? is. >> can you tell us what the speaker said to you when you told them that these cuts were national security and the -- [inaudible] >> well, i think the speaker because he has traveled to many of these places over the course of his career in congress and has kept up-to-date by consulting with our military leadership knows that we have to support our government's efforts in our front line states, and those efforts are both military and civilian. our strong supporters, as the speaker mentioned to me, are the leaders of our military and our defense department, secretary gates, admiral mullen, general cartwright and so many others. why? because they understand that if we don't have a robust civilian presence in these front line states, we cannot make the progress that we are seeking. you know, the strategy in both

iraq and now refined and furthered in afghanistan -- clear, hold, build, transition -- the military's responsible for clear. we're both responsible for hold. we're responsible for build and for transition. so our colleagues in the defense department have been our strongest supporters, and the speaker is well aware of that. >> madam secretary? >> i have a question, please, on how the u.s. is going to keep the military from getting too comfortable and forgetting about democracy? >> you know, one of the most important relationships that we developed over 30 years we egypt is the relationship between our military and the egyptian military. many of the officers have been educated in american military schools. there have been close collegial relationships built up over this period of time.

i think the egyptian military demonstrated its very strong commitment to the people of egypt in its restraint and its support of their right to demonstrate. they are now being asked to assume a responsibility that wasn't in the guidebook for young officers, you know, how to lead a country through an orderly, peaceful, meaningful transition to a democratic future. the steps they've taken so far are reassuring, but there's a long way to go, and the united states has made it clear that we stand ready to assist in any way appropriate. the ongoing dialogue between our defense and military leadership with theirs has been very fruitful, and i expect it to continue. but this is a very challenging moment for the egyptian military. i would say thus far they've demonstrated a seriousness of purpose and a commitment to

pursuing the kind of transition that we hope will lead to free, fair elections. but, also, in addition to elections, a broad buy-in to what democracy really means because as i've said many times before, democracy is not just about one election where whoever wins it never wants to have another election. you need an independent judiciary, a free press, you need an independent support for minority rights, and there's just so much else that goes into what democracy represents. but we're going to continue working not just with the military, with society, with a broad range of representatives from across egypt's full breadth and depth on the economy, on academia, the professions and every other aspect of their very exciting commitment now to a different future. thank you all very much. thank you all very much.

[inaudible conversations] >> now we'll get an update from the state department on president obama's 2012 budget request. it proposes $47 billion for the state department and u.s. agency for international development. we'll also hear about u.s. aid to egypt and funding for the wars in iraq and afghanistan. this briefing is 20 minutes. [inaudible conversations] >> thank you, p.j.. let me get situated here. good afternoon. there's, let me tell you, there's probably no better way to know an organization than just six week into a new job, i get to stand up and explain the budget. so i hope you'll understand that. thank you very much, appreciate that. [laughter] my wife said the same thing to me this morning. [laughter] so with that, i am pleased to present the 2012 budget for the department of state and usaid. we're here to discuss with just 1% of the federal budget how

state and usaid prevents conflicts abroad, promotes prosperity at home and delivers real results for the american people. and most importantly, how state department and the usaid advance our national security. in the private sector, we often talk about roi, a return on investment. from countering extremism in yemen, to serving alongside our troops, to training police forces, what we do is critical to our national security. with an investment of just 1% of the federal budget, the men and women of the state department and the usaid deliver remarkable returns. we recognize this request comes at a difficult budgetary assignment and environment. this is a lean budget for lean times. we have made painful but responsible choices. we've scrubbed the entire budget

for savings, we've eliminated foreign assistance and programs in several countries, we've reduced development assistance by over half in 20 others. we've cut funding in europe and eurasia by 15%, we've even managed to identify over $100 million in administrative savings through more efficient travel and procurement. in the wake of the first quadrennial development and diplomacy review, better known as the qddr, we've aggressively sought to find new efficiencies and to change the way we do business. the qddr recommend z that we move forward on an integrated national security budget. this budget represents our assessment of the funding we need to use civilian power to advance america's security and accomplish our mission, no more and no less. this year for the first time our request is divided into two

