support of the arab leaders as well as the united states and other interested actors, i think holds out great promise. that is why we believe this timing of a very strong chance of achieving a goal that has long been sought. f.a.q. .

>> thank you. >> how is c-span funded? >> i have no clue. >> maybe some government grant. >> i would say donations. >> advertising for products. >> public money, i'm sure. >> my taxes? >> how is c-span funded? america's cable companies created c-span as a public service. a private business initiative. no government mandate. no government money. >> the veterans affairs department has begun sending out the first tuition payments for universities participating in the post 9/11 g.i. bill program. more now from virginia senator jim webb who authored the bill. we'll also hear from former virginia senator john warner and

president obama. this is about 40 minutes. >> staff, students, alumni and friends, it is an honor to have you with us today and it is an honor for us to host this important celebration. early this year, mason was privileged to be one of the many universities and colleges across the nation to commit itself to the yellow ribbon education enhancement program. a provision to have post 9/11 veterans, the act in 2008, this initiative is designed to extend higher education funding for service men and women who served after the september 11 2001 attacks. i know that mentals of that day still re-- memories of that stay dill remain in all day still remain in all of our hearts. each-year mason's military and

veterans office serves nearly 1,000 active duty reserve national guard and veteran students. it provides them with assistance and academic counseling. just as important, this office helps our military men and women adapt from military life to collegiate life and establish a sense of community in what to many is a new environment. we take much pride in the work of this office. today's celebration would not be possible without the leadership and vision of virginia's senior senator jim webb. he introduced the new g.i. bill on his very first day in the senate and worked tirelessly from that day forward to enact this truly important bill. senator webb's work on the g.i.

bill is the latest achievement in a truly remarkable public career. jim has maintained the lifelong commitment toward protecting america's national security interests, promoting economics, fairness and social justice at home and increasing the accountability of government. we, i, are indeed grateful to him for his public service. jim webb is one of our nation's finest. it is an honor and privilege to introduce senator jim webb. [applause] >> thank you very much, thank you. it is a great day for our

country. it is a great day for everyone who served and i would start by saying it's a rare thing in public service when you can get something good done that you can feel good about for the good of the country, for the good of people who have really stepped forward to serve it and that you're going to be able to watch for the next 10-20-30 years in terms of the benefit it is going to bring to our society. i would like to start by saying what a great day it is that our president is going to come and speak to us later on. and we are deeply appreciative of george mason university and dr. merton particularly for having hosted this event, which is imbollic in many ways for the celebrations that those of us who have served and work ond this issue are going to be feeling throughout the country.

we have a number of people attending here who have given great service to our country. i would like to mention chairman ikaka, chairman of our veterans committee who has come. long, long years of service to those who served. senator begich of alaska has come with us today. [applause] congressman conyers is with us. [applause] and congressman jim moran is with us. my long-time friend. we have manyo representatives from the veterans organization that were so instrumental in getting this legislation done and those representing the

veterans organization would stand, we would like to see you recognized. [applause] >> as many of you know, i spent my entire life in and around the united states military. my father was a career military officer. he was a world war ii veteran. flew in the air lift and later became something of a pioneer in our missile program and i grew up on military bases watching the sacrifices of people who were serving away from their families, giving dedicated service to the country. i had the honor of serving our country during the vietnam war as a marine, as did my brother who was a marine helicopter pilot. i'm very proud of both my son and my son-in-law who served as marine infantry men in iraq during this latest period of

national disturbance and for a long time, before i ever even decided to run for political office, i kept saying to myself, this new generation, this group of people who have been serving since 9/11, we keep calling them the next greatest generation at a minimum of what we can do is provide them with the same educational opportunities and the same chance, in the first class future that the greatest generation have. very simple formula when people came back from world war ii, they had their tuition paid for and books bought and a monthly stipend for every dollar that americans paid par this bill our country received $7 back in terms of the tax payments of these individuals because of the type of future they were able to get. we were looking for that in this

program. i introduced this bill as dr. merton said, my first day in office, it was quite a journey. in many different ways. i won't recount that journey in detail this morning but i will say that. there were two very key components from our perspective in terms of making this happen. the first was my own staff, my senate staff, we took this on collectively as a staff. and worked on it from day one no matter what else was going on. no matter what other hearings were going on or what other crisis might have been happening. all of my staff worked together through long and difficult process in order to make this happen and those members of my staff that are here, i would ask that they stand and be recognized. i think we have several of them who worked on this. [applause]

and when this bill was passed, i called a meeting to my staff and i said i don't want to count political coupe here. this is not something we did for political reasons. our reward is going to be 20 years from now if we can look around and see the successes that have been able to happen to people who were serving now because of this g.i. bill. secondly, this legislation would not have happened if it were not for veterans taking care of their own. early on, the organized veterans group started meeting with us. we listened to them and worked with them and not only got their endorsement and ideas, we perfected this legislation as it went along. and we did this also with a very special group of veterans other than the ogsed have the resistance, people working

