later, it has been analyzed if award fees were leading to improved performance. this situation has caused many of us to question that while households are tightening their budgets, federal agencies continue to report profit two companies if it were expected and not earned. it is if one had a restaurant and you go to it as a customer. it is if you are a waiter or waitress and charged them with items that you did not ask for. some agencies are giving contractors or were just as poorly, pretty much everything those contractors could want. . .

that said, i do believe there can be some possible solutions and some that we may want to pursue. after it was exposed that department of defense contractors were getting reword fees, this estimated in foreign $50 million in savings in the programs were the rollover practice was once used. perhaps, this should be extended to other agencies.

i've personally do not see the object of incentivizing worked contractors if we do not know whether they work. in some cases, they do not know what they want out of the contractors that they do business with, let alone how the performance should be delivered. schedules and put -- skills and -- they may be using less full bonuses as a crutch. i am looking forward to hear what our witnesses have to say about the ongoing efforts to get the issue under control and to expose some other possible solutions that can help rein in whistle contractors incentives -- rain in wasteful contractors incentives. senator coburn, i think you talked about how you and senator sanders and i were among the

people who said that these board fees were troublesome and to do something about them. i appreciate your leadership on this. i'm going to go ahead and yield. we are delighted that your boat here. -- that you are both here. >> i would like to commend you mr. chairman for holding this hearing today. the issue cannot be overstated, especially in these economically challenging times. it is more important than ever to end waste associated with federal contracting. we need to fully embrace transfer of practices that will ensure taxpayers that their money is when to be used for do use. i look forward to hearing about

the award-fee contracts to ensure that this practice does not lend itself to wasteful spending. we needed to ensure that federal contractors receive payment only for the project that they are hired to complete. we cannot continue to use taxpayers' dollars to pay for work that does not meet contract requirements. i have a few questions in the q&a section. thank you. >> it is not your birthday today, is it? >> today is my birthday. >> you're kidding. >> happy birthday. >> i am not want to tell you that i am -- old. >> your a teenager. >> york a teenager. -- you are a teenager. >> i am 72 today.

>> mr. cockburn is part of the senate to that focuses on waste and abuse. >> mr. chairman, thank you so much for holding a hearing. i think g.a.l. for the report. americans think that we do not get it up here. i am going to enter into the record a list of bonus payments that were paid under c path across almost every agency. let me highlight a few. medicare and the medicaid paid out more than 1200 million dollars for quality care bonuses to nursing homes that provided below average care at significant health and safety violations. [unintelligible]

nasa paid billing a bonus of $425 million for work on a space station that iran eight years late, cost twice than expected, and were another $26 million in overruns. we paid $425 million in bonuses. the department of commerce selected northrop grumman to build a $6.5 billion satellite system supposedly to save the american people $1.6 million. it was expected to be launched by 2008. the budget has doubled. northrop's performance has been deemed unsatisfactory. but we give them to a $23 million worth of bonuses. in 2007, they traded a hand-held device for the senses that did not work properly. we give them $14.4 million in bonuses.

the federalfannie mae requested5 million in taxpayer assistance. it paid bonuses to its top executives. in 2006, bonuses were paid out to senior officials after a shortfall and threatened [unintelligible] in 2006, the department of treasury abandoning a 14 put $7 million computer project intended to help -- $14.7 million computer project intended to detect terrorist activity. the repair and restart of the tennessee valerie -- the tennessee valley -- tba paid the

primary contractors an extra $42 million in bonuses and other fees. i will just add the rest to the record. i look forward to your testimony. i know that omb is aware of these problems and is interested in the problems. i have a lot of confidence in pawlenty -- confidence in omb. >> one of the things that dr. coburn and i have talked about a number of times is the idea that we have -- part of columbia's job is to manage any cost -- part of poland the's job is to manage in acosta fans -- omb's job is to manage in a cost- effective way.

one of the things we tried to do is to work with omb and work with gao and work with the inspector general's to identify space will -- identify wasteful spending. what we try to do is spotlight bad behavior and we tried to spotlight good behavior in an effort to hold up to other agencies those agencies that are doing the right thing, behaving appropriately, and setting themselves up as an example. we appreciate what your doing. let's see what you can learn from those that we hold up appeared in our first witness will be -- hold up. our first witness will be jeffrey zients. a month ago, you were confirmed

in december this responsibility. we're happy to have you on board. [unintelligible] our second witness on this panel is no stranger, and john hutton. -- is no stranger, john hutton. there is a typo. [laughter] again, our thank you to both of you for your work and your stewardship and i will conduct mr. zients to start off.

>> thank you. i appreciate the opportunity to appear before you today to discuss the ward/fee contract incurred i hope -- contract. i have prepared a false statement. as you mentioned, i was confirmed last month as the deputy director for management at omb and chief performance officer of the federal government. it is my responsibility to help lead efforts to improve government performance, in other words, to make sure that taxpayer dollars are being used effectively and efficiently, a task that is critical to any administration, but especially in these economic times. a sound acquisition system can play an important role to down play dowcosts. as demonstrated by the

president's march 4 memorandum on contracting, it is currently used for more than $500 billion in annual spending last year, omb issued an initial set of guidelines. these efforts are designed to save the taxpayers at least $40 billion per year. the president's memorandum identified as the agency selection of contract type as a key area of immediate study . [unintelligible] to get the benefits of an award c contract, fees must be

linked to cost, timeliness, and quality of the time of contract performance. the amount a fee and agency pays must be commensurate with a level of demonstrated performance. an agency must obtain [unintelligible] o m b's office laid out these basic tenets. unfortunately, agencies have not consistently achieved good results from their award-fee contracts, in part because these tenants have not been incorporated yet into the regulation. first, we are working with the council with the the new rules. there will effectively determine that a contract is the appropriate contract to the

agency's requirements and circumstances. the new rules will provide the values and standards to help agencies differentiate between levels of performance and the corresponding percentage of available award fees that could be burned. the rules would prohibit award fees for contractor performance judge to be unsatisfactory. we will bring more agency management attention to bear on award fee contract and activities inclination with the five agencies that represent at least 95% of the total dollars spent. most of those agencies are represented in the second panel. one area where we will increase management is on monitoring of internal practices and data collection.

we will compare award fee determinations. this cross check will help managers ensure the fee determinations, track performance evaluations, and it can tractor performance is evaluated by the agency in a consistent manner. we will look at how current data collection can be improved. one option considered is the collection of determination in to the same system that serves at s the central repository could this information would have the added benefit of providing an additional source of analysis. in addition, we will focus management attention on training work force. for this reason, it is critical that the role that of the new guns be supplemented with tailored training that reinforces the skills a very essential to achieve cost- effective quality performance

under an award the contract. in summary, we have begun an aggressive effort. it is to create an environment that will continue to improve. and ultimately, these reforms will be for a government that uses its funds wisely and with care. i appreciate the said committees' leadership on the subject and welcome the opportunity to work with you -- i appreciate the committee's leadership on the subject and welcome the opportunity to work with you. >> i will be asking you to comment on the steps. you may make your statement no. >> thank you, mr. chairman. i am pleased to be here today to discuss the recent report on contracts. from 2004 to 2008, agencies spent $200 billion on contracts.

in 2008, over 95% of those dollars were spent at five agencies, the department of energy, human health and human and resources, defense, energy, and homeland security, and nasa. in 2007, which offered guidance and cited several actions we recommended. my statement today is based on the may 29, 2009 report. specifically, i would like to address how we are addressing the guidance. first, whether agencies have done to develop practices reflecting the guidance. second, the expense for using the contracts consistent with that guidance. third, expense to help evaluate the effectiveness. would have agencies done? -- what have agencies done?

the guidance is now reserved for exceptional circumstances the practice of offering contractors [unintelligible] it defines the level of performance used to a valley contractors and prohibits payment of award fees for unsatisfactory performance. nasa's guidance now requires a documented cost expenditure analysis. acquisition professionals and each of these agencies told us that there would benefit from additional guidance. some of them were unaware of the contents of the omb guidance. we found that agency practices were usinnot always consistent h the guidance.

[unintelligible] at the doe, one office did not define the terms used. on the other hand, dod has, in some cases, applied the guidance and reap the benefits. 40 were for programs including the 2005 work. we estimate that dod will pay $450 million less from fiscal years 2006 to 2010. in other instances, where it adopt a more discreet criteria. -- we are adopting more discreet criteria.

in most cases, of the five agencies we reviewed, only dod collects the data on the award fees. as for sharing information, other than the practice established by dod, no formal network exists for agencies to exchange best practices. instead, information is shared through informal networks. that is all. this has created an atmosphere in which you cannot know whether the fees are being used effectively, in which pork practices go unnoticed, and positive practices are isolated. what should be done? we recommended that they update their guidance on the use of award fees and provide instructions and definitions, developing criteria, using award

fees in combination with incentive fees, determining when rolling over unearned fees may be justified, and establishing evaluation factors. in addition, we recommend that dod emphasize consistent application of its guidance and review contracts awarded with additional opportunities for improvement. we also recommended that they established an interagency working group to identify the best way to track the effectiveness. the agencies concurred with our recommendation and noted that the existing work groups could be leveraged as mechanisms to implement in the recommendations. this concludes my oral statement and i'll look for to addressing any questions you may have. >> mr. zients, as i mentioned --

actually, i think he laid out three major things that were promulgated by omb. the last one was that award fees should not be awarded when the performance was not satisfactory. to go back to the 2007 guidance that: be provided, -- guidance that the omb provided, how was that packaged? i just want you to comment on what he laid out. >> mr. chairman, when omb issued their memorandum back in 2007, it reflected a lot of the key findings in their work that we did at dod back in december 2005

appeare. >> there were not paying attention. >> once the report was issued, they quickly modified their guidance. allenby came from behind with additional guidance to make it more but -- zero m b came from behind with additional guidance to make it broader. that put more detail into their guidance as well as accessing something to incorporate what we pointed out based on the 2005 work. g.a.l. has put a spotlight on some of the issues back in 2005. i think this is a clear case where putting a spotlight brought a little heat and brought some changes so far. >> do you believe that the guidance at omb is appropriate?

