numerous trips to southwest asia theatre, and holding hearings with government and contractor witnesses. on june 10 of this year, we issued "at what cost." it was our interim report to congress. a detailed final report will follow after we complete our full work plan to cover issues ranging from organizational structures and personnel issues to practices for defining contract requirements and monitoring performance. . .

today's business systems involve policies, internal controls and intricate software with millions of lines of computer code often customized to accommodate accounting requirements and multiple lines of businesses. there are literally millions of lines of transactions that need to be recorded, properly billed to the government and used to support estimates for future contracts. over 100 billion -- and i didn't say 100 million -- over 100 billion of contract costs have been estimated, recorded, billed

and controlled using these business systems. the complexity of these systems gives them incredible power for documenting and managing business operations, but also, the potential to create formidable obstacles to transparency for oversight and audit when poorly designed, incorrectly used or not updated. those weaknesses and obstacles are at center stage in this hearing. we will swear in two panels of witnesses, today. the first panel will represent federal agencies whose work involves dealing with or auditing contractor business systems. those wilkenses -- those witnesses are jeff parsons, executive director of the army contracting command, april stevenson, director of the defense contract audit agency, david rickey, director of business -- director of contract business operations at the defense contracting management agency, dcma.

our second panel will consist of witnesses from the contracting industry. the three companies represented are the three primary contractors for -- for logistics contracts. the witnesses are william paulus, president and c.e.o. of dinecorps, william walters of k.b.r., david medoff, chief compliance officer with fluor group. before we hear, we want to offer basic remarks on the purpose of today's hearing. from 2001 through mid-2009, congress has appropriated about 880 billion to fund u.s. overseas contingency operations with the great majority of that funding devoted to iraq and afghanistan. over that period, america's reliance on contractors has grown to unprecedented

proportions, to support logistics, security and reconstruction efforts related to those operations. more than 240,000 contract employees, about 80% of them foreign nationals work in iraq and afghanistan at one time to support the department of defense. additional contractor employees support the department of state and the u.s. agency for international development. contractor employees outnumber u.s. military personnel in both theaters. they have a critical mission and according to reports from the military in theater, they are doing an exceptionally good job providing security, transportation, meals, laundry and other services. the questions raised today in no way detract from the overwhelming good opinions of contractors' support for u.s. missions or obscure the fact that nearly 1,400 contract

contract employees have died on duty in. the government's concerns about the ability to evaluate the costs of contractor services and provide good stewardship of taxpayers' dollars. are we spending too much for services for which we could and should be paying much less? are we overpaying and wasting precious resources? the commission's internal report "at what cost?" called policy makers and lawmakers' attention to eight issues of immediate concern that we felt should not languish unaddressed until completion of our final report. one of the eight was contract business systems about which we simply said too many contractor business systems are inadequate and must be fixed. commission staff examined a selection of reports on 100 business systems used by 15 contractors who had raised 43 billion in contracts for work in iraq and afghanistan.

we learned that 30 of those 100 systems had been judged inadequate or inadequate in part by the defense contract audit agency. fully half of the billion in compensation systems were considered inadequate. every other category of applicable business systems -- accounting, budget, electronic data processing, indirect and other direct costs, labor and purchasing, also showed inadequacies although to a lesser extent. as we issued the internal interim report, dcaa identified three more contract business systems as inadequate, including the labor billing and compensation systems that are essential parts of a contractor's overall management control structure. this issue of inadequate business systems in the contingency contracting environment is growing, but after more than six years the opposite should be expected.

this is a serious problem that should concern the president, every member of congress and every taxpayer. as the commission said in its interim report, significant deficiencies in contractor systems increase the likelihood that contractors will provide proposal estimates that include unallowable costs or that they will request reimbursement of contract costs to which they are not entitled or which they cannot support. the commission's may 2009 hearing heard that although -- that through -- through fiscal year 2008, dcaa had taken exception to over 13 billion in questioned and unsupported costs soshted with the for thes in theater. some of those shortcomings reflect inconsistencies or ineffective operations of contractor business systems and even if further inquiries provide documentation for questioned costs, the

shortcomings demand demanded extra time and effort from federal oversight personnel that shouldn't have been needed and has resulted in higher costs for taxpayers. dcaa has also testified that inadequate business systems may prevent the government from closing out some iraq and afghanistan contracts for years because of missing or incorrect data. u.s. army contracting command previously testified before this commission about "overtaxed business systems, under log cap three that created problems with problems with management subcaps reporting purchases and other issues. army contracting command has adopted a policy under the new three-vendor task-order competition log cap four contract that segregates 15% of the award pool to provide

incentives for good management business systems and small-business subcontractor performance. this is a welcome reform, but the test will be in its consistent and strict application. the harsh fact we still face is that some contractor business system deficiencies have remained uncorrected. without consequences, for months or even years, federal regulations require contractors to maintain adequate business systems. regulations also permit but do not require contractor officers to withhold payment when a contractor fails to correct sufficient deficiencies but previous dcaa testimony indicates that many contractors continue to operate inadequate business systems with little fear of effective discipline. further, there appears to be disagreement at times between dcma and dcaa on whether

withholds should be imposed after a dcaa determination of inadequacy. we will explore these disagreements at today's hearing in some length. this state of affairs is both laramieing and puzzling. -- is both alarming and puzzling. why can't of a federal department find ways to make prompt corrections to systems that log vital data? how can large corporations manage their affairs effectively and provide accurate information to shareholders let alone meet their regulatory obligations to the federal government with systems that are inadequate? are federal definitions of inadequacy irrelevant to real-world systems or are contractors using some parallel system of enterprise management that remains invisible to federal oversight? whatever concerns we have with the private sector, we don't

intend to give the government a free pass on this issue. contractors are not the only ones with business system issues. for example, the business systems modernization program at the department of defense has been on the government accountability office's high-risk list since 1995, not 2005, 1995. tackling that issue is outside the commission's mandate but we can still ask is government doing its job to make sure contractors comply with federal requirements? if the administrative contracting officer and the auditor can ensure that needed improvements are timely made, who can? and who is accountable on the federal side of contracting? these are just a few of the questions that my colleagues and i hope to learn more about in today's hearing. again, we thank our witnesses for their cooperation.

as is customary, a question-and-answering period will follow the testimony. after we adjourn, the hearing record will remain open for 10 business days to allow responses to questions for the record. and with that, we welcome our witnesses, our first panel. i invite you to stand. i would like to swear you in as is the custom of this commission. raising your right hand, do you solemnly swear or affirm that the testimony you will give before this commission is the truth, the whole truth and nothing but the truth? thank you. >> mr. parsons --

>> your statements are long in some instances. we would like you to summarize your statements, between five and seven minutes and we will be sure that anything you need to say you will be be allowed to say even if we haven't asked the question, we will give you that opportunity at the end so we're going to go in order with you, mr. parsons, then you, miss stevenson and then mr. richard. >> thank you. chairman tebow and shays and distinguished commissioners of the commission on wartime contracting, thank you for this opportunity to discuss the important of contractor business systems in army contracting. effective business systems are central to the conduct of sound business operations. contractors must have systems in place such as accounting, payroll and billing at the time of contract award that are in compliance with government cost accounting standards, federal acquisition regulations and defense federal acquisition regulations. the systems must reasonably

forecast labor and material requirements, ensure the costs of labor, subcontracts and purchase of fabricated material charged or allocated to a contract or based on valid requirements, and maintain a consistent, equitable and unbiased logic for costing of material transactions and labor. contractors must maintain the systems throughout the life of the contract. the army considers the relative condition of a contractor's management systems including business systems during the source selection process. generally, this is included as part of the management area of contractor proposals and related evaluation criteria. under the lubcap four, established that management of business systems of which was a subfactor took precedence over all other factors. this area was given a higher than usual weight because of the difficulties of managing quick response program in an austere environment and the need for robust systems to respond as contract requirements change, and to keep up with wartime

threats. in evaluating the relative strengths of business systems as part of the source-selection process, the contracting officer and source-selection authority relying on the input of experts from the defense contract audit agency and the defense contract management agency. after the business systems are considered under the source selection process, they are reviewed again before award is made. the contracting officer may not award a contract unless he or she has made an affirmative determination of the contract's responsibility. in making this determination, the contracting officer must consider whether the contractor has the necessary accounting and operational controls in place such as accounting, payroll and invoicing systems applicable to the services being performed by the contract and subcontractors. when costs of contracts, the contracting officer must determine that the contractor's accounting system and related internal controls provide reasonable assurance that the accounting system and cost data are reliable, risk mislocations

and mischarges are minimized and contract allocations and charges are consistent with invoice procedures. during contract reform, it's the contractor must maintain systems to support billing and payment under its contract and must be able to accurately track the costs associated with the contract baseline and any changes made to the contract. the cost allocation amongst various work packages must be verifiable and must track back to the discrete contract change. this is the method the government uses to validate the costs charged under the contract are fair, reasonable and alloicable. or during dcma's surveillance, the contracting officer is notified, dcaa and dcma work together to resolve what adjustments will be made to the billing rates or invoices and the contracting officer supports that process by taking appropriate contract action if necessariment in the case of an award fee contract, pressure can

be brought to bear through the award fee criteria. that is one of the levers used under the log cap award fee process which has criteria directly associated with corporate management and business systems. should the contract not react in a timely manner, the army dialogue with senior management in the corporate chain. depending on the severity of the problem, certain senior army or defense officials may engage with the contractor's most senior managers to ensure that the army's mission needs are met at a reasonable price. let me assure you that the army contracting command is committed to excellence in all contracting including these very contract and critical log cap contracts. we continue to collect lessons learned in improving adjustments along the way to ensure mission success and protection of the interests of the u.s. government and taxpayer. as stewards of the taxpayer dollars, the army is committed to excellence in managing and documenting contractor performance and the overall discipline of contract administrative services. it is my honor to lead the army

contracting command team as we persevere to achieve those goals. thank you for inviting me today to speak with you. this concludes my statement. >> chairman tebow, chairman shays and members of the commission, thank you for the opportunity to be before you today. i am pleased to be here. as requested, i will describe the audit effort performance by dcaa on business systems for contractors performing effort in theater. a more detailed account is provided in the statement that i asked be submitted for the record. dcaa has implemented planning and coordination procedures to effectively implement audit work between the iraq office opened in 2003 and more 60 dcaa offices stateside. just recently i approved the opening of a second audit office in theater in afghanistan.

through june 2009, dcaa has completed over 200 business system audits and has cited deficiencies in more than half of these audits. when a contractor's business system is inadequate, the data generated by the contractor is unreliable. which, in turn, results in the risk of noncompliances with government laws and regulations, mischarging, fraudulent acts and contract overpayments. the requirement for adequate business systems dates back to 1977 to the foreign corrupt practices act, the results of which were further refined in 1985 by the national commission on fraudulent financial reporting known as the treadway commission. the commission developed a framework that defined internal control as a process designed to provide reasonable assurance about the reliability of financial reporting, efficiency and effectiveness of operations

and compliance with applicable laws and regulations. currently, public laws, acquisition regulations and contract terms require government contractors to maintain adequate business systems. using these previous bodies of work on interim controls, dcaa established audit procedures for the 10 contractor business systems listed in my written testimony. dcaa's opinion on contractor business systems is advisory and the contracting officer usually dcma, the defense contract management agency has the ultimate decision to approve or disapprove the contractor systems. since an inadequate business system is considered a critical breakdown in the contractor's processes, the acquisition regulations require contracting officers take certain actions when deficiencies are found such as considering whether it is

appropriate to suspend a portion of interim payments. even when the contractor has proposed an apparently adequate corrective action plan, until that plan is effectively implemented, the contractor is still processing transactions with an inadequate system of internal controls. as a result, there is a greater risk of overpayment. during our audits of contracts and contractor business systems in theater, we have reported a number of system deficiencies. for example, since march 2009, we have reported three business systems at dinecorps to be inadequate. in the last few months, 50% of sampled billings at dinecorps have been rejected for exceeding allowable amounts. shortly after dinecorps was awarded the task for kuwait it submitted change-order proposals requesting an increase in price at about 51% or $50 million increase.

dinecorps stated incurred to higher employees in theater. we identified a number of other billing deficiencies through our department of contracts resulting in 30 million in overpayments being refunded. as stated in our testimony to the commission on may 4th, we reported a number of issues related to system deficiencies at k.b.r. rather than repeating the extensive list of issues in this testimony, we refer the commission to our prior testimony. however, it is worth noting the effects of these inadequacies in k.b.r.'s purchasing system resulted in significant unreasonable subcontract prices on logcap iii contract. we have issued in excess of 100 suspensions known as a dcaa form 1 suspending hundreds of millions of dollars due to

unreasonable and unsupported costs many of which stem from deficient systems. in april 2009, dcaa issued an auditing report on k.b.r.'s system as inadequate primarily due to k.b. r.'s failure to perform adequate price analysis of subcontractor proposals as required by the regulations. for example, k.b.r. purchased about 4100 living units at an average unit price of 38,000 when a lower-priced vendor proposed 18,000 for containers having similar amenities, the $20,000 unit-price difference equates to $82 million. do not always follow-through to correct deficiencies in unit controls. in june 2006 dcaa reported significant purchases with k.b.r.'s purchasing system and in that same year k.b.r. stated

it initiated a corrective action plan but our follow-up audit issued three years later in april 2009 we identified similar deficiencies as well as two new deficiencies that led to issuing an overall opinion of inadequate. based on these events, it is clear that k. b. r. did not take the correction of the reported deficiencies seriously. we believe a contributing factor is dcma's practice of recognizing the existence of a contractor's corrective action plan as the basis to righthander a system adequate: auditing contracts for contractors performing effort in theater has been very challenging in many areas. these challenges are discussed in greater detail in my written testimony. for example it appears that dcaa and contracting officers apply different criteria when

establishing the adequacy of systems. dcaa must take the government odd iiting standard before rendering an opinion. in contrast, just recently dcma performed its review of k.b.r.'s purchasing system in about a week. >> try to finish up in the next -- >> i'm almost done, sir, thank you. and determined that the system was adequate. clearly we have different criteria in the opinions of an adequate system. in closing, the challenges in applying sound and reliable business practices have been daunting and have required our auditors to be flexible. i would be pleased to take your questions. >> good morning, chairman tebow, chairman shays and commissioners on behalf of the defense contract management agency i thank you for the opportunity to speak today on contractor business systems. dcma is responsible for the

administration of about 325,000 contracts with unliquidated obligations of over $220 billion awarded to over 19,000 contractors. dcma accepts approximately 3/4 of a million shipments of supplies and 1150 aircraft each year, we also manage over 136 billion of government property and administer about $36 billion in contract finance payments each year. that workload coupled with significant reduction in personnel over the years has posed a tremendous challenge to the agency. contractor maintenance of reliable business systems would help address that challenge. simply put, robust planning and control systems increase the likelihood that conforming supplies and services are delivered on time and at a fair price. they also reduce the government's cost of processing individual transactions. unfortunately, contractor business systems are not maintained at the level we would expect. today, i will provide some insight into our assessment of contractor business systems and

efforts to resolve deficiencies in those systems. the acquisition regulation gives our administrative contracting officers or a.c.o.'s wide latitude to exercise business judgment when determining the application of regulations and policies. while the authority and responsibility for determining system status clearly rests with the a.c.o.'s, they must consider the input provided by functional specialists. the defense contract audit agency is the department's expert in contract auditing. as such their advice is integral to the process. last november we revised our policies to the determination inconsistent with dcaa recommendations is subject to higher level review that may include review by the dcma head of contracting agency, a senior executive service win dthshgs cma. there are seven major contract business systems prescribed by regulation. accounting, estimating,

purchasing, material management and accounting, property, earned value and cost-accounting standards disclosure statements. there is no consolidated list of these systems in afar or defarce. many contractors maintain adequate systems but there is room for improvement. even the largest defense contractors with years of experience in government contracting have deficiencies in their system. only two of the 10 largest business units have adequate systems across the board. four of those 10 business units are considered inadequate in three or more of the seven systems evaluated. taking a broader view of the 435 contractor purchasing systems that have been reviewed, 19, about 5%, have had their approvals wheld. of the 2479 contractor property systems that have been reviewed, 80, about 3%, have been found inadequate. of the 60 earned management compliances conducted since 2006

only four suppliers have been found compliant with those guidelines. however, focusing on whether a system is rated acceptable doesn't paint the whole picture. longstanding practice and regulatory guidance allows contractors in many cases to avoid having systems disapproved if they submit adequate corrective action plans and make timely progress against those plans. it may result in sufficient consequences, for example disapproved purchasing system automatically leads to increased consent requirements but knowledge of the individual deficiencies is no less important, the impact of a deficienciency on the action can often be mitigated through government action albeit typically through the expenditure of additional government resources. to illustrate this point consider that the regulatory guidance lists a number of risk mit fwagz strategies including a

different contract type, performing additional contract analyses or a reopener clause. for that reason we are working to improve the quality of our organizations with contracting officer vary by system. i would mention consent requirements of disapproved purchasing systems. here is a few other examples. inadequate accounting system may preclude the award of contract types. an unacceptable estimating system may result in increased post award reviews for effective pricing. an inadequate property system may lead the government to revoke its assumption of risk and hold contractors liable for lost, damage, destruction or theft of government property. but with the exception of mmas, none of the consequences expressly and importantly contractually include reductions in contract price, payments or financing. certain clauses allow the government to impact cash flow

when contractors fail to maintain acceptable systems or correct deficiencies in a timely manner. both the progress payment and performance-based payments clauses allow for reduction or suspension of those financing payments for any material noncompliance with contract terms. the incentive fee and fixed-fee clauses allow the contracting officer to withhold payment of fee after 85% has been paid up to a total of $100,000. although this has generally been done to ensure submission of final rate proposals not to encourage improvements in business systems. finally, the allowag cost and payment clause gives the contract officer the authority to suspend or disallow reimbursement of costs found to be unallowable. however, unless a system deficiency can be found to directly impact the specific cost allowability, use of this clause is generally not appropriate. before it can be used to suspend costs under our current contractual authority, we need

to demonstrate through substantial evidence a reasonable nexus or causality between the specific system deficiency and the cost to be suspended. i know i'm over. i'll finish up quickly. we recently offered some ideas to the director of defense procurement acquisition policy and additional incentives to obtain greater compliance with regulatory business system requirements. we are also considering submitting a specific regulatory change to address suspension of costs for edms deficiencies. we will work this with the director of defense procurement and acquisition policy through the formal rule-making process including the opportunity for public comment. in closing, we share the concerns you have with the adequacy of contractor business systems and appreciate congressional support of our efforts to obtain improvements in them. again, thank you for the opportunity to appear before the commission. this concludes my statement. i will be pleased to answer any questions.