directly with me and i would like to recognize four of them actually today. first was mac mccarty who has flown in for this event. he served under my command in vietnam. we were wounded 10 days apart in the same place of frequent combat in a place called the arizona valley. he left his job as the night manager of the number one honky tonk in nashville, tennessee to come and work with me when i ran for the senate and he began the journey of this g.i. bill before he decided that washington really wasn't exactly the place he wanted to live and mac, please stand up here. [applause] second is -- second is philip thompson. another marine who served in

desert storm. spent a good amount of time with us when we were in the campaign and took over on this veterans issue and pushed it along. philip now is working the pentagon. philip, we appreciate all your work. [applause] third is -- third is william edwards who is an iraq veteran who did a lot of the final fine tuning and negotiations and worked very hard. william right now is in training cycle to return to iraq. you'll see something in this pattern. the vietnam veterans, the desert storm veterans and the iraq veterans taking care of the people who are serving now. and there is one other. his name is john warner. when he came on this this bill, he brought a lot of people on the republican side with him. he brought credibility. he was a sailor in world war ii. a marine in korea.

had six years in the pentagon. was undersecretary of the navy and 30 years as senator from virginia. and he was a great partner for us. he completed the cycle. in putting this legislation through. we had people from warmed war ii, from korea, from -- world war ii, korea. they said we're going to make this happen and they did happen and ladies and gentlemen, i'm very proud to introduce and call to the microphone, senator john warner. [applause] >> thank you. thank you. [applause]

>> i'll be brief. i have worked with dr. merton for 40 years. each of the presidents try and come and see us once a year. that's all right. not dr. merton. not once, twice, three times, four types. i never spent so much time with any president except you. and the result was magnificent. thank you. [applause] jim webb. i was secretary of the navy in 1971-1972. the commandant of the marine

corps came in to see me. said i have a marine rehabilitating from serious injury. i think he would be a credit to the secretary staff. i said send him in. interviewed captain jim webb in uniform for about five mince. i said you're signed on, mister. get back to your ranks. but what goes around, comes around. after 35 years, we reunited in the united states senate together. and he talked about this piece of legislation. ladies and gentlemen, my speech today is entitled "thank you." thank you america for what they did for this one individual and hundreds of thousands like me. 16 million men and women were in world war ii. i left high school at 17, like

many and went in. we all did. everybody on the block. all the guys would come in and say what are you still doing here? they trained us beautifully in america. when it came time to be discharged, we were discharged very quickly and i remember 63 years ago, from this summer, it was in july, 1946. i had won the red petty officer third class and i stood in a long line and we stripped down, had a quick physical, put our uniforms back on and stood in line again and then there was that final officer who signed the discharge papers and he talked to us a little bit. and he said now look here. here is your ticket home.

one way. here is the balance of your pay and here is a little emblem to put on your uniform to anybody who stops you, you're not under orders. that says you have been honorably discharged and you're on your way home. there is that pin that i got 63 years ago. [applause] again, 16 million got this pin. but then he handed us a little book and he said are you interested in education? i said yes. i didn't finish high school. he said don't worry. look into it. this is the g.i. bill. and stuck that little booklet somewhere in my bag and went home and the rst is history. that g.i. bill gave me an engineering degree and later

service in the marines. but i did my parts as did others in our generation. but those two g.i. bills gave me the opportunity to develop my career. i would not ever have made it. i would not be standing here today. in my 30 years on the senate armed sferses committee i fought hard to improve that piece of legislation signed by roosevelt in 1944 and bit by bit, we worked around the edges but we recognized massive reorganization, rewriting and updating had to be done to this piece of legislation. tried when i was chairman of the armed services committee. i succeeded in getting a test for what we call transferability of your rights to your wife and family but it was never really

executed. it wasn't until jim webb came along that this legislation moved through the congress. he rallied us. as a matter of fact, it was some tough times and had it not been for several i would like to -- senator ikaka and our dear other friend from hawaii, congressional medal of honor winner and some others, we got that thing through. jim webb. i was a corporal in his ranks. this legislation has gone over and we got it through despite the pentagon resisted it and despite the administration resisted it, this became law because of jim webb's leadership, period. [applause] jim and i worked on one feature

we felt very strongly about. i kept recounting to him that my generation could go to any university in college of their choice. irrespective of tuition. i won't go into the mathematics but it was there. through passage of time all of those doors were closed and i was particularly concerned with some of the major universities and colleges in our country who really wouldn't let recruiting take place on the campuses. who really didn't understand that academic freedom is derivative of the basic freedom that has been guaranteed from generations since 1776 by those wearing the uniform of their country who marched forward. i thought it would be a good to have some of our veterans in this conflict belong to those campuses and that was one of the driving motivations to make sure