are there some aspects -- >> for dot? >> -- for dod? >> yes. >> i think it hits many of the key things. the word has not gone down to everyone throughout all the different agencies. some of the agency's have not incorporated -- some of the agencies have not incorporated that into their own guidance said. the dod -- into their own guidance yet. you have to ensure that those steps are taken and pushed down across the agency. >> so the guidance is pretty

good and has gotten better over time. agencies are doing a better job that adhering to that guidance as it has been improved. we have the obligation to try to back you up. >> what is the role of the inspector general and all this? >> it has looked more broadly across government. some of them have done studies looking at specific contracts where they evaluated the agency's use of contracts. nasa issued a report not too long ago.

dod has done so as well. they can look at some of these contracts and see to what extent the guidelines are being executed. >> the department of defense has made an incredible improvement or turnaround. maybe nassau and several other agencies -- 95% of these awards fees are made by five agencies. that is helpful. we do not have to worry about the rest. why is it that a big hard run agency like the department of defense has made a good improvement and others have made relatively little? >> in terms of dod, we highlight some key cases where you have seen these improvements being made. it has not gone throughout the

entire organization. embracing the findings is one of the major steps to make sure that change is made. >> maya understanding is that incorporating this and the rules will lead to a much greater adoption. within 60 days, we should be publishing which should be the interim final set of rules. it will ensure that this is front and center. it will be very clear, much more granular, if you will, of what should and should not be done. this will hopefully help to mitigate the problems. >> one of you said something

about training, men and women whose job it is to oversee contract and make sure they're doing the right thing with the acquisition. another witness also talked about the lack of training. would you care to tell us what needs to be done to better insure uniformity in training. >> my perspective is that we have a set of workforce challenges probably in terms with the number of people and in terms of people and training. when we talk about an area like this, clearly, there have been some shortcomings. the idea of training --

tailoring training for the contract type, the whole value changes. it is an area that we need to target work force development. i think it is a much larger issue that we have in work force capabilities and the number of people. given the importance of this problem, we should be focusing on some tailor training. >> the department of health and human services did not send a witness to our second panel. we are disappointed with that, but are either of you in a position to tell us how they're doing relative to the challenges they are facing in this regard? >> mr. chairman, our work has shown that that is one of the agencies that probably has one

of the least detailed guidance in contracting activities than others. i think they are relying on the f.a.r. while that is helpful, i think it should look at the their guidance and the extent to which their folks are well grounded and the key principles that we pointed out in the work as well as what is pointed out in the memorandum. somebody at dod, in a couple of years ago, said that, if we are going to run this agency the right way, we have to do something about this. my guess is [unintelligible]

it is important -- you said people train them on the day-to- day work for the acquisition contracts. people in charge of the agencies also said that this is important as well. >> i want to go in little deeper and into the background and ask how we got here. if you think about what we are using on board fees, it is usually something we have never done before appeared -- on award fees, it is useless. we have never done before. of the whole i see in that is that we have no capital at risk by those people who are bidding these jobs. i would think that you would

probably agree, given your background. when you have no capital of your own invested, you have no incentive to be under budget or on time. can you give me a little history of how we got here? anything that we want to do, all of the risk is given by the federal government. those who provide the services will handsomely in profit in that. my question is why they should not have risked? >> appropriately cosigning these programs could have that effect. a new will -- a new reward fee is one where the contractor should not make any money on it. the government is not protecting itself. but the structure of the

contract could be used to protect the government. one would prefer to have objective measures of performance up front and have incentives as opposed to bonuses, if you will. but if that is not feasible, given the newness of the work, then these fees should not be paid when performance is not strong and contract suffer as a result. >> limit go a little further. what is wrong? the president said that that he would like to competitively -- competitively bid everything. what is wrong with having a competitive bid and then holding the contract? if they can not do it, they lose. if they can do it, the wind. what is wrong with that? -- if they can do it, they win.

what is wrong with that? >> i could not agree more with greasing competition. there are probably some situations where you cannot do it based on a contract and do it on a cross reimbursement contract. if you cannot -- we should now be down to a very small subset -- then award fees should be the way to and sent it performance -- two ino incent good performance. >> a large percentage of the awarded contracts are nonperforming. the problem is that we do not know what we want or what we change would we want of the start.

i appreciate the obama it ministration which recognizes that here are dollars that are it with every year. how do we get it to the point on these things we have not done where the bureaucracies do not change routinely or regularly the requirements so that we are chasing a moving target instead of saying that this is it and this is what we're going to get. after we get this, we will have another contract. the fact is, we just keep changing the goalpost. you all have done a wonderful job to look at this. i am not sure that this is a great system. when is rolling over honored fees justified?

-- when is rolling over unearned fees justified? i have questions with how we are actually doing this, how we are looking at it. i know there are areas where we cannot get a fixed contract. i know there are incentives and parameters and good managers. but i think there -- but i think we ought to move towards capital risk. if you look at the contractors, they're doing ok. they're doing better than ok. they're making a ton of money off of the taxpayers and they're providing a needed service. i am not unhappy that they're making happmoney.

mr. hutton, when is it ok to rollover on unearned fees? >> while exceptional situations are not defined a, if the contractor did not have the opportunity to earn a fee because of some event that did not occur at that point in time, whenever but expected it to, and the award fee was tied to a particular event, that is a judgment that the government agency might have to do. i am not saying that that is the best dancer or the only way. -- the best answer or the only way. my problem is that that gives the contractor and out. -- gives the contractor and oua.

>> either it gets well very quickly or they withdraw all the funds. i think we have taken an attitude that we have done it this way and we probably ought to really look at a very stiff challenge, an exception that only zero m b -- omb can improve. [unintelligible] i would like to see those limited. it will change behavior. the fact is that, right now, in the contacting community, work is pretty easy to get. we ought to go to the incentive that you are talking about, mr.

zients, with clear guidelines so there's no question. the key is the guidelines, for your asking for. >> if it is not an outright ban, then it has to be truly to your point, an extraordinary event. it would have to have a process associated with it. it would identify that it is extraordinary. >> we have joint -- we have been joined with senator mccaskill. we have also been joined by dr. jerome loewis.

>> thank you, mr. chairman. do you have dates on those numbers that you read off? >> [unintelligible] >> 2008. thank you, senator. for mr. hutton, what is the biggest concern that they came away with after the 2008 report. you said in your testimony that the gao found that the agencies do not have a mechanism for evaluating the effectiveness.

>> and that is right, sir. that is one of our recommendations that gets at the heart of the issue. it to use this as a vehicle, how do you know that the way you use it is incentivized to make the contract to perform in the way that you want the contractor to perform? one of their biggest concerns, in part, it is that we have seen contracts being applied in a way that is not in the best interest of the taxpayers. in a number of cases, we found -- we talked earlier about having unsatisfactory performance and getting nothing or something but we found even in some cases that they would perform satisfactory. there would get 95% of the award fees. what is left to incentivize the contractor's performance? that is only 10%. in if you're paying them up to 90%

for unsatisfactory -- this is one of our biggest concerns. also, i think the guidance still needs to be improved at the agencies. i think the u.n. be -- the omb guidance gets to the key things that need to be done. do not pay a contractor for unsatisfactory performance. roller -- rollovers should be only on an exceptional basis. the agencies themselves should figure out when it would make the most sense. we are hard-pressed to figure out where it would make sense. i think that incentivize naation has been a real issue. dod has shown results in some

cases. >> the dod was able to make significant improvements. what is the appropriate time when four other agencies to implement these practices and what kind of oversight can we in congress provide? are there circumstances where it would require penalties? >> this goes to some of the work that i have done in the private sector. you can take the best practices of one organization and apply them to hours. we know that change can happen and it can happen pretty quickly. we're benefitted here in that there are five agencies that represent more than 95% of the dollars. by having them were close together to share best practices and the best policies, i believe we can quickly improve

this situation. i think that the dod and nasa and some others have practices that we need to ensure that we codify and teach and implement as soon as possible. >> what role can week in congress -- are there any penalties for those other agencies? >> i think that holding accountable as york today is the way to do this. again, it is a focused effort -- accountable as you are today is the way to do this. again, it is a focused effort. >> there are certain penalties that he must pay -- i do know if they are federal rules or not -- but having dealt with the state contractors, you cannot overspend the line items or, if you do, there has to be illegal transfer of funds.

how can this mechanically takes place with the overspending? >> is a train that i do not know a lot about. -- it is a train that i don't know a lot about. >> i and then, mr. chairman. >> i think we have a couple of members on the panel who have been orders for the state. -- who have been auditors for the state. thank you. >> mr. hutton, can you give us a historical perspective of how we drove into this ditch in the first place? it is amazing to me that there is a sentence in a gao report that reads as follows. the department of defense now prohibits payment of award fees for the unsatisfactory

performance. where i come from, that would be a head-scratcher. how did we get to the point where we began paying award fees for the unsatisfactory performance? how did that happen? >> it is difficult to generalize, but one thing that we noticed in our recent work is that, at some level, it becomes a way we do business. at one particular location, an air force contractor dock fees. then they said that we're not going to give you the fees and we are not to roll it over to the next evaluation period. and the contractor came back and said, can you roll it over? and they said no pig in part, there's a culture change with respect -- and they said no. in part, there is a culture change with respect on how the vehicle is applied. >> the culture change would

never have happened in the private sector. i remember my first encounter with this was in the armed services committee. there was a very long hearing where i kept going, huh? it was an amazing revelation to me that there had been time after time -- and we actually drill down in that hearing and there was a formula that they were using. i get to get to who decided what to this formula is. it became clear to me that it was one of the regulations that had been put into place that no one was taking seriously. there were going through the motions of doing some kind of contract evaluation appeared but at the end of every evaluation, there was the same outcome. there was this mentality that there was paper work that we have to do, but once we get through the paperwork, we keep doing what we always do. are you saying that, based on the report, you'll have issued that that has changed at the

department of the pants or they have improved their regulations? >> i have -- they think -- i think that in some initial steps. we did see in some spaces the ship, so to speak, starting to turn. i must _ that -- i must underscore that the job is not done. they need to make sure that the contracting activities are executed as the guidance would suggest. >> one of the many challenges is, as your report found out, that the dod, in terms of contract in, makes an octopus look like it does not have many lakes. all different kinds of contracting commands are not observing the same rules and

conduct within the airforce. you have different contract in commands that are not doing the same thing. i am curious. in your work, did you find a contract for they had denied a performance bonus? >> yes. >> you did? >> i would probably have to get back on record for specific examples. i do believe werthere was a contractor that did not receive an award. >> that is a needle in a haystack type of deal. mr. zients, are you aware of any contractor who has successfully sued for a performance bonus after they have had or have been told no? >> it is not something that i have looked into.

i do not know either way. >> mr. hutton? >> the use of award fees is a unilateral situation with the government where the government tries to incentivize certain areas. the contractor may come back and say, i have more information that may make you think differently about the valuation. but it is a government decision. >> would there be something that would be too radical by saying that we're not 22 anymore award fees contracting? >> my instinct is that there are situations where they do apply and they do apply when implementing correctly to protect the government's interests. >> will you give me an example? >> something that doesn't relieve research focus -- it

would be 100%. if you focus it this way, you might pay 85% and put a piece at risk so that the current producer that if the contractor underperforms, -- so that, if the contractor at underperforms, then use 85 percent, not one hon%. -- not 100%. i think you want to minimize the use of these and apply them only two situations where you cannot assign the objectives up front and measure them. we have to be careful. it is easy to say you cannot and then default.