>> thank you very much. we're going to go in this order. consider zakheim, commissioner green then myself. we're going to go for eight minutes and we'll go for eight minutes and then have a follow-up question of five, mr. tebow. >> thank you, commissioner shays, thank you for each of you taking the time to come up and prepare for this. i have several areas of interest. this is a really important area. i don't see any difference of a view that it's a really important area. i'm going to talk about, though, i see differences of treatment of the outcomes but before i go into that, miss stephenson, director st. francis, you indicated to us last -- miss stephenson, last may you acknowledged the significant

uptick in afghanistan for workload and a big part of this commission's for the is to try to take lessons learned from iraq and the importance and i know that dcaa was one of if not the first noncom bat agency to go into iraq in 2003 -- summer 2003 and the event started in early spring of 2003, and may we highlighted that when we went out we didn't see as much of dcaa as we might have expected given the uptick. can you talk a little about actions you might have taken? and then the other thing we talked about, is dcaa going to get out into the outlying areas where so much cost is incurred and update operations. can you update this commission on what if any actions you have taken as the director? >> yes. we took your recommendations very seriously and we do appreciate the commission's

support on these. shortly after that hearing we did assess what the staffing needs were both in iraq, kuwait, afghanistan, i called that the in-theater effort and just recently we have opened an office in afghanistan so we now have two offices. we'll have the iraq branch office until the draw-down is complete and audits are no longer necessary in that area and we now have the office that we'll be opening in afghanistan and we are coordinating with sentcom on the logistics necessary for that, we have also approved and have a manager in afghanistan now along with an audit team although as the office is set up it is on a temporary basis, we are shifting as need be. on your question regarding the operations audits, we have initiated 15 operations audits split between iraq, kuwait, afghanistan, in iraq it's mostly focused on the drawdown and do we have too many people doing too little work.

in afghanistan, it is the control of various things such as the transition of equipment and property. we anticipate we will be spending in 2010 over 12,000 hours on operations audits. >> thank you. >> one of the things i would like to start with you, mr. parsons, at last hearing, business systems evaluations in terms of coordination between the three organizations -- the three organizations that are here now in terms of there were various coordination activities but we had these differences

that we're going to talk about and update in a bit. but i guess i'm interested in, following that hearing, what kind of actions were you involved in that were trying to address these differences where you might have dcaa saying it's a 50% or that we have very significant issue, and you might have dcma with a different view? so can you talk a little about what actions -- you know, and the army is so critical because you're the ones spending the dollars on the contracting effort. mr. parsons? >> as i mentioned in my statement, you know, obviously, these business systems are very important to us as far as our contracts still under logcap, and as such, we put a lot of focus on that in the source selection for the basic logcap contract and at the task order level but obviously, and as the charts up here show that there is some differences of opinion

between dcaa and dcma, and that's one of the things the contracting officer has to wrestle with. the contracting officer is informed by dcaa of audits where they find inadequacies, they are in contact with dcma and they have to understand the positions of both of those organizations. i think it was the last one that we actually held a meeting out at rock island where dcma and dcaa participated, all the regional directors were in from dcaa and gave a very thorough review of all the issues they have identified with the different contractor business systems and there was quite a bit of discussion about those, and as recently as a couple weeks ago, dcaa gave a follow-up update to the rock island contracting center on the concerns that they had with many of these business systems, so the contracting officer needs to address those when they make the responsibility determination, they make tradeoffs between what

-- the information provided by dcaa and dcma and come to a conclusion whether they believe or not the risk is so high it can't be mitigated or whether it can be and take approved action. >> let me say thank you for that but let me share that it seems that we're doing a lot of talking but it seems that based on some of the testimony we haven't done a lot of resolving, and i realize that dcaa answers through the comptroller and dcma comes up through the acquisition side and my observation seems like something's not getting done in terms of addressing these important issues and trying to figure it out, and director stephenson has really focused as much with you, mr. ricci, because you share that in your testimony 2,400 some -- or excuse me, 475 contractor purchasing systems

reviews performed by your cbsr team with, i think the number is 19 exceptions. it's a pretty small percentage, just as an observation. you just shared that typically your systems are running greater than 50%. so you've got whatever, 19 out of 45 is which is maybe four or five percent and you have got 15% so you've got one advisory organization saying to contractors and saying to your customers, the army, hey, we've got a 50% head rate problem, we've got another one saying we've got a 5% hit rate problem and i'm just talking about purchasing. i'm sensitized because when you briefed us, mr. ricci, and we appreciated it, in advance of the hearing, you outlined the staffing reductions that your cbsr teams have encountered and i think it's important to share that in in 1994 your cbsr team saw activity, you had 102

individuals performing these reviews, you had -- you went down by 2002 to 32. and in the present you have 14. that you shared with us. you also said, i believe, that you thought it was reasonable. i'm here to tell you intuitively and logically it really doesn't seem reasonable, and then i feel like we kind of got a hatfields and mccoys situation going on because in director stevenson's testimony, she stated that the cbsr team conducted its review in less than a week, so she didn't put that in there as a compliment, she said it was adequate and dcaa by longstanding had said it was inadequate, using that as an example and using the significant number, it is really troubling that we have these differences and that the two

agencies haven't been able to resolve it. last point is that you end up with companies -- there are great companies out there, and maybe they don't know how to assess this. much rather the army. there are companies that have had continual problems and maybe they're using it as excuses. dcma's telling me one thing if you look at that chart up there, dcma's telling me one thing and the others another. when i get to my questions in the next round i'm going to be focused on that and what's going on here -- what is it going to take to get these two agencies together to figure out a good course of action and to speak as one since you have a mutual customer, the united states military in this case. mr. chairman. >> thank you, that's a nice introduction but it may get answered perfect you get your second -- >> that's just perfect. >>

>> thank you, mr. chairman. my respect to miss stephensen and the dcaa for the diligence of your two lieutenants, always a resource for me and -- and my chairman, mr. thibault, i respect and draw on his deep insight into these systems. i could not look into them without him. at the may 4 hearing, we expressed our concern that the army contracting command might not take dcaa's offer to audit contractor proposals on the logcap iv task orders. to put in contract for people, we're still trying to stand up logcap iv, proposals come in from contractors for logcap iv, the first iteration, iraq, afghanistan, obviously high importance, you were willing to audit it, mr. parsons pledged to

us at that hearing a lot of cooperation with you. what happened? >> i have to admit i tried every angle possible to get with the preorder audits. i have met with mr. parsons. he did follow-through on his effort to me. i met with charlie williams, leigh thompson, i even went to -- within atnl i met with ashea assad and as mr. parsons mentioned we had a meeting where i brought in every one of my executives involved with the three contractors and we had a meeting with the individuals responsible for awarding the task orders for afghanistan, an entire day meeting and went through each and every one of the issues and what it meant in logcap. unfortunately the train left the

station without us and we were not engaged in auditing the proposals for logcap iv for afghanistan. >> you're being diplomatic, miss stephenson. the train didn't sort of have no engineer on board, mr. parsons opposed you and won as he went up the ladder with you. is such auditing crucial from the drawdown, remember our top -- i'm sorry. i want to follow-up without the auditing. our highest strategic imperative in iraq is the drawdown, there is nothing more important, the commission sent me two weeks ago to baghdad to talk to -- i ended up talking to general odierno. he sat down with me -- i'll say more on that later -- for the drawdown, is such auditing of proposals crucial for the new task order in iraq which is coming? hasn't been competed yet. it's coming. >> yes, i would say the audit it is are almost more -- the audits are almost more critical with the drawdown and the reason being, prior to awarding the

task orders for the drawdown we have to have a good understanding of the prices. at a low enough level that when the drawdown occurs we can assess cost containment and cost growth, and if -- given the inadequacies with the business systems with these three contractors, if these internal controls are not improved, coupled with a poorly priced drawdown, the drawdown in iraq and these task orders are going to become a deep pocket. >> i a what? >> a deep pocket. it is critical that we have an adequately priced drawdown. in this effort as mr. parsons said we've had at least two meetings since june to talk about dcaa's involvement. i have mr. parsons' commitment that we will be involved with auditing the task orders on the preaward basis for iraq.

>> we've heard promises of cooperation before. i'm sure this is more than in the past. why do you answer them about why they didn't last time and they wouldn't this time let you audit the proposals which as you say could become a deep pocket -- the drawdown could become a deep pocket for contractors. go ahead. >> i'll talk in generalities as to what we've heard whether it's been for afghanistan or kuwait for the task orders in general. i hear such things as dcaa takes too long, we need an audit quickly, i've heard that you ask for too much data, you want the contractors to submit more data than what perhaps is needed and you have too many issues that get raised that delay the awarding of the contract, and we recognize -- we sincerely recognize that delays in contract audits do no one any good, and to mitigate this we have set up a central person that will be the point of contact on all the iraq -- on

all the logcap task orders to help facilitate. if we have enough time, and i'm not talking months, we can do this in weeks. >> weeks, you said. >> we can do this in weeks -- if we have enough time we can do this and generally it can be in four weeks or less depending on the amount of data. if contractor estimating systems provide adequate data that's easily supported when we go in and we assess it, we can get in and out quite quickly. however, if the contractor data is deficient, and in some instances it's been severely deficient, that will indeed hamper our audits getting done quickly. >> when asked about their labor system and whether that poses risks to the contractor drawdown in iraq -- risks to it, you have some familiarity with k.b.r.'s labor system on task order 159,

the last big task order, i look on page 11 and it says, "we questioned 368 million in change of direct labor costs as summarized by schedule. what's the problem with k.b.r.'s labor system? is it too high level generality and that you don't have internal controls within k.b.r. to tap into to keep them from becoming as you said a deep pocket in situations like this? >> our internal controls audit over labor is in process, so i want to be careful in that i don't get into issues that might be premature. however, there are a couple of issues i can talk about. we have recently provided -- k.b.r. recently as in last month what we call a statement of condition for their assessment regarding the level of date that is gathered within their labor system, meaning at too high of a

level to be able to assess whether the tasks are being accomplished or even better yet, when there are change-order proposals, and there is a lot of change-order -- >> is a statement of conditions or recommendations a socar, in short terms, is that in effect -- would we lay people consider that a criticism of the k.b.r. system? >> yes, i call it a statement of condition because it's in the process of the contractor having an opportunity to respond to it. we want to ensure that we have not missed something, but this is very similar to what was in the task order 159 report which is the level of detail, you need to ensure labor as a low enough did tail that when a change order proposal or the drawdown proposals or other things come in place -- and there is a lost those that come in place that there is not a duplication of the reimbursement of labor costs to where you aren't paying the same person doing the same effort more than once. >> that sounds like all around a short answer to this, is there a danger that k.b. r. will in

effect bill double fee on its labor being used in change order situations in the drawdown? once on the basic contract -- >> absent improvement in their internal controls, there is a risk of a payment of inappropriate or double fees as you are saying, there is a risk. >> thank you. my timez expired. >> let me just say to the other witnesses, take notes on whatever you want, mr. parsons, you will be given an opportunity to respond to anything you have heard. we'll leave it open. i'll use my time if i have to but you will all be able to respond to everything that's been asked. commissioner anke. >> a question for mr. parsons, your statement in page two and page 3 twice says the army considers the relative condition of contractors management systems. relative to what? >> well -- >> go out of the way there to

say the army considers the relative strength of systems in -- most importantly during r during the source selection press. >> correct. during the source selection, we put a lot of increased emphasis on management proposals submitted by the contractors with an emphasis on the contractor business systems because of the importances miss stephenson has said with the costs being incurred and costs estimated. >> you're comparing if you have three proposals, three vendors, you're comparing those three relative to each other or to a standard? >> to both, to both. so first of all we've got to determine whether or not these system are approved, identify if there are deficiencies, what the risk associated with those deficiencies, whether there is opinions by the dcma on corrective-action plans that have been submitted or other mitigating actions so you compare -- compare them to the standards of whether the systems are approved and then to one

another, is one contractor's business systems in better stated health than the others. >> >> how do you make a judgment about systems to a standard to an independent, objective, assessable standard other than relying on your experts, dcaa, dcma? >> we do rely on those experts but we have price analysts and cost analysts that understand a lot of these aspects so they do evaluate what the conditions of the systems are based on what dcaa has found and then make some kind of judgment on how much risk we may be assuming with going with a contractor that may have those deficiencies. so we don't -- i think we do have the expertise, but ultimately we do have to rely upon our subject matter experts out of dcaa and dcma. >> you have had some vendors are longstanding systems problems,

deficiencies, correct? >> corrects. >> some of those deficiencies date back to 2004, 2005, 2006? have not gotten better, in fact have gotten worse, i understand, the estimating system at k.b.c., is that correct, miss stephenson? >> it's the purchasing system. >> thank you, but it's gotten worse over time, ok. in that context, your statement, mr. parson, you said "contractors must have systems in place such as accounting, payroll and billing at time of contract award that are in compliance with cost accounting, the far and the dfar. that to me -- that statement is no wiggle room. they must have in place at the time of award systems that are compliant. so how did you do what you did which was award contracts to vendors who don't have compliance systems? >> again, this gets back to dcma's role versus dcaa's role

and at the time we made those awards those systems were in approved status. while dcma identified issues and found those systems to be inadequate or inadequate in part from way back, dcma ultimately is the one that makes the call whether those systems are approved and the contracting officer has to rely upon that judgment. >> we'll get into this a lot more but it seems to me when something as simple as this is going on, if my kid asks mom to do something and she says no, he goes and gets a different answer, she goes and asks me for something that he may get a different answer about, and he finds the answer he wants. miss stephenson, i want to talk about your grading scale. last year you changed how you assessed systems from a three-grade system to a two-grade system. i would like you in the time

remaining to just walk you us through your thought press, your rationale for making that change. it used to be you would have an inadequate, inadequate in part or an adequate judgment and now you have effectively have pass-fail, adequate or inadequate, that strikes me as interesting because the language of accounting isn't always just binary. as you know and could instruct me on you have material weaknesses and significant deficiencies and less important material conditions, you make judgments about relative risks. it seems that you have a pass-fail system, you're removing that judgment, you're supplying less information to your dcma and your buying-command partners and if i'm looking at a report card and it's a, b, c, f, i know where to

focus first. if i'm looking at a report card that's pass-fail and it's mostly passes or it's mostly fails, i don't know where my most risk is so walk us through why you made the change and how it's been immrechlted. >> -- implemented. >> prior to december we had inadequate, inadequate in part, adequate. through time, we have the inadequate in part opinion was not getting the attention it needed by either the contracting community or the what i call contracting officer community, whether that's with the service or with dcmament case in point. k.b.r.'s purchasing system was inadequate in part in 2006. as part of our process of reassessing our systems and our audits of internal controls as we have done in the past year through various things that have

come to our attention through oversight organizations, we have gone back to the basics of the auditing standards and the acquisition regulations to determine if an inadequate in part opinion is required and it is not. under auditing standards it's either inadequate or adequate. >> is that the yellow book standards? >> yes, those are the yellow book standards. >> you don't have any discretion. the auditing standards applied to the federal government are adequate or inadequate. >> right. when we assessed it, we saw that it really wasn't a requirement for inadequate in part, there wasn't a requirement in the acquisition regulations and given that adequate in part was not getting the attention it needed and in many times was seen as a caution as opposed to an issue, we realized we needed to change something. >> do the accounting standard prevent you from having anything other than adequate, inadequate? >> i wouldn't say it prevents, but i wouldn't say that it's

required. so because it's not required, we assess what we could do better in this process. now, keep in mind, we only perform internal control audits at very large companies. that have internal krelz. these are very large companies. in order to report a deficiency it's a breakdown in what's called a controlled objective, sorry to get into accounting terminology, that control objective if it fails is critical to the system, so even though one of many may fail, in the past that may have been inadequate in part because they all didn't fail, case in point 2006, k.b.r., the subject contract piece failed, however, that piece resulted in hundreds of millions of dollars in overcharges to the government. we realized we had to do something different. we were at risk and we were perhaps with our inadequate in part exacerbating that risk so we eliminated the opinion to where it's now inadequate.

that's where k.b. r.'s purchasing system became inadequate in april of 2009, the controls over subcontracts is inadequate. >> i'm out of time but i'll come back for the second round. thanks. >> i just make the point to -- i'm not sure you're getting any more attention by doing pass-fail and you are disguising the degrees of challenges so i think you may want to revisit this. so we now go to commissioner descites. >> i'm struck that the term is adequate, we're not asking these systems to be stellar or role models, we're asking them just to be adequate. we basically want them to be a c so it's pretty depressing to think that some of our major companies can't meet a c standard for getting their business systems in order -- i

know it's a technical term they use in auditing but the impression you get is that it just has to be adequate, but we also know -- you have said this, all three of you, i think april stephenson, you used the term critical, crucial, the dgog has said business systems are crucial to protecting the taxpayers so it's of great concern that mr. ricci, you said only two of the major defense contractors out of 10 have adequate business systems. now, beth of you dcma and dcaa have a regulatory responsibility to review these business systems. dcaa does it from the auditing perspective, to ensure the adequacy of internal controls and dcma, you do it from a contract-management perspective.

to improve a contractor's system and to improve the risk to government, is that right? so you come at this from different perspectives, slightly. both of you. is that -- is that right? >> i would say we kind of look for compliance with the acquisition regulation, again, in order to reduce the risk and also to save us time and money by being able to rely upon the systems so if i could just one point as made before about inadequate in part, acquisition regulations recognize disapproval of selected part of the systems, so since again that's what's in our regulation, we would continue to make such recommendations whereas dcaa, it's black or white, i guess. >> with k.b.r., you have never found an inadequate in part system. mr. ricci, have you? >> the purchase -- >> your view -- the dcma view is

the green line for those top four systems that you are particularly involved in. in that first chart. and you have never found an inadequate in part system for k.b.r., in fact you have never found an inadequate system for k.b.r., have you? >> i don't believe that the formal status that we assign to any of them have been unacceptable or disapproved. >> right, and that's even though mrs. april -- director stephenson is saying that the purchasing system in k.b.r. has gotten worse over the years, not better. it hasn't even improved, it has gotten worse, and yet dcma is still assessing that purchasing system as adequate. >> one thing to understand is that dcaa has responsibility for some of these systems, dcaa has responsibility for reforming review for others.

purchasing systems, dcma with our purchasing specialists conduct reviews and provide recommendations to the a.c.o. ay we do our reviews in accordance with what was once part of the regulation appendix c that we actually provided to this commission -- again, dcaa's audit -- they're doing it i guess for internal control purposes for that 242.75 subsection of the far where again it's our statutory responsibility to talk about the purchasing, if i may -- dcma if you're to report on june 10 looked at the purchase orders awarded during calendar year 2007. in that report, we had 13 recommendations. those recommendations essentially mirror those in the 2009 dcaa audit report that's

been referred to. dcaa has them grouped into three, but when you go through specifically what they are, they're essentially the same. the thing is that in 2009 dcaa audit was based on calendar year 2007 whereas our 2009 cpsr that we recently completed, i believe that's july -- july 10, we looked at 200 purchase orders from july 2008 to april 2009, a time period that afforded k.b.r. the opportunity to make the corrective actions, so again, d.c.a. -- i know -- dcaa, i know they're currently doing audits of all the subcontracts and all the task orders so that may be calling their opinion but the 2009 audit again was simply an audit that was delayed for release so i don't think that it's difficult to compare -- again, you talk about the fact

that we did it in a week -- actually, i believe it was, like, 3 1/2 or 4 days, we sent four people in, that means they looked at paper order, probably one every 30 to 45 minutes since it was a follow-up on those 13 deficiencies that we found a year before, i don't know that it is unreasonable. again, these folks do this full-time and so again, until dcaa issues an audit, i know they're working on one now and we'll be happy to see it, we'll definitely consider any findings, i must go with the recommendations from the cpsr group that's given that authority in the regulations. >> director stephenson, do you want to respond to that? >> where to begin. first of all, i'm going to say the proof of the inadequate purchasing system is in the proposal. task order 159, october 2008, a billion dollars unsupported because of the inadequacies with

k.b.r.'s purchasing system, i think that alone regardless of the other tests that we have done shows there is systemic deficiencies in the system that need to be addressed. i do not want to pass judgment on now how another organization reviews invoices but i know with my expertise i have looked at a number of invoices over the years, been involved with a number of reviews, i could not quite possibly determine the adequacy of an voice, 200-300 invoices in a week. i could not do that. i'm not sure how others do that. it takes a lost peeling back the layers to determine whether something is adequate. we obviously have a disconnect between our two organizations and i do invite mr. ricci and our organization to work together to try to address this. the disconnect is just too large. >> mr. parsons, do you have anything to add to that? >> i think just this exchange demonstrates the complexity and the difficulty of these issues

and -- and i agree with mr. ricci, i think that the regulations do need to be examined in this area. to be more specific and what are the standards, the standards we're going to hold contractors accountable for in all the different systems need to be very specific and very clear and in my opinion, i don't think they always are clear and there is a lot of room there for judgment, differing opinions and -- and i think that's part of the difficulty that needs to be resolved. i can tell you, personally, i'm upset after what we did with logcap iv that so many of these business systems still have some deficiencies and i think these contractors are going to get a wake-up call when we start doing the award fee determinations where we've set aside award fee for management and for the business systems to see if it gets their attention, because i don't disagree with miss stephenson that i think in many cases we're not getting their

attention. >> have you sought to make this regulatory change? or is this something you want to do going forward forward? this is an issue i take it that's been around for some time. there was a 2002 report that said there was miscommunication between dama and dcaa, lack of cooperation, there was a 2009 dod-- d.o.d. i.g. report that it seems to me has been a very pressing issue for some time. has your office taken responsibility to try to most ball forward? >> no, ma'am, we have not. >> do you wish you had? >> i do believe that this is an issue that needs to be addressed at the o.s.d. level -- certainly the army could initiate some type of regulator proposed change but like you said the issue needs to be addressed by o.s.d. >> i want to move to one other issue. oeshs, it has? i thought i had a minute left.

i'm in the bad part. it's a long push. it's about withholds. i'll do it the second round, thanks. >> let me just say, mr. ricci, you have left the impression that basically, dcaa's inadequacies in every case you have either ignored them or overruled them. that's the impression that's left so far with this -- for k.b. r., and so i would just like to ask this question. have you ever accepted dcaa's? >> like i said, dcaa is integral to dcma's mission -- >> i didn't ask that. they said they're inadequate so you agreed they're inadequate, or have you overruled them every time? >> no, i can provide data on the rate for the other contractors, we're looking at -- >> that's not an answer to my question. it will be a question i'll get into.