that that option was there. we want to thank a lot of the presidents in the university. came down and worked for us because we passed on on the sharing bases those major colleges that have been very expensive. so we didn't. i thank you because it was for you we -- the very bipartisan hard working committee. we want to look back and try and make sthearn the current generation of veterans and their families and their families are given the benefits and everything that we had as soldiers, sailors, airmen and marines in our generation, because you deserve it. the country wants you to have it. so i finished with a little thing that always goes through my mind when we sing the star spangled banner. that phrase that says does that

manner still wave over the land of the free and the home of the brave, i've always felt we do have a the land of the free because you who have worn your uniforms are the home of the brave that made it possible. i salute you. good luck. [applause] >> it's always inspeiering to listen to senator john warner speak. the quality of his oratory and intellect. no accident that he was able to give our country 30 years of immeasurable service in the united states senate. we remember you well on the senate floor these days, senator

warn -- warner. it is my great pleasure to introduce to you general -- i don't think there is another individual in the united states who could have come to the position of secretary veterans affairs with the respect, the quality of his background and the immeasurable dedication to those who served. as most of you know, he was a west point graduate. he served two tours in vietnam in combat. he lost a portion of one of his feet in combat and incredibly, fought to stay on active duty with an amputation, which was

very unusual at that time and rose all the way to become chief of staff of the army. an enormous inspiration to anyone who has served in combat and been wounded and can see that there is a future in uniform as well as doing other things. i would like to look at him as being from the omar bradley mold. he is unflappable. he is serious. he has come to the department of veterans affair at a critical time in our history. i couldn't be prouder to serve with him. ladies and gentlemen, let me please introduce to you the general. [applause] >> good morning. thank you. >> thank you, very much. it is very kind. very kind of you and good

morning. good to see you again and i'm honored to be sharing the stage with you today. thanks for doing this. also i acknowledge that there are other distinguished members of the congress here who have done so instrumental of an act in restoring this piece of legislation. thanks to all of you as well. through the representatives of our several service organizations and to also the representatives of some of our participating colleges and universities, good to have you here but most importantly, let me just acknowledge the folks that are the reason we are all here and those are our young veterans who are going to partake of this opportunity. so thanks for your service.

and you carry with this opportunity, such great potential for the country. we're all very excited about it. finally, any other distinguished guests i may have missed, ladies and gentlemen, history is about to repeat itself. that's what this is about. and we're all privileged to have this opportunity to witness its and for that reason i'm personally thrilled to be here and personally thank senator jim webb for his vision, for his determination and for his leadership and including that of his colleagues from the congress. including by the way, then senator barack obama, one of the sponsors. but providing -- for providing this opportunity for young veterans today. magnificent opportunity. as we all know, following world

war ii we referred to its several times. returning veterans leverage their education opportunity. the original g.i. bill of 1944, they leveraged that into sustained economic growth for the united states and that alone catapulted our economy into being the world's largest and us to the leadership of the free world over time. the story of milton green berk who about that piece of legislation by the time the initial g.i. bill eligibility expired in 1956 the united states was richer by 450,000 trained engineers. 240,000 accountants. 238,000 teachers. 91,000 scientists. 67,000 doctors. 22,000 dentists and a million

other college-educated individuals. there are members of that great generation here today who both benefited from that educational opportunity but who also gave back so much more in terms of leadership for our nation. this post 9/11 g.i. bill has ever potential to equally impact the united states in resounding positive ways in this new century. by 2011, we expect to have placed a quarter of a million americans into colleges and universities through this most comprehensive veterans education benefits package, most advantage since the original g.i. bill of world war ii. the courageous men and women in uniform have shouldered significant responsibilities for the last years for our country. this new gi bill clearly

demonstrates the nation's respect and appreciation for your service and your sacrifice. it is also our commitment to them that they are our best hope for future leadership in this country. the maximum benefit allows every eligible veteran and service member the opportunity to receive a fully funded undergratton education. at any college in the united states and its territories. it includes an annual monthly allowance and book allowance and tuition and fees. eligible service members can elect to transfer their benefits to their spouse or their children. what a tribute to the importance of families to military service.

in addition to public institutions, more than 1,100 private institutions have agreed to participate in something called the yellow ribbon program. it permits eligible person to attend private universities whose costs exceed rates at public graduate institutions. v.a. will match whatever is contributed up to 50% of those total costs. we are grateful that so many schools have joined this effort and we thank them for their support of our veterans. since the bill was signed in june of 2008, v.a. employees led by undersecretary pat dunn and keith wilson and stef warren have worked under time pressures to meet this 3 august 2009 deadline. i'm very proud of them for pulling together what many worried when i arrived in

january, what many worried was not possible in so short a time. well, they are proof that we can take those difficult tasks and deliver. their dedication has been outstanding and their hard work will continue over the decades to pay dividends for veterans who go back to school. to those of you who will be taking advantage of this educational opportunity, make it count. make it count for all of us. make it count for our country. redeem that dream that occurred after the original gi bill of 1944 and do it for us in the 21st century what that generation did in the 20th century. god bless the me and women in uniform and god bless our veterans and god bless our wonderful country. thank you very much. [applause]