>> mr. hutton? >> some of their password has indicated that you have to go 3 thought process or risk assessment as to whether this type of vehicle is going to give the government better opportunities to enhance the contract performance. but you also have administrative costs. do they out with the benefits of using that type of protective vehicle? we have done work in iraq where a cost plus award fee was used for some types of contracts and it was difficult to have the award fee board meeting and be able to discuss whether the contractor has performed enough. you have to understand the environment you're going into. you have to have a cost benefit to administer a person. it also have to have efficient people who are trained to receive particular contract security use this kind of vehicle. there are lots of different

things that one has to consider. what they're trying to do is focus on that initial decision- point as well and bring in more rigorous to whether this is the right vehicle or not. >> i understand we could withhold some cost to make sure there's performance before we reward the whole contract. but i thought mutt -- i thought the top of my head was on to popoff of my head in the other hearing. it was unbelievable this hearing about the contractor's performance and what they had been paid as bonuses. these were costs plus contracts. under what circumstances, if it is not a time consideration -- we are getting no help on the cost. under what circumstances would be -- >> these are costs contracts that have an award associated to

them. if it is not linked to performance, then we should all get very angry. that does not mean that there is no place for these kinds of contracts. it should be more limited use then there is today. they should be implemented in a way or the award fee is tied to the contractor's performance. >> i think the best example is that there have been a number of hearings about this. the best example is that the company that wires the showers that killed our soldiers -- they got performance awards for that contract. they managed to kill american soldiers and we bonuses them up. we have to change the way we do confecting in this country on

behalf of the public. think of that example and it will keep your passion where it needs to be. thank you, mr. chairman. >> thank you for joining us and your passion on this. have you had a chance to look at the testimony from the second panel? >> no, sir. >> you may not be here when they speak, but if you have a comment that you would like to share with us about anyone's testimony, i would welcome that. >> i would just repeat that it is very focused, five agencies. there are various degrees of improvement overall. there are some best practices and some worst practices. we should take into the fact that there are only five agencies, figure out what is working, and teach that and spread that as quickly as possible. figure out what is not working and teach that and make sure

that we eliminate that process. >> i mentioned the year first -- i mention the air force in my opening statement. it is pretty bad to receive 85% of the award feet up for grabs. one homeland security official gave and contract award for something that was egregious and "wasted taxpayer money." agencies pay 85% of the award fee in general. some agencies still expect that they will be giving contract award fees in every period. the question is where the contractors get a couple more dollars year or get it there.

this is the last question i am going to rescue. if this is true, are they using the award fees the way they're intended? >> no. given their performance, it is far from that expectation. tidying the award fee percentage is more closely to the actual percentage is essential. >> why do you think that this behavior continues to persist at a number of big agencies? mr. hutton? >> our work at dod clearly put the spotlight on duty back in 2005. i think it is a situation -- they found that some of the people at the agency did not

even see the omb guidance. it needed to get down to the hundreds of contracting agencies coul. 9% of the dollars -- this type of form, where we are discussing these issues, you will see another panel were the agencies are up here and there will be employed attorneys to ask questions about what they're doing in response to our recommendations and what kind of efforts they have underway to improve the guidance and it ensure through leadership that these new guidance is are executed across the board and so that the government is in a better position. >> if you look at the department of defense, sometimes we look at the secretary as a person who is making sure that the railroad, if you will, is on time or on schedule. i think that the deputy schedule

-- the deputy secretary is more responsible for that. the deputy secretary of defense in 2005 is not the same one in 2007, 2008. the person who is deputy today is certainly not the same 13 a lot of these senior jobs have a fair amount of turnover -- are not the same period a lot of the senior jobs have a fair amount of turnover. -- are not the same. a lot of the senior jobs have a fair amount of turnover. we have to be unrelenting and persistent. >> i think that is right. i also think we need to make sure that we hardwiring these changes so that they can last from changes of leadership. setting the tone of the top is absolutely correct. once we have changed, we have

too hard wired into better rules and training and education so that, as we have the notable turn, it does not step back. >> i was talking with one of my colleagues the other day and talked about how over the last eight years, we have increased our nations' debt more than we have in the first 200 years of their nation's history. it is important. taxpayers expect this to be good stewards of their money. .

it reminds me of an old saying, if you want to go fast, the loan. if you want to go far, go together. we want to gofar in terms of making reductions in inappropriate award fees.

in order to do that, we have to go together. we appreciate your presence here. we ask you to redouble your efforts along with everything else that you are doing that is important. we thank you. and i am going at ask our second panel of witnesses to come to the witness stand. thank you, gentlemen. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] welcome to our second panel. this is all that we have done offer you besides the warm welcome. the first introduction will be

for mr. assad. mr. richard and ballet, mr. simpson, and mr. allen. the first is the director and acquisition of policy. he is also a navy veteran. which navy destroyers to server bored? ok. naval academy graduate in 1972, great credentials. i said that as an old navy flight officer. i was on active duty at the same time you were. we thank you for years -- a previous service to your country. our next witness, associate administrator at nasa. prior work, a 26-year-old military career in the united states air force.

had you ever been to dover air force base? >> no, sir. >> we're very proud of our air force base. the first base deceit -- -- the first to receive the commander- in-chief award. we thank you for your continued service today. our third is richard gunderson, who works with the apartment, and security. -- the department of homeland and secusecurity. thank you for joining us. our fourth witness is the director of the department of energy. you've been there since 1979? since then, if you have worked in procurement related positions

for the agency. our final witness is the executive vice president and counsel for the professional services council. prior to his current position, he worked as a vice-president of government services at at&t. welcome. your statements will be made part of the record. summon up in about five minutes. if you call a little bit over that, that is all right. if you go lot of that, how would you to come back to our schedule. the board's for my ever nation, -- >> as you begin your comments, just note that you can incorporate that into the beginning of your comments. >> members of the subcommittee, i've been the director of defense procurements since april

2006. that is when i came on board didn'tdod. members of the subcommittee, i am the director of defense determine an acquisition policy. i am also serving as the acting deputy for acquisition and technology. i want to thank you for the opportunity to participate in today's hearing, examining whether it they are successful late incentivizing contractor performance. this is important about the war fighters and taxpayers, services that meet or exceed our performance expectations. over the past figures, there has been a sea change within department in the way the award the contracts -- the award fee contracts were deployed. we started making changes in 2006 and 2007, made the

necessary improvements to our practices and risk -- and have realize significant savings as a result. we have enacted provisions enacted by congress to limit them to acquisition outcomes, to define the circumstances and standards for paying out based on contract performance, and ensure that no award fee is paid for contractor performance that is less than satisfactory. we must outline contractor profitability with performance. as access to it -- as secretary gates has testified earlier this year before the senate armed services committee, as we must write contracts that incentivized proper behavior. to the extent we continue to use this, we are now focused on results and not on process. one important safecard is the requirement we established -- safecard is the requirement that

these must be required. by elevating approval to this level, we ensure that senior leadership have awfully considered what should be selected use of our arrangements. the department had incorporated there a requirement for a thorough review of incentive arrangements, especially award fee criteria. we're looking for acquisition strategies being structural so that objective criteria will be used whenever possible to measure contractor performance. most reviews began by engaging the program manager to understand the key measures of success to ensure that appropriate incentives are built into the contract. in the post award timeframe, we lead to make sure that these paid were consistent with policy. the department is without doubt

moving away from the use of your award fee interest. they are looking for a mixture of incentive and award fees when necessary. in our analysis of the 2008 data, there were only 30 new all ward fee contracts issued in 2007 and 10 in 2008. in contrast, between 2004 and 2006, each year at least 65 award fee contracts were awarded. in those limited cases where they are appropriate, where only subjective criteria are possible, or where it is not feasible to have predetermined criteria, they must be linked to desired outcomes. thank you for the opportunity to address this. i would be happy to address any questions that you may have.

>> when we get back to the question and answer, you talked about the declining of ward of outward fee contracts. i will be asking you if there is anything that those relatively few contracts awarded in the last couple of years, is there anything that they have in common? why would they be appropriate not? thanks. please proceed with your statement. >> in answering the question about my time at nasa, i came to nasa and october 2005. i was special procurement advisor for the exploration system that i was distorting. in august 2007, i assume the position that i currently have as the assistant administrator for procurements at nasa. thank you for the opportunity to testify regarding nasa's use of award fee contracts to incentivize excellent performance. nasa is unlike civilian

agencies. our programs and projects in all space exploration systems, science and aeronautic research, and space operations, and have one thing in common. nasa is pushing new boundaries of technology and science. there are many challenges involved in managing and performing high-risk programs, and missions. they are full of uncertainty and challenges and a about high risk acquisitions. nasa utilizes these contracts at many of these acquisitions. nasa uses fee contract when key elements of performance cannot be objectively measured. in the situation, most elements of contractor performance can only be evaluated using subjective criteria. to ensure these criteria measure accurately, the actual award fee earned by the contractor is determined by a rigorous

process. a performance evaluation board made up of many functional disciplines is established to evaluate the contractor's performance. this board submits an evaluation report to a determining official who determines the fee for a particular period. under nasa policy, a contractor will not be paid any award fee or base fee for any sucpromise below standards. a key part of this process is to prepare a cost-benefit analysis that compares the additional cost of administering an award of fee contract against the expected benefits. nasa's policy requires that all board fee contracts can tear clique -- clear, unambiguous, and measurable criteria that are