>> mr. ricci, this isn't just about the details of green eyeshades, we're talking about operations and maintenance budgets. every dollar that gets wasted. every dollar that gets lost is money that could have gone to training, that could have gone to the maintenance of our equipment and that, therefore, goes to the protection of our soldiers' lives, it's not just the taxpayers, it's the kids thar being shot at and i don't want us to lose sight of that. number one. mr. ricci, i would like you to define "adequate" for me, and let me tell you why. on page seven, you make the remark, "the logcap contractors each have only one, quote unquote, inadequate system." as i understand it, and i just want a yes or no answer, if a contractor has a corrective action plan you rule the contractor adequate in that business system, yes or no?

>> generally yes. >> give me an example where you didn't. >> on your three contractors? >> no, you say -- on a corrective action plan, sometimes that's not enough. i would like an example, please. >>il will have to give you one. not with those three contractors. >> not with those three contractors. somebody says i'm going to fix something, i promise i'm going to be a good boy, they tell you that in 2003. do you give them six months before you come back to it to see if they corrected it? >> generally, six months to a year, requests. >> ok. so as my colleague here pointsed out, in some of these systems things have actually gotten worse. it's now six years since 2003. what have you done about that? >> if you're referring to the k.b. r. purchasing system dafshs >> anything. >> that's what the focus appears to be on. >> i'm referring to any system. you have ruled a ton of systems inadequate, we heard that from mr. parsons so our poor contracting officers are confused.

we're seeing things going to hell in a hand basket while you rule them adequate. tell me at what point you invoke dfar's 2427502 and withhold the money. >> is it a year? six months? two years? three years? or seven years? when? >> a few -- it would depend upon the severity, and their lack of progress. i mean -- >> give me a case where you did that. >> we have numerous systems that are inadequate throughout all the contractors that we are responsible for. >> so give me an -- >> on these three contractors here, we have not yet done so. >> not once since 2003? correct? >> correct. >> fine. next question. page 10, you make a whole play here of why actions that involve withholding funds are quote unquote do not represent the hammer some folks seem to believe the government possesses. i don't know who some folks are but i want to quote you the

dfarce 2427502 (a) paren 4) the officer will will determine whether it is appropriate to suspend promise of payments or reimbursements of cots proportion, considering audit reports or relevant input until the contractor submits a corrective action plan with the a.c.o. and corrects the deficiencies. now, it seems to me if you withhold 15% of somebody's money you're going to get their attention. why is that not a hammer? >> ok. this regulatory guidance has no contractual authority behind it. when you look at the acquisition regulation, this subsection of the dfars, 242.75, accounting and i guess related internal controls, generally, how the

subsection ends is with the prescription for a clause. that's what gives us the authority and again, as you look through the regulation you will find that in almost every section. this is guidance to the contracting officer and then the contracting officer needs to find an appropriate clause under which -- >> that's not the point. the point is you make an assertion that this isn't a hammer. if you're going to wait and you're going to withhold 15% because the deficiencies have not been corrected, that's a sledgehammer. why do you think this isn't effective? that's what i want to know. >> that is -- again, that's guidance that gives us no authority -- >> no, i'm not interested in the guidance. tell me why it's not effective. why if the person chooses to do that why it won't make a difference. >> because i have other contract clauses that provide other direction, and -- >> 15% withhold is not an effective -- i know you have

other clauses. i'm asking about this clause. >> that's not a clause. that's regulatory guidance. >> good. this regulatory guidance. why is it not effective? i just want to know why it's not effective. >> that gives the a.c.o. no authority. it tells us to doctor doing this and then we need to find a clause like the progress payments, performance-based payments clause, allowable cost payment and a remedy come through those clauses -- again, the authority is provided there. >> so their remedy is elsewhere. fine. what is the last time you wheld payments for these three contractors? >> there's lots of suspension of costs but i don't believe that we've actually wheld funds. again, withholding of funds is not really a term of art -- i mean, there is suspension or reduction of financing payments. but there -- again, given -- given regulatory guidance, for example, if i could read you what it says for estimating

systems which dcaa finds to be inadequate, here is the guidance. if the contractor has neither submitted an acceptable corrective action plan nor corrected significant deficiencies within 45 days, the a.c.o. shall disapprove all or selected portions of the system. again, the regulation says there that if they submit the corrective action plan, they make timely progress, we don't disapprove the system. in my opinion, we're making a little too much of the overall status of the system when what we need to focus on are the questions that were directed to mr. parsons are the significant deficiencies themselves -- again, purchasing for k.b.c. -- i guess every commissioner will ask me about it -- but even if we disapprove the system, commissioner, all we're going to do is they're going to be subject to additional consent requirements. the army has already made k.b.r. subject to them, so in effect,

whether the system is inadequate, inadequate in part or adequate doesn't so much change what the government actions would be to protect its interests. >> can i just ask a question? >> hold on a sec. what i would simply remark is this. to my simple mind, if somebody withholds money from a contract, you're going to get their attention and they're not just going to give you a plan, they're going to act on it, and since we've seen over the last seven years that people have given you plans but haven't acted on it, and you keep saying they're adequate, you're not helping them, the taxpayer, or the soldier, sailor, marine or airman who desperately needs that o and m money. >> i just want to ask, if you find a purchasing system inadequate, does that mean that your c.o. then has to review each purchasing invoice before it's approved? is there work that becomes

incumbent upon your dcma employee if you were to find that purchasing system inadequate? >> yeah, either us or the contracting officers. it's often delegated but at times wheld as you're going to hear tomorrow in the g.l.s. >> so to some extent it's an advantage to find the purchasing system adequate because you don't have to impose -- >> it would be different, folks, i don't believe that enters into our decision. our purchasing-system analysts are in a separate group like a center, if you will, so they're -- >> thank you. let me in my preparatory remarks build on those of commissioner zakheim. the key issue for me and i think the key issue you have seen from all commissioners is that of accountability and unless and until we hold these contractors responsible for continually having inadequate business systems, we'll continue to see waste, fraud and abuse and the very same mistakes we made in iraq at the beginning of that

war in 2003 are going to be repeated and continued as we draw down here and are going to be continued in afghanistan as we ramp up there. as commissioner zakheim said this is not just a waste, fraud and abuse issue but it has real consequences on the battlefield for the lives of our men and women there so there is no more important issue for us to focus on today than business systems. it's anything but dry and anodyne. with that by way of preface i want to get into this whole issue of coordination. to it's not an issue of coordination between dcaa and dcma, seems like you have lots of meetings, it's at the end of the day, we've all acknowledged this but we haven't talked about the issue at the end of the day dcma calls the tune and all too often as we have demonstrated in the hearing so far, dcma deems these systems to be adequate and this allows contractors to play dcma and dcaa against each

other. we're going to get into this with mr. walter from k.b.r. in his testimony but he says on page two "our systems are regularly reviewed and approved by the government. just last week, the government's most recent review resulted in approval" and then at the end he makes this plaintive plea, "if the commission can identify the means that will allow the government to speak with one voice in instructing its contractors in future this will be important to the contracting system and i say to that amen, so with that my question is this. isn't the fundamental problem that dcaa's audit recommendation ought to be rather than advisory? you essentially say that, miss stephenson. cuelaborate? then i want to hear from mr. parsons and mr. ricci. >> i have have to say over the years has led me sato say i would like them to be murder however not all systems is just

dcca -- dcaa, i would say i would like there to be accountability when dcaa's findings are ignored or appear to be ignored and i think the purchasing system is that example. and it is certainly knocks the wind out of you when you hear a week is spent when your own people have spent thousands of hours reviewing a system testing transactions and found over time there to be a significant amount of costs that were overcharged to the government. that's my concern at the end endof the day. along with commissioner zakheim, this is for the soldiers that we're protecting, money that can be better spent for the soldiers so i would like there to be better accountability. >> i want to give mr. ricci and mr. parsons an opportunity to comment. mr. ricci? >> again, we're responsible for dispositioning all audit findings from reportable audits and the contract audit follow-up

system and again, we've definitely valued dcaa's input, and to ensure that the recommendations are fully considered, again, we established this board of review process that if the contracting officer seeks to make a decision that's contrary to a dcaa recommendation it will be elevated and in many cases will rest with the senior contracting personnel -- >> what it sounds like is you just demonstrated that while it's considered, it's never ultimately used to hold contractors accountable. right? >> i mean, it's -- it has not been -- we have not disapproved any of the systems for the three contractors, correct. but we're looking at three out of, again, 19,000 contractors that we administer and understood that most of these rules don't apply to small business, but i'm just saying the universe is much larger than these three, commissioner. >> mr. parsons. >> sir, i'll just repeat, i

don't disagree that we need to hold contractors accountable but i think the real question is what are we holding them accountable for? what are the standards that are expected and then getting to some other points, what do we mean by adequate? to be quite honest with you, i don't think those standards and the definition of what is adequate have been vetted through the regulatory system for all of these systems and i think that's where some of the frustration, i know when the contracting officer part gets is that you read the dcaa opinion, you get the dcma opinion, you take a look at what's in the regulations, there is a lot of room for interpretation and it's not real clear in many cases and gives that -- so i think something needs to be done. >> i think that's a fair point and let's delve into that. in your testimony, miss stephenson, you point out that there are objective standards -- the yellow book standards that dcaa uses to reach its audit opinions, its audit conclusions and its recommendations, by way of contrast as i understand it

from your testimony the a.c.o. has considerable discretion as you have just acknowledged, it sounds like, mr. parsons, in coming to a conclusion and yet at the end of the day it's the entity, a.c.o., dcma, a.c.o. that has the final decision with regard to the matter and yet that entity doesn't have any objective standards that they're forced to rely on by way of virtue of contrast with dcaa. let me ask about the withhold issue which a number of us wanted to get into. isn't the answer to that that this language that was just on the screen, dfarce 2427502, the a.c.o. will consider whether it's appropriate that the a.c.o. shall suspend a percentage until a corrective action plan is not just submitted but corrected and audited by dcaa to confirm that the plan has been implemented and corrective deficiencies? isn't that the answer to this particular -- >> can i answer,

mr. commissioner? i have seen the withhold being very powerful over time and i will give a case in point. titan corporation which was now l3, used to be the incumbent to the linguist contract which we'll be discussing tomorrow, in 2004 had almost a nonexistent internal control system in theater on labor. we issued an inadequate opinion, and recommended a withhold. within 30 days of our recommendation, to dcma, they implemented a 10% withhold on all labor. that went on for two years, and it went up to $40 million and i will tell you that withhold was the greatest carot that contractor had to correct those deficiencies to where they adequately staffed being their billing and accounting department, they put adequate staff not only in the reston area where their corporate headquarters was for this segment but also in theater, they met weekly over everything they were trying to do. this got action. i have seen it with fluor.

although there has not been an actual percentage wheld, just recently, in july -- actual percentage withheld, our contractor on issues we have supported has not permitted fluor to build certain indirect costs. that got fluor's instant attention and they are working hard to improve those systems. i feel it's effective. >> thank you. that is my time expired, it appears to have done -- let me ask you this, then, to both dcma and to you, mr. parsons, what kind of inadequacy or failure on part of the contractor would be sufficient in your judgment to preclude a logcap iv contractor from being awarded a task under logcap iv? what do they have to do? >> certainly because the pach the contractor is cost type, i think there are accounting systems are very critical so we

couldn't find the contractor to be responsible if the accounting systems were not in place and were found to be totally inadequate -- >> totally inadequate. >> uh-huh. >> mr. ricci. >> again, the selection decision is up to the army but again to the extent they make that part of the plan, they can base their decision on that to some degree. also considering -- other factors, ability to perform. >> would you be for or against the requested of a mandatory suspension of financing? >> that will be the last question. >> for an adequate system. >> we proposed clauses that would essentially give us thatability to mr. defense procurement recently -- i think it would be very helpful as well as provisions to the regulatoriy language, which i read the estimating one, also for

property it applies that doo direct the contracting officer not to disapprove a system if there is an adequate corrective action plan in place, so i would welcome that. >> mr. parsons. >> and i support that as well. i don't disagree with miss stephenson. i think that suspensions and withholds do get the attention of the contractors and i think we just need to be very specific again about what those standards are, very specific in the contract that we will withhold in the event that there are deficiencies found. >> mr. grant. >> thank you and thank the three of you for your frankness today. at the risk of beating a dead horse, mr. ricci in your statement you stated in order to ensure regulations are appropriately considered we mandate in our internal policies that any determination

inconsistent with dcaa recommendations is subject to higher-level review that may include review by the dcma head of contracting activity, a senior executive service position within the dcma. you made a big deal about this. how many -- and maybe you have answered this -- but how many -- and how many cases was rea review reversed the position of the a.c.o.? >> i need to make the point that -- for 15 years of dcma had no internal-control review such as this, this was really put in place in march of this year, ok, so it's relatively -- >> how many times has -- >> i can think of one time but we're talking probably seven to 10 boards of review that actually got raised to my level

because of dollar value or other issues, so one time. >> how many times? was the one time when you did not support the a.c. o. or the dcaa recommendation? >> we actually supported neither the a.c. o. nor dcaa but decided that we needed to find certain -- this is a cost standards not compliance, we decided it was going to be noncompliant and we would pursue the recovery of $5 million. >> in continuing the line of questioning we've heard from others here, i fully recognize today the different missions of your two organizations. but i also remain concerned, and miss stephenson called it a disconnect, others, commissioner tiefer referred to it as promises of cooperation. and i think those are nice

words. but i don't see evidence of a lot happening in that area other than we're going to get together and talk about it. my tendency is to support the force in the field and i gather that in many cases that is the tendency of the contracting officer and i can understand the pressures that a contracting officer comes under from the field. but i also have to believe that there are occasions when dcaa has made a recommendation for a business system when the outcome

of that can be so onerous, so costly that they should prevail, so my question to the two of you, to the three of you, is how would you react to an independent, more senior, forum to resolve the differences -- not the day-to-day differences but the ones that dcaa, for example, can show as hugely significant? april? >> i'm all for trying anything different that will help resolve these major issues. the k.b.r. purchasing system, i realize we've used that a lot today but by golly, that has resulted in us overpaying hundreds of millions of dollars. when we are in that situation, when this is money that is going in a contract's pocket then to the soldier, we need to find a

better way, so commissioner green, i am open to anything that can be suggested to try to resolve these issues to where we can get these systems improved. that's ultimately what we need. the systems improved so we don't have these overcharges. >> where, today, is the court of last resort? to resolve the differences between the two? >> when i have differences, i take them to charlie williams, the director of dcma or to shay assad, dpap within atnl. >> to me, that is on the dcma side. you kind of run out of altitude and air speed after that. mr. ric,i. >> correct. >> i would say what april said is correct that mr. assad would probably deal with any serious issues although i don't recall ever beingorf there for a meeting on a specific contractor system status.

but actually, i believe it should rest within the contracting authority, so i believe it should be within dcma. >> you don't support, then, a separate independent board if you will or individual who would mediate these differences? >> i'm a believer in the contractual authority of the -- in this case the a.c.o., so again, anything, i think, needs to be considered, given the differences of opinion, but i wouldn't be inclined to do that. >> mr. parsons, do you have an opinion on this? >> sir, i think the -- it goes back to what i have been making the point before. i think the underlying issue is why are the differences? putting another board above two bodies to resolve, quote, differences to me isn't the long-term solution, to me let's go find out why there is this ability to have diverging

opinions or what ought to be, in my mind, some reasonable standards put in place and let's clear that up so that there isn't this kind of disagreement or lots of room for interpretation rather than putting another board in, but i agree with mr. ricci, it still needs to be in the contracting authority or authority chain. >> for you, mr. parsons, one, hopefully, quick question -- in february of this year, the logcap d.c.o. recommended that change its staffing, this was based on a $50 billion labor cost overrun. in the recent trip to iraq, the commission was told by a senior military folks that they were reiterating to k.b.r. the necessity to draw down the work

force. what is the interaction between army contracting command, k.b.r. in the field in ensuring that this happens? >> mr. b. thompson who is the executive program director for logcap has got the responsibility to ensure that that is happening and he is tracking that on a weekly basis with reports coming out of k.b. r., he's been making frequent trips over to iraq and afghanistan, especially iraq, to verify that. >> is the size of that contracting force coming down? >> the size of k.b.r.'s organic forces coming down. yes. >> ok. thank you. >> i give myself eight minutes. we're all in one fight. we're all on the same team. those of you up there, you're on the same team. but it doesn't sound like it and it doesn't look like it, and what we need to do is go where

the truth takes us, wherever that takes us. what comes across to me is, miss stephenson, you have been ignored so you have changed the system and you have made the system worse. because you're basically saying adequate or inadequate, and there are too many inadequates with huge varying degrees. where do you put your attention? some are inadequate and some are really inadequate. mr. ricci, you come across like you will tolerate dcaa but you're going to ignore it. that's the way you come across. mr. parsons, you come across as saying, "you know what? these systems are bad and we're going to check it out but they have been bad for a long time" and you haven't been, you know, in chine ayou have been around, and it just strikes me as pathetic. because it's not a hard thing to

resolve. you need to pay more attention, mr. ricci, to what dcaa does, dcaas suggesting. you give the impression everything is advisory, her opinion is advisory, you have advisories on whether you can withhold money or not, we could write the system -- we could recommend as a commission that we force you to do what you have to do, take away all good judgment, take away all flexibility and then we'll have other problems that come from that. that's what we'll have. so mr. ricci you have basically given me the impression that ault inadequates you have overlooked, particularly as it relates to these three contracts, and that's stunning. you have got to explain to me if it's advisory, you have the authority. it doesn't say you have to use it. why the hell don't you use it once in a while? explain to me, just because if it's advisory doesn't mean you can't do it.

so why haven't you done it? why haven't you withheld money, kept it back? tell me why. >> ok. >> short answer would be preferred. >> ok. that contract provision that we keep seeing does not in and of itself have any teeth. i must go to the financing clauses or the allowable cost-in-payment clause. not with these contractors, these are cost-type contracts but we do do a lot -- >> you're saying it's advisory but you don't have the authority. do you have the authority to withhold money? >> i have the authority to reduce or suspend progress payments on fixed-price contracts -- >> that's what we call money. >> i was trying to stick to the -- >> but you do have the authority. >> yeah, in certain cases, depending upon what clauses are in the contract and contract type -- >> you do have the authority. >> yes, we do reduce or suspend progress payments quite often

because the threshold contained in that clause is any material noncompliance with the contract. it is, in fact, easier, and you will see we have far more withholds if you will on fixed-price contracts directed at the financing than we normally do on cost-type contracts. >> then -- >> i'm sorry. you can also withhold from cost-type contracts as well and these aren't fixed -- these are cost-type contracts. >> these are cost type. >> you can withhold from cost-type contracts as well. >> again, and these are all award, for the fixed-fee and incentive-fee being there are fixed fees we can withhold up, to $100,000, not too significant, our withholds on the reimbursements of costs on these contracts we're talking about comes from the allowable cost-containment clause and there we believe we need to show a logical nexus or causality between the specific system deficiency and the cost --

meaning that the specific deficiency is likely to lead to unallowable costs -- >> i'm struck with the fact there is a little bit of a gray area and so you're going to make sure that a are going to be totally on the contractor's side. it would be rather refreshing for you to test it to have them complain about it but it strikes me you might get some action before then. miss stephenson, how do you respond to what mr. ricci has said? >> i know that dcma has done withholds on cost-type contracts due to inadequate systems and i have seen that they've worked and i saw that they got action. i feel it condition done. ooinlt an attorney. i don't know about the clauses and all that but i know it's been done, it's been effective, and it's gotten action and it's resulted in appropriate costs being charged to contracts. >> since you have joined this commission, the one thing i am struck with is the people on the inside aren't outraged the way they should be outraged.