>> hello. thank you. thank you. thank you. please. have a seat. please have a seat. good morning, everybody. it is wonderful to see all of you. and wonderful to have one of the best partners that anybody could have in elected office, our vice president joe biden. [applause] i want to thank staff sergeant miller for the gracious introduction. i want to thank president merton for his hospitality. there are a couple of people

here who deserve all the credit because they got a very tough bill done. and part of the reason they were able to get it done was just because of their extraordinary personal credibility. these are -- one is new to the senate and one had been there a while. and yet together they formed an incredibly formidable team. they are both class acts. please give a big round of applause to virginia's own, john warner and jim webb. [applause] i know that we've got another member of congress who are here and i want to thank them for all of their outstanding work and i

want to point out that senator mark warner could not be here but we appreciate him. we've got the secretary of veterans affairs, a hero in his own right, generic shinseki and i want -- general eric shinseki and i want everybody to plesac knowledge him. we have senator chuck hagel. bobby scott. representative peter king. all of them worked hard along with the dell gation. i want to pay tribute to the

veterans who are pursuing their dreams by pursuing an education. obviously i'm honored to be here to renew our commitment to enis that your the men and women who wear the uniform of the -- ensure that the men and women who wear the uniform of the united states. i'm committed to working with secretary shinse everyone ki to make sure that it is implemented as president. we do this not just to meet our moral obligation to those who sacrificed greatly on behalf of the country. we do it because these men and women must now be prepared to lead our nation the peaceful pursuit of economic leadership in the 21st century. this generation of service men and women has already earned a place of honor in american history. each of them signed up to serve.

even after they knew they would be sent into harm's way. over the last eight years they have endured tour after tour of duty in dangerous and distant places. they have experienced grueling comment from the streets of floogefladge. fallujah. by any measure, they are the authors of one of the most extraordinary chap terse of military service in the history of our nation. -- we know anyone who puts on that uniform joins an unbroken line of patriots. the freedom and prosperity that we enjoy would not exist without the service of generations of americans who are willing to

bear the heaviest and most dangerous burden. we also know this. the contributions that our service men and women can make to this nation do not end when they take off that uniform. we owe a debt to all who serve and when we repay that debt to those bravest americans among us, we are investing in our future. not just their future but also the future of our own country. now this was the lesson that america was sometimes too slow to learn. after the civil war and world war i we saw far too many veterans who were denied the chance to live their dreams. men who were unable to find in peace the hope that they had fought for in war. and f.d.r. knew this. 1943. before the beaches of nor mandy were stormed and iwo jima was

taken. we told the nation that the veterans of world war ii would be treated different. they must not be demobilized to a place on a bread line or on a corner selling apples. instead, roosevelt said the american people will insist on fulfilling this american obligation to the men and women in the armed forces who are winning this war for us. that is precisely what the american people did. the g.i. bill was approved just weeks after d-day and carried with it a simple promise to all who had served. you pick the school, we'll help pick up the bill. what followed was not simply an opportunity for our veterans. it was a transformation for our country. in 1947 half of all americans enrolled in college were veterans. ultimately this would lead to

three presidents, three supreme court justices and 14 nobel prize winners and 14 pulitzer prize winners and it produced hundreds of thousands of scientists and engineers and doctors and nurses. the backbone of the largest middle class in history. all told, nearly 8 million americans were educated under the original g.i. bill. including my grandfather. no number can sum up this sea change in our society. reginald wilson,wú a fighter pit from detroit said i didn't know anyone who had gone to college. i never would have gone to college had it not been for the g.i. bill. h.g. jones of north carolina said what happened in my rural community happened all over the country. going to college was no longer a novelty. indeed, one of the men who went to college on the g.i. bill, as

i mentioned, was my grandfather and i would not be standing here today athat opportunity had not led him west in search of opportunity. we owe the same obligations to this generation of service men and women as was afforded that previous generation. that was the promise of the post 1911 g.i. bill. you pick the school, we will help pick up the bill. looking out at the audience today, i'm proud to see so many veterans who'll be able to pursue their education with this new support from the american people. this is even more important than it was in 1944. the first g.i. bill helped build a post war economy that has been transforled by revolutions and communication and technology. that's why the post 19 -- 9/11

g.i. bill must give today's veterans the skills and training they need to fill the jobs of tomorrow. session the currency that can purchase success in the 21st century and this is opportunity that our troops have earned. i'm also proud that all who have borne the burden of service will have access to this opportunity. we're including reservists and national guard members because they have carried out unprecedented deployments in afghanistan and iraq. we are including the military families who have sacrificed so much by allowing the transfer of unused benefits to family members and we are including those who pay the ultimate price by making this benefit available to the children of those who lost their life in the service to their country. this is not simply a debt that we are repaying to the remarkable men and women who have served. it is an investment in our own country. the first g.i. bill paid for

itself many times over through the increased revenue that came from a generation of men and women who received the skills and education they needed to create their own wealth. the veterans who are here today like the post 9/11 veteran arnsd the country can lead their way to an everlasting rory and become the glaw holds it -- recovery and become the glue that holds it together. evened a we help our veterans learn the skills they need to succeed i know we can learn something from the men and women who serve our country. we have lived through a day when many institutions acted irresponsibly, when service often took a backseat to short-term profits. when hard choices were put aside for somebody else, some other time.