linked to cost, schedule, and technical requirements of the contract. the leaking of award fee criteria to outcomes in stores at that the contractor has the incentive to control costs while providing a high quality supply it to the government in a timely manner. nasa has implemented tracking of all award fee as part of its baseline performance process. this review is an independent monthly assessment of selected nasa programs and projects. it outdates nasa senior leadership about contractor performance as measured against the approved baseline for the acquisitions. as part of this review, the award fee ratings on selected programs and projects are explained and discussed relative to contractor current performance level. this review is done to ensure that that is consistency between

the performance of the projects and programs with the associated of order fee scores. nasa is part of an interagency working group that will be on evaluating the effectiveness of award fees as a tool for improving contractor performance in achieving desired outcomes. this working group is also developing methods for sharing information on successful incentive strategies. we are actively participating on this interagency working group, and we're looking forward of implementing -- to implementing the eventual recommendations from this group. i thank you for this appearance and i would be placed answering questions. >> thank you so much for your testimony. mr. gunderson, please proceed. >> members of the subcommittee, but thank you for the opportunity to prayer -- to appear before you to discuss the department of homeless security contractor and program, in particular its use of award fee

contracts. yes. >> i was asking how long you had been with the department. >> i have been the acting chief procurement officer since this january, and previous to that, i came to the apartment as the deputy chief procurement officer in may of 2008. i have been at this department for 16 months. as the acting chief procurement officer i am the executive responsible for the management and oversight of the acquisition programs. in that capacity i oversee and support 10 procurement officers within dhs. in conjunction with the respective contracting offices, my role has been to provide the needed services to support the dhs mission. we need to demonstrate that we're but stewards of the taxpayer money. the threats that we face are variable. as a result the acquisition program should be able to adapt and identify a variety of

solutions. semele the officers must assess and determine the appropriate type of contract. various factors including complexity, recognizing the performance risk, it to successfully meeting the program's objectives to include cost, schedule performance, or a combination thereof. one of my priorities is focused on making sound business decisions that enable us to accomplish our critical mission. the -- we have a policy and legislative branch which is responsible for the development and establishment of procurement policy. hall insecurity acquisition regulation and manual were published in 2003 and have been updated to reflect current statutory office of the dhs mandates. beastie w a documents provide the foundation of procurement

policy that is adhered to by each of the 10 contacting organizations. my office also participates in the federal procurement policy making through its participation on various committees, including two working groups addressing the subject of today's hearing. with respect to our policy on all boards fee contracts, our guidance is effectively consistent with the guidelines. this includes successful form as an exceptional use of roll over. developing an issuing policy is not effective on was the work force is aware and understands the implementing guidance. we accomplish this through a multilayered approach including all policy working group, communications to the contracting community, and through discussions with had a contract in council. we utilize the full variety of contract types described in

support of our diverse acquisition program to rid the preponderant support of our programs are for a fixed price. this includes 70% of all boards and 50% of our dollars. however not all requirements are for fixed-price contracts. in this instance w-- in those instances, with a strategy to identify areas of emphasis and establish a pool for the contractor to succeed. there is a base fee and an award fee. at the government's a violation of the contractor's performance as positive, a percentage of the war fee pool will be awarded as defined in the plan. as a result, under a properly structured award fee contract, a contract of unsatisfactory may

earn at least the same or perhaps more fee that if it only is the fixed fee structure. conversely, performance below satisfactory will earn only eight base fee which is significantly less that they would have earned if there had been at a fixed fee. it is a positive and negative insecincentive. dhs is committed to awarding quality conscious that deliver mission capability and represents sound business judgment, including compliance with federal procurement and guidance. i thank you for the opportunity to testify about our use of award fee contras. i would be glad to answer any questions. >> mr. gunderson, thank you. mr. simpson, you are recognized. please proceed. >> i have been with the department of energy since 1979.

i'd bet my current job since february 2006. i also served as the senior procurement executive of the department energy. there is a separate contracting authority there. >> it was the secretary then? >> i do not know. >> please proceed. >> thank you for the opportunity to come before you today to present the department of energy's views and perspectives on a recent u.s. government accountability report entitled "federal contract." it is not consistently applied. i'm pleased to be here today to address how we are effectively using cost plus award fee contracts. we're the largest civilian

contracting agency approximately $25 billion. the central element of our contract instructor is a cadre of special conference called management and operating contracts, which have their origins in the manhattan product and have endured under doe and its predecessor agency. this is for the management and operation of government-owned research facilities, they are unique in all of government, and require a special authorization by the secretary of energy. many facilities are funded with a special designation because of their criticality to our mission. because of the brought mission and work schedule this conference, they are costly. in addition, doe all boards and administers thousands of other contracts set represent the full range of fixed-price and

reimbursement for goods and services typically acquired by most federal agencies. in its study, jao noticed some aspects of our contracts. specifically, they concluded that for two of the four practices recommended, doe supplemental chitin's is in accordanc with their guidance. fjao also noted that we should strengthen our policy for the other practices, emphasizing excellent performance and prohibiting payments for unsatisfactory performance. we will address these concerns immediately. shortly we will issue policy that will strongly emphasize contractor performance results in for him as payments for unsatisfactory performance in a language that is unambiguous and consistent with guidance. doe's policy adheres to federal

acquisition regulation requirements. there is however a need for consistency and rigor and the use of award fee. we should incentivize the contractor performance excellence. i fully support the recommendation that we establish an evaluation factors. definitions of performance, associated fees, and infatuation scales that motivate performance and prohibited fees for unsatisfactory performance. it is effectively using these contras to incentivize excellent contract performance. it is in line with the guidance in december 2007. we will strengthen that policy by issuing amplifying guidance that addresses the concerns raised byjao and recognizes that our major programs, all board, and the requirements need to be tailored to their different mission portfolios and contract objectives. specifically, we will is

expected guidance in choosing the right contract time, determine ratings and other categories, and the fee paid for meeting the standards. and ensure that the fee is not pay for unsatisfactory performance. we are committed to working with any interagency group to establish how best to what i weighed this is a tool for improving contractor performance. this concludes my formal remarks. i would be happy to respond to your question. >> thank you, mr. simpson. >> thank you, mr. chairman. i've been a special service counselors for nine new. before that, tenures at the at&t. in private that, tenure as a senior counsel for corporation which is now part of united technologies.

thank you for the invitation to testify before the subcommittee today. special services council is the leading trade association industry. our association it was hundreds of thousands of americans and all 50 states. performance matters. contractors need to understand that the contractual relationships and requirements imposed in a compliance obligations undertaken. it is appropriate to look at the business relationship between the government and the contractor. they need a contract like to understand performance obligations. there are many fallacies about award fee contracts. some say that it means more profits. the second myth is that it is paid even for unsatisfactory performance. it ignores the key elements of the government-established of order fee plan that structures the outcome is to be achieved in the methods for about the

wedding the performance. it also fails to recognize that prior to reset regulatory changes, satisfactory performance often meant that the contractor fully perform according to the award fee criteria, not merely what basic contract requirements. but there are many truths about these contracting. these are typical contract for agencies to write and for contractors to compete for. -- these are difficult contracts for agencies to write in for contractors to compete for. there many factors that can be evaluated. second, the selection criteria must be directly related to the objectives to be accomplished and must active late measured the intended performance objectives. and finally there must be knowledgeable officials for the objections to it -- for the o

goals to be achieved. there is another important factor to put on the table. the federal acquisition regulation provides an award fee fee contract having two basic infect --, -- parts. when an agency as they base fee, famous for that has an obligation. of the past that role cover -- over the past several budget cycles, they significantly shifted funds away from traditional fee amounts, adopting a zero about fee approach, and allocated more into the ofaward fee part. budget rules helped drive

contract practices. it was an intentional contractual difference between base and award fees. once the award fee is established, it must be adhered to by all parties. there needs to be a fair and justifiable determination, and pay accordingly. too often we hear about agencies delaying their review of the submission or failing to make any determination. it fails to make payment for the schedule. by breaking faith with a contractor over this plan, the agency'ies put many companies at greater risk. in conclusion, caosost plus award fee is a useful contract.

people should be available to -- allowed to choose the best possible contract. agencies must also have the flexibility to implement that guidance in a manner that takes into account specific requirements and market needs. the five agencies identified in the report should ensure that the tibet -- the december guidance is implemented. regulations are already in process. we should give the agency is an opportunity to take administrative action, implement their own guidance, and give the acquisition process a chance to work. thank you for the interests -- for the invitation to address this important matter. >> thank you for your testimony. you give us a different perspective on an important issue. but as question i'm going ask is of each of our panelist.

the back to the what the witnesses in the third panel had to say. tell us that there is anything that they may have said that you disagree with, strongly, or have a different perspective on. think about that for a moment. one of the departments that we ask to participate is the department of health and human services. i am wondering if any of you can share with me them might have been inappropriate person to come from hhs, may be the chief procurement officer? there might have been inappropriate witness from the department? >> they had a management level. i know in the department of homeland security, we have an undersecretary for management. >> do they have a chief procurement officer hhs? >> yes, they do, nancy

gunderson. >> is that your daughter? >> no. >> what a coincidence. actually she is your wife. >> yes. >> she could come and testify for both agencies. i say that time and she. -- i said at tongue in cheek. back to our first panel. is there anything that our panelists said in the first panel that you would like to revisit, mr. assad? >> mr. chairman, not really. i was fundamentally aligned, frankly, with what the findings were back in 2005. that is why we kicked off the change that we did with in the apartment. >> thank you. mr. mcnally, anything you take issue with? >> no, chairman.

the two issues that i would bring up that are really critical are is to establish a consistent policy, which we will be working on with the inner edges in working group to set up a guideline and the regulation. but then comes practice. what agencies actually do with the guidance that they have. the one thing that i would ask is that agencies to allow to practice that corporate type of contract based on the missions, like at nye said -- like an up with high risk imagines -- like at nassau with high risk missions. >> anything that you take issue with? >> not that i take issue with. one of the larger challenges will be in the area of the during our way of determining or evaluate the effectiveness of these contracts? that is something that we will have to put our heads together to find out if we can collect a lot of data, but will it surely show less?

it will be a difficult thing to get through. >> even in cyber terrorism, they collect a lot of data and the question is what to do it to make it -- to make us less vulnerable to those types of attacks. do you have a perspectives from sir? dollars >> we agree with those recommendations. and looking at the regulatory framework under development, there is a risk in creating such a prescriptive regulatory framework that you ultimately develop a one size fits all. in its essence, a contract is a business relationship. agencies need flexibility to be able to enforce those contracts with rigor. and we might have another overly burdensome reporting system that are front-line officers have to

fill those requirements. they are already burdened with a number of other responsibilities. the affirmation is good to get but we need to be careful that we're not creating more work on already stressed work forces. >> thank you. >> i am not sure i know where to start. >> i think about a minute. >> the report continues to perpetuate -- there is a difference between the performance of the core requirements and the incentives that the agency is trying to achieve through an award fee process. they continued to talk about a satisfactory performance and mixing contract performance with performance against an award fee plan. they mask the real differences and intentions of that whole process, all contractual relationship in an award fee structure.

i agreed with him. i think performance matters. the selection of contract type is critical. all wore fees have a place, but only five of of the federal agencies are using 95% of them. it may not be what is necessary. four of the five agencies are sitting right here and one of them has already implemented a lot of that 2007 requirements. we may not need all lot more law or a lot more regulation to accomplish the objectives for 95% of the government. it may not be the work they get the last five%. -- it may not be worth the effort to get the last five%.