we have contractors who go overseas and they're folks and -- there may be, you know, six electricians in a basement, you only need two and they're only working two hours a day in terms of job but they're on duty for 12 and they charge 12. we have civil servants who go and charge 12 hours a day and get double their salary in half a year, and there is no outrage because people say, "that's just the way the system works." it would be refreshing to see some outrage with this to see, mr. ricci, for you to be just so outraged at some of this to say no, it ain't going to happen. and then see what it gets you. i think it would get you a lot. this commission has talked about the fact that if this hearing ended up the kind of way it has that we're going to ask you to come back in 60 days, and we are going to ask you to show us that

you have resolved these differences. because it is just wrong and i hope, miss stephenson, that you re-evaluate this pass-fail. >> and sir, if i can build, just for one second, when you say outraged, we are outraged. we are absolutely outraged at this. we have been inside and see thanksgiving go on for too long. consequently, we did change, and as you say you would like us to reassess -- >> let me tell you why and i do feel your outrage and you're a very credible witness, i want to say that, it is a little easier to be on the side of just reviewing, it's easy for us to criticize, easy for you to criticize, i give them a little slack that they have to make the system ultimately work, and they've got lots of other pressures. but it seems basic to me that if mr. ricci is going to ignore or overrule that she should have to come in and explain point by point why he disagrees and it does seem three days to a week seems a little absurd to me as well so i mean i have my own

opinions about this but the bottom line is this has got to stop. so what i'm starting, mr. thibault. >> of what -- i'm going to explore a bit what commissioner tiefer brought up. simple question. on logcap iv afghanistan, you told us -- first of all, director stephenson expressed absolute support to involve herself in that pricing action. that was in may. said she had been communicating for an extended period. you were supportive. and then yet when we were briefed by dcaa about a month ago, they indicated the army's present position is that they hoped to involve dcaa more in iraq but that they did not involve dcaa in afghanistan -- in logcap iv in afghanistan --

billions and billions of dollars with issues that everybody knows about and we have talked about. why didn't you use dcaa's support earlier? or in may, in whatever format, whether director stephenson says, "i can do something in very few weeks, i can tailor it," why didn't you? >> the acquisition strategy for logcap iv was assuming that the competition would drive reasonable prices -- >> don't we know that you can still use audit services for cost realism to ensure they're properly putting the packages together for a variety of other means? so i don't want to hear about acquisition strategy, i really want to hear why didn't you use dcaa -- arthritis because in the opinion of the contracting officer based on the information that they were provided in the proposals at the cost-detail level that they had, they felt that they had sufficient competition and had enough information to do that analysis to ensure themselves that the

cost was realistic. >> so the short version would be as i listen to you they didn't feel they needed dcaa input regardless of dcaa's offers to tailor that pininput, they felt they didn't need it, is that the simple, short version without a long -- >> correct, along with the other thing you understand from operational needs we needed to get those task orders awarded to support the war fighter -- >> so in terms of that you're talking about the timeliness of dcaa's -- director stephenson said "i will tailor it" but you said regardless you had concerns about timeliness. let me go on. that's -- >> can i follow-up, though? >> you will get a chance at the end, because i'm -- i don't want my chair person to jump me again. i want to go back -- we're trying to help you, david, mr. ricci, in the sense of trying to bring issues out and focus on them and support you,

so i want to go back. 1994 -- and you're right, we are using contractor purchasing system reviews, subcontracting is sort of a featured area for discussion. your teams -- and i have worked with your teams -- are some pretty sharp people, i've worked with them extensively in my time and i'm pretty impressed by what they do. they had 102 people in 1994, they have 14 now. you would have to grow it by 800% to be back where you were and we've seen study after study that the workload is more demanding now for dcma, more demanding than it was then but we all got caught with this peace dividend where they slashed -- and we absolutely support the secretary's initiative to hire, absolutely support that, i'm just at a loss how -- and i think you clarified -- and my question is going to be focused -- you clarified that the team that went in in the review and k.b.r. where we have

differences of opinion that we're getting animated on is that there were 13 follow-up items and they looked at the 13 follow-up items, they were satisfied, dcma said we brought all sorts of new items to the table in a detailed brief and they expressed concerns they weren't addressed. what's up? >> i don't believe that's correct, sir, when i sent the cpsr team in, i made it clear to them this was going to be reviewed at a high level which this commission is, so they tried to put their best people on it and they tried to do the best job they ki'm sure they did, they don't want to be here talking to you next -- dcaa identified 20-30 purchase orders that they thought the team should look at -- and sure those were included in the sample. they said they did. so again, i have the review results from the cpsr team, dcaa is working on an audit and clause provides we can revoke our acceptance at any time if i get contrary evidence from dcaa,

we are going to look at it and we're going to do what we think is right but right now all i'm saying is that i sent in dedicated specialists and they reported that the deficiencies were corrected. >> so we have this difference of opinion. i have one last and it's in support of i think comments by commissioner zakheim and comments by commissioner cochair shays. that's this pass-fail or -- i like the analogy except i wouldn't say a, b, c, f, i would say a or f, april -- report card on system adequacy. i would just propose that you look seriously at it. you're trying to get their attention, i think we're trying to let you get their attention but i -- i've got -- we sat with your regional executives, two regional directors and they said, for example, at dinecorps they're doing a whole series of reviews, that it said, frankly, with the new policy every one of them is going to show as

inadequate, it will be surprising if it's not then they said the same thing about k.b.r., if i'm a contracting officer, i get back to the point they raised. tell me which ones -- and we get into suspensions. i want them it withhold costs consistent with the guidance, but i would say tell me which ones and how it's impacted that i need to focus on, don't just go cross them off. that's what i might do as a contracting officer and i think it would be a whole lot more helpful to them if you would be willing to stand back and say "material internal control weakness, you've got to move out, internal control weakness, maybe we accept the corrective action plan, it's can the parties get together and find something where it's not -- i'm sorry, the hatfields and the mccoys because i've talked to enough people on the side that i propose to you it's not just a disconnect, it's the hatfields and the mccoys and that's not the government that i knew, and it's disappointing, so i go back and encourage you, go back and

look at what you can do in terms of holding your independent reporting, aggressive reporting. i commend you for that. you're kind of out on a plateau that's very narrow on all sides and you are standing there and i commend you for that, but sometimes, i think -- i'm not even going to ask for a response, i would ask you to consider what my co-chair, my partner and the other commissioners have said, thank you. >> thank you. mr. tiefer. >> thank you, mr. chairman, and i identify myself completely with the remarks of chairman thibault on this subject. we were left with an impression at the beginning of may by you, mr. parsons, which was not carried out that you were going to work real hard to get an audit from miss stephenson. miss stephenson, i'm going to revisit first the labor system and the subcontract system that purchasing is going to handle contracts but i want to set a context. commission sent you to baghdad. i realize that didn't fully explain what i was talking

about. general odierno sat with me in miss baghdad office being, tuesday, july 28, i believe it was and he shared his challenges and his perspectives about the drawdown in general but about what i call the contractor drawdown in particular. and this afternoon i'm going to refer to a ""washington post"" article in a command-wide directive issued january 31 general ray odierno, ordered all military units to start cutting u.s. contractors at a rate of 5% each quarter and to hire more iraqis to do their jobs. as we transition more in more responsibility -- as we transition more responsibility and control to the government of iraq it's time to make this change. he means reducing the footprint of u.s. contractors. he wants to bring the numbers down. he shared his vision with me, a central pillar this real

reduction of contractors, not just playing games, not just eliminating vacancies but real. how would what you described, you just issued a statement of concerns, how might it get in the way of oversight in baghdad of whether k.b.r. does a real reduction and thereby save the costs you expect? >> the labor system when it comes to the drawdown is going to play a critical role and that's one of the reasons we got out ahead and tried to identify the weaknesses as this drawdown is beginning to start. it will be critical that these internal-control weaknesses within that labor system be addressed promptly, because without the lack -- with this lack of visibility that we are in right now, we do not know -- and the risk -- i should say the risk is significantly higher that we will not know if the cost containment is indeed happening or what we have is

cost growth. it will be critical to get this corrected quickly. i am in hopes that k.b.r. has taken our statement of condition and recommendation seriously and is right now putting improvements in place to improve that system. >> thank you. i have a very quick question on a different system and i don't want us to dwell on it. it's the allowability system and its component, the unallowable excess executive compensation. you had an audit report in 2006. you had one audit report on the compensation systems said that their compensation system was not adequate. on this particular element that they're allowed, their accountings system, the unallowability, you ticked off that k.b.r. had deleted in fy-2003540,000 excess exec compensation n2004719,000, in 2005 k.b.r. deleted 4.1 million. what are you talking about when you say they deleted these? >> there is a statutory requirement that has been implemented in the regulations

that places a ceiling or a cap or a limit that the government will pay on the top five executives within a company. >> that's from the c.e.o. down? >> that's right, and it's the top five, and when we talk about that, k.b.r. removed x amount, that means the amount that was above that cap they have removed from their submissions. >> they originally had it in their submissions and they only later realized that? >> sometimes it's that way. in the particular instance of k.b. r. i'm not sure if it was in, came out later or if they took it out before they submitted it. >> good. let's go back to labor. we not only -- we found that general warner was -- the logistics person who has been closest to watching the drawdown showed us charts, but that handled contractors as a whole but this is what general odierno said specifically when i asked him, he said, "we have looked at logcap as we close these bases. i wasn't seeing a reduction of

contractors. we had to make logcap accountable." now, logcap means k.b. r. because there is a monopoly in logcap in iraq and k.b.r.'s subcontractors. is there a problem with the purchasing system with k.b.r. watching its subcontractors and do you have even less visibility into the subcontractor labor than you have into k.b.r.'s own labor? >> yes, we have less visibility into subcontract labor than we do k.b.r. employee labor and yes, the risk is greater because of the weaknesses with k.b.r.'s purchasing system as related to subcontracts and yes, it is a great risk with the drawdown if those weaknesses are not improved we will not know what the appropriate amount of the subcontract costs could be and we will not know if there has been, quote, cost containment that everyone has been speaking of. >> thank you, madam director. >> thank you, mr. henke -- commissioner henke. >> mr. parsons, you give a lot

of credibility to "i'm going to look at this in the award fee process and i'm going to hold contractors accountable for systems in the incentive of reward fees, right? and -- but it struck me that the maximum -- what's the maximum dollar value in an award fee scenario that you can withhold from a contractor? i heard $100,000. >> sir, for the -- >> is that the maximum labor you have? >> not for award fee, the award fee is just that, it's fee that is earned by the contractor over and above what is expected. >> right. >> in case of logcap, 15% of the award fee pool has been set aside for corporate management. >> right. >> part of that assessment -- >> >> but you can withhold -- i heard and read one of the statements up to 85%. so -- >> 15 -- 15% of the award fee pools, award fee pools $100

million, 15 million will issue set aside for corporate management. >> it's not capped at 100,000. >> i didn't mean to mislead you, commissioner, there are three types of fees, fixed fee, incent i fee and award fee, the p.c.o.'s have a lot of authority to craft their own solution, i only refer to the incentive fee not the award fee. >> ok. logcap iv and the transition from iii to iv, we commended you in may for having a competitive basis for awarding logcap iv and particularly logcap iv task orders. in our interim report, we lauded the army for apparently finding the things that one would expect to -- finding the savings that one would expect to come from competition, we cited your kuwait task order, that used to

cost about $125 million, i think you would call it, jeff, the kuwait a.o.r. work, all right? performed by the old contractor. . of $125 million. you awarded it to one of the ne because we read in the statement that now shortly after award, that now shortly after award, and i want to know a war, when was it awarded to

dyncorp? >> when was the award? i will have to get back. i do whenever. >> would you ask one of the staff in the audience? >> i think about five or six months ago. >> whenever the award to the contractor come in until you i've got a new number for? >> i think what several months after the initial award and there was a request for a just and. i think we are getting dcaa assistance on this. >> what happened? >> i really don't know. i would have to get back to you. >> you don't know? >> no, i don't. >> commissioner, do you mind if i shed some light? we were informed as to why they came in for the price increase is they needed to hire employees in theater. the employees in theater were kbr, and the employees wanted more money. and dyncorp -- they wanted more money, and that was part othe increase. >> what's the connection with that scenario, which is set

beyond unfortunate, which their labor system or the estimating system? what is the connection that you would make? >> the connection i would make is more with the estimating system in this particular case. but i don't know the amount or the level of data that was submitted with the proposal, whether it was at a low enough level that the army could assess whether dyncorp had actually had employee agreements are actually had gone out to determine what the cost of that labor would be. having to hire kbr employees on the market or whoever else they hired, what that cost would be prior to putting that did in. that is something a preaward audit would have looked into. did they actually go out and determine what that labor would be, or did they put a number into a proposal on the hopes that is what people would be hired for. >> so you, with the right level of detail in the work, you could have found something? >> we could have found something that i am optimistic we could have found something, we miss things also but i'm optimistic we could have found that they had and did not actually checked

with the labor would be on the market. >> okay. as much as we were thrilled to see a first result, and the army was thrilled to see if you i am sure, with a 44% reduction over an old price, than to have within months of an award, the contractor coming in to say the old price is not good, i'm going to give you a change of proposal and give you raa or request for equitable adjustment and come in and say i can't do the work for what i did. you are going to have to pay me this price. that is -- this is a rhetorical question. where did the savings from competition go? >> that is a rhetorical question. again, it's the reason why the contracting officer with the eca assistance is trying to figure that out. you know, what has changed that has caused the labor rates, sort of labor to go up as much as what dyncorp is claiming it to go up.

and, you know, ms. stephenson and i have had this conversation before, and it may be somewhat true that do we really have an environment in those deployed theaters that allowed you to have competition. and as a result, we are definitely getting dcaa involve with the iraq task force as a result of what we have learned. deck just a quick question. missed under. >> if they come back with much higher number, once they have a contract until they had a contract? >> when you say withdraw the contract, we always have the option not to exercise options. so that is something the contracting officer is going to have to wrestle with, okay, do we exercise the option. >> thank you. are we able to say what that number is? by the way, what the proposed cost increase is. or is that confidential? okay. so we know it's about $50 million in.

so it's a 50% cost increase. okay. mr. ricci, you were saying that this dfars clause isn't embodied in a contract clause, and therefore you can't use it to do a withhold, it's kind of unenforceable, is that right? you have to look at other caus causes. >> that's our position here that is not a cause. that is regular toward. >> so my question to you is, do you need more authority, regulatory, for withhold? do you want more authority and do you need more authority? >> if this is unacceptable, and i think that we all agreed it is, i would need more authority, maybe a contract clause that implements that, some changes to existing causes. but what i would also like, what we need, i need a regulatory guidance, nobody here except the mere submission of an acceptable corrective action plan that that

should affect the status, but that is the regulatory direction. so i would need that direction change. the contract officers, they go by the contractor to. >> where is the radio tour direction that the submission of it corrective action plan is adequate to make a business system adequate? >> it varies by system. another think -- >> the application of this statement is the absolute opposite philosophy that you have to have a corrective action plan and it has to be and the deficiencies have to be corrected in order to -- >> i understand. again, that's what you would assume that says. that right there. but again, remember, going through what causes are in there that mandate certain systems, there are seven. and they are actually different from the internal control, dcaa looks at, that dfar doesn't even mention the terms much less provide any coverage. >> is there ever like content regulation says that a corrective action plan is

sufficient? >> within the clause, yes. do you want me to redo if you? for estimating and for properties, it is very explicit sirach it's as if they submit corrective action plans in the system can be approved? >> if they submit it, and make adequate progress, the system -- >> but there is a requirement for adequate progress. corrective action plan alone is not sufficient. >> for estimating systems, it's as if the contractor in acceptable correction plan would be sufficient for estimating systems, again, if they did make progress against it, then we are going to take the position of. >> would you yield for a second? the challenges you don't sound like you want that authority. it does say, and it corrects the deficiencies, and the deficiencies aren't being corrected. you haven't asked for that authority. so i don't have a warm and fuzzy

feeling like you really would like to use this. it's like you are finding every reason to avoid withholding. are you on record at any time saying i don't have the authority, i want the authority, please give it to me? >> i hope so. >> no,. >> yes. i would like to have the authority. >> mr. ricci, you are under oath, and i only say that by saying i asked a simple question. have you ever asked for this author >> i provided --

>> i wanted to be very careful now. >> i'm going to be real careful. >> this is not coming off short- time. >> we provided a presentation and identified enhancements -- we called them greater incentives -- that we would like to see so that we could have more of a hammer -- >> that is not what i asked. have you ever ask for the authority to withhold money from contractors? >> i mean, i did a presentation where i suggested these are ever submitted -- >> i'm going to suspend there. it is her time. >> guest, i will yield. >> and you will get the time. >> you said that the presentation primary was earned value management system, dbms,

right? >> it is not on the table today, is it we are talking about a set of business system that are not e.g. ms, are we? >> it would not be on. i don't know why it would not be on. we have a list of the 10 business system. evm is mostly about making progress, not about the 10 business systems. as for these 10 business systems, not your evm presentation. would you answer the chairman's questions as to the business systems we're talking about today. the chairman's question was had you asked in so many words for the authority he is talking about? >> and can i just asked, all we need is a yes or a no. >> i don't believe that i have specifically requested additional authority for the accounting system and related

internal control. >> you have three minutes. we will give you an extra minute. >> okay. let me ask, do you think that the fact that these three companies and these contracts are involved in contingency contracting, make it more likely for dcma more likely to improve the business system than not? i mean, is there an element of the fact that in a contingency situation we have to make sure we deliver to the troops and this is about logistics? does it, the decision that your people would make in terms of approving a business system? >> i believe that the standards we would have would be, it would consider the environment that they are operating in. the fact that a lot of the prime contractors that have eight deficient system that i mention in my testament, they're making subcontractor of war to rayton, companies here with established suppliers whereas kbr and the others logcap contractors, they are dealing with subcontractors that really

can't be expected to have the same level of sophistication. so the short answer is yes. i believe that considered. >> actually doesn't that make the requirement for solid business system even more important that kbr is dealing with subcontractors that are not known? >> it would make it more important, yes. >> let me just ask about how we determine whether a corrective action plan is complete. i think this is a pretty fuzzy area to where the responsibility lies if they correction plan is offered and accepted. how do we determine and who determines, who has the responsibility to determine the progress on a corrective action plan and when it's complete when there has been sufficient progress made on it? >> can i start? >> please. >> certainly with a corrective action plan, when a contractor informs us that the correction action plan has been implemented and the system is ready to test,

meaning that they have indeed implemented it, we generally will permit a cycle of cost, whatever that may get usually three months to get a complete cycle of costs in the system. and then perform a follow-up audit to determine whether the system has indeed improved. sometimes there is a length of time that it takes for the contractor to implement it, and we don't go in while they are implement it known that the deficiencies are still going to exist that we do give them an opportunity to fix the question is who monitors what that length of time is. i have to say for most instances that is the contracting officer who is going to monitor that. however, i will say in some instances we could have done a better job in monitoring that and saying something sooner and asking for a withholds or. i do say we could have done that. especially with kbr's purchasing system. however, we did take that into effect when we did the number of suspensions that we have done, over 10 145 of some suspensions. what we did while they were implementing those corrections to ensure the government

interests were protected. ultimately, the audit of the corrective system, idly, says whether that action plan has been effective or not. >> okay. so that usually takes how long did? >> usually anywhere from six months to a year. >> so is it reasonable to have a withhold vote for that length of time? >> i have seen it in the past, and it has been useful. we have been pieces of the system, and as that piece was audited it determined to be adequate the portion of the withhold was returned. >> so there is a way. >> there is a way we can do it. >> thank you. >> thank you. >> i would like to follow up on that. first, mr. ricci, from what i heard from chairman thibault, your 800% down in terms of the number of people you had doing this kind of decking, down to 14 people i understand. is that correct? >> that is correct.