the trivial has been taken too seriously. the men and women who have served since 9/11 tell us a different story. while so many were reaching for the quick buck, they were heading out on patrol. all our discourse produced more heat than lirktse especially here in washington. they have put their very lives on the line for herk. they have borne the responsibly of war. now with this policy we are making it clear that the united states of america must reward responsibility and not irresponsibility. now with this policy, we are letting those who have fworn heaviest burden lead us into the 21st century. so today we honor the service of an extraordinary generation. and look to america that they will help build tomorrow. the post 9/11 g.i. bill, we can give our vet trance chance to live their dreams and we can help unleash their talents and be guided by their sense of

responsibility to their fellow citizens and to this country that we all love so much. may god bless our troops and the united states of america. thank you very much, everybody. thank you. [applause] [captions copyright national cable satellite corp. 2009] [captioning performed by national captioning institute]

>> you're watching public affairs programming on c-span. coming up in a moment, reporters ask the white house about health care and taxes. we'll also hear from senate republicans, lamar sexand and john kyl on that topic. and after that a look at race relations and the recent meeting with president obama and henry luis gates and officer crowley. later, contractors bonuses by the federal government. tomorrow morning, a senate panel looks at the obama administration's financial regulation plans.

we'll hear about a proposal to consolidate two agencies charged with regulating banks into one. live coverage begins at 9:30 eastern here on c-span. later on c-span 3, the director of the federal emergency management agency testifies about the needs of children before, during and after disasters. live coverage from the senate subcommittee on disaster recovery begins at 10:00 eastern. press secretary robert gibbs said the president is committed to not taxing the middle class in order to pay for health care and bring down deficit. both treasury secretary tim geithner and economic advisor lawrence summers were asked about the deficit while making appearances on talk shows over the weekend. this white house briefing is about 40 minutes.

>> just a couple of quit noums before we get started. -- of announcements before we get started. today to honor the nascar champion had to be rescheduled because the race yesterday was rained out. that event will now be august 19 at the white house. second announcement is the senate democrats will come down to the white house tomorrow and have lunch here with the president. all of them. unclear. you didn't get your invite? >> to continue to talk about the priorities that they have.

to talk about what has been accomplished in the first six and a half months of the administration. and to talk about -- and it is the president's birthday and chuck e cheese was booked. >> i got it. >> good. it didn't actually cause you to laugh, though. celebrated a birthday a few weeks ago at chuck e. cheese. i was joke -- joking. >> the president has been pretty clear. he wants to cut the deficit in half within a decade and wants health care overhaul and campaigned to no tax increase on the middle class. is there a point where you just say two out of three of these ain't bad and can you get all

three of these things done? >> the president is committed to doing these things. the president was clear in the campaign about that. i think in some ways those goals overlap. we're not going to make progress on the deficit without dealing with health care. some of those goals actually work in tandem. i don't think we're going to get the deficit under -- begin to get the deficit under better control until we get the economy moving again, in order to lay that new foundation, the president strongly believes that health care rosm, the president was clear in his campaign about a commitment on not raising taxes on middle class families. i don't think any economist would believe that in the environment that we're in raising taxes on the middle class fams would make any sense. >> why did secretary geithner

and doc summers say they would not raise tax on those families? >> i did not watch the show. i think they allowed themselves to get into a little hypothetical back and forth. i will say this. i think this is important for all of us to understand. we have talked about this issue throughout the time that we have been here. we do have big structural deficit s that aregoing to have to be dealt with in order to meet the president's commitment and getting us back on a path of fiscal responsibility. we're not going to be able to sustain any economic recovery until we do have a path to fiscal responsibility but also said that shouldn't be done as a way of burdening middle class

families. i think the president's commitment on this is clear. we have a lot of big challenges. we're already looking at ways to cut wasteful spending. as part of health care reform the president has identified half a trillion in spending that he thinks kb cut in just the past two weeks on a bipartisan basis to look at a program like the f-22 and cut some of that wasteful spending out of the budget as well. yes, ma'am? >> agreed to talks with the united states. is the u.s. discussing with its allies the possibility of sanctions such as sanctions on gasoline and other refined petroleum products? >> well, as you know, the p five plus one have an outstanding invitation for the iranians to come to the table. the president strongly believes that we should and many of our