>> there was an idea of creating an informal mechanisms to share best practices. mr. mcnally, if i heard testimony correctly, he suggested that there already is such an entity. nasa is participating in one end is already beginning to work. please clarify that for me. >> there is an interagency working group. i have a member of my staff on it. right now they are actually waiting to look at federal acquisition regulation changes to then decide what further practice and guidance which it put out to supplement the regulation. but one of the things that was brought up earlier is that even internally in some agencies there is the challenge of getting out best practices, at different buying centers and command centers talk to each other, and without the technology we have available today, there is no reason why we

should not share best practices within our agencies, but also across the government. as mentioned earlier, if 95% of all or fee dollars are with five agencies, we should be getting together and sharing best practices, not just on all or fees, but other incentives as well. >> my time has expired. you are recognized. >> the reason why i asked for the time periods is that i assumed that most of the gentleman here from the four agencies were relatively new at their positions and that you will begin to undertake these major changes and hopefully we will see some major improvement, which began to wrestle and implement some of the suggestions coming even coming out of this hearing this

afternoon. but mr. mcnally, i was a little concerned at the number of how many of board fe how many of these award fees dod was dealing with. d you have a number of how many contracts there were all know what -- on an award fee basis? >> we had 283 that were active award fee contras. at thousand 120 contracts. >> that a 70%. -- that is 70% did you say were faked. >> in the same timeframe, we had 68% at fixed price.

>> under the highway structure, i recall an illinois when you prepare -- repair are expressway's -- our expressways, there are bonuses for pay for early completion of the projects. in any of these arrangements in your agencies, are there penalties involved -- are illinois contras had penalties involved. you get the pylades fixed in an extent with the bonuses. that is the way that they have the incentive to finish those construction jobs a little bit early. you also help the motorist can get out of the ways of they have somewhere to go, not get tied up in all of that traffic. i wonder whether or not there are any types of penalties that are put into into these contracts that you all deal

with for nonperformance, late performance, or inadequate performance? any type of penalty you put on these contractors remarked >? >>? i -- i would be surprised if there were more than a handful that have "penalties was " associated with them. we are looking across the department at the appropriate use of what would you call liquidated damages, or penalties for late completion. we are looking at that right now as an appropriate mechanism to use in some contracts. >> anybody else? >> i would agree that an award fee contracts scenario, i have not seen the use of penalty. in the area of incentive contracts which evaluates the

objective measures, you can see scenarios where the contractor not only can make money but they can actually lose money at a cost that they are getting. >> take away from what would be their profits? >> that would be on the negative side if they performed so poorly. that is an objective scenario. >> at your agency, and you have any type of penalty involved in the failure to perform or inadequate performance? >> yes, sir. we have a contract clause, conditional to inhofe. it is linked to environmental safety and health and security matters. it provides a great approach based on the severity of the infraction occurred regardless of what the contractor earned during the rating period against his performance rating

plan, that the determination official can take a portion or all the way based on the severity of the infraction for that rating period for violating certain security aspects. >> and a general question. in terms of the budget, how do you cover the cost overruns? if you get a budget line item on a missile program or jet fighter program, and the program starts going into the millions of dollars in cost overruns, it is supplemental appropriations to transfer funds? how d you cover these in your budgets? what are these situations? >> senator, that is problematic. what happens is either well for moorings programs are sometimes hard because the funds have to be transferred from one program to another, we come back to congress and ask for permission to do that.

other times, we have to come back and requested additional funds for contract performance. contract overruns, especially significant amounts, are particularly problematic. >> we heard senator coburn we got a list of cost overruns. something that happened just recently. when any of those apply in your agencies? anyone have you come any monday regis is? >> he mentioned the international space station. our contract with boeing. i believe he mentioned a contract back in 2004 and 2005 with the department of defense. >> did you come back to congress and get more money or shifted money around? >> i was not there, senator. >> i was not there during that time, either. >> a good time not to be there. how about you, mr. gunderson?

>> i did not see here at dhs contact listed. >> i did not hear him mentioned doe. >> and you do not have cost overruns at your agencies? >> i am not saying that. >> he did not hear senator coburn say anyone. >> are right. >> call me allen. >> senator covering got a very well. -- senator covering guided very well. -- coburn got it very well. all the report of cost overruns

and some of the items on the list had big numbers, many of those are as a result of program changes, schedule changes that the government makes, some are quantity changes, requirements changes, and so there is a mutuality of responsibility. not all that falls on the contractor. but in some -- but we're not suggesting that the contractors have no responsibility for performance. >> just one question. fixed contracts and cost overruns, did the contractors have to eat that? > yes, they parable responsibility for the killing at contract at that price. >> that losses of soared by the contractor. >> and 70% of all government

contracts are awarded on a fixed-price basis. 70% according to the omb numbers. >> thank you, mr. chairman. >> thank you, senator byrd's. thank you for your attention to this as well, given your background and experience. it's helpful the have you and senators like center matt cassel -- senator mechanicaccas. a return to the issue of rollovers again were contractors are given a couple of bites at apple. let's start with mr. assad. your agency's experience with rollovers, is that less frequently, about the same, or more frequently?

>> it is definitely a trend in to the less frequent. >> in the terms of use of roll over. mr. mcnally? >> nasa policy and practice prohibits the use of rollover. >> how long as the been the case? >> i would have to take that off the record. before i arrived. >> mr. gunderson. >> i share the same concerns from the committee in respect to the use of roll over. i actually recently issued guidance that said it would only be used is a -- if approved by myself. >> mr. simpson. >> doe as a similar provision on the use of a rollover. it requires my approval. it's an not be used to give the contractor a second bite at the apple and forms of a -- in terms of reworking unsatisfactory work. there may be appropriate uses of rollover if there are accelerated our new

requirements and it is in the agency's interest. but it should not be used to give the contractor an opportunity to earn a fee that was already lost for work already done. >> we have had the hearings in this room before and talked about cost overruns and i.t. projects. one of the things that we learned, a handheld device is that was developed for the census next year. one of the things that we have learned is that sometime agencies, and outlining what their needs are, are not very clear at that outside. -- at the outset. they do not know what they need from a contractor. their demands and objectives are modified as time goes by. yet a contractor who might be chasing an objective that continues to change.

i am wondering if we sometimes use award fees when they have not done that type of job that they should be, scoping the job that they seek to bid. they change the scope of that project and then to find a way to compensate the contractor for chasing a moving target -- does that sort of thing go on? or is that conjecture on my part? >> senator, that is not conjecture at all. that is the fundamental reason why you see a significant reduction in the use of award the contracts in the department of defense. there are numerous contracts to go back and look at historically, you see that particular situation that you are describing occur. what we're doing is stepping back from these things and insisting proper contract planning and an understanding of

the risk structure before we get under contract. what you have described is the reason why the use of an old fee contract in the department of defense would be the exception rather than the rule. >> anyone else would make a comment on that? >> if yes, mr. chairman, what i would like to say is there are probably three important frameworks of setting up a contractor in the first is to identify what is your true requirement? in nassau, we have set out a zero base requirement. we identify what how come we want and only put requirements in that support that outcome so that we are not spending money on requirements that are not really needed. the second thing is to have the available resources, stable funding to support what you wanted to and what you want to buy. in the last thing is to select a vendor who was going to do the

work that you set out within the contract. to me, those are the three important things on any acquisition. >> i have also heard that a fourth criteria would be to have people at the agency capable of monitoring the work of contractors and evaluating network. a couple more questions and we will excuse the panel. thank you for bearing with us this long into the afternoon. while reading some of the testimony and speaking to my staff earlier, it seemed that not every agency -- a number of the agencies have different opinions on when a contractor should be awarded afee and how much. i think i quoted the air force

spokesman earlier who talk about awarding an award fee despite stating that some of the work by the contractor was egregious, well below par. why it believes some contracting officials are still awarding contracts even though the finished project is just average or in some cases not just average, substandard? why does that still go on? >> folks get wrapped up in measuring process in interim success rather than keeping their eye on the ball and see what is the final outcome of the contract. what are we buying for that taxpayers? are we getting what we contracted for question mark do we believe that is when happen? folks get hooked up on the is to

award the period. what was accomplished there, and they do not tie that work to what impact is going to be completed in the internet that is why we are pushing people toward the close of ward fee being tied to outcomes. >> thank you for saying that. i welcome your comments. >> as i mentioned in my opening statement, one of the aspects is a rigorous process. at nasa what we utilize is a performance evaluation board that follows the nascent guidance and guidelines on how to conduct and evaluate the contractor performance, and we tie it back to that contract compliance and evaluation criteria within the contract. it is key to have good guidance out there and then follow up with the practice. at the other thing that i

mentioned, at nassau we have a monthly baseline performance review debt is looking at the performance of various projects and programs. and then going back and looking at the scores of award three contracts to make sure that the performance that is going on within a program or project also is measured, and how it compares to the award fee scores. yet there is any disparity, senior management gets involved in asking the questions on why they are different. >> mr. gunderson, any response to my question? >> the only thing i would add is when you look at all the factors being considered, one of the examples brought up earlier referred to an egregious communication or performance on the dhs contract yet they still receive some fee.