parts. the first part is very familiar to all of you, it's our core budget. it's our foreign assistance and operations budget. this represents our ongoing investment to advance american security and economic interests. it supports our presence in about every nation in the world. our core budget request for 2012 is $47 billion. the second part is our extraordinary, temporary costs in iraq, afghanistan and pakistan. as our civilian employees take on more responsibilities. for the first time, omb is presenting our war funding as they do with the department of defense in a separate account called oko which is short for the overseas contingency operations. this will allow for a full transparency and be a unified

approach for the costs we believe are not part of our core budget. the state and usaid's oco request for 2012 is $8.7 billion which i'll come back to in greater detail in a moment. finally, i'm sure some of you will be confused with the comparison to last year's budget. i assure you, you are not alone. here's why. congress hasn't finalized funding levels for 2011. instead, we're operating under a continuing resolution, basically an extension of our 2010 operating levels. to complicate things even further, in 2011 there were a number of supplemental spending bills and adjustments -- in 2010. so to anchor our conversation today, we've created a single chart that lays out the relevant points of comparison between 2010, '11 and '12.

our core 2012 request of $47 billion supports the diplomatic and development experts in 190 countries. it represents a 1% increase over our comparable 2010 levels, less than the rate of inflation. and make no mistake, even without the extraordinary war costs, the core budget is part of the u.s. government's national security budget. it stabilizes conflict zones, it reduces the threat of nuclear weapons, it restores old alliances, it supports democrat transitions, it counters extremism, it opens global markets, and it protect bees citizens abroad. protects citizens aprod. it accomplishes this by investing in four principle areas. first, we devote 23% or $11

billion of our $47 billion core budget to prevent conflict be, foster economic security and support fragile states. as we all know, this is a complex and interconnected and fast-changing world. we have the capacity to prevent conflicts and stabilize fragile states. for an example, this money funds development, humanitarian and military efforts in yemen and somalia. we're working to prevent these countries from becoming safe havens for terrorists. it supports intensive american diplomacy in sudan where the government peacefully accepted a vote many said would lead to war. and it sustains peace-keeping missions all over the world. and it funds nonwar-related economic assistance to the front line states of iraq, afghanistan and pakistan.

second, we spend 16% or approximately $7.4 billion of the $47 billion of our core budget to keep, to support key allies and partners. this includes over $3 billion for israel and a strong support for west bank and jordan. it funds support for nations recovering from conflicts like liberia and emerging partners like indonesia. it funds military-to-military partnerships in over 70 countries, and in egypt it gives us the fund to respond as situations evolve. third, we invest 31% or approximately $14.6 billion of the $47 billion of our core budget to advance, to advance human security. we have targeted disease, hunger

and climate change. these challenges not only threaten the security of individuals across the world, they plant seeds for future conflict. we invest $8.7 billion in the global health programs. this includes money to fund treatment and prevention of hiv/aids through the continued support of the bush administration's pep far program. -- pepfar program, and it funds our fight against ma lair cra and superb -- malaria and tuberculosis. food security, another cornerstone of global security, and $650 million to respond to climate change. these are two whole of government efforts against serious and growing threats. this budget also reflects $4 billion in humanitarian assistance for victims of war, refugees and survivors of natural disasters.

fourth and finally, we spend 30% or approximately $14 billion of our $47 billion core budget to strengthen and sustain our diplomatic and development presence. we fly the flag at embassies and consulates in 190 countries. in each of these countries, we are serving americans, advance their security and promoting our economic interests. our political officers work with foreign governments and promote democracies and human rights. our economic officers open markets, promote u.s. exports and champion american companies. our development offices are improving lives and driving growth. and since taking this job, i've learned just how much our consular officers do to help the american people. last year they issued 14 million

passports and assisted in 11,000 inter-country adoptions. and i was amazed to learn that they worked on over 1,100 new child abduction cases which actually helped to return 485 children to their parents. however, we remain severely understaffed, so we're asking for just a 1% increase in the state department's foreign services officers. we know some of the hires we hope to make will just have to wait. unfortunately, too many of our embassies are falling apart. too many are vulnerable to terrorism and other threats. this budget includes funding to protect our diplomats and modernize our 'em bass is the i -- embassies. together these four areas make up our core budget. i said earlier that some of our costs in iraq, afghanistan and

pakistan fund our enduring presence in those countries. and some are extraordinary and temporary war costs, so this year we're taking a more unified and transparent approach. the president's budget includes the state department's war costs along with the department of defense in the oco budget request. our oco request represents a small fraction of the total u.s. government's war costs of over $126 billion. but if you asked our commanders on the ground, they will tell you how vital our civilian missions are. as a military transition -- as the military transitions to the state department and usaid, the total cost to the american taxpayers will develop drop dramatically. the overall pentagon savings is $45 billion this year from 2010 levels.