allies believe we should not allow the iranians to acquire nuclear weapons. that invitation has not been responded to. as you heard the presidents discuss recently, we will evaluate as part of the g-8 process where we are on that engagement in september but i don't want to get into discussions amongst allies or hypotheticals as we get toward those days. >> what do you mean by that? >> we think that -- we think it is important to do what has to be done in order to prevent iran from acquiring a nuclear weapon. yes. >> like what? >> a host of things, including i think by beginning engaging directly with them so they can live up to their own responsibilities and not

pursuing that technology. >> in terms of what geithner and summers had to say yesterday, it really wasn't too much about hypothetical back and forth. it was do they think it is possible to do deficit reduction. but that's not a -- >> we can quibble about the word possible. >> is it possible to do it everything the president wants to do without increasing revenues from the middle class? >> right. i want to just state again clearly here that the president has made a very clear commitment to not raise taxes on the middle class families. period. >> but if economists, including the president's own economists don't necessarily think that it is possible to do so without raising taxes on the middle class, how is that dealing candidly with the american people? >> again, there are a series of things that have to be done. i think you'll actually hear an announcement from treasury later this afternoon about how much money has to be borrowed versus

what they have to borrow and will be borrowed as a result of financial stabilization. in terms of cutting the amount of money that's needed again, i think the president has been clear on this. the first that i think we can do, the most important thing that we can do now is get our economy growing again. we know that the deficit, part of the reason the deficit is up now is that the economy has slowed down so much that tax revenues, because this is what happens in an economic slowdown, have regressed a lot. i think the president obviously -- we're going to have to make some decisions down the road on some of the president's legislative priorities and some of the things that congress wants to do to evaluate how we

move back on a path towards fiscal sustainability. >> so did geithner and summers go off script or were they testing the territory? >> i know the president has been clear about his commitment. >> so there is no real scenario there as the administration sees it where middle class taxpayers might be hit with higher taxes? >> the president is very clear. >> can i make that even a little more precise. the president, as you know, not just middle class. >> the president's clear commitment is not to raise tax on those making less than $250,000 a year. >> any implication? anybody from geithner and summers yesterday is flatly wrong? >> i think the president has been clear. you heard him reiterate it not

that long ago right outside this room in the rose garden. >> you can understand why people took what they said yesterday as geithner and summers trying to open the door a little. >> i hope you'll take my reiteration of his clear commitment as a no. >> the door is closed? >> i'm reiterating the president's clear commitment in the clearest terms possible that he is not raising tax on those making less than $250,000. we talked about a number of economic issues this morning in the oval office. >> so is everybody going to be on message now that absolutely no taxes? >> promising that everybody is going to be on message a bar too high for me to leap over. >> but that is the goal? >> the goal is to get the economy moving again and get our government back on. >> any family making less than -- >> a path of fiscal sustainability. delay the long-term foundation

for economic growth. one point that i forgot that i think is important, within the very first month of the president taking office, 95% of americans received a tax cut. that's everybody in the middle class. ok? the president ran because for eight long years, the middle class had born the brunt of bad economic policies. even when jobs were being created, even when you saw positive economic growth for the very first time in our history, you actually saw wages for the middle class decline. that's one of the reasons that led the president of the united states to want to run for president of the united states. to protect the middle class. to cut their taxes, which he did, and to make sure that their wishes were heard in making the economic policy of this country.

i hope you'll take seriously what i said. >> an update from senator vargas? >> i don't. i don't. sometime probably last week. i don't think there were any calls over the week. not that i know of. >> can you explain -- do you feel like friday's g.d.p. number, every time there is a reported number there is a revised number. lately it is revised downward. do you guys worry that -- as a positive step forward, do you have any reason to believe that it will be revised downward? >> obviously one of the things that was done -- one of the things that was released on friday were revisions based on new economic model in back decades. i could ask if we assumed -- i certainly don't believe -- but

you know, look. obviously, the number is not more than a weekend old. i know they feel confident in that. obviously the one thing that we do know now, that we didn't have as clear a handle on in these economic provisions is that the sheer depth of what the -- what we were facing economically, the you know, the growth, the positive growth that you saw in the second quarter of 2008 was revised down sharply. the first quarter of 2008 went from a period of supposed economic growth to economic contraction. the depth of the third quarter of 2008 began to show you just how deep a recession we were in and continue to be in. i think we take heart, take some

heart from the numbers on friday that showed one that, the recovery plan we think is having an impact. cushioning the economic downthank you, your honor we saw. saving and creating jobs. understanding with this caveat we'll get new jobs figures on friday.