>> how many people have you asked for in current, since the new defense budget how many people have asked for in the program? >> ewing under the defense acquisition workforce development? >> you put together a budget. i happen to know a little bit about budget. you're going to come in with a request. have you requested 100 people? 50? 200? what have you requested? >> i@@@@@@@@@ @ @ @ >> this is the 1st year we have asked for more than we have. we asked to stay flat. >> you were prepared to stay flat? you did not request an increase last year? >> -- >> even though you have all this stuff going on and hundreds of millions of dollars being flushed down the toilet. you did not ask for any more people? >> did you or didn't you?

the house, the comptroller site but i don't believe we asked for a permit is increased. >> david, if i can. i think we can focus and i think you will know you went from 102 to 14. and you got all the stuff, lots of challenges. again, that's present. the end of fy 2090 are you going forward it in 2010 with the same 14, or did you ask for 25 or 50 in order to get the job done? >> i personally asked for more from our comptroller. again, i can guarantee that will go forward. >> let me ask director stephenson. so we were talked a little earlier about you get a crack at this corrective action plans and essentially you say, well, they have done something, they haven't done something, it takes six to 12 months. then what happens?

you go back to dcma and you tell them they haven't done it, or the army? who do you go to and what you say? >> it goes back to dcma. we have the instant scenario with dyncorp right now. they have pre-and adequate system. they have exhibited corrective action plan. the dcma contracting officer asked us to look at it whether we thought the action plan as written was adequate. we determined one of the three was not. and at that point in time we wrote the contracting officer and dyncorp and said this needs to be improved before it is even considered an adequate for corrective action plan. on the other two, that were considered adequate, given that they were just implemented were given about three months to get a cycle so we can adequate test in the new process, and then we will initiate an audit. once that audit is completed it will be issued back to dcma, and because it is a logcap iv contract we have a green agreement with the army that we include the army so they will be aware if there is indeed an issue. and in the meantime, if we find

problems we will do suspension on a real-time basis and not wait for that system report opinion to be issued. >> so if you have a corrective action plan that was put together in 2442005, you will keep coming back and saying they still haven't done anything, correct? >> that's right and we will follow up with a recommendation for withhold. >> so now, mr. ricci, given that, are you saying even though you have been told the corrective action plan has not been implemented, your hands are tied and you still can't have a withhold? >> i can withhold cost if we can show the causality between the deficiency and that cost. if we don't do that, it is essentially a penalty. >> fine. then let me ask director stephenson. when you go back to mr. ricci's organization, do you show the

logical pathology? >> yes. task order 159, a billion dollars in october 2008. i don't think you get any better than that. >> mr. ricci, if dcaa shows you logical, are you willing that they are illogical? >> the fact that 1 billion? >> billion. >> one billion was considered suspended doesn't in and of itself, it is suspended, right? >> if i can elaborate. it was a billion dollars that kbr did not perform adequate price competition or adequate analysis of the psalm contracts. this is not a suspension. they fail to do their job. >> to my simple mind, that's a pretty logical causality. tell me why my mind is even simpler than that and it is illogical? we will take that one example about the price analysis.

>> to the extent that did occur, we have the differences of opinion regarding the purchasing system. but if i can show that lack of adequate price analysis has led to unallowable cost, i can kind of say that 5%, yes, i can withhold cost with the notice to disallow costs. it's the blanket, say, i have a deficiency so it is 10%. so again at labor accounting system that april mentioned before, i can see how the labor accounting, you can definitely quantify it. you can do things also like disallow all the labor costs. so again, i'm not saying we can never do it. i am saying it's not as broad. >> but nobody is arguing about that, and i want to go back to what my cochairmanhas said. when dcaa comes to you with something that looks pretty

rigorous to me, and you know, this is a pretty rigorous organization. i think they are amongst the best of the u.s. government or anywhere in doing this kind of work. and they come to you with a rigorous argument and a rigorous case, there are two ways you can go. you could go and say, hey, we are losing billions of dollars here. it's affecting the people in the field, the men and women in the field. i have a strong case to back me up. i'm going to withhold. or, you could do what you have done which is find a way not to withhold. and it troubles me very, very deeply that you are coming up with reasons not to do things that frankly are undermined the efficiency and safety of our people in the field, as cochairman shea has pointed out very eloquently. >> let me just pick up on that if i may. i agree with his. i survey, and i think it is true to say that all of us are trying to be fair to you, mr. ricci,

here but you seem to be searching for an excuse, the rationale for not doing what is clearly called for. can we just intuit that there is definitely a nexus between efficiency and cost and that it may be a question of how much cost is but can't we stipulate to that? >> depend on what the deficiency, i don't believe all of them logically lead to suspension. >> but what about some of them and what about this particular one? >> i believe that we would need more granularity about what the specific deficiencies are and how they lead. the issue that i would have with this, and again, i just said my purchasing system team in there. they found -- they didn't find any additional defects in the system. because the cost is suspended, doesn't mean it is ultimately not allowed. so that's the issue i have. certainly on a lot of these

systems, we can look for greater opportunity to implement the withholds, and one thing that i will do is to pursue a policy that lays out when it is appropriate. because we used but it didn't happen here and i can speak for the contract officers. you can bring them before you, they would have to say position as me. again, i have coordinated this with our federal council. they also have the same concerns that we show this nexus that it is arbitrary. by the way, is there a statutory or regulatory requirement for the nexus be shown? >> yes, we believe that -- the regulations indicate there should be such a nexus so that it doesn't end up being a de facto penalty. >> can you submit for the record a statement from her counsel to that effect and that points to the regulatory requirement that you think is their? >> it is an interpretation of

the regulation, but i will provide something to that affect. >> back to the corrected action plan. is there a statutory or regulatory requirement to accept a corrective action plan before it has been implemented and validated by dcaa, a statutory or regulatory requirement that you have to accept it? >> i just want to get a little clarification. >> are you required by law or regulation to accept a corrective action plan before the plan has been implemented, and before it has been validated as being committed by dcaa audit? >> the regulations for most of the business systems is something i presented, not the one that dcaa -- >> talk about the ones we are talking about a. >> that is difficult because those comedy accounting, the purchasing, the estimating, there's contracts in the contract to maintain those systems.

the other related internal controls, i understand why they are important, and i understand how dca does the reviews, but they are not expressly, explicitly set forth in the contract. and the requirements for what is adequate is not subject to the rulemaking process, but rather contained within the dcaa's own internal memo. >> who writes these contracts? do you have the right to insert to the contract whatever language you think is necessary in order to hold the contractorcontractor's feet to the fire? >> there is provision for special clauses, but they are the standard causes provided by regulation. they are reviewed, tailored or custom closets. >> could yield a second on that one, clark? >> sherbet. >> there are a few tailored causes, the government and write a contract like anybody can write what they want, and in the contractor can decide whether or not to accept, isn't that

correct, mr. ricci? >> yes, sir. again, we don't write the contract. >> me ask. you can write what you want, correct? >> yes, sir. , for an individual contract, as long as it is within the laws and regulations, the answer would be yes. but if you're going to put clauses in multiple contracts, there is a rulemaking process that has to be followed and has to be vetted. that is why there is a far counsel, dark council that does that. that is what mr. ricci was in many, that's what i would submit needs to be done is all the systems need to be examined, how are they with the standards and let's get on with it. >> to comment about this issue, ms. stephenson? >> i have seen it happen without a contract clause. i was unaware until we were preparing for this hearing last week that dcma felt that there have to be explicit requirement in the contract clause 40 withhold.

or we would have pursued a regulatory or statutory change because i have seen it done in a number of other instances, not in the logcap contractors, but others. especially small to medium companies. i see it happen when there is an adequate systems. . . considered acceptable or adequate. the other internal control systems relative to accounting

that would have that, that is the disconnect between the seven i connected, the focus contract to the business systems, i went through the regulation and pull out those systems that are supported by the contract clause. it is not that i didn't want silly recipes but it is difficult when the criteria and standards in the audit manual, not in the contract, which i believe would be an improvement and if we did mandate these expressly in the contract -- >> thank you. >> for -- >> thank you. let me take you off the hook for a moment. you may want to comment on this

later, but for you, do you think it is realistic to have the current standards for business systems apply in a contingency environment, and are they practical in the real world? do non contingency contractors meet the business more readily than contingency contractors? >> we recognize in the early stages of a contingency environment, there are situations when contractors need to be brought on to deliver goods and services when business systems may not have been audited or those that were audited may have significantly changed because of the contingency. we recognize that and we recognize that there is a need to get the goods and services in absence of having an audited system. we recommend inadequacies be handled through other incentives throughout the process.

the issue becomes how long does the contingency operation last? we are six years into this war. is that reasonable period to say that we are in a contingency environment when it comes to accounting system, billing system? i would say not. if the hurricane hit the gulf coast, there are contact is going in and putting new roofs the next day, yes, i would say we have to do this in that case. >> any comment? >> i believe that the availability of subcontractors makes it more difficult. three people got killed over the weekend. i believe it is different. >> mr. parsons, we have got indications that certain historical records, project files, data, etc. may not have

been passed on to the new contractor. when transition planning was accomplished by the army, what steps were taken to ensure that the transition of people and data, who were made efficiently and effectively, the successful contractor? >> i will have to get back to you on the exact details but i do know the transition plans were proposed, were evaluated by the program office including our offices in afghanistan, they were reviewed to see if they were adequate and there was oversight provided during the transition peace by the office.

you probably had that discussion with the details. probably much more than we had thought of originally which is incorporated into the >> today on the quality newsmakers" talk about the health plan -- the health care plan from present obama. that's 6:00 on c-span. >> tomorrow on quality washington journal" a discussion on how president obama is promoting his agenda during the august recess. the president of the 60 plus association on his concern about the health care proposals from president obama and the democrats in congress. and a discussion of a book on the history of disease control and questionable public policy practices. that's on the "washington drop"

on c-span. -- "washington journal" on the c-span. >> british voters are going to the polls this weekend. british politics is on c-span tonight at 9:00 p.m.. >> how is c-span funded? >> the u.s. government. >> private benefactors. >> i think some of it is government-raised. >> it is not public funding. >> donations. >> i want to say from the anti- tax dollars. >> how c-span funded? america's cable companies created c-span as a public service, no government mandate, no government money. >> this week on "communicators" a discussion on how the internet is being used to provide transparency on the workings of government.

our guest is alan miller from the sunlight foundation. >> our producer will be joining us in questioning this week. could you start by telling us with the sunlight foundation is and what it does? >> the sun life foundation is a 3-year-old non-profit, non- partisan institution designed to create greater transparency for the work of the u.s. government using its technology. the internet and the technology that under lies that are at the heart of every single thing we do. we are interested in transparency, particularly data and information about government and using that technology and putting it in the hands of citizens where it belongs. >> how you use the technology and what kinds of technology do

you use? >> there are several pieces to it. one at the core of our work is making sure information produced and about the u.s. congress and the executive branch and regulatory agencies is available on-line in a 24/7 fashion, the way we expect to find any information these days. the 1st thing the sunlight set out to do was digitize information only available in paper form. we created a number of grants organizations like open secrets or follow the money, places that follow campaign finance information, lobbying information and revolving door information or digitizing personal disclosure forms. getting that data on line in a usable form is the 1st goal and then to develop tools on top of that so any citizen can understand -- sometimes in the blink of an eye or in a more complicated fashion, what is in

this information. we created websites like open congress.org, where tens of thousands of people go to get information about legislation, not interpreted information, but the text of bills were they to comment on legislation and see what other people are writing. they can even write to their legislators about information. we have created these databases and tools and websites on top of that to enable anybody, public, journalists, susan journalists, to have access to information about what is going on -- citizen journalists to have access to ever made about what is going on. >> is this information not put on line by government departments or congress? >> it is a mixed bag. some of these things you could only find in the basements of obscure or not so obscure government agencies or offices of congress. it is only in paper form or

unless you go to washington or have a high-priced lobbyists, you cannot get to it. so we get grants to have a digitized. other information is available, but you to be the most intrepid researcher to find it. sometimes it is available in a fixed pdf forms a you cannot look for similarities or look for who is the highest-paid lobbyist or what government, foreign government for example, might be hiring or spending the most money hiring lobbyists. the idea is to bring it together and make it digestible and available online. >> can you give an example of how that works? something about government people want to find out but would not be able to find out through their own research? >> something we are releasing next week has to do with foreign lobbyists -- americans who lobby

on behalf of foreign governments. we have created a database with and investigated nonprofit which allows citizens to take a database which exists on paper in the basement of the justice department and have made actual database and allow citizens to actually search through, country by country, or legislator by legislator, who was lobbied by these lobbyists. you can search by the lobbyist as well. there's a wealth of a defamation about how lockets made it and puts it in the hands of citizens. another example is that we took the congressional record which is actually available online. every single day, the congressional record has as many words as the tail -- s. "the tale of two cities." you can actually research and

see what the most popular word of the day yesterday was. you can tell what congress was talking about yesterday. you can search by your legislator, york delegation, so it is an interesting insight for citizens to understand what congress actually was talking about yesterday. >> what is native data tagging and semantic technology? does that fit into what you're talking about? >> it does. met ed data is data about data. -- meta data is that data about data. that sounds esoteric, but it's basically how can you find what you're looking for. if i want all the data about campaign financing, that would be meta data. if i want campaign contributions about a certain congressman, you can dig deeper into a certain

database. sunlight is trying to create--- direct -- directories of data so you could have a bigger picture of the data and what impact might be. >> what process is the organization go through to make sure capricious presented as this -- to make sure this information is presented as is and not interpreted? >> we have longstanding reputation in taking data that comes out of government and putting it into a searchable data format and not playing with data or interpreting it at all. whether that is open secrets or follow the money, or that spending.org, these are just the facts, just the data, there is no interpretation. even on the databases we create ourselves, we have one we've

created a small, but nobody has done before. this has to do with the fund- raising events members of congress hold to raise money for campaigns. we take the invitations themselves that we receive from all kinds of sources around the city and have an interface created so that we can enter the data ourselves and put the regional invitation on line. if anyone ever doubt the data base information, they can go back on original invitation. the value of this is invitations for fund-raising events are sponsored by certain lobbyists. you can search by which lobbyist has actually sponsored these fund-raisers and do they have connections to the committee's? so you get a richness of data when you create these databases ensure the original documents as well as the data itself.

>> what are people interested and from the traffic chiusi? >> at the moment, and terms of -- it is health care, of course. tens of thousands of people went to open congress to begin to understand the facts of the health-care debate. we know that there is a lot of disinformation and so it's hard to tell what is it real information. this is for hr 3200. but if people go to google and type it then got a firsthand pops up is a link to open congress. they can see all 1000 pages and comment on the bill. it gives an opportunity for people to dig in and see whether they can find the kinds of allegations about what this is

the bill in what is thought. >> could they searched for the words "the death panel." >> they absolutely can. and i don't believe they will find it. the opportunity for citizens to get facts themselves, this is what the new technology offers. this is the new connected age. we no longer need experts to filter this because each of us can gather the affirmation and become our own lobbyist. not only that, but the new technologies we use like twitter, members of congress are on twitter. tens of millions of americans are on there. you could go to open congress, get the facts, find their account for members of congress and ask a direct question and i bet you they respond because it is the kind of personal medium. the technology enables us to not only get information in the hands of people without

filters, without spent or analysis, but it -- but it enables citizens to ask questions directly in one on one conversation with lawmakers. >> you mentioned that if you type in hr 3200 that this is the 1st one that pops up. do you have to pay for this? >> no. >> why does it come up 1st? >> because of the popularity of the use. the way the search engines work has to do with the way traffic is flowing. you rise in rank in terms of that. >> what if someone wanted to search health lobbyists and members of congress and compare that to see who is supporting the bill? >> i do not know what they would find, but they could end up on a site like open secrets.org with a database on lobbyists. they could then type in health

care lobbyist and find the intimation of altar lobbyists or they could end up on another site we have funded which is a sort of involuntary facebook for the powerful. this is a wiki site where people are focused on revolving door lobbyists in the health-care industry. people are doing their own research, adding information to this, young people used to work for members of congress and you are now health-care lobbyists. this is another side of what technology allows you to do. to pull the wisdom of the crowd and in larger staff and information sources. -- and large it your staff and information sources. if members of staff for saying so and so used to work for this office and provide for that

information. there are many sources of information and what the search engine can do is direct you into different directions. >> how much traffic to be seen since the start? >> traffic has surged. every time there's a popular bill, traffic surges. the traffic also searches dramatically with people created their own accounts so they can receive alerts about particular pieces of legislation they are interested in following. they can find other people interested in the same issue. the last cheers biggest bill was about unemployment insurance. people were looking for -- last year's biggest bill was about unemployment insurance. the left, about the bill and what they thought about it. the other interesting thing about the technology which is counterintuitive is it is quite simple. it's a lot more civil -- it is quite simple. it's a lot more civil than what is going on in some of the town

hall meetings right now. the technology enables people to have a civil dialogue. >> so people can post their opinion on what they're finding information about? >> absolutely. it's a very simple common system that allows people -- a simple comment system that allows people to comment on the bill. we did this last year -- someone asked us to create a bill about what greater government transparency with look-alike. are lobbyist developed a piece of legislation that had new information also gathered up very good ideas that had been pending in congress for a long time and put it on my desk. she said why don't you look through this and i said i don't know anything about this area. i said let's put it up on line and ask people if they would review it for us. they did. we put up a section by section

and allow people to comment. it was unbelievably interesting experience. we learned a lot. we engage people we never do before in the process of developing legislation. we think that's a very promising venue. i'm not suggesting all legislation needs to be developed this way, but the notion of having legislation online for a detailed look by citizens who are interested is something whose idea -- is an idea whose time has come. there is an advocacy side of what we do as well because while we are in the business at the moment of creating databases out of government intimation and providing tools to access it, it is not the nonprofits responsibility to do that. this is government responsibility. we have an advocacy program to try to convince government, whether the executive branch for

congress to put more information online themselves. one of our platforms is something we call. the bill.org. we are asking congress to put all legislation on line for public consideration for 72 hours before it is considered. we think this will not only enable members of congress to read the legislation before citizens to weigh and and tell congress what they think. >> this is a "the communicators" on c-span. my guest is alan miller, founder of the sunlight foundation. -- my guest is ellen miller from the sun like foundation. how was it found it? >> there were several large investors and the co-founder is a washington businessman and lawyer who approached me in the founding of sunlight. together, his approach was what do we do to put the tools and a

permission in the hands of journalists and citizens so they can understand what is happening in congress? we started exclusively with a focus on cars and we spoke with many journalists and practitioners and some longtime colleagues from new york. we were told there is an ant -- an intersection between technology and political information. we need to understand it and grab hold of it. so we created some light. he was the 1st investor to bring political information and technology together and we have been very experimental since then. carl r. -- our largest funder has given some light eight -- has given some light $8 million and invested heavily in us. -- in the sunlight.

we have built a huge database of all government subsidies. information about subsidies we are interested because it's a huge spending item. it's a huge amount of our budget. no one has ever tried to put this information together in one single place. so subsidy scope.com exist. the 1st sector is on the bank bailout. >> is it online? >> it is. you can search down to your local bank and find out if your bank has received money. this is a very exciting web site. the next subsidies sector will be about transportation. so all kinds of subsidies about transportation. the pew charitable trust is a large under ours. tonight foundation has given us a grant to build out tools for journalists -- the knight

foundation has given us a grant to build out tools for journalists. we trained over a thousand journalists on these databases last year. >> this president has said he wants to be the most transparent administration ever. how is he doing? >> it's a mixed bag. there are some terrific things that have been done and there are some things that are not coming as quickly as we would like. the directive on day one or date to what this administration was a hugely important step because it planted a flag saying he wanted to be transparent and have said is engagement. that's a standard to which we can hold all of the attrition effort to. another huge step forward was the creation of data.gov. it is a single web site that will provide a catalog and access to all government data.