in that situation if you get all the factors that were laid out in the contract in respect to the way things -- weighting, there are other positive areas like increasing the operational a bill ability of equipment -- availability of equipment. many streets that were identified as well. yes, there was a negative finding by one of by way -- by one by a waiter that cited a challenge area appeared but there was overall sufficient performance to grant a certain level of award fee. but in subsequent periods, the contractor failed to take piece of concerns that were identified in the subsequent periods. no i award fee was awarded to that contractor. >> mr. simpson. >> i will not repeat what is already been said. i think that the other element here that gets us into that type

of said jubilation is that we do not use enough objective measures mixed with a traditional subject of measures. that is still an area and the award fe disciplines that agencies have not worked that hard enough, how to work objective measures into the subject of the ones -- subjective one. >> there are other issues before the senate. i asked staff to add a question that he would like to ask, had he been there. they have given me one. i will leave it for you. that says, please ask him his thoughts on whether his member companies use of award fee contracts, and if so, what these companies think the problems we

highlighted today could be addressed by the member companies? and lastly, what would they do about it? >> mr. chairman, many of our companies are using a warm fee contracts. these are established by the government as part of the business relationship. certainly contractors have a responsibility and accountability for -- in the bidding process to make sure that the award fee plan, that the structure of the contract, the elements, the incentives, and the metrics are appropriate, so where there is a lack of clarity and obligation to come forward with that. too many times the goal is, we worry about it during performance. this becomes difficult and performance issues. it difficult -- the difference between base fee and zero ward fee, making clear that it is not

a bonus is spelled out. and how to make a determination to evacuate and al award fee. our member companies are active and all four of these federal agencies. we watch these issues very carefully. there is an important discussion about what we can raise during the solicitation process and then, once awarded the contract, to make sure that performances are primary and that the elements in the award fee plan are followed. >> well, please. i appreciate your sticking around so we could get to this panel, to here for you, and for you to respond to our question. there were some of my colleagues who were not here who wanted to submit questions for the record.

if you could have your responses back within two weeks after receiving our questions, we would appreciate that very much. reflecting on what we heard from this panel and what we heard from our other -- our first panel, a couple of takeaways -- we always think about takeaways. what should be the takeaways for russ? one is the notion that is really important for us to get it right in the beginning, and clearly outlined what an agency -- what are their objectives? for them to know that and to clearly communicate what their objectives are, but they need from contractor in the first place. second, and i am not sure who said it, maybe mr. assad, mastering outcomes can process. a couple of you touched upon -- i think one of you, maybe from

nasa, talked about cost-benefit analysis, using clear, measurable criteria as an important point. we need clear guidelines from omb. .

of awarding these two fairly senior leadership people, in some cases, or at least to say that when we are going to have these rollovers, we would get more than one bite out of the apple. that decision goes up to a fairly high level. those are just some of the ideas. this afternoon and this evening, during the course of this, for some, this is pretty dry stuff, but having said that, people get upset when they think their tax dollars are not being wisely spent, and i do, and i know that other folks do. we would not have much appetite for that if we were running sensational budget surpluses, but as it turns out, we are running substantial budget deficits, and we have done that for much of the last eight years, and every little bit helps, and in this case, talking about billions of dollars that

may have been misspent, and my hope is that as time goes by, we will wrap our hands and our heads around that and reduce the inappropriate awarding of these fees, and, hopefully, based on the work that is being done, some of the i.g.'s, you, your counterparts, and most of us that serve on this committee will do an even better job, and the purpose is to try to make sure that happens. we have a history in this subcommittee of not just focusing on an issue once and then going away but continuing to focus on it so that those who, along and provide in your roles, or those secretaries or deputy secretaries, they will note that this is important and that we are hearing to put a spotlight on behavior that we want to hold up as a good example, and just as well as we would put a spotlight on behavior which we think is

inappropriate, so i think you very much. thank you for the good work that you are doing, -- so i thank you very much. for those who are not, we say that we need them to do better. the taxpayers need them to do better. we expect them to do that. we hope that the department that was not able to come to they will have the chance to share some of their thoughts with us outside of the committee. we may have a private meeting with one or two of them to see how they are doing. the last man, not your jobs, but we have a lot of discussion, a lot of senior positions, and some that are not so senior in various federal departments that we required the administration to submit, to nominate, somebody, and we require that to go through senate approval, and in many cases, that makes sense, and in some cases, it does not. in some cases, they will hold up a nominee for no really valid

reason except to try to make a point, and that is unfortunate, and as a result, we have them in this administration, and we had them in last in administration, we're going long period of time where we do not have the folks in their job. if you remember, there was a fellow here one year or so ago, and he testified for the department of defense, and was a senior acquisition person who worked with john young, who was a very senior guy, and who worked with bob gates, but i asked this person who worked with bob young and the department of the secretary's office, "how long have you been in your job?" and he said, i think he said something like 1.5 years, and i said, "what kind of turnover did you get from your predecessor?" and he said, "the position had been vacant for three years, three years." and asked him how many reports said, -- he had, and he said

six. that is just unacceptable. these are issues that we need the folks not just the kind of stuff that we talked about here, but others, but thank you for helping us to flesh out the picture and get our heads around these challenges just a little bit better. again, if you would respond to our questions that we submitted in writing within two weeks, we will be grateful, and with that having been said, this meeting is adjourned. thank you. [gavel] [captions copyright national cable satellite corp. 2009] [captioning performed by national captioning institute] >> tomorrow morning, a senate

panel looks at the obama administration's financial regulation plan. we will hear about a proposal to consolidate two agencies charged with regulating banks. live coverage begins at 9:30 a.m. eastern here on c-span, and later, on c-span3, the director of the federal emergency management agency testifies about the needs of children before, during, and after disasters. live coverage on disaster recovery begins at 10:00 a.m. eastern. >> starting tuesday, the full senate debates the nomination of sonia sotomayor for supreme court justice. watch live on c-span2 and c- span.org, and coming this fall, tour the home of the highest court, the supreme court. >> now, talking about the agriculture spending bill. from "washington journal," this is 30 minutes.

nebraska, thank you for being with us. everyone right now, the dialogue is about health care. what do you want to see with health care? where do you think we are at now? caller: guest: it is a mess right, but regardless of the spin that is put on it. some of the things are very obvious. there are need for reform in the insurance industry. we should be injuring pre this thing conditions. we should be giving small companies and associations the ability to pull together. that would expand the base in terms the number of people and he could get better rates. we should be emphasizing tort reform. that will help.

i am not sure that is the answer to everything, that will help -- but that will help in terms the need less expenses. in terms of wellness, if you want to make a difference over their life, get on top of obesity issues when they are young. another thing we have to do in terms of health care reform, we often hear about this 47 million that is not in shepherd. the reality is, 20% of the population qualifies for an existing program. it could be schip, medicaid, but for whatever reason, they are not inlved. having been a governor, when we first came to office, we rolled out our children's program. we worked on that very aggressively. we wanted to reach out to qualified to be on the program.

reality is, because it costs money, i can do not get enrolled. when we debate in that earlier, statistics indicated you have 50% of kids in some states that qualify, should be enrolled, but they are not. again, if you focus on how to fix these problems, you come up with a health care plan that makes sense. host: could you give us some concrete examples of what you would like to see incorporated in a health care bill? what can you actually do? guest: some of the things i have mentioned already. i think we need to focus on this population that is not insured. you need to aggressively go up there and get the state to sign them up, so that they have the

protection that the government provides for them. medicate co pay is a program, once they are enrolled, it covers so much and does so much good. for whatever reason, it is not happening. i also believe it makes sense for them next love of population that is struggling to afford health care, too literally by down the cost, maybe of private insurance premiums, company, deductible, and that when you can keep the private industry. millions of people do not want to lose their private insurance. yet, you are addressing the sure -the issue that so many people talk about it. then this idea about letting small businesses pulled

together. even across state lines, i think that would be resisted. the reality is, in the industry, it makes sense. if you expand the base of the insurer, that will bring down costs. about 75% of what we spend on health care unit goes to chronic conditions, debbie, heart disease. that comes about because people literally have such problems in our country with weight, lack of exercise. if we could somehow give people incentive to work on those issues, legal have a healthier population. then you will also have a better health-care costs. many of us a shot at safeway grocery stores.

they have done some remarkable things. we spoke to their ceo, and they are emphasizing wellness. they have been able to flat line the increases in their health care costs. that is remarkable when everyone is having so much dramatic increases. host: our guest is mike johanns from nebraska. call in with your questions and comments. democrats, 202-737-0002. republicans, 202-737-0001. independents, 202-628-0205. mike, on the republican line, from phoenix, arizona. caller: i am on state insurance right now.

i have pretty much everything paid for but i get low-quality doctors which have to repeat certain procedures such as a spinal tap. i have had three so far and three years. -- in three years. i have not been able to work for three years and i have not been able to get food stamps. this insurance that the government will be offering everybody, it drives away in the smaller insurance companies and puts them out of business. so the government will be taking on everyone's insurance. all the other countries in the world that have a government insurance, they say do not do this, it is bad.

guest: he raises some excellent points. he is just hitting the nail on the head. no question, as you move into an arena where in -- is government- run, what will happen is you will crush down the rates that are paid for in medicare services. i think that is obvious. the government went on the house side would cut $500 billion from medicare. but it does not pay its own way now. if you start losing people from the private insurance area, which is where this difference is made up, then that population trends and more people move to the government- run health care plan, which will happen.