the remarks of the senator from alaska spoke for all of us. mr. president, a few minutes ago i was waiting to give a television interview to msnbc and the white house press secretary, robert gibbs, was on. he said a most astonishing thing. he was there obviously for the purpose at an impromptu press conference to correct what i thought was a truthful yetion thatruthfulimpression that was t yesterday by two members of the obama administration. both mr. summers and mr. geithner yesterday didn't rule out the possibility of a middle-income tax increase. that was wild reported all over the -- that was widely reported all over the country today. and apparently they were taken to the woodshed this morning and mr. gibbs was sent out to say oh, no, we're not going to raise

taxes on middle income. but -- but, mr. president, that's misleading, at best, to the american people. and most people know that. in an article in "the new york times" august 1 said, "obama's pledge to tax the rich only can't pay for everything, analysts say." and among those quoted, leonard berman, veteran of the clinton administration treasury and director of the nonpartisan tax policy center, "this idea," he says, "that everything new government provides ought to be paid for by the top 5%, that's basically an unstable way of governing." isabelle sawhill, who i'm sure the senator from arizona remembers her distinguished service -- quote -- "there's no way we can pay for health care and the rest of the obama agenda plus get our long-term deficits under control simply by raising taxes on the wealthy, said

isabelle v. sawhill, a former clinton administration budget official." "the middle class is going to have to contribute as well." i wonder if the senator from arizona, who's a veteran member of the finance committee, was -- is surprised to see, first, that the two top finance people for the obama administration would say we might -- we're not going to rule out a middle-class tax increase. and then all of a sudden today, nope, nope, going to rule that out again. what's going on? mr. kyl: mr. president, i would say to my colleague, i had the same impression yesterday when i saw mr. geithner and mr. summers on television. they were, frankly, just acknowledging the reality of the situation, and didn't really think that much of it because the truth of the matter is, the people that the -- my colleague has just quoted are absolutely right. you cannot do all of the things the president wants to do without raising taxes and inevitably that will be on the middle class. just to put in the record here what -- what both treasury

secretary and mr. summers said, this is as reported by george stephanopoulos, the "this week" host for abc. he said, "to get the economy back on track, whether president obama have to break his pledge not to raise taxes on 95% of americans?" in a "this week" exclusive, treasury secretary tim geithner told me -- quote -- "ear going to have to do what's next." dismie then stephanopoulos continues, "when i gave him several opportunities to rule out a middle-class tax hike, he wouldn't do it." "we have to bring these deficits down very dramatically," geithner told me, "and that's going to require some very hard choices." well, of course it is. i mean, geithner is right. it's pretty hard to deny. and then the national economic council director, lawrence summers, was asked by bob schieffer on cbs if taxes could be raised for middle-income americans and summers said -- and i'm quoting again -- "there

is a lot that could happen over time. it's never a good idea to absolutely rule out things no matter what." and then he said -- and i quote -- "what the president has been completely clear on is that he's not going to pursue any of these priorities, not health care, not energy, nothing, in ways that are primarily burdening middle-class familie families." that'families. that's something that's not going to happen." there seems to be a subtle switch here, first of all, to never say never; and, secondly, to say, well, the tax burden isn't going to primarily fall on middle-class americans. and i would just say to my colleague that when you look at some of the provisions that are in the house of representatives bill on health care, in the senate "help" committee on health care and some of the things that are being considered by the finance committee, in all three situations, you do have taxes on working american families, middle-class families. so i think that what the secretary and -- and mr. summers

said sunday is actually more true than the press secretary tried to make it out to be. it's simply the recognition of a reality, that you can't pay for all of this and not impose taxes on middle americans. mr. alex around: well, i agree with -- mr. alexander alexander: well, e with the senator and his point is a valid one. it's not a matter are they going to propose middle-income tax increases. in the health care plans, we already -- we already see that. for example, in the proposed payroll tax or jobs tax on employers to pay for the proposed health care plan coming out of the house of representatives, there's a very large tax. could be up to 8% of payroll. according to the "wall street journal" editorial on july 30th, who bears the burden? economic research is close to unanimous that a payroll tax is a tax on labor and shouldered mostly if not entirely by workers. there's a middle-income tax

increase already proposed. and there's another one that bothers me especially as a former governor. our current governor in tennessee called it "the mother of all unfunded mandates." if we add as is proposed by both bills, another 20 million people to medicaid for low-income people, the states help pay for that, tennessee -- that's 400,000 more people. and the estimates we have gotten from tennessee's department of medicaid, tony-care that is enough money to equal to 5% income tax if we pay doctors a sufficient amount to see these people dumped into died into me, that's another 10%. mr. kyl: is my colleague aware there are other proposals in the various democratic bills.