it will have it all in one place. you can search by topic and interest. those are two major steps forward. i would say transparency in terms of the white house operation, a detailed daily schedule of what the president and senior staff to, we have not seen that. that would tell us all about what's going on. the administration is using some of the new technology like youtube or some interactive ways to dialogue with the president in press conferences, they are experimenting. some of those experiments have worked better than others. in terms of the attrition use of technology, we seek -- in terms of the administration's use of technology, we have seen that in different ways. there is the white house's use of technology and then there is the message they said to the administration. there's no question that at the top of all agencies and departments they understand

technology is key in building trust in their work. they understand they want to do that. then there is the cultural resistance beneath the top layer which is making it a slow road. >> primarily by whom? >> mid-level bureaucrats primarily. we see this on capitol hill as well the are not used to giving out this data. they think of it as their data and their information and not for public consumption. that's the way it is. it is hard for them to understand why. was it thomas jefferson who said information is power? certainly, members on capitol hill understand information is power so they want to keep a close. but those barriers are falling down because citizens expect to be able to find what they want to find on-line 24/7. if i want to make an airplane

reservation at 2:00 in the morning or buy a book at 11:00 a.m. or order another item at 6:00 in the morning, i can do that. that's what people want in terms of political integration. -- political information. there was a recent study that demonstrated huge number of people, double in the last election cycle over the previous, went on line to get previous -- went on line to get information than they did in the previous one. we estimate that based on those numbers and others that 25 million did not just go to get information, a state to create information. maybe they wrote a blog post or left a comment or send an electronic message to members of congress or an agency. 25 million people do these kinds of things. it's a massive interests of

people. our theory is that if you put this information into their hands and a bike and to collaborate and they will. >> speaking of congress, how is congress doing putting information on line? >> maybe all more challenging than the executive. -- maybe all little more challenging than the executive. one is called the open house project and the other is the open senate project. it is a collaborative on-line effort of somewhere between 507 hundred people to identify easy ways for the house and senate to use technology to come into the 21st century. -- somewhere between 507 hundred people. we have had good luck from the majority and minority leaders and from the majority leader in the senate. we have delivered the house

results and we have been working through the various rules committee to get some of these ideas enacted. they are easy things. the senate is more difficult. for example, one of our project is to push forward a piece of legislation called 482 which would require the senate to file campaign finance reports electronically. the house has done this for years. there's no reason for the senate not to file their campaign finance reports electronically. they keep them on their computers and print them out and then hand them to the federal election commission which spends a quarter million dollars every year, making mistakes and slowing down the process. i wasn't born yesterday. i know that that slowing down of the process is what they want. we put a lot of pressure on them and we think it will actually pass it. we have mounted a major campaign to get them to do it.

they were reluctant. what does it mean when you invite the public in? i think they have to get used to it. there are a lot of members who do understand the change in technology and how it enhances the ability to communicate. >> do you see more of these members making moves to talk about the ground actions and contributions or associations about technologies on an individual basis? >> absolutely. more and more members are going on to twitter. that's the most direct way to communicate. more are using video cameras and the more sophisticated with interactivity on their senate and house websites. there's a growing appreciation for this. it is not just young remembers who are coming in. we see some older members of longstanding who are beginning to understand this will increase their constituents trust in what

they're doing. there are a number of members of congress to post their calendars on line. you can see who they meet with. there are only seven or eight to date and this is an idea that will increase trust. i'm a member of congress, i have nothing to hide. you can see how much time they spend with committee meetings and meeting with staff. disclosing calendars is another thing we see members beginning to do. >> you have been in business for three years with the sunlight foundation. how has the technology changed and what is the next generation? >> i don't think anyone can predict what is next. i would say that at least once or twice a day someone will send me a new piece of technology that they will say can we use this in some way?

there is a program called gap minder. it's a motion chart. you can click once you create it and see a small of the information -- see a swell of inflation he might create. you might create a chart on real-estate finance or contributions to democrats and republicans over 810 or 15 year time frame. .

>> it is a tool for people to understand, smile little bit, but fundamentally understand what is going on. there are examples of this going on day after day, the creative talent on line in terms of the technology. it appears to be limitless. we see these all the time. how can we use this? >> final question, how would you gauge success for the sunshine foundation? >> the notion and that it is their responsibility to provide government information for its

citizens. with that data.gov, it is already access s. we built on a website that we find it. that is a success. the shifting of responsibility to government to provide this information is absolutely a measure of success. and then secondly, citizen use of this information. we want to see more citizens coming to the congress's or other sites that we find and create. we have done projects like asked for americans, creating applications on top of the debt at the mystic the usefulness. >-- on top of the databases and their usefulness. >> ellen miller has been our

guest of the sunlight foundation. thank you very much. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> and now for some from this morning's "washington journal." we will hear from the co-authors of "reagan's secret war." this is 10 minutes. ournal" continues. host: martin and annelise anderson join us this morning with their book. good morning. guest: hello. host: thank you for being with us so early from california. guest: for many years, 20 years ago and when reagan left, he did a lot of things -- a lot of things he did were really good, especially in nuclear weapons and cold war and on stuff like that, but most people were always puzzled by reagan. how did you do these things?

who was working for him, pulling his strings, things like that? we had worked with break in for some time. it has been a puzzle as to exactly what happened. recently, we were able to get the classified documents. once we had them and looked at them we saw what was happening. the book is about a lot of information no one has ever seen before. host: please tell us how you got access to these documents. you were able to gain clearance and look at these writings from speeches to his personal diaries and even minutes of meetings. guest: yes, most people -- well, everything was secret or

top-secret, very classified. it took me almost one year to talk to people to get it opened up. we got the information, actual documents that no people had ever seen before, except maybe a handful of about 10 who are working with reagan. when we got them -- the book is around that people -- so, we can use them. host: we have an excerpt talking about where he had 365 meetings and a secretive planning group. it says more than 80 of these have been declassified for use in this book. guest: yes, and the basic ones we found were what he was doing

when dealing with the soviet union. that was the critical thing he had to deal with and it took him almost seven years before he could get done. we worked with him starting in 1981 all the way through. the main reason we wanted to write this book is we think it is important to understand what the president is doing, not just reagan, but all presidents. it is important to know what they're doing and how they did it. when the next president takes over it is really good to know what worked and what did not. host: annelise, were you surprised by the information your husband was able to get through some of the secretive, classified sources? did you see an insight into the president you have not seen before even though the you work for him? guest: i had guessed that reagan

was making all the decisions. actually, i was surprised at the extent at which he was directing the people who were members of the national security council, secretary of state, defense, the joint chiefs of staff were advising him of course, and told us that the director of the cia -- and the vice-president was always there, and he was given the direction and setting the strategy, reminding people what the goals were, expressing his philosophy. he was dealing with differences of opinion among state and defense often. there were differences of opinion. sometimes he would go with one or the other. he would maybe say you wanare nt as far apart as you think. we should not go with either of

you, but a third year. he would express the philosophy and the negotiating strategy. he was a great negotiator. i was partly surprised and partly concerned. host: what is a key is that you say the minutes and the writings show that he was the one making decisions at the end of the day? guest: that is right, absolutely. when we were doing this book we tried hard not to give our ideas as to what was happening. we tried to find documents where he actually read them or other people read them. you can read, see, understand yourself and decide on your own as to what happened. it is important to know this.

if you go -- we have a lot of friends who think he was nice, clever, pretty, made movies. but they are really puzzled as to what happened whathow. many people think he was just lucky. we know now it was not lucky and was done carefully. it is important to know that. it is other presidents who have the same problems. host: tell us about the personal diaries. how much insight did they give you about his day to day decisions? were you surprised at the extent of his writings? guest: he wrote in his own personal diary the entire time he was president, virtually every night. he often comments on the meetings of the national security council and expresses

his view of them. he says it was a good meeting or we had disagreements. i have to solve this problem, and things like that. the diaries are revealing on a huge range of subjects. it helps to have them in the context of interest. we've focused in this book on reagan's commitment and firm belief that nuclear weapons should be abolished. that is a view that his advisers on the national security council and in the cabinet, the members, disagreed with. but he felt very strongly about it and work on that. he was also very firm and not making any bad deals with the soviets.

and negotiating from a position of strength. he wand to build up our military so that it was strong enough. he did that. host: you write in your book -- guest: one of the things we discovered starting in 2001, and we found by lack some various things he had done in terms of writing things and organizing them -- one of the things that have been for many years, and no one knew what he was doing. he wrote them every night but did not tell people.

oftentimes, for example, we had one booklet put out on what he had done with documents he had written. it is only now that we have discovered what he was doing. he was by himself. he just did not tell other people what was going on. host: who knew about the journal? did his wife and one of his children? guest: yes, his wife. i'm not sure about the tobago host: so, very few people, if only nancy reagan. guest: yes, and she was doing the same thing. hers has only been published in part, but his was published in 2007. the complete version will be published this year. guest: we discovered he was

writing a lot of letters. we were curious. we kept talking to people. basically, we put out a book with over 1000 handwritten letters. since that time, we have been keeping how many letters he had done. we are up to 10,000 letters right now that he wrote by hand on a whole range of issues. it is stunning when you compare it to other people in that business at this time. host: our guests are martin and annelise anderson, the co- authors of ". reagan's secret"" >> a portion of today's "washington journal." you can see if in its entirety on our web site.

tomorrow, a look at the obama health care plan with sam young men. jim martin and his organizations concerned with health care plan. and later, philip alcabes from the center of disease control. live every day at 7:00 a.m. eastern here on c-span. >> this is c-span, public affairs programming courtesy of america's cable companies. up next, newt gingrich on the process of budgeting. and then bill clinton speaks at netroots nation. and then on "newsmakers," karen ignagi. and now former speaker of the house newt gingrich on the

budgeting process. this is a portion of a forum from the american enterprise institute. >> [ i want to thank steve for a great hour and showing at a practical level that kind of changes and kind of leadership that can make these differences. how will actually pick all on that and go to some examples of continuing change and how fundamentally different the level of thinking hot debate. -- ought to be. i become fascinated rehabilitation from prison. america works, a remarkable company in new york, and chuck colson and they've prison

fellowship, which he had been at it -- been doing a great job and develop. prison reform and present redevelopment should be a concern for all americans. today 66% on all u.s. inmates are arrested within three years of relief. 52% in the back in prison. several organizations are changing the way that we rehabilitate prisoners and reorient them into society. american works is a group that i worked with welfare reform. paper founded under mario cuomo , and the door of role breakthrough in the 1980's in which social workers went into private business and organized a for-profit company which would only get paid if hard-core unemployed actually change their behavior enough to go to work. they only got their bonus if they were foreign minimum of six consecutive month. they have been astonished lang

-- astonishingly successful. they offered the opportunity, including in indianapolis, because america works is in indianapolis, and they have since branched into working with and prisoners, formerly incarcerated referred to america works for employment. they give them appropriate clothing and carfare and they take all the thing that they weren't working with them and develop them for prisoners. at a train people so that they get a job, keep a job, learn how to be on time and show what under a variety of circumstances. most individuals who woere prisoners get hired. you give reduce costs for criminal justice and tax revenues for people who are now holding down jobs.

a cost california $47,000 a year to house one prisoner. and then at one time fee of $4,000 to get that person a job which is paid only when they keep the job for six months. in a sense, if california releases 40,000 people, they said how america works or parallel company, which we could call california works, ramp up to deal with all 40,000 people. you have a fundamentally different kind of experience. chuckles and develop prison fellowship. it provide -- chuck colson developed prison fellowship. it relies on a volunteer network of more than 20,000 people. non-union, non full-time state employees, no pension -- all the things we are told automatically raises costs. there are 20,000 volunteers who

ministered to many of the 2.3 million prisoners in the united states. prison fellowship has an interchange freedom initiative which is very tough. they are mentored and values- based programs. it begins 24 months prior to a release. i have talked to someone about how challenging this is. this is a program where it you do not smoke, if you do not drink, you focus all day, every day, and they are serious about helping people change their behavior and helping people change their future. according to a study in texas, only 8% of those who participated in a program returned to jail within two years, compared to 52% of all american prisoners then returned to jail within three years. i want to give you these two models as an example. these are not just more

efficient ways of doing the same old things. these are fundamentally different approaches to achieving outcomes that are not achievable within the traditional bureaucracy. that is the key part of what we want to focus on. in this last session, we'll talk about examples of successful possible -- possibilities. i wanna start with the economy. it is ironic that james carville and 1992 had posted a net clinton campaign headquarters in little rock, a sign that said "it's the economy, stupid." i really think this administration would do well to post a sign in the oval off all but says, it's jobs, stupid." if we don't get people back to work and create economic momentum, we are in deep trouble as the country. america all the works when america is working. when your face with competitors like china and india, you have to have a strategy for economic

growth and development in a periodic and serious challenges. our argument is that we want that build a safe and prosperous future, we need to create the most productive, most creative, must entrepreneurialism, pro- market economy that runs on smart an effective economic regulation. let me be clear. i believe that if you set out and say what would maximize the number of law entrepreneurs in america, there are ways to do that. what would maximize the number of businesses created by small businesses, there are ways to do that. if you said, how can i have the most continuous process of innovation, we know how to do that. it just does not fit the political elite definition of the future, which is high tax, big bureaucracy, and politician- centered. long term, we won the budgetary reform legislation.

more than a dozen bills introduced to establish entitlement and budget commission's, but it all the legislation did was have the same all conversation with in the same old frameworks, you impact would not achieve very much. you end up with an "compromise" in which you raise taxes while marginally cutting spending in order to sustain a bigger government at higher costs with a smaller economy and fewer job creation. tax creations is just a short- term fix that leads to a bigger government and a weaker economy. the fact that in the last year he 11 states raised taxes to up eliminate budget gaps is absolutely amazing in the context of this economy. oregon added new top rates of 11%. that kills jobs in origin -- in oregon.

already the highest income rate in the company -- already the highest and rate in the country in california, and that convinces people the late california. delaware raise taxes about $60,000 that kill jobs. new york scaled-back the deduction for higher and earners. that kills jobs. i have talked personally to people who were moving out of new york city because they are finding it so expensive comparing to living in florida which has no income tax. the differential is just unsustainable. why, new jersey, and wisconsin and raise taxes on high income earners. every one of those steps kills jobs. they represent a distorted social policy in which we we can families, take money away from working families, to create a bureaucracy to do what -- to do for the family what it would have done for itself. let me give you some examples to start with. under president truman, the

deductions were $1,000 to $12,000 for married couples, and $500 to $600 for each dependent. that would be $7,300 for today's married couple. if you consider that, and you can look at a fundamentally different model. the original deduction from the original income tax would mean that no one on the less than $8 million a year would pay anything. when it first came and, it was going to be very limited to a small number of people and it would be very tiny. that is $8 million in $2,009. but if you -- in 2009 dollars. but the states are looking for money said they are expire -- exporting jobs to china and india.

what what i want the french as their? wisconsin reduce corporate tax rates. what i want to open up another factory in wisconsin? nevada is one of the hardest hit economies with property having a deeper drop in value and in all the other states. kansas reduce business tax credit. 19 states increased their taxes by more than 1%. only one state cut its taxes by more than 1%. you go through item after item and only north dakota cut individual and business taxes by $50 million. north dakota is a good example where energy revenue was helpful. ue was helpful because north dakota is having an energy boom. so our argument is if we want economies that encourage business development and freedom in the marketplace we need to reform the current tax structure

and remember as winston churchill warned that government is not the source of wealth as churchill once remarked the nation to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle so taxation isn't a central form of wealth, taxation in fact reduce is wealth and reduces jobs. i think we have to focus in designing the government of the future on doing it dramatically better job of reducing the regulatory barriers and cutting taxes that are discouraged on abortion and economic growth. that is why an american solutions we propose to programs to create jobs and stimulate economic growth. we have created a program called jobs here jobs now jobs first which we think is steps for jobs and prosperity and we did this because we are convinced that the politician protection act that was the so-called stimulus bill will clearly in the and not create the level of economic growth we want to read the

federal reserve board we could expect a long period of increased economic activity without new jobs and that we could easily have eight or 9% on an plan for a long time. i think the american people will find that a very unacceptable future and i think the left will come in and say we need even more big government spending when the fact is by 3-1 most americans believe business tax cuts are a better way to create jobs than more bureaucratic spending so we suggest four steps for jobs and prosperity in a program we call jobs here jobs now jobs first and i want to tell you what the steps are and why we picked them. first is immediate payroll tax relief. while many people do not pay the income tax everyone who has a salary pays a social security and medicare tax. and in this economy you.

so if you cut the social security and medicare tax and we propose a 50%, to year 50% reduction in the payroll tax you immediately boost take-home pay for even the least wealthy person so the minimum wage workers currently paying social secure a medicare tax would get a significant increase immediately if you had to year cut. we also propose that match also be cut for two years by 50 per cent which means every small buness in america would have more cash flow to begin to pay off debt, to be able to invest in new equipment and create jobs and remember three of every four jobs are created by small business. now the way we would do this -- by the way this would be a huge benefit if you are self-employed because you would get both and will your match and and when you tax system would have a significant increase in take-home pay if you were self-employed. remember in a state like california there are more people

self-employed than there are union members so you can have a dramatic impact on the economy and offset some of the damage done by state taxes. we would find the money and remember earlier i talked about fact we had balanced the budget for four consecutive years i am quite comfortable in a 4 trillion-dollar federal budget we can find the money to put into social security and medicare trust fund said they would be held harmless. i would start by taking all the unexpected money along with 300 to $400 billion of the on spent stimulus spending and diverting them into paying for the payroll tax cuts. in addition, we would sell all the government ownership that has been acquired the last two years to get all those businesses back in the marketplace, take the money that would durham, put that in the social security and medicare trust fund and i would propose zeroing all money going to acorn because that is after all an organization dedicated to helping the poor and if we to

call the money they get and give it directly to the war in the form of a tax cut for the lowest paid workers surely that would be the model of what this should be thrilled by this opportunity. we also want to enable american companies to become the most competitive exporters in the world. the way that you do that is you max the irish tax rate, 12.5% for corporations. when you combine state and federal taxes, we have the most expensive corporate tax in the world. this goes back to basic mathematics. craig barrett was then head of intel pointed out that microsoft has all their of licenses in ireland. why do you think that? they paid 12.5%. versus paying what some americans would be paying 40%.

you are a corporate ceo and your obligation is to get a return on your investment. with you rather pay paul 0.5% or 40%? our liberal friends get out and kill about on patriotic companies let's make profitable to be patriotic by reducing the tax rate to the irish corporate rate of 12.5% he will find lots of american and foreign ceo is and say i would like more factories in america because they will have a lower tax rate in germany or britain or france or japan. ford, if you really want to compete with china for jobs and won the most innovative. of entrepreneurial society in the world match the chinese capital gains rate. if we had no capital gains tax the amount of capital which would flow into the united states, the number of new factories, the number of their businesses and new jobs would be breathtaking and we will rapidly become the leading exporting

country in the world. finally, if your social values are then you believe in the work ethic, you believe in savings and you believe that families ought to save for their children to have a better future it is absolutely irrational to have a death tax and as a cultural value we should abolish the death tax permanently to send the signal we want to encourage people to work all their lives, save all their lives and be able to save resources for their children so that gives you an overview what we think is -- those tax cuts would radically accelerate economic growth in america and would dramatically reduce on and point and if you simply calculate -- if we were 4% how much bigger with the tax revenue be from people going to work? how much bigger with the economy the? how much less what we spend on a planet medicaid and other government spending? you begin to get the circle of economic growth that enables you to go back to a balanced budget. we also have an american

solution in addition to the for eight other proposals for jobs and prosperity i am not going into detail on it now but i will tell you a strong robust american energy program is the key part of that and a strong education program and health reform and i will talk briefly about all of those. on occasion, the race simple model. world-class jobs require world class learning. you cannot compete with china and india with an inadequate education system and that an adequate system can't be fixed by no child left behind. you need a new model of every american getting ahead because you have to many adults under educated for the world market and you can't say to someone who's 22 we are not going to help you but we will fix k-12 because you have to have 40 to 50 years of person on the job market so we need to have a fundamental new approach that includes vocational technical school, includes college, it includes k-12 but also includes

homeschooling and learning on your own and it includes things like the university of phoenix on libeler in. we have to have a fundamentally new approach to 365 days a year capacity to keep learning at a rapid rate so every american can be fully informed. i mentioned earlier 2 billion minutes. i wish every community in america what watch that film and have a dialogue of does it mean and what we have to do some schools can be competitive. compton points of 60% of u.s. students have no science to biology. only 18% of students take advanced classes and physics, chemistry or biology yet every indian student on the academic track takes four years of physics topped by a physics major. only 45% of u.s. students take math work beyond basic old georgia and interest rate to geometry. remember these are the students

that have been dropped out. if you add in the students that dropped out you realize how huge the educational challenge to the next generation is if we are serious about competing with india and china. september 17th i'm about to announce american solutions will be hosting the premier new documentary 2 billion minutes a 21st century solution hosting the event with the education of quality project and u.s. chamber of commerce institute for comparative work force. it's interesting the film highlights the basis school which is a tucson arizona charter school "newsweek" rated as the best school in the country and we think there is a lot to be learned and this is the kind of opportunity to say every school could be this good if we apply the right principles and prepare to insist on excellence. i believe detective flirting is critical. i don't see how you create job opportunities with productive been fallen planned for

americans and a knowledge based internet connected global the competitive world without having high-quality learning in america. international competition and future of this country require effective learning by all americans and economic viability of the community requires effective learning to read the future of our children requires the learn -- most important debates in this country the next few years and i want to say we are actually directly involved with president obama and with secretary of education arne duncan and reverend al sharpton and we will be this afternoon and then friday we are announcing we are tomorrow morning on the today show we will be going nation white in a joint effort that is try partisan democrat republican independent to get every state to adopt the program.