companies could decide it is cheaper to put people on the government plan. in our country, we do not have t@@@@@' some of the things we're seeing with medicaid, i saw it as the governor, is because the reimbursement rates for doctors and hospitals and dentists are so very, very low. they just literally are not taking the patients. another thing that may be many have not thought about, i come from a state that has a lot of rural, critical-access hospitals, and if you push down the rate on a 25-bed hospital,

they go out of business. they do not have the flexibility of a large hospital center to make it up somewhere else. literally, this is a 25-bed hospital or less, and if you reimburse them less, they cannot survive, and then, all of a sudden, health care disappears from that rural area, and it is a very bad situation. doctors my age -- i am married, 60 years old -- and they look at this and say i do not want to work for the government. if they have the financial ability, they will do something else in their life. it would be very difficult to replace that doctor. they would not be replaced, as a matter of fact. host: let us talk about the confirmation of sonia sotomayor. where do you stand on that? guest: i already indicated a

would not support her a week ago. when i met with her, i was impressed. i have said that publicly. her confirmation hearing was not a good performance, in my opinion. i think her responses were the day's end. when she was pressed on difficult issues, it seems that she was trying to move all around. it concerned me. then, of course, these comments that she has made in the speeches. it has been a number of times. it raises the issue of fairness. to me, and the most important characteristic of a judge is that blind fairness. rich, i, porn guy, it does not matter. -- rich guy, poor guy, it does

not matter. unless there is a bombshell, and i do not think there is, it appears she has plenty of both to be confirmed. those were my concerns. host: do you think we will have debate and discussion on the floor? guest: i think on the broader issues. this has been a very respectful process. this was not like clarence thomas. i think the questions have been tough but fair. and it has not been personal. i do think that you are likely to see a debate on the broader issues. what is the role of the judge? what is there about this and that the issue? does that removed the blindfold of justice? host: and julie on the

independent line. richmond, va. caller: i watched the hearings, and i am watching this, and i want to ask a question about these appointed czars. we need to fix medicare first. before they take it anymore, they are born to take our health care away. right now i am on medicare. i have another insurance and they give me the right to go and have my test. i do not have to pay for them. i can go to an exercise class. they already give me all of this. the third thing. i know what they are doing about this october. after october, the democrats fixed it so that they only need

51 votes to pass. the czars is bothering me a lot. thank you. guest: you raised two interesting issues. czars. and on up presidents have used special envoys. this president seems to have taken into a new level. the problem is they operate beyond the ability of congress. that oversight, i think, is enormously important for and democracy. you raise an important issue, fixing medicare. you are right. this is a system that has served our senior citizens very well. the reality is, nancy pelosi, president obama's plan, cut medicare.

it literally cut medicare by $500 billion. instead of taking that money to stabilize the system that is quickly going insolvent, it takes the money away from medicare and put it into this in government-run health care plan. in my judgment, that is enormously unfair to citizens. i have a resolution. i am hopeful to vote on it. its an amendment that says, if you generate medicare savings, that note -- money needs to stay with medicare. we need to fix medicare. it also says, we are not going to pass unfunded mandates on the state. one of the things lost in the state, and it is not seen anything you read, is that medicare costs will be put on

the state literally to the tune of $130.5 billion a year. in my own state it would be $186 million a year. can you imagine california with all of its struggles, in five years we say to them you get to pick up a portion of this cost? it would be devastating. the result of that is you have to cut somewhere else. that is when good things like education get cut. what do you do? do you cut education to get more funding into the medicare program? the government has put a mandate on you. it would be devastating to states and states would not be able to some sort of this. so not only will they have to cut programs, they will have to raise taxes.

host: let us talk about cash for clunkers. helping americans get rid of their old cars. "politico" report today that jim demint said the role of the government is not to run the used car business. i think this is a great example of the stupidity coming from washington. where are you on that program? guest: looking back at my voting, there was a point of order that was raised. i supported that point of order. the philosophy of cash for clunkers is basically if you and sent people and enough, they will buy something. it is a valid point to say, why not cash for refrigerators, something else? this was going to be a $1 billion program. now it is projected to be $3 billion.

what if that money runs out by september? what do you do then? there will be a good debate on this. and i'm going to take a close look at it, but i have to tell you, philosophically, you wonder where this is headed. i have not made a final decision on how i will vote. i will try to stay open to the debate, but i am very concerned. host: we have scott on the democrat line. caller: there are so many things that you have said today that are wrong you talked about judge sotomayor not being honest, not entering foley. we had three bush judges who came here and said that they would not change standing law,

but we have seen it done dozens of times. that is another issue. on health insurance and coverage, that is what i want to talk about. when it comes to insurance, the cheapest a best policy is single payer. there is so much that we hear about how bad the canadian system is. you have to wait for this procedure, you have to wait for that procedure. you are good at nitpicking. you could not pick a chicken coop and it would be spotless. it is amazing. the canadian health care system, when you take canadian taxes -- you say that they are taxed too high. with their taxes, they have health care included. no company has to compete with another company or country when

it comes to health care. we have lost millions of jobs because american companies, since the 1980's, have not been able to compete with countries that provide a single payer health care. in canada, single payer costs less, about half of the cost per resident. i do not know what you consider to be good health care, but in canada, your life expectancy at birth is 81.16 years. here in the united states it is 70.14 years. guest: you take a position for single payer for from in-run health plan that is very much in the minority. i do not know of a lot of people who are enthusiastic about single payer because that is the

classic government system. the government decides what tests you should get. clearly, there is a bureaucrat between you and your doctor. i could not disagree more with your analysis that somehow this is going to bring about better health care for our sins -- citizens. i have been through london so many times through the years. going to trade negotiations to other parts of the world, picking up a newspaper reading about the news waiting for my flight. it seems like there was always a meltdown crisis on health care. in our country, citizens will not be accepting of that. the other thing i would point out, even though people say to me and do everything you can to get insurance rates down, try to

do the kinds of things that will help, i want to tell you that they say i am happy with the coverage that i am getting from my insurance company. polling shows that. i think there are some important things that we need to do to our system. there are some things that will bend the cost curve, but you need to look at what people are looking -- doing at their -- what people are doing in their lives, prevented issues. if we can do that, we will see a positive impact. not only for the person but for the cost they pay. what scott is talking about is a 100% government takeover. i do not know how many people support that. host: next phone call, alex,

from the fund michigan. -- flint, michigan. caller: why can we not as american citizens, we all have to bite the bullet -- how come we do not have the same health-care program that he has? guest: you know, i believe in that. that is a starting point for the debate, and when i talk for that, look for citizens and do not qualify for the medicaid program, where they are not senior citizens, so they do not qualify for the medicare, is there a way where we can literally bought a health-care program for them and buy down the cost of the premiums or the copay and literally based on the same kind of health-care plan that is available to members of

congress. this is also very interesting i also support -- and luck. if we are going to put people of the government plan, the senators are house members have to agree that they go on that plan, too. it is good enough for our citizens, it is good enough for us. that was brought forth in committee. do you know who defeated that of democrats. i could not believe it. i was shocked. they make the argument, "you need to get on this government- run plant," and yet, they voted almost unanimously against putting us on that plan -- this government-run plan." i agree with this column. if we can buy down the health- insurance premium, let's explore that option. i guarantee that it will be much cheaper, much cheaper, but let's not forget the of the things that we need to do that i talked about today, at emphasis on

wellness programs. businesses to pool together. let them buy health care plans across state lines. all of that need to be part of the package. host: you were the secretary of agriculture under president bush for almost three years? then you took your senate seat. let us talk about the agriculture bill in the senate. where do you stand on it? guest: there was a big increase in spending, but the obama administration has really ramped up spending. oftentimes people look at eric walter and think about programs for the farmers. there is a piece of that, but the reality is a large portion of the budget goes to nutrition programs. we operate the food stamp program which is a huge food safety net for citizens across the country.

i think now 30 million people qualify for food stamps. we look at that overall budget, and again, most people look at it can say, why would we be spending that much money on farm programs? the reality is, a very small percentage actually goes to the farm programs. many people do not know that one of my employees is smokey the bear. it is a very perverse -- it goes back to abraham lincoln, the usda. over time as programs were developed, they were added to the budget. host: let's get the george on the republican line from all i know.

-- let's get george on the republican line, from ohio. guest: the question i -- caller: the question i had -- social security, medicare, and everything else. i think it is 2014 where it is supposed to be close to getting -- running out of money. there is going to be a 20% reduction in benefits. you also want 5 million from social security, which will be penalized on. in death, it will be more than 25%. what have they done as far as replacing the millions of dollars that they have taken from social security, to put in

internal government fund? guest: you raise such an excellent point. instead of a big social security trust fund out there, it would be idle used --ious. do not throw something at your tv when i tell you this, but the democrat health care plan is designed to take more money from medicare, to the tune of $500 billion in cuts. they wl reduce what hospitals and doctors are reimbursed. .

and it just flat is wrong. that is what my resolution is designed to do. it is designed to say, "no way." and if i can ever get this to a vote, as mine says if you get any money from medicare, it has to stay in the plan for life. there is a steady out there that says it will extend the life of the medicare program, or if you're talking about medicaid, you cannot force these unfunded mandates on states that are already struggling from budgets from just an awful standpoint. i mean, you have got states of there that just cannot balance the budget. host: let's get in one last call. mike is on the democrats' line from san antonio, texas. caller: what if you took all of the huge profits, bonuses, all

the money made by the insurance companies, and put it into a fund to pay for health care? what do you think would happen? thank you. guest: it is interesting. the latest killing is the insurance companies. -- the latest villain is the insurance companies. all the sudden last week, we got a new villain. that is the health care companies. i checked with the cross/blue shield in nebraska. over the last few years, they have lost money. they are dealing with the same health care inflation we are dealing with. the equipment and science is better. there is a much more that we can do today than we used to be able to do with health care. we're not doing anything to keep the costs are reasonable. you are seeing higher costs. it does get reflected in terms of higher premiums. they are going to face tighter

margins just like they are in our state. here is what i would say to the gentleman. look, there are many things that we need to do. i am not at all opposed to the reforms necessary to bring about a better health-care system, including health insurance. we should be covering. -existing conditions. we should have pools that can get insurance across state lines. we should allow small businesses to join together to bid for health insurance. all of those things make a tremendous amount of sense. there is one last point i want to make. this is critical. talk to any hospital or doctor out there. they cannot operate on the medicare and medicaid reimbursement rates. they cannot stay in business. they make up the difference through private insurance. we all pay more for private insurance. if you really want to reform

something and bring down the cost of your insurance plan, you would tell the federal government to start reimbursing at the level. these plans do not do that. they are going to drop the reimbursement rates by $500 billion. if you crush the private insurance industry and it starts going out of business or decrease in who they will ensure and more people have gone on the government plan, you will have a very serious access problem. the real problem that you have is this small hospitals out there in rural america cannot operate. they do not have the private insurance cushion that helps to pay for the losses they sustain on medicaid reimbursement rates and medicare reimbursement rates. instead of fixing that

>> you are watching public affairs programming on c-span. coming up in a moment, secretary of state hillary clinton meets with jordan's foreign minister. secretary clinton talks about the eviction of families in east jerusalem by israel's government, and after that, an update from the veterans affairs department on the new gi bill. on tomorrow morning "washington journal," we will talk to the vice president of darcars about the cash for clunkers program, tammy darvish. burt folsom is later.