one is that all individuals would be required to buy medical insurance. that's not a new tax but there would be a penalty if they refused to do so that goes directly to their income tax. the latest proposal is 1.5% of your income tax a penalty imposed upon you if you didn't buy insurance. now, what happens to, say, a young man or woman woul man whot graduated from college and they are going to be required to go into a risk pool along with everybody else. or, say, they have been paying a modest amount for their insurance through their college, perhaps. what's likely to happen when they are thrown into the pool of other americans, all of whom are required to purchase insurance, will their premiums go down? what is the estimate of what will happen to their premiums,

these young people? mr. alexander: the senator made a good point. if you are young in america and forced into the health plan that's passing the house, your costs are going to go up. and that's a mandate or a tax that absolutely will go up so the senator is exactly right. so for every young person in america who's in this plan, his health care costs are by definition going to go up to help pay for older americans who, i might add, whose benefits are going to go down because half of the health care plan is going to be paid for by medicare cuts, not to make medice solvent, grandmother's medicare, benefits are going to be cut to pay for the new program. so whether it's a benefit cut or a tax increase, there are a lot of middle-income americans who

already, you know, are looking at a v we are glad you are here and

finkel that you are still in your jobs -- we are glad they you are here and thankful that you are still in your jobs. i try to raise -- sometimes i

like to come early and there raise my chair much higher than the other chairs and put them at the very lowest level. i look like a chairman then. i am going to be joined by several of my colleagues. i think senator mccain is on the senate floor. i told my staff that we might be talking about the nominee for the supreme court as we speak. what we are going to be talking about today is really important. i am delighted that this panel is here. we look forward to your testimony is and look forward to having a chance to go back and forth and kick around some ideas with each of you. i think it was about a year ago when senator cockburn, senator sanders and i examined whether

agencies were giving away what is known as award fees to contractors and whether or not those contractors really deserve them in many instances. in the private sector, those payments would probably be called bonuses. they were introduced to help incentivize exceptional performance. it might be described as extra profit that the contractor might earn if they save our government money and deliver a superior product. the practice of of lending performance to properties is not a new concept as we now. it can lead to excellent results if used appropriately. however, recent controversies in the financial sector show that rewards and incentives that are not properly aligned with outcomes can sometimes lead to failure with dramatic consequences. unfortunately, government agencies have made some of the same mistakes that private

firms we care about in the news have made over the years. much to my disappointment, it seems that a number of agencies, not all of them, continue to struggle and figure out how to manage award fees properly. a number have taken steps to maybe show the way for the rest of our agencies. some agencies continue to hand out hundreds of millions of dollars to contractors for reasons that just to make a whole lot of sense. in one interview, i am told that as part of its analysis, and air force official reportedly said that a contractor would have to do "a pretty bad job" just to receive 85% of the potential bonus, meaning that a bad job might warrant 100% of a bonus.

another case, a contra was cited for "agreed this behavior" this the received an award feet. even when agencies to hold contractor's fee to the fire, they often give them second and third chances to earn a profit despite repeated shortcomings. this practice is meant to be used in limited situations when contractors are unable to deliver for reasons outside of their control and fortunately rollover seems to have become a rule instead of the exception. not always but in some instances. instead, agencies continue to hand out millions and billions of dollars in bonuses, assuming that they are getting the best result for our taxpayers.

the department of defense in the partly paid a billion dollars in award fees in 2005 alone. only recently come up for years 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 s@ @ @ 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 each of these agencies told us that there would benefit from ditional 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. >> thank you. you mentioned that, at the beginning of the testimony, you laid out three things that were propagated by omb. this was in 2007. he said that this would be rewarded with the performance was unsatisfactory. i do not recall the other tw well. if we go back to 2007, we have what the sign said today. there may be -- what can this do to make a basket to better practices that we can apply rather than despair? i want to comment on what you

laid out for the work ahead. >> i did say that when they issued the memorandum back in 2007, this reflected many of the key findings that we had in december 2005. . >> 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. @@@@@@@@ that is just human nature. when is it ok, i am running over the award fee. >> as the latest -- the latest guidance meant this to be exceptional in a situation and although this is not defined, one consideration is if this was a contractor who did not have the opportunity to earn a fee because of something that did not have been at that time, when everyone expected this to, when this was tied to a particular of zandt. -- particular event. -- 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. 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 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. .

the concern that we have buy-ins and the appropriate training for the people managing these contracts, making certain that we have the opportunity to share the wealth, with these agencies, who are collecting 95% of the award fees, in terms of the oversight. they are doing a better job and the word, "far" has been mentioned as an acronym and it reminds me of a kenyan saying. if you want to go fast, go

alone. if you want to go far, go together. we want to go far with the inappropriate award fees. to do that, we will have to go together. we ask you to redouble your efforts. this is important work. thank you very much. i will ask the second panel to come to the stand. thank you, gentlemen. [captioning performed by national captioning institute] [captions copyright national cable satellit c-span3 cal[captioning performey national captioning institute] [captions copyright national cable satellite corp. 2009] welcome to our second

> 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 foth 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, theyre unique in all of government, and require a special authorization by the secretary of energy. many facilities are funded with many facilities are funded with a special designation because the laboratory contracts for these facilities