this is one of the places i strongly agree with president obama. i would go further. i believe in vouchers or as i would call them pell grants for k-12 but i'm happy to say the president's position is strong on charter schools and if you can find a place to work together this is a useful and i can see up front if you told me two years ago al sharpton and i would be going around the country jointly advocating things i would have been dubious of that new say we believe parents have to demand accountability and choice. parents must have transparency about their child's achievement. parents must have the ability to pick the right school for their child. parents should have the right never to have their kids trapped in failing schools. this is fundamentally about the nature of america. we believe in nova and its charter system. all the money allocated for student education goes directly to the school. the school manages its own staff whereby it is exempt from the law regarding tenure and need

not unionized. this will define its own curriculum in line with state standards and assessments. students in charter schools are not exempt from state assessments. the schools are not exempt from reporting requirements nor should they be the have the same obligation for transparency as any other school. steve walsh allow for the first school to franchise its model without limitation that means the need not apply for a new school every time they can build a new one if they have the demand they must be able to serve. the state should have no caps on the number of charter schools that can be approved and the process for charter schools should be smooth and efficient. every station open their system to part-time teachers so retired physicists and edward pharmacists or local accountants could teach one or two hours a day and bring all which to the classroom and business adult expectations to the students and programs like teach for america should be encouraged and of limited. every state should adopt early graduation program so students can learn faster in the state curriculum and students who can

graduate early could be awarded the cost of the years they skid as automatic scholarships towards college or vocational technical school. i know that jackie cushman red lead a foundation where there were seventh and eighth graders with the same wages as mcdonald's employees if they stayed in school and did their homework and they had a dramatic improvement and the number of poor students and these were poor neighborhoods and fulton county and the students responded -- this voice surprises me this is a shock to some education theorists. where children understand money. poor children understand if they could earn money. they want to change their behavior if they actually get the money. something we experiment with years ago when i remember, i would take my speech money we had a program called earning by learning and they paid $2 a book in public housing for every book children would read and had huge response because they love the idea of getting $2 a book and

they were willing to read lots of books. it wasn't complicated. all of us understand when we are watching tiger woods when a golf match or somebody negotiate to be a football player or a movie star or rock star make money somehow we come around to these young people who are poor and need money and we say i wonder what might encourage them to study so we encourage people to look at this and it might curb the dropout rates seen as a mini failing schools and we think it might break the cycle of poverty dependency in prison. so that is is education. on energy we think there is an american energy program to use american energy to create american jobs and strengthen american national security. we believe if you want to build a safe prosperous and free future you have to create a fundamentally new energy infrastructure to facilitate a 21st century energy economy. in fact for many states the key to closing the budgetary gap

lines and increase in energy resources. the six states that projected budget surpluses in 2009 durham substantial revenue from natural resources. alaska will bring from oil and natural gas production taxes. we list some examples of states that are getting more and more resources from the various severance fees and you will notice an example louisiana. it's interesting people worry about julich of short. of louisiana and texas we have bills since of the wells and we have had four major hurricanes the last few years. none of the wells have had a problem. it's much more dangerous for the environment to bring oil by ship from saudi arabia are venezuela and at american solutions we propose ten steps for generating

more american energy now. the first became famous last year as natural curatorial now pay less and the first time in 27 years the congress failed to pass the ban on exploring offshore of of our schwarzenegger agreed they could drill more of santa barbara for the first time since 1969. a position by 59% of the people in santa barbara county so both offshore and in alaska we believe there's a tremendous amount of oil and it's interesting there are continuing discoveries of new layers of oil and natural gas on a grand scale in fact there are new technologies for finding natural gas and shale involving drilling down 4 miles i'm sorry, 8,000 feet and then to link horizontal lee for 4 miles out of the same wild and they are now discovering enough natural gas and shale we probably have 1300 years of supply and the united states of natural gas and

it's going to create in western new york and pennsylvania, eastern ohio, west virginia, kentucky all the way through louisiana, mississippi to texas and oklahoma a huge zone of people who will make money off the natural resources in their farm land on a scale nobody thought was possible ten years ago to the example of new technology. we should lift the ban on developing oil shale and how red, white and utah where we have three times as. we should encourage building new refineries and gas processing plants in the united states. we should reduce bureaucratic obstacles and prevent frivolous litigation. we should encourage clinical development plans. people need to remember china opens a new coal plant every week. if we have any hope of dealing with carbon loading in the atmosphere you have to have clean coal technology because you are all going to get rid of coal plants the next 30 years and coal is the most abundant single resource in terms of

energy. we have over 500 years of supply of coal. we should have a new fuel standard for flex-fuel cars than all cars ought to be built as flex tool which enables you to use biofuel and enables you to use a variety of approaches which both expand. remember the ethanol grown in the united states is money in the united states and my body is is if my choice is between biofuel made in america or importing oil from either venezuela were saudi arabia i have cero doubt we are better off as a country to use biofuel. eight, we need prices to accelerate breakthroughs in technology. ninth, we should invest in nuclear power. there are small nuclear power plants that i think will be a tremendous breakthrough how to develop nuclear power and finally to keep the tax credit for enhanced recovery because we actually want to maximize the recovery of americans will not force us into dependence. that gives the example of energy.

on infrastructure, i think -- steve referred to some of this earlier and i agree. we are at the beginning of a smart infrastructure mall. i am not lead to go through in@@ we'll be able to agree and that at that eye should have haditha pricing at different times here we will be able to -- we will have data that allows you to have different pricing at different times of the day. there are new grid capabilities said that people will have a smart power in terms of smart elected grids and smart transportation. the combination of the information technology -- i met with several companies who are beginning to install smart

homes. people automatically drive their wives at ellis cost of electricity their day. their home computer talks to the electric utility computer and tell us you if you do did trying between 3:00 and 5:00 in the morning, you will be charged 1/5 as much. there is a whole series of these types of things involving the wall i was i have a much better use of energy and transportation. both of the grids and need to become smart systems. i'm in favor of looking at magnetic levitation trains. looking at now connected levitation trains. if you look what the chinese are doing i think it is very sobering you can now go to shanghai and ticket to hundred 50-mile an hour train and virtually all of the very

high-speed trains in the world are being built in china and a suburb of shanghai is a sobering place because 20 years ago there was almost nothing and today the gross domestic product alone is $30 billion so you have an enormous explosion of economic activity. spain has a train that goes from madrid at 186 miles an hour. the french have the tgv which is a very fast train that crosses mostly france. japan has the bullet train. there are other projects. i think we have to fundamentally rethink our entire approach to the real battle i am opposed to simply giving money to an amtrak bureaucracy on behalf of unionized work forces to spend 20 years getting almost nothing done. i think we ought to look seriously at creating corridors

and which you have a public-private partnership in which people with the profit motive build very rapidly high-speed capabilities that at least match china and if you had the equivalent of a train from boston to washington or from sand francisco to san diego or some parts of florida you could begin to develop and the ability to have people use the train on a grand scale but you want to do it in areas with high density, a great deal of traffic and you both want to take people off the airplane and take people off the highway and i think that can be done but it takes a much different approach. for smaller projects, i think you want to get the federal government to back out. the point steve made it costs twice as much to build federal highways in a city as it cost to build a city highway so you're asking the city to get the federal money half as many miles both the least they are not

paying that we should grant a number of these things allow the local governments to be practical, allow them to contract out and in the process i think you've got to get a lot of fighting the budget act to create a federal capital budget. when you have something like one of the projects we are working on at american solutions is a 21st century air traffic control system. if we had a space-based gps style for dimensional gps system that enabled airplanes and affect to fly with much greater accuracy and much greater density airlines would buy 10% less fuel so both from an environmental and economic standpoint there would be enormous -- we would also eliminate all the air traffic colds in the northeast and would save an immense -- cao miniet

you have found yourself waiting either at laguardia or to get into or out and do understand what i'm talking about. you get on the plane and the announce we have an air traffic cold now use it for two hours. somebody figured out actually with all of the holds it is now slow were to go from o'hare to laguardia by jet than it was to go by d.c. three in 1946. because 1946 and took off and landed. now you have all these various controls and the federal bureaucracy. we clearly can build a 20th century control system that will save an amazing amount of money. it will free up the northeast corridor and enable philadelphia for example not to be trapped in constant air traffic control holds. if you're going to do that we'll to build them as fast as we can which requires a capital budget approach rather than the annual

appropriation of a tiny amount of money so it takes 22 years to do something that should have taken three years. the analogy i will give you i've written two novels about world war ii. in world war ii from the japanese attack at pearl harbor to our victory over japan in august of 1945 is three years and eight months. so 44 months from december 1945 to the middle august 1941 to the middle of august, 1945 we defeat nazi germany and italy. three months and eight months. it took 23 years to add a runway at the airport. now, you can't a bureaucracy between bureaucracy and litigation. where you become so mosul found that we can't function. so we need very fundamental changes. we need a capital budget that the federal level so we can invest in things and there's a

practical reason. if you notice here that our country has decreased infrastructure spending from 3.6% of gross domestic product to 2.7%. the reason is annual budgets have a huge bias in favor of current services. and whereas capital budgets have a huge body is in favor of the future. so we are very strongly in favor of a fundamental approach to infrastructure that moves us back to a theory serious investment attitude, the kind of thing lincoln would have understood, the kind of thing dwight david eisenhower understood that would build a momentum of economic growth in the long run. wheels about what to do it in an intelligent way and i recommend all of you to read the paper and look at what governor wilson did after the northridge earthquake, what governor leavitt did in order to reconstruct highways around salt lake city for the olympics, and what governor

schwarzenegger date to years ago when there was a fire on the oakland, california bridge

in the case of oakland, the major bridge there was knocked out by tanker fire. the original estimate was 50 days to do so. the contractor actually had his

cruise sitting next to the bridge. when he went to sign a contract. he picked up the phone and say don't. they finished in 17 days. they did $4 million under budget. we want the capital budget, all long-term infrastructure plan. massive involvement of private sector interests, our real willingness to pay for speed and efficiency. use an incentive-built model. we won't go into great detail but i help found a center that has an immense amount of its material, as early as 2002. i co-authored a book and we have a program with major reforms. i think it is a tragedy that we aren't a big fight to impose a 30-year-old model of centralized government, bureaucratic health, and a

moderate is to be 20% at present, -- less dumb. they are the same direction. we do not need a centralized government -- and very expensive model. that is the current argument of the congress. let's spend another $1 trillion because we're spending too much. i think that sentence for. we work with the governors at lutheran health system and wisconsin, and it has the best

and apply process in america. for the last few years of life, that cost about $18,300 versus $20,000 for the national average. how do they do it? they have an advance directive. let me draw a sharp distinction here. my father and what died in that facility. that doctor in cages with the family in a genuine discussion about the appropriate steps as part of the end of life process. there is no budget pressure, there is no and external reporting, there are no standards set by the government, no fear of a bureaucracy -- it is an honest conversation with people throughout understand that they are in a difficult situation. when an advance directive is written, and 92% in doubt with advanced directives, it is an electronic health records show every member of the hospital

knows what he advanced directive is. they can deal with the family and a knowledgeable way exactly as the family requested. they also have very strong palate to care to deal with pain and a hospice program for people beyond the point where heroic methods would help. they have very high approval. people feel that they are dealt with with dignity, a family feels that it is engaged, a remarkable system. it has actually been adopted by the country of australia. it is truly unfortunate that the bureaucratic clumsy system that is in the current house bill totally distorts the debate. that's the point that senator john deaisakson made last week. we also think they feel must move to electronic health business. we think that there ought to be

tax reform said that everyone can buy and to the same ground rules, whether a self-employed or unemployed, everyone should buy with the same tax break as a big corporation. we would migrate to the best outcome. and that would be defined by professional standards, not by the government. yet, we would reform the health and justice system. we think unnecessary litigation is a major cause. if you look at texas, oklahoma, and missouri reforms, if you can see that what malpractice reform you get much less defensive medicine and much less -- much lower insurance premiums. let me close with an example of how different the future could be, but it is fundamentally different. i co-chair the alzheimer's steady. we spent two years looking at

alzheimer's. one of our members was justice sandra day o'connor. alzheimer's is a very painful, difficult disease that can last a long time and absorbs the entire family. my sister-in-law's mother has alzheimer's. and yet we think that there is real hope. alzheimer's is projected between now and 2015 the cost $20 trillion to the federal government, a very substantial amount to private citizens, and to the states, for long-term care. every other person and 85 has some form of dementia. every person at the age of 62 is beginning have some problems. it is a very big issue. we have worked with three nobel prize winners and 125 other test. they believe that with a right

investment and research and the right organizations of research, we can have a fundamental break up by 2025, which would largely eliminate this. this is like talking about jonas salk and polio with a trip was not an iron lung to an aluminum lawn, but to a vaccine that eliminated polio. if you have a $20 trillion project, we're going to spend that amount of money, what would it be worth to spend if you created an alzheimer's research fund and said he ought among that you could invent, and

organize it like the human genome project? how much could you invest two save that many lives? that is what we ought to do. we are currently spending $400 million a year at the national institute of all on alzheimer's issues. faced with this level of human pain, faced with this opportunity, and faced with that cost, it is an irrational a small amount of money. -- it is an irrational way small amount of money. look at what a fundamentally different model i just gave you. i did not suggest to find a cheaper way to house people for long-term care. i did not suggest that government bureaucracy to decide when to cut people off from having care. and i can show you quotes from people advising this administration in which they suggest that people with dementia no longer should get

health care. i am not suggesting that that is the way that we save money. we eliminate the disease. that requires a fundamental change. i would issue alzheimer's bonds and had a commitment that when we had a breakthrough, and we now longer had to pay for alzheimer's, the first round of savings went to paying off the bonds that were crude in order to do the research. if you went to the brain science community, and you do this much research, this is the most explosive area of new knowledge that we have, brain sites. it is the most complicated organism that we have. there are as many synapses in your brain as there are stars in the universe. it's extraordinarily complicated. now you get in a parkinsons', and into schizophrenia and autism, and that you get down

syndrome. all the sudden, by making the primary investment in alzheimer's, if you get second quarter and third order research affects that affects an entire are re in ways that we will not know until after it happens. but notice the difference and a model. i suggest a long-term commitment, not an annual budget. think about the solution that we want, not the current processes. i suggest that we break out of the bureaucratic models of the 20th-century. these are fundamentally different ways of doing this. the purpose of today's session was to say to you, you will never thinks the current budget, federal, state, and local, within the 20th-century bureaucratic interest group models. you have to think new ways, as lincoln said, and you have to develop new solutions, and you have to win the argument for those solutions, and you have to put some much pressure on elected officials that to offset the power of the interest

groups. we had done it before. this will be one of the great challenges to the american people in the next decade. i appreciate all of you being here. thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> up next on c-span, bill clinton's keynote address to the newt gingrich in pittsburg -- to the netroots nation convention in pittsburgh. and then the newsmakers with karengnagni -- karen ignagni.

and now, bill clinton at the netroots nation conference in pittsburgh, comparing his efforts to change health care to what is happening now. this is about an hour. thank you. [cheers and applause] thank you. . thank you for the warm welcome. thank you, raven brooks, representative miller for that great talk. i was backstage listening. it is funny when he said 47% of the north carolina republicans do not think president obama was born in america i am glad it is that low. [laughter]

thank you for being here, mayor. i just had a visit with the allegheny county executive and i thank him for giving us a convention center that is actually a leed-rated building so you could meet in a place that is doing the right thing. [applause] i apologize for my voice. i have been on too many airplanes for the last few days. [cheers and applause] first, i would like to thank you for what you do and the contribution you have made to dramatically elevating the level of our public discourse and the base level of knowledge of people who participate in

reading all of the things that you put out through the netroots nation. i keep a file with me on economics and a file on energy. i was looking through it the other day and i was stunned of the percentage of articles that i printed out and the cat that came from web sites as opposed to newspapers. i think that one reason is, you can have more authors because you are open and because people have more opportunities and often the full-time staff newspapers due to write one newspapers due to write one piece a w r two pieces a week and really look in depth into things. so i think you for that. i also thank you for another thing which i particularly appreciate. if you have an opinion and you are taking a side, whether it is on an issue or an election, you

don't have to feel like you are pretending you are not. i appreciate that and think it is very important. [applause] i have had two sessions with bloggers in my office and that found them very helpful. this year between september 22 and 25, right after the g-20 meets here in pittsburgh, we are having the fifth annual global initiative. last year, we had more than 70 there. i hope we will have more than 200 this year. i want to invite you to come and cover it and see what is going on. because what i tried to do with that, the next logical step, i believe, to the activism that you represent. when i left the white house, i

knew that i wanted to continue to work on things that i cared about when i was president, where i could still have an influence. the last phrase is important. the right thing about being a former president is that you can say whatever you want. but nobody cares what you have to say anymore unless your wife becomes the secretary of state, then they only care when you screw up. [applause] hillary and i basically switched roles. when i first met her she was already active in a lot of non- governmental organizations. i just thought politics would be my life. when i became president under her influence, i began to met with leaders in turkey, africa, south asia, all of these places that i went. i thought that i would like to do that work when i got out.

it has changed my perspective a little bit. most of the time when i was in politics, i noticed we debated two questions. what are you going to do and how much money are you going to spend on it? both of those questions are important but i would argue that in the first few decades of this new century, there is a third question which is equally if not more important, which is how do you propose to do it? how do you propose to turn your good intentions into positive changes for people around the world? that is basically what non- governmental groups do. that is the business i am in. the "how" business. we offer the world's least expensive, high-quality retro virals to 2 million people in 70 countries. [applause]

about two-thirds of all of the children that get pediatric medicine. last week after working for years only with the generic drug companies principally in india and south africa, we announced our first big agreement with a large pharmaceutical company, pfizer, the biggest of all, has agreed to work with us to cut the price by 60% of the only drug we know that is affected at treating tubular chlorosis with people who have had aids for a long time. in other cases, all this medicine almost makes the conditions were spread half a million people die from this disease who have aids. the interactions of the madison and the t.b. medicine is often

not good. the fact that they were willing to cut the price 60% will save a couple hundred thousand lives a year within two years. that is answering the how question. we tried to do the same thing in climate change where we are working with 40 cities around the world to reduce greenhouse gas emissions by retrofitting public housing, or big public buildings, or changing the street lights, or putting in new led streetlights in los angeles, or making ports more efficient, are working on better public transportation. my presidential library is the only platinum leed building in the entire system, and that is something you can help on. [applause] i say this to set up the point i want to make now.