washington journal begins at 7:00 a.m. eastern with the day's news. now, secretary of state hillary clinton meets with the foreign minister of jordan. they talk about the middle east peace process. this is about 20 minutes. >> hello, and let me start by saying once again how happy we are for his new visit to the state department. we're celebrating years of relations between the united states and jordan, and our partnership is based on mutual respect and mutual interest, and our work together enhances the security and prosperity of both of our nations and, we hope, the larger region and the world.

today, the foreign minister and i discussed a wide range of issues. i thank the foreign ministry for the jordon leadership in an effort to achieve a comprehensive peace for all of the people of the middle east. the courage of the late king continues to provide inspiration to all of us who knew him and you are still on the path towards seeking peace, and now, under the courageous leadership under his majesty king amedori, jordan has continued to play a strong and vital role -- king abdullah. this is based on the two-state solution. we are working with the as really is -- the israelis and others to make that possible. the foreign minister and i discussed this effort, and i expressed our deep appreciation for jordan's leadership and working but other arab states to support peace in deeds as well as words. i also think the foreign

minister for the efforts that jordan has made to feel -- i also think -- thank the foreign minister for the efforts that jordan has made, especially with refugees. there is the return of those who left their country and now wish to return home and you want to be part of a new iraq, and we're grateful for the hospitality and leadership of jordon. after six decades of relations, our partnership has proved both durable and dynamic. we will continue to work together in areas ranging from assistance with education, health care, and water programs to border security, good governance, and regional security, and i look forward reticulate in working with the foreign minister, as our two nations deepen and strengthen our partnership, and that partnership and continues to demonstrate the way forward on a comprehensive two-state

solution 40 israelis and palestinians. >> thank you very much, madam secretary, for your gracious welcome and for your kind words. it is truly a pleasure to be here, and speaking of being here with the state department, i noticed that in welcoming other guests at the state department a couple of days ago, there was a reference made by yourself as to how much time they spent. may i say that i, too, a longtime admiring this from outside when i was a young student at the school of foreign services, georgetown, and i was wondering who i would be standing next to. it is truly an honor to be standing next to mrs. clinton, a dedicated public servant and secretary of state. madam secretary, when i was here in april, we had excellent

discussions, but that was not the first time i met you. i met you on october 26, 1994, and it was a hot day full of promise and hope. that was the signing of the jordanian peace treaty. needless to say, there have been many ups and downs since that day, and this brings me to our discussion today, and as you say, the relationship between jordan and the u.s. is one that can be described as beyond friendship, and rather a true friendship. this relationship has been put to the test many times, but we have sailed through, and it did stronger and more so by the day, so, madam secretary, if you will allow me, as we said, we discussed a range of issues, at the heart of which is the u.s.- led effort within the

comprehensive regional conflict. it was correctly put by president obama. in our view, this was the only gateway through which we collectively address any other challenges in the broader region. we have tirelessly worked for a comprehensive peace in the middle east. this would be to guarantee israel's security. this would bring about normal relations between israel and 57 arab and moslem states in accordance with the arab peace initiative. we are very, grateful, madam secretary, to president obama, to you, to all of our friends in the united states for your serious, focused, and intensive engagement from day one. we fully support these efforts. the u.s. leadership and

demonstrated commitment show a real true opportunity once and for all. we all the responsibility and in demonstrating leadership, and to ensure its success. madam secretary, our position should not be to move forward to get to where we were. our goal must rather be this time around to move forward to where we should of been in the late 1990's, as envisioned, and even beyond. the shape of a future palestinian state for comprehensive peace are quite clear. the adoption of all the arab countries in the muslim world of the arab peace initiative and every arab summit thereafter emanated from collective arab recognition. now and in 2009, many would say it is time for them to reciprocate. in the middle east, there has been, in the past, and overinvest in the past and

pursuing conflict -- confidence- building measures. there's been an overemphasis on gestures, as his majesty the king puts it, madam secretary, there has been too much process and too little piece. what is required now and needed more than ever is to achieve peace. what we need is confidence- building measures, confidence or rebuilding measures, i should say. these and create a conducive environment. we need to focus on ensuring stopping the actions more than just that judgment. it is not -- it does not help to restore faith for it when it's needed. equally, other unilateral measures and in east jerusalem, in particular, evictions,

excavations, and the holy sites, that is not acceptable. by the same token, these are equally -- they must stop. there are piecemeal approaches that never go to peace. this is confidence is eroding rather than confidence-building. it can only be achieved through clearly highlighting the end game and expeditiously crossing the finish line. there was the speech at cairo university last june, in particular. your support about juror principal statements about stopping all activity is restoring faith to the arabs and muslims impartiality of the u.s. and the great good it

represents. the principle approach taken by president obama marks the kind of needed change that we can all reflect on and build on. serious and committed benchmarks must be launched promptly on all sides from the point that they had stopped and from which all parties would be willing to take the necessary, concurrence steps towards each other achieve the desired progress. we express thanks for the support to jordon. this has facilitated our drive forward in expediting the homegrown transformation of king abdullah the second. thank you very much for giving me this opportunity, madam secretary, to have this rich conversation with you. once again, we hope that you will find it in jordan and reliable and steadfast partner and ally. >> thank you so much.

>> thank you, madam secretary. just a couple of questions, if i could? the first of all, do you have an update on the situation of americans being held in iran, and is it still correct that it is not officially confirmed by the iranian government? and then the other would be what is your opinion on this idea of having very strong sanctions, which would include sanctions on gasoline and other refined petroleum products? >> well, as of a few hours ago, we did not yet have official confirmation that the iranian government or instrument of the iranian government were holding the three missing americans. and we asked our swiss partners who represent our interests in iran to please pursue our inquiries to determine the status of the three missing americans.

obviously, we are concerned. we want this matter brought to a resolution as soon as possible. and we call on the iranian government to help us determine the whereabouts of the three missing americans and return them as quickly as possible. with respect to the potential actions that might be undertaken by the international community, we are not going to be commenting on what might or might not be done. we have made it very clear that we wish to engage with the iranians in accordance with president abbas policy to discuss a broad range of issues. that would be a bilateral channel, which we have communicated to the iranians, and we continue to engage in multilateral channels, most importantly the p5 plus one discussion, and as you know,

that's -- there was a proposal put forth months ago that we still have not received a response to, so we are working closely at developments in iran. i held a video conference this morning with the number of our diplomats around the world who have expertise with respect to iran and we discussed what they saw happening and what would be the responses coming from the iranian government, what was going on inside iran, so we are not prepared to talk about any specific steps, but i have said repeatedly that in the absence of some positive response from the iranian government, the international committee will consult about next steps and certainly next steps can include certain sanctions.

>> thank you. i would like to ask you both, if i may, about the issue of evictions from east jerusalem. these steps are taken, is to force a status quo in the territories that are disputed. the occupation continues at a time when as they're being asked to take confidentially measures, an homage to actions like that disrupt what the u.s. is doing and also, if i can ask, how that believes arab nations and others to push for -- peace? what can be done just beyond condonation? >> well, i think the actions are deeply regrettable. i have said before that the eviction of families and demolition of homes in east jerusalem is not in keeping with is really obligations.

i urge the government of israel and officials to refrain from such provocative actions. both sides have responsibilities to refrain from provocative actions that can block the path towards a comprehensive peace agreement. unilateral actions taken by either party cannot be used to prejudge the outcome of negotiations, and they will not be recognized as changing the status quo. >> thank you very much. cristóbal, let me thank secretary clinton for the clear position that this is administration has taken on this issue, particularly when we are talking about jerusalem and talking about anything to change the current status quo in the city. again, with emphasis on changing the demographics. plus purchase in the outcome of

the efforts that are currently undertaken to relaunch negotiations. let me just say that the position is very clear. east jerusalem is occupied territory. it is part of the territory that was occupied in 1967, and it is very, very important for people to bear in mind that this is part and parcel of the discussions that take place that have already been launched, and any action on the ground that presents obstacles in this endeavor are not only unwelcome and condemned but we hope that they will stop. >> we said on friday, the question is not will the arab world offer israel but what will arab give to the initiative? how do you view the comments,

and are they planning to take some steps to push the peace process forward? >> let me start from the second part of your question. jordon will lead a peace treaty, and this was signed in 1994, like any relations between countries that has had its ups and downs, and an order for that peace treaty and the relations between jordan and israel to make regional and national sense, what we need is a comprehensive solution to the arab-israeli situation. there is the establishment of an independent situation and a geographically contiguous states on palestinian soil. i think they clearly articulate the arab peace initiative, which saudi arabia played a key role in launching in 2002 and which subsequent arab summits have reaffirmed as recently as the last summit in march. the arab peace initiative is

very clear. there is an end to occupation, the establishment of an independent palestinian state, after which there will be normal relations, full, normal relations between israel and not only the arab world but also the muslim morell, so i think the press was very clear in articulating what the arab peace initiative stands for, which is normal relations at the end of the game, but we all agree that we have to create an environment for the israeli conflict. the role of the united states is essential. >> madam secretary, do you think -- how much damage you think it does to your efforts to build confidence around states like jordan to have the israeli prime minister rejected u.s. calls to stop the development of new settlements in east jerusalem?

i mean, is this not something that is seriously damaging to instill confidence? >> well, i think everyone understands that there has to be sequential actions taken, and we are working very hard under senator mitchell's leadership and guidance to get to the negotiating table, and once there, everything concerning a comprehensive peace agreement is on that table. nothing is off the table, and we have been down this road before. we can close. in 2000. there were renewed efforts in the last several years between the then prime minister olmert and the palestinian authority president abbas, so the parties will know what the outlines of this comprehensive two-state solution are. what is different in two ways

now is, i think, the united states, beginning from the first day of our administration, to say that this is among our very highest priorities, and the commitment through the arab peace initiative, which did not exist in the 1990's, and has been reaffirmed, as the minister said, several times, so that the arab countries are at the table, in effect, as well. we won both sides to refrain from any actions that might make it more difficult to negotiate our way through all of the shows that have to be resolved. -- all of the issues that have to be resolved everybody knows what they are, and everybody knows that neither side is going to get everything it wants. negotiations do not work that way, but working in good faith and being committed to the two- state solution and wite