while our war cost -- war-related expenses are rising by less than $4 billion. as secretary clinton says, every business owner she knows would gladly invest $4 to save 41. the iraq portion of the 2012 oco request for the state and usaid is 5.2 billion dollars. i've just returned from iraq last week where i saw the remarkable sacrifices our soldiers and civilians are making. we have to use this moment to help iraq emerge as a stable, strategic partner. these funds let us work throughout the country, especially in key strategic areas like kirkuk and mosul. to defuse crises and find long-term solutions. the department of state is ready to take the lead from the

military. we're ready to take on new responsibilities. but we need the support and the resources to do the job. our oco budget includes programs to train iraq police and assist iraqi security forces. again, both of these programs were previously led by the pentagon. the afghanistan and pakistan portion of the 2012 oco's requests for state and usaid is $3.5 billion. these funds support civilians who are vital to our strategy. we've already surged civilians in afghanistan, now our challenge is to sustain our presence and build on our military gains and show results. we're working to give general petraeus and ambassador eikenberry the support they need to execute our strategy. this budget requests funding for 1500 civilian staffers.

two years ago we had 320. taken together our core enduring budget and the extraordinary temporary war costs funded through our oco budget represents a commitment to develop and exercise civilian power as part of america's leadership in the world. we recognize these are exceptionally tight times. with the resources outlined in this budget, the state department and usaid can continue to protect our interests, project our values, promote growth and, above all, serve our national security. so with that, i'll take a couple of your questions. >> can i just ask, neither of the figures that you gave, the core or the oco, is actually the functional 150 budget, is it? >> we only focus on the state and usaid's budget.

there's, obviously, a 150 number that these guys -- >> but isn't the function 150 all the state department and all international operations? >> we're laying out -- >> i know. and i understand what you're laying out right now. but in terms of the actual, what the money that the state department and aid are going to spend, isn't the function 150 line, isn't that what it is? >> sure. i mean, i think we can give the -- >> right. but, so, this is not the entire international operations budget? >> this is not the full 150, you are right. it is state and usaid's budget. >> okay. so i guess we can wait to go -- >> yeah. they'll give you all the information you need, absolutely. >> um, okay. that's fine. i'm done. >> mary beth and then josh. >> can you talk about aid for egypt in the 2012 budget, and has it been altered in any way to reflect the developments going on in egypt now? >> the budget request for 2012 is a billion five seven for the

full allocation. the military portion of that is a billion three and 250 million is economic assistance which is the same as last year. and, obviously, we are willing and ready to help the egyptian people as it relates to 2011, have funds available as well until we hear exactly what the egyptian people will need. we'll then communicate that to the congress for the authorization. >> so would that come out of 2011 money or -- >> that'll come out of 2011 money. this is for 2012. the budget numbers is 2012 numbers which is the $1.5 billion. josh. >> thank you, sir. in the summary documents released by the white house this morning it said that your 2012 request will cut foreign military financing, eliminate it completely for five countries, and funding for nine countries. can you talk about the thinking behind eliminating those 14

accounts? >> sure. these guys will walk through the actual individual countries. generally, listen, we had to make trade-offs. as you know, secretary clinton gave us very clear -- the one reason we are, basically, flat to 2012 from 2010 is we had, with we had to cut some things to grow other thinkings. so we -- things. so we made some very serious and very concrete decisions about how we prioritize, and those priorities you'll be able to get exactly which countries we did and which we did not. yes, sir. >> peter. do you plan to cut or increase the support for democracy in rush -- russia? >> i don't have exactly the russian numbers, and we'll be able to give those to you -- >> [inaudible] >> understanding that you're going to get, that other people will get into details, the broader question on that last chart. since you don't know what the 2011 numbers are going to be, right? >> that is probably a true statement. >> in fact, if, if we don't go

from 2010, the enacted 2010, if we go from the 2011 request, this is actually a decrease in funding, not a -- correct? >> oh, absolutely. no. let's be clear. if, in fact, the numbers that are talking about on the hill today, the numbers that potentially could be cut -- >> well, no, no, no. i'm just talking about the request. >> all right, sure. that's what i'm saying. >> this is a decrease -- >> from '11, without question. >> okay. now, the secretary, the department has just released a letter the secretary said -- >> for congressman rogers concern. >> absolutely. talking about the 15%. if they go to that -- >>20%. >> this becomes a rather significant increase over the 2011 budget, right? [laughter] >> well, as my mother used to say, i hope we all have that problem. i think the reality is, i think right now we are, one, if 2011 numbers -- currently what we

requested in 2011 gets cut below the fy-'10 numbers -- >> uh-huh. >> -- we'd have a substantial, almost a 20% reduction in the budget of the state department and usaid. i don't think anyone believes that is what we should be doing, at least certainly the people many this building and what we are doing around the world. obviously, we'll be very much focused on what's going to happen on capitol hill. but this purpose of this discussion is to talk about 201's budget. -- 2012's budget. there's no question we're very concerned about what could happen in 2011. >> right. so given all that and the uncertainty, isn't it kind of pointless to talk about percentage increases and decreases since you have no idea what the baseline is going to be? i mean, if you go back two years ago, the situation was totally changed. i mean, it was totally different. so for the purposes of argument here in this briefing, if you want to looked ate from the -- at it from the 2011 enacted -- >> well, listen, i think your point is well taken. i think that if you look at what our numbers are compared to

either one, let's look at 2012 compared to 2010. we're basically flat to 2010. if you look at what we requested in 2011, we're down from 2011 what we might possibly get. so either way you cut this, the reality is this budget reflects very tight budgeting to reflect what we believe are repriorityizations for the department of state. >> we'll take one more. get specific. >> yeah, thank you. >> [inaudible] >> no. what i'm asking, sir, quickly, as far as foreign aid is concerned, u.s. is giving to many countries. is it worth giving to some countries because there's some even anti-u.s. demonstrations in some of the countries and amnesty international, and even the pakistanis are saying the aid you are giving to pakistan is not going to the people. >> listen, i think that the amount of money that we're giving reflects what we believe not only the priorities for this

department, but priorities for what we believe that we need to do to keep ourselves safe here at home. this is a national security budget. we're making the decision to give these funds both on military aid and economic assistance for one reason and one reason only which is our national security. >> okay. >> thank you. >> thank you, sir. >> we'll, we'll take a moment, break down the cameras, and then we'll continue the deep dive. >> next, nasa administrator charles bolden talks to reporters about the agency's 2012 budget. president obama's budget blueprint calls for a five her year freeze on spending levels at the space agency. we'll also hear from nasa chief financial officer elizabeth robinson. >> good afternoon and welcome to nasa headquarters in washington, d.c. for the presentation of the fiscal year 201 budget. joining us today will be our chief financial officer, beth robinson. but, first, it is my pleasure to introduce the nasa

administrator, charles bolden. [applause] >> thank you all. let me welcome you on this, well, it was beautiful when i came in, valentine's day. i wish you all a happy valentine. if you're married and you forgot flowers or cards or something, you're probably in trouble. there may still be time for dinner, so i wish you luck. i want to acknowledge the presence of my deputy administrator, lori forward very, and other members of our leadership team. i call it a tremendous leadership team here at nasa, and i want to thank them for their dedicated public service and their deep love of space exploration and its endless possibilities. this entire nasa leadership team is working hard every day to help move nasa to the next level of innovation and excellence. and i thank each of them for their service on behalf of the american people. i also want to take a moment to offer thanks for their

miraculous progress being made by a true friend and supporter, congresswoman gabrielle giffords, as she continues her battle from full recovery from an assassination attempt on her several weeks ago. we hold gabby and her family in our thoughts and prayers, especially her husband, mark kelly, who rejoined his sts-134 crew last week to resume training as commander of that frill shuttle -- april shuttle mission. it's now my privilege, actually, it's beth's privilege to do the work, but it's four our privilege to present president obama's fiscal year 2012 budget, a budget that requests $18.7 billion for nasa. this budget requires us to live within our means so we can invest in our future. it maintains our strong commitment to human space flight and new technologies. it establishes critical priorities and