all this is important, but politics matters, too. it matters whether we get a good congress -- a good climate change bill out of the congress for the president to sign. it matters to get a new agreement, and the one depends on the other. [applause] it matters whether we correct the single most significant efficiency of our economic recovery, which i do believe it is well underway, 9% of the home owners eligible to mortgage relief have gotten it because too many of the people find it more profitable to collect fees for closing on houses and then selling them again. we have to find a way to do that. that matters. [applause] it matters whether this congress passes a comprehensive health- care reform bill that the president can sign. [cheers and applause]

it also matters in not understanding the work that i do, it matters a lot. we have taken a new approach with the rest of the world. it matters. hillary is concluding a trip to africa right now. a couple of days ago, she was in the condo, the site of one of the most difficult refugee camps and the entire world. i think that the secretary of state should be in the places of human misery around the world. i think they should speak up for

rape victims. i think they should speak up for women who cannot get an education. i think that is a very important thing. [applause] consistent with the message that president obama has delivered in guyana and the united states and everywhere else he has traveled, it means that america wants to share in the future. we would like to lead the world in a progressive way. it, and we know we can't. we seek a feature of shared prosperity and peace. these things matter, and you can help them happen. now, i would like to offer a few observations about this. first of all, briefly on the politics.

we have entered a new era of progressive politics, which if we do it right, it could last 30 to 40 years. [applause] it is something i have literally spent my entire adult life working for. i was a 20-year-old intern in the united states congress working for my senator who is chairman of the foreign relations committee when the last conservative era started in the midterm elections of 1966, when the democrats suffered terrible losses, and i knew after that it would be very difficult for us to hold the white house. the people were voting on fear and division, upset about civil rights, women's rights, by

saying rights in the street, vietnam, you name it. the republicans developed in that election a message that exploded the resentments and exploded the fears and exploited the divisions. we had a chance to overcome it in 1968, the first election in which i was old enough to vote, because robert kennedy explicitly tried to reach across the divide, but when he was killed we lost our chance and they won. president nixon who was actually a communist compared to most people that came after him in the republican party -- [laughter] he believed in the affirmative action, he signed a bill creating an environmental protection agency. he still thought arithmetic mattered when you put budgets together. [laughter]

he went to china. they were really good at dividing people and building on resentment, the silent majority, and all of that, which was a racial call to signal, really. they went along with that and tell president reagan came along with his unique contribution to this. reagan could tell a story like nobody. he convinced everybody that the government would screw up a two- car parade. trickle-down economics was actually good for poor people and middle-class people, he said. with those two constraint, the cultural division and a corporative economics, they managed to triple the government debt in 12 years while in comes

continued to drop for middle- class people. and then came the second president bush. i will say more about that in a minute. from 68 to 2000, the democrats only won the presidency twice. once because of watergate and president carter won and then when i was elected in the country was in trouble economically. i was reelected partially because the country was changing and part because people believed the government could make people's lives better. in this whole period, the republicans had a bass boat of about 45%, and ours was about 40%, which should tell you all you need to know about why we did not win the white house very much. we either had to be twice as good as they were as politicians

or we had to have very bad conditions. all natural elections are determined by three things. the political culture, the conditions of the time, in the quality of the candidates. sometime in my second term, our political basis began to even out. partly because of the performance but i have to give credit where credit is due. i think the biggest reason because america was moving away from being a biracial nation to being a multi ratio, a multi religious nation, more oriented psychologically to solutions. in 2000, in 1998, the democrats won the midterm elections for the first time since 1822. thanks in no small measures from

some of you in this audience. in 2000, the republicans got close enough to win 5-4 in the supreme court in a decision that i will think will go down as one of the five worst decisions ever handed down by the united states supreme court. [applause] but to give credit where credit is due, president bush ran a terrific campaign in 2000. it was a brilliant slogan, which reflected his guide to understanding that the country had changed, they would not tolerate overt racism any more, plus he had a good relationship with the latino community in texas, and a fairly progressive stance on immigration at the time. they haven't quite come over to the side that the government

should be an integral partner to our future designs. compassion conservatism meant to swing voters, not their base, hey, i will give you everything bill clinton did with a smaller government and a bigger tax cut. wouldn't you like that? but then, after he won, he ran into the old adage that life's greatest curse can be answered prayers because the sense the first time president nixon was elected in 1968 and president reagan added to their message, the american people actually got to see what would happen if they could do what they had been talking about all of this time. they did not like it very much. in 2002 and two dozen for elections occurred in the shadow of 9/11 could we never replaced the president during an ongoing conflict but the margin of victory was the smallest since

1916. in 2006, the democrats won the congress. just like 40 years earlier, in 1966, it was the canary and a coal mine. i told hillary if we don't nominate a convicted felon, we are going to win in 2008. [laughter] there is nothing they can do about it. so look at what happened in 2008. we had a better candidate. they had terrible conditions. and the culture it was with us. america is a different place today. we don't have time for these divisions over race, gender, sexual orientation, or anything else. we know we live in an interdependent country and an interdependent world. everybody knows that one major significance election is that he

is the first african american president and for people at a certain age, that is a very big deal. it lifts a burden off of the history of the presidency and allows parents to tell their kids that they can live to their dreams. that is important. [applause] but for your purposes, the second element of significance of the obama election may be even more important. particularly for those that are younger, for your future. this was the first presidential election to occur in a country that is self consciously communitarian. that is not always more liberal on the issues but understanding that we are going to rise or fall together. we don't have time for these phony divisions anymore. we'll have time to pretend that

we don't need to care what other countries think of us anymore. we are too diverse and in every other way. for a long time, hawaii was the only state that had no majority race. for the last several years, california has had no majority race unless immigration slowed to nothing, the united states would have no majority race by 2015. . . do you need to debate when you think that the president is wrong or the state department is wrong or anybody else? absolutely. do we need a second party?

absolutely. as a democrat, it suits me fine. but we need an honest, principled debate on all these complex issues. but in order for them to enjoy in that debate, >> you should go to one of those congressional health care meetings. you do really well. al be glad to talk about that. if you will sit down and let me talk, i will be glad to discuss it? he to stand up and scream, i will not be able to talk. the other guys would love to have you. [laughter] i want to talk about that, too. so, here we are, in a different world.

it is not like the 1990's. you want to ask about don't ask don't tell? you could not deliver meet any support in the congress and voted by a veto-proof majority in both houses against my attempt to let gays serve in the military. the media supported them and they raised all kinds of issues. most of you attacked me instead of giving me support in the congress. that is the truth. secondly it is true. you may have noticed that presidents are not dictators. they were about to vote for the old policy by margins exceeding 80% in the house and exceeding 70% in the senate. they gave test votes out there to send me a message that they were one to reverse any attempt

i made by executive order to force them to except gays in the military. let me remind you that public opinion is more strongly in our favor than it was 16 years ago and i have continued to support it. chairman of the joint chiefs of staff was against letting gays serve and is now in favor of it. this is a different world. that is a point i'm trying to make. let me also say something that never got sufficient publicity at the time. when general colin powell came up with this, it was defined what was chairman much different than it was implemented. he said that if you would accept this, here is what we will do. we will not pursue anyone, any military members out of anyone will be free to march in gay

rights parade and go to gay bars and go to political meetings. none of this will be a basis for dismissal. it all turned out to be a fraud because of the enormous reaction against it among the mid-level officers and down after it was promulgated. nobody regrets how this was implemented any more than i do. but the converse also put that into law by a veto-proof majority in many of your friends voted for that, believing the explanation about how it would be eliminated. i hated what happened. i regret it. i did not think that the time and the choice. if i wanted any progress to be made at all. can you believe they spent $400,000 to get rid of a speaker recently?

the thing that change may forever on do not ask do not tell was when i learned gay certification below were allowed to risk their lives in the first gulf war, their commanders knew the war gay, as soon as the war was over they kicked them out. that is all i needed to know. that was all anybody need to know that this policy should be changed. [applause] while we are at it, let me say one thing. the reason i signed delma was -- i thought the question about whether gays should mary should be left up to states and religious organizations.

if we were attempting to head off to send a constitutional amendment to ban gay marriage to the states. if you look at the 11 referendum much later in 2004, i think it is obvious that something had to be done to try to keep the republican congress from sending back. the president doesn't get to be to that. i did not like signing delma and i did not like the constraints that were put on benefits and i have done everything i could. i am proud to say the state department was the first federal department to restore benefits to gay partners in the obama administration. i think we are going forward in the right direction.

all these things illustrate the point i'm trying to make. america has rapidly moved to a different place on a lot of these issues. what we have to decide is what we are going to do about them. the republicans are sitting around reading for the president to fail. one reason people are so hysterical about all this health care meetings is they know they have no chance to beat healthcare unless they can mortify with the rooted fears. why did they know that? they do not have the filibuster this time. last time all that was necessary -- i offered to write a health care bill with

senator dole to do you cannot let the democrats pass any kind of health care or we will be a minority party for a generation they had 45 senators. they got their filibuster. this time there is no 45 senators thanks to a lot of you. there is no filibuster option. there is no option year but to terrify people. let me say a word to about healthcare. reword or two about health care. -- a word or two about healthcare. there are three things that make healthcare really hard. first of all, it's complexity. anything that complex can be easily misunderstood and this

honestly manipulated. it is hard. secondly, and not a step that will make the most difference over the long run is to cause doubt. you saw the cbo giving a body blow to the house. why is that? the only things they can count today are tax increases and medicare and medicaid cuts. they are tangible and hon. things. we know how much money and electronic medical records will save it directly. it is hard to know when those things will materialize. we know that delivery systems like the guy sing your health plan in eastern pennsylvania which has hundreds of doctors following what the president wants to do has enabled them to

offer a guarantee to every in early that if you have any complications with surgery, and the complication with surgery, within 90 days of leaving the hospital and you have to come back, they paid for it not you. it will be no cost to you and no change in your premium. the error rate has dropped to nearly zero because it has gone down and do not have the same kind of inflation that to do elsewhere. if you have a delivery system for doctors are paid for performance not procedure like the mayo clinic, you can get higher quality care that much more modest costs. the mayo program was cheaper than 70% of the alternatives anywhere in america offering the same kinds of coverage. it is hard.

the third problem the president has was articulated by machiavelli in the 15th century. he said there is nothing so difficult in all of human affairs than to change the established order of things. because, i will switch now to clinton's jargon -- because the people who got it are certain of what they will lose in the people who will gain are uncertain of their advance. [applause] if we spend 16% of gdp on health care in canada spends 11%, that means we are spot in all of competitors a hundred billion dollars a year. if we ensure 84% endanger 100%, where is the money going? follow the money.

that is what we are all facing. that is what the president and congress is facing. what should you do about it? if you do nothing for plan is good enough, it is time for you to advocate a public auction. i personally favor that. i always have. i also favor letting people buy into the federal plan because there are 36 different options of the single people who would want a more catastrophic type coverage. there are all kinds of options here. first things first . i do not know how many of you saw the present town hall meeting. i thought he did a terrific job with it, because he may be essential case.

i read a lot of your blogs on healthcare. they basically assume that everybody is reading -- that is reading has is a base level that you do. they start off here and go up. i do. so i like him. the president did an important thing that only a president can do unless everybody is reinforcing its. i would like to suggest that if he did not see what he said, you go back and look at it. even if you want to disagree what is in the house or senate plan, start with what he said. he had a three-point argument. number one, the worst thing of all is sticking with the status quo. it is a gripping america, making families insecure, and undermining the future of the country. [applause]

in but am -- a lot of americans were touched about the man screaming at senator dingle. i have been working at this for 17 years now. i went to 300 towns in america in march through may last year. 300. i did not meet in the disabled children worried about losing their coverage. i'm a disabled children and their parents to a party lost their coverage who did that get in a covered in for worried about whether they are going to double to put food on their table. that is far more important. you have to make the case that the worst thing we can do is the status quo. you have to figure out the three or four things at 100% will agree on. it has to be in the bill. and the three or four things and

none of us wanting a bill that we are being accused of. helping someone draw up a living will is not the same thing as an by the seniors to die. [applause] it is a legitimate thing. in order to save our expenditures, -- when they have their wits about them, there is nothing anti-life or anti- american about when hillary's dad had a stroke, he hung on for a long time. with the first things we did after we went to that experience, both of us, was to make out a living will. that is not have anything to do with all these crazy charges that are being made. then you can say whatever you want about what is wrong with

the senate or house plan. whenever you believe is fine. trying to get the best bill you can is fun. first, we have to win the big arguments. the worst thing to do is nothing. hear the things that everybody wants. hear the things that nobody wants. -- here are the things that everybody wants. here are the things that nobody wants. the president need your help. because need your help. this is really important. i wish many of you would write -- it is not all of the morally right thing to do, it is politically imperative for the democrats to pass a health-care bill now because one thing we know -- [applause] one thing we know is that if you

get out there and do not prevail the victors did to rewrite history. -- get to rewrite history. everybody knows what happened in 1993 and 1994. a bunch of them are just wrong. of the two or three examples. not to go back there. i want to point out what could happen now. we have to preserve this progress of majority. we have to. everybody knows that hillary presented a complicated 1300 page bill which would have broken the backs of the federal statutes. what she should have done was refused to present a bill and it does have her committee issued a report to congress with recommendations. here is the problem with that account.

the bill she presented to account for hundred more pages of federal law that it put in. it reduced the number of pages the federal law devoted to health care. it simplified the system from what it and then was. why do people not know that? the insurance companies got to rewrite history. second thing, we actually pleaded with the chairman of the house ways and means committee to let us send a report with recommendations and have the right to the bill. he said of the court i will not take this up and less to send me a bill. there is not enough base level of knowledge to resist it. we will never get anywhere. this will not happen unless you get a bill. we did as we were required to do we did as we were required to do by the congressional order. do you want to go through that again? of course you don't. i do not care how low they drive

support for this with misinformation, approval will go well because americans are inherently optimistic. secondly, [applause] secondly, within a year, when all those bad things they say will happen did not happen and the good things happen, approval will explode. we cannot let people lose their nerve. i am pleading with you. it is ok with me if you want to keep everybody honest. if i say something you do not agree with on health care, by all means, criticize me. but try to keep this thing in the laying of getting something done. we need to pass a bill and move this thing forward. [applause] it is imperative.

it is so important. i feel the same way about climate change. if you notice, the bill that the house was working on, they estimated that it would not have such a big impact and then there was a second estimate that said that it would be twice as much as we thought of it was all due to -- and it was all due to excel rating our move to electric cars and efficient buildings and to petition to electricity generation and closing these old coal-fired power plants. again, and i say this and crying. the president stuck his neck out here and we have to have a bill. we will never have china and india, as we have a bill.

but if you want to progress, let's look at what works. here is something that i am asking for your help in, having nothing to do with washington. with 40 cities on different continents to help them reduce their greenhouse gases. we work with 1100 cities to get them discount clean energy technology. we are trying to retrofit the empire state building to cut emissions 40%. i met to the budget people in puerto rico yesterday you want to make their island energy independence with a clean energy and efficiency. these are things that can be done. there are a lot of practical things that need to be advanced before we can get there. i will give you one example. this cash for clunkers program has worked great.

it has been better than all the mechanisms of reorganizing the auto industry. we ought to put that on steroids when we can sell electric cars and buy them. there ought to be a six month waiting list for every electric car that any company can turn out before the first one is sold. because of the financial incentives. we should advocate it. it would make a huge difference. the other thing i would like to say is, the biggest thing we can do to help the president economically and help our country is to concentrate on the least sexy parts of the climate change debate, efficiency. the american council of energy efficiency says we can get half the greenhouse gas savings we need by 2015 with only

efficiency. mckinsey says if we spend $520 million on energy efficiency we can save almost $1.20 trillion in the lower electric bills. what is the problem? the problem is there is no parallel financing for clean energy in america. if you want to build a coal powered power plant, began finance of over 20 years. 12 building a clear one, 30 years. california has decoupled their rates. a few others have followed suit. california will let the utility finance this. that is the best we need to get banks to do it. before the banking collapse, i have the agreement of five banks spending a billion dollars on retrofit as long as the savings were guaranteed by energy

service companies like honeywell. the consumer paid back only for utility savings. then the bank's collapse. they do not want to do it anymore. let's take taxpayer money and create a small business guarantee fund like the one for the sba and has 10 times as much retrofitting down. that is the kind of thing you need to think about. i do not want to bore you with statistics. let me ask you to think about one thing. the banks of american today $900 billion in uncommitted cash reserves. that means that tomorrow, in theory, they can make $9 trillion in loans. do you think that would end the recession? think about that.

that is their lending capacity. if we could dramatically accelerate the retrofitting of all large public buildings, housing projects, everything with user-friendly systems, we could put more than 1 million people to work. we the lower people's power bills. we could close 22% of markell power power plants -- coal howard power plants. we are not doing it because we have not found user-friendly systems that have parallel financing. this is the kind of stuff i spend my life working on. i hope that you will think about that. that is the last thing i want to

say. i hope i see more blocks sides saying that this is what i want president obama to do. this is what i want congress to do. this is why i think the trades are wrong. here is something you can do, reader, to help solve the problem no matter what is going on in washington, d.c. [applause] i wanted this to last 40 years. i want us to be mindful that sometimes we may have to take less than a full load. in 1992, i ran for president saying that i wanted to have 260,000 young people serve in america. by the time i left office, a total of 700,000 had. i just went to president obama's bill signing saying there will have 2002 under the thousand people a year -- 220,000 people

a year. it is still a great thing for america. we have to be willing to understand that. when i was president, we started having the federal government issue and guaranteed student loans. it saved every student $1,300 in repayment costs for every $10,000 they borrowed. in eight years, the taxpayers pay $4 million to save the students $9 billion. now president obama wants to make that a universal program in america. do i think we should do it? you bet i do. is it worth the 16 years it took? absolutely. the secretary of education is going to state after state asking them to abolish the limit on charter schools. as long as there are standards and accountability. when i campaigned, every advisor

i had said i was crazy as a loon because there is only one charter school in america and their only two states that were authorized. when i left, there 2000. i left money for another thousand. if arne duncan has his way, there'll be 10 or 20,000. was it worth a long time to get it right? you bet it is. you hold the seeds of a genuine revolution in our public life. you do it by mobilizing people and generating emotions and getting people to think. people trust you. even people who do not agree with you, they believe that you believe what you put down. they do not believe that you budget the facts -- fudged the facts.

if you make a mistake, it is a mistake of the head not the heart. they believe they can engage with you in this debate. they believe we can create a great burgeoning american community where we argue these things out. i am not against are doing. we should not pretend that we are all going to may [unintelligible] we should realize that we have been given this staggering responsibilities. i have been waiting 40 years, all my life i worked for a time when people believed our common humanity was more important than our interesting differences. all my life, i waited for a time when people would in theory believe that we have to search for more win/win solutions and

system win/lose solutions. i waited for a time when people with respect and find fascinating all these differences that make america. you are the trustees of this moment. most of you work like crazy to get it. we have to make the most of it. brian miller is living in a state that this pretty evenly divided. this battle is not over. we have big time responsibilities. it is an honor for all of us to be alive and to carry the responsibility. we cannot be in the peanut gallery. we have to-- we cannot ask the president or congress to do it alone. you have proved this the do you prove did work. do not give up now.

for goodness' sake, do not the downtrodden and not get pessimistic. do not lose your energy because things do not work out the way you want. it will not take you 40 years to get the legislation you want. it cannot take 40 years to get america on the right side of global warming. politics better prepare you can help. in the four years of my second second term, w[unintelligible] that is the suspect i am most proud of. -- the statistic i am most proud of. this matters. this matters.

in these four years and the next four years and four years after that, we can go far beyond all of the changes if all of us do what we ought to do. this could be the most exciting time in all of human history. are there dangers, yes. we are assaulting the inequality and instability and on sustainability that the devil of the modern world in america. we have good people and government. they are working hard. they are trying to do the right thing. so are you. allegis all stay in the same boat so we can reap the reward -- let's just all stay in the same boat so we can read the same reward. thank you. god bless you. [applause]

>> this is c-span, public affairs program courtesy of america's cable companies. it, coming up, "newsmakers" with karen ignagni and then the wright online conference. -- tomorrow, on washington journal, sam young and discusses how president obama is doing during the august recess. then jim martin on his concerns about the health care proposals from president obama and the democrats in congress. philip alcabes of the history